Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32116 April 2l, 1981
RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners,
vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.:
This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CAG.R. No. 39760-R entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, et al.,
defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendantsappellants," which affirmed in toto the decision of the Court of First Instance of Manila in favor
of plaintiff- appellee, the herein private respondent Maxima Castro.
On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to
the Rural Bank of Caloocan to apply for an industrial loan. It was Severino Valencia who
arranged everything about the loan with the bank and who supplied to the latter the personal
data required for Castro's loan application. On December 11, 1959, after the bank approved the
loan for the amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a
promissory note corresponding to her loan in favor of the bank.
On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal
amount of loan for P3,000.00. They signed a promissory note (Exhibit "2") corresponding to
their loan in favor of the bank and had Castro affixed thereon her signature as co-maker.
The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of
150 square meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register
of Deeds of Manila.
On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol,
sent a notice of sheriff's sale addressed to Castro, announcing that her property covered by
T.C.T. No. 7419 would be sold at public auction on March 10, 1961 to satisfy the obligation
covering the two promissory notes plus interest and attorney's fees.
Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that
was scheduled for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961 was
subsequently declared a special holiday, the sheriff of Manila sold the property covered by T.C.T.
No. 7419 at a public auction sale that was held on April 11, 1961, which was the next succeeding
business day following the special holiday.
1

Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on
February 13, 1961, when she learned for the first time that the mortgage contract (Exhibit "6")
which was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and that
she was made to sign as co-maker of the promissory note (Exhibit "2") without her being
informed of this.
On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank
and Desiderio, the Spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in
Civil Case No. 46698 before the Court of First Instance of Manila upon the charge, amongst
others, that thru mistake on her part or fraud on the part of Valencias she was induced to sign as
co-maker of a promissory note (Exhibit "2") and to constitute a mortgage on her house and lot
to secure the questioned note. At the time of filing her complaint, respondent Castro deposited
the amount of P3,383.00 with the court a quo in full payment of her personal loan plus interest.
In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is
concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds
P3,000.00; for the discharge of her personal obligation with the bank by reason of a deposit of
P3,383.00 with the court a quo upon the filing of her complaint; for the annulment of the
foreclosure sale of her property covered by T.C.T. No. 7419 in favor of Arsenio Reyes; and for the
award in her favor of attorney's fees, damages and cost.
In their answers, petitioners interposed counterclaims and prayed for the dismissal of said
complaint, with damages, attorney's fees and costs. 2
The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by
respondent Court of Appeals are as follows:
Spawning the present litigation are the facts contained in the following
stipulation of facts submitted by the parties themselves:
1. That the capacity and addresses of all the parties in this case are admitted .
2. That the plaintiff was the registered owner of a residential house and lot
located at Nos. 1268-1270 Carola Street, Sampaloc, Manila, containing an area of
one hundred fifty (150) square meters, more or less, covered by T.C.T. No. 7419 of
the Office of the Register of Deeds of Manila;
3. That the signatures of the plaintiff appearing on the following documents are
genuine:
a) Application for Industrial Loan with the Rural Bank of Caloocan, dated
December 7, 1959 in the amount of P3,000.00 attached as Annex A of this partial
stipulation of facts;
b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the
Rural Bank of Caloocan for the amount of P3,000.00 as per Annex B of this
partial stipulation of facts;
2

c) Application for Industrial Loan with the Rural Bank of Caloocan, dated
December 11, 1959, signed only by the defendants, Severino Valencia and
Catalina Valencia, attached as Annex C, of this partial stipulation of facts;
d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11,
1959 for the amount of P3000.00, signed by the spouses Severino Valencia and
Catalina Valencia as borrowers, and plaintiff Maxima Castro, as a co-maker,
attached as Annex D of this partial stipulation of facts;
e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima
Castro, in favor of the Rural Bank of Caloocan, to secure the obligation of
P6,000.00 attached herein as Annex E of this partial stipulation of facts;
All the parties herein expressly reserved their right to present any evidence they
may desire on the circumstances regarding the execution of the above-mentioned
documents.
4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio
Magsambol, sent a notice of sheriff's sale, address to the plaintiff, dated February
13, 1961, announcing that plaintiff's property covered by TCT No. 7419 of the
Register of Deeds of the City of Manila, would be sold at public auction on March
10, 1961 to satisfy the total obligation of P5,728.50, plus interest, attorney's fees,
etc., as evidenced by the Notice of Sheriff's Sale and Notice of Extrajudicial
Auction Sale of the Mortgaged property, attached herewith as Annexes F and F-1,
respectively, of this stipulation of facts;
5. That upon the request of the plaintiff and defendants-spouses Severino
Valencia and Catalina Valencia, and with the conformity of the Rural Bank of
Caloocan, the Sheriff of Manila postponed the auction sale scheduled for March
10, 1961 for thirty (30) days and the sheriff re-set the auction sale for April 10,
1961;
6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is
omitted upon agreement of the parties.)
8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's
property covered by T.C.T. No. 7419 and defendant, Arsenio Reyes, was the
highest bidder and the corresponding certificate of sale was issued to him as per
Annex G of this partial stipulation of facts;
9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of
Consolidation of Ownership, a copy of which is hereto attached as Annex H of
this partial stipulation of facts;
10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the
final deed of sale in favor of the defendant, Arsenio Reyes, in the amount of

P7,000.00, a copy of which is attached as Annex I of this partial stipulation of

facts;
11. That the Register of Deeds of the City of Manila issued the Transfer Certificate
of Title No. 67297 in favor of the defendant, Arsenio Reyes, in lieu of Transfer
Certificate of Title No. 7419 which was in the name of plaintiff, Maxima Castro,
which was cancelled;
12. That after defendant, Arsenio Reyes, had consolidated his title to the property
as per T.C.T. No. 67299, plaintiff filed a notice of lis pendens with the Register of
Deeds of Manila and the same was annotated in the back of T.C.T. No. 67299 as
per Annex J of this partial stipulation of facts; and
13. That the parties hereby reserved their rights to present additional evidence on
matters not covered by this partial stipulation of facts.
WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of
facts be approved and admitted by this Honorable Court.
As for the evidence presented during the trial, We quote from the decision of the Court of
Appeals the statement thereof, as follows:
In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year
old widow who cannot read and write the English language; that she can speak
the Pampango dialect only; that she has only finished second grade (t.s.n., p. 4,
December 11, 1964); that in December 1959, she needed money in the amount of
P3,000.00 to invest in the business of the defendant spouses Valencia, who
accompanied her to the defendant bank for the purpose of securing a loan of
P3,000.00; that while at the defendant bank, an employee handed to her several
forms already prepared which she was asked to sign on the places indicated, with
no one explaining to her the nature and contents of the documents; that she did
not even receive a copy thereof; that she was given a check in the amount of
P2,882.85 which she delivered to defendant spouses; that sometime in February
1961, she received a letter from the Acting Deputy Sheriff of Manila, regarding the
extrajudicial foreclosure sale of her property; that it was then when she learned
for the first time that the mortgage indebtedness secured by the mortgage on her
property was P6,000.00 and not P3,000.00; that upon investigation of her
lawyer, it was found that the papers she was made to sign were:
(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and
Exh. 1);
(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00
(Exh- B-2);
(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants
Valencia spouses as borrowers and appellee as co-maker (Exh. B-4 or Exh. 2).
4

The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the
request of defendant spouses Valencia who needed more time within which to
pay their loan of P3,000.00 with the defendant bank; plaintiff claims that when
she filed the complaint she deposited with the Clerk of Court the sum of
P3,383.00 in full payment of her loan of P3,000.00 with the defendant bank,
plus interest at the rate of 12% per annum up to April 3, 1961 (Exh. D).
As additional evidence for the defendant bank, its manager declared that
sometime in December, 1959, plaintiff was brought to the Office of the Bank by
an employee- (t.s.n., p 4, January 27, 1966). She wept, there to inquire if she
could get a loan from the bank. The claims he asked the amount and the purpose
of the loan and the security to he given and plaintiff said she would need
P3.000.00 to be invested in a drugstore in which she was a partner (t.s.n., p. 811.
She offered as security for the loan her lot and house at Carola St., Sampaloc,
Manila, which was promptly investigated by the defendant bank's inspector. Then
a few days later, plaintiff came back to the bank with the wife of defendant
Valencia A date was allegedly set for plaintiff and the defendant spouses for the
processing of their application, but on the day fixed, plaintiff came without the
defendant spouses. She signed the application and the other papers pertinent to
the loan after she was interviewed by the manager of the defendant. After the
application of plaintiff was made, defendant spouses had their application for a
loan also prepared and signed (see Exh. 13). In his interview of plaintiff and
defendant spouses, the manager of the bank was able to gather that plaintiff was
in joint venture with the defendant spouses wherein she agreed to invest
P3,000.00 as additional capital in the laboratory owned by said spouses (t.s.n.,
pp. 16-17) 3
The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court
of First Instance of Manila, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment
and:
(1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff
herein;
(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as
the amount thereof exceeds the sum of P3,000.00 representing the principal
obligation of plaintiff, plus the interest thereon at 12% per annum;
(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged
property held on April 11, 1961, as well as all the process and actuations made in
pursuance of or in implementation thereto;
(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of
Caloocan, Inc., is only the amount of P3,000.00, plus the interest thereon at 12%

per annum, as of April 3, 1961, and orders that plaintiff's deposit of P3,383.00 in
the Office of the Clerk of Court be applied to the payment thereof;
(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio
Reyes the purchase price the latter paid for the mortgaged property at the public
auction, as well as reimburse him of all the expenses he has incurred relative to
the sale thereof;
(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay
defendant Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the
corresponding 12% interest thereon per annum from December 11, 1960 until
fully paid; and
Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses
Severino D. Valencia and Catalina Valencia to pay plaintiff, jointly and severally,
the sum of P600.00 by way of attorney's fees, as well as costs.
In view of the conclusion that the court has thus reached, the counterclaims of
defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes
are hereby dismissed, as a corollary
The Court further denies the motion of defendant Arsenio Reyes for an Order
requiring Maxima Castro to deposit rentals filed on November 16, 1963,
resolution of which was held in abeyance pending final determination of the case
on the merits, also as a consequence of the conclusion aforesaid. 4
Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent court's
decision. The motion having been denied, 6 they now come before this Court in the instant
petition, with the following Assignment of Errors, to wit:
I
THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL
ANNULMENT OF THE PROMISSORY NOTE, EXHIBIT 2, AND THE
MORTGAGE, EXHIBIT 6, INSOFAR AS THEY AFFECT RESPONDENT
MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE TOTAL
ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT
PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL
CONDUCT COMMITTED OR PARTICIPATED IN BY PETITIONERS IN
PROCURING THE EXECUTION OF SAID CONTRACTS FROM RESPONDENT
CASTRO.
II
THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING
PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR THE PARTIAL
ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF FRAUD
6

PERPETRATED BY THE VALENCIA SPOUSES UPON RESPONDENT CASTRO

IN UTTER VIOLATION OF THE RES INTER ALIOS ACTA RULE.
III
THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE
FACTS FOUND BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO
IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED
TRANSACTION WITH PETITIONER BANK.
IV
THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN
PETITIONERS AND RESPONDENT CASTRO, THE LATTER SHOULD SUFFER
THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE VALENCIA
SPOUSES, IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S
NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT
THE PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE.
V
THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE
DEPOSIT BY RESPONDENT CASTRO OF P3,383.00 WITH THE COURT
BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO
DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH
PETITIONER BANK.
VI
THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND
BINDING UPON RESPONDENT CASTRO THE HOLDING OF THE SALE ON
FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE
ORIGINALLY SCHEDULED DATE THEREFOR WHICH WAS DECLARED A
HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE THEREOF.
The issue raised in the first three (3) assignment of errors is whether or not respondent court
correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as
they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6)
valid up to the amount of P3,000.00 only.
Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where
she signed as co-maker with the Valencias as principal borrowers and her acquiescence to the
mortgage contract (Exhibit 6) where she encumbered her property to secure the amount of
P6,000.00 was obtained by fraud perpetrated on her by the Valencias who had abused her
confidence, taking advantage of her old age and ignorance of her financial need. Respondent
court added that "the mandate of fair play decrees that she should be relieved of her obligation
under the contract" pursuant to Articles 24 7 and 1332 8 of the Civil Code.
7

The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the
mortgage contract (Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was
equivalent to her personal loan to the bank.
Petitioners argued that since the Valencias were solely declared in the decision to be responsible
for the fraud against Castro, in the light of the res inter alios acta rule, a finding of fraud
perpetrated by the spouses against Castro cannot be taken to operate prejudicially against the
bank. Petitioners concluded that respondent court erred in not giving effect to the promissory
note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that the mortgage
contract (Exhibit 6) was valid only to the extent of Castro's personal loan of P3,000.00.
The records of the case reveal that respondent court's findings of fraud against the Valencias is
well supported by evidence. Moreover, the findings of fact by respondent court in the matter is
deemed final. 9 The decision declared the Valencias solely responsible for the defraudation of
Castro. Petitioners' contention that the decision was silent regarding the participation of the
bank in the fraud is, therefore, correct.
We cannot agree with the contention of petitioners that the bank was defrauded by the
Valencias. For one, no claim was made on this in the lower court. For another, petitioners did
not submit proof to support its contention.
At any rate, We observe that while the Valencias defrauded Castro by making her sign the
promissory note (Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to
the bank Castro's personal qualifications in order to secure its consent to the loan. This must be
the reason which prompted the bank to contend that it was defrauded by the Valencias. But to
reiterate, We cannot agree with the contention for reasons above-mentioned. However, if the
contention deserves any consideration at all, it is in indicating the admission of petitioners that
the bank committed mistake in giving its consent to the contracts.
Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the
Valencias both Castro and the bank committed mistake in giving their consents to the contracts.
In other words, substantial mistake vitiated their consents given. For if Castro had been aware of
what she signed and the bank of the true qualifications of the loan applicants, it is evident that
they would not have given their consents to the contracts.
Pursuant to Article 1342 of the Civil Code which provides:
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual.
We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the
mortgage contract (Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the
contracts may not be invalidated insofar as they affect the bank and Castro on the ground of
fraud because the bank was not a participant thereto, such may however be invalidated on the
ground of substantial mistake mutually committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias. Thus, in the case of Hill vs. Veloso, 10this Court
declared that a contract may be annulled on the ground of vitiated consent if deceit by a third
8

person, even without connivance or complicity with one of the contracting parties, resulted in
mutual error on the part of the parties to the contract.
Petitioners argued that the amended complaint fails to contain even a general averment of fraud
or mistake, and its mention in the prayer is definitely not a substantial compliance with the
requirement of Section 5, Rule 8 of the Rules of Court. The records of the case, however, will
show that the amended complaint contained a particular averment of fraud against the
Valencias in full compliance with the provision of the Rules of Court. Although, the amended
complaint made no mention of mistake being incurred in by the bank and Castro, such mention
is not essential in order that the promissory note (Exhibit 2) may be declared of no binding
effect between them and the mortgage (Exhibit 6) valid up to the amount of P3,000.00 only.
The reason is that the mistake they mutually suffered was a mere consequence of the fraud
perpetrated by the Valencias against them. Thus, the fraud particularly averred in the complaint,
having been proven, is deemed sufficient basis for the declaration of the promissory note
(Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract
(Exhibit 6) valid only up to the amount of P3,000.00.
The second issue raised in the fourth assignment of errors is who between Castro and the bank
should suffer the consequences of the fraud perpetrated by the Valencias.
In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence
or acquiescence if not her actual connivance that made the fraud possible.
Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein
petitioners' negligence in the contracts has been aptly demonstrated, to wit:
A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the
plaintiff-appellee to several interviews. If this were true why is it that her age was
placed at 61 instead of 70; why was she described in the application (Exh. B-1-9)
as drug manufacturer when in fact she was not; why was it placed in the
application that she has income of P20,000.00 when according to plaintiffappellee, she his not even given such kind of information -the true fact being that
she was being paid P1.20 per picul of the sugarcane production in her hacienda
and 500 cavans on the palay production. 11
From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence
in giving its consent to the contracts. It apparently relied on representations made by the
Valencia spouses when it should have directly obtained the needed data from Castro who was
the acknowledged owner of the property offered as collateral. Moreover, considering Castro's
personal circumstances her lack of education, ignorance and old age she cannot be
considered utterly neglectful for having been defrauded. On the contrary, it is demanded of
petitioners to exercise the highest order of care and prudence in its business dealings with the
Valencias considering that it is engaged in a banking business a business affected with public
interest. It should have ascertained Castro's awareness of what she was signing or made her
understand what obligations she was assuming, considering that she was giving accommodation
to, without any consideration from the Valencia spouses.

Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to
believe that they were authorized to speak and bind her. She cannot now be permitted to deny
the authority of the Valencias to act as her agent for one who clothes another with apparent
authority as her agent is not permitted to deny such authority.
The authority of the Valencias was only to follow-up Castro's loan application with the bank.
They were not authorized to borrow for her. This is apparent from the fact that Castro went to
the Bank to sign the promissory note for her loan of P3,000.00. If her act had been understood
by the Bank to be a grant of an authority to the Valencia to borrow in her behalf, it should have
required a special power of attorney executed by Castro in their favor. Since the bank did not,
We can rightly assume that it did not entertain the notion, that the Valencia spouses were in any
manner acting as an agent of Castro.
When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a
promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan, the
Valencias acted for their own behalf. Considering however that for the loan in which the
Valencias appeared as principal borrowers, it was the property of Castro that was being
mortgaged to secure said loan, the Bank should have exercised due care and prudence by
making proper inquiry if Castro's consent to the mortgage was without any taint or defect. The
possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with
the Valencias and that her property was mortgaged to secure the two loans instead of her own
personal loan only, in view of her personal circumstances ignorance, lack of education and old
age should have placed the Bank on prudent inquiry to protect its interest and that of the
public it serves. With the recent occurrence of events that have supposedly affected adversely
our banking system, attributable to laxity in the conduct of bank business by its officials, the
need of extreme caution and prudence by said officials and employees in the discharge of their
functions cannot be over-emphasized.
Question is, likewise, raised as to the propriety of respondent court's decision which declared
that Castro's consignation in court of the amount of P3,383.00 was validly made. It is contended
that the consignation was made without prior offer or tender of payment to the Bank, and it
therefore, not valid. In holding that there is a substantial compliance with the provision of
Article 1256 of the Civil Code, respondent court considered the fact that the Bank was holding
Castro liable for the sum of P6,000.00 plus 12% interest per annum, while the amount
consigned was only P3,000.00 plus 12% interest; that at the time of consignation, the Bank had
long foreclosed the mortgage extrajudicially and the sale of the mortgage property had already
been scheduled for April 10, 1961 for non-payment of the obligation, and that despite the fact
that the Bank already knew of the deposit made by Castro because the receipt of the deposit was
attached to the record of the case, said Bank had not made any claim of such deposit, and that
therefore, Castro was right in thinking that it was futile and useless for her to make previous
offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus
12% interest. Under the foregoing circumstances, the consignation made by Castro was valid. if
not under the strict provision of the law, under the more liberal considerations of equity.
The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public
auction of the mortgaged property that was held on April 11, 1961.

10

Petitioners contended that the public auction sale that was held on April 11, 1961 which was the
next business day after the scheduled date of the sale on April 10, 1961, a special public holiday,
was permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative
Code which ordains:
Pretermission of holiday. Where the day, or the last day, for doing any act
required or permitted by law falls on a holiday, the act may be done on the next
succeeding business day.
Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in
accordance with Section 9 of Act No. 3135, which provides:
Section 9. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or city.
We agree with respondent court. The pretermission of a holiday applies only "where the day, or
the last day for doing any act required or permitted by law falls on a holiday," or when the last
day of a given period for doing an act falls on a holiday. It does not apply to a day fixed by an
office or officer of the government for an act to be done, as distinguished from a period of time
within which an act should be done, which may be on any day within that specified period. For
example, if a party is required by law to file his answer to a complaint within fifteen (15) days
from receipt of the summons and the last day falls on a holiday, the last day is deemed moved to
the next succeeding business day. But, if the court fixes the trial of a case on a certain day but the
said date is subsequently declared a public holiday, the trial thereof is not automatically
transferred to the next succeeding business day. Since April 10, 1961 was not the day or the last
day set by law for the extrajudicial foreclosure sale, nor the last day of a given period but a date
fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeeding
business day without the notices of the sale on that day being posted as prescribed in Section 9,
Act No. 3135.
WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in
toto. No pronouncement as to cost.
SO ORDERED.

11

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17072

October 31, 1961

CRISTINA MARCELO VDA. DE BAUTISTA, plaintiff-appellee,

vs.
BRIGIDA MARCOS, ET AL., defendants-appellants.
Aladin B. Bermudez for defendants-appellants.
Cube and Fajardo for plaintiff-appellee.
REYES, J.B.L., J.:
The main question in this appeal is whether or not a mortgagee may foreclose a mortgage on a
piece of land covered by a free patent where the mortgage was executed before the patent was
issued and is sought to be foreclosed within five years from its issuance.
The facts of the case appear to be as follows:
On May 17, 1954, defendant Brigida Marcos obtained a loan in the amount of P2,000 from
plaintiff Cristina Marcel Vda. de Bautista and to secure payment thereof conveyed to the latter
by way of mortgage a two (2)-hectare portion of an unregistered parcel of land situated in Sta.
Ignacia, Tarlac. The deed of mortgage, Exhibit "A", provided that it was to last for three years,
that possession of the land mortgaged was to be turned over to the mortgagee by way of
usufruct, but with no obligation on her part to apply the harvests to the principal obligation; that
said mortgage would be released only upon payment of the principal loan of P2,000 without any
interest; and that the mortgagor promised to defend and warrant the mortgagee's rights over the
land mortgaged.
Subsequently, or in July, 1956, mortgagor Brigida Marcos filed in behalf of the heirs of her
deceased mother Victoriana Cainglet (who are Brigida herself and her three sisters), an
application for the issuance of a free patent over the land in question, on the strength of the
cultivation and occupation of said land by them and their predecessor since July, 1915. As a
result, Free Patent No. V-64358 was issued to the applicants on January 25, 1957, and on
February 22, 1957, it was registered in their names under Original Certificate of Title No. P-888
of the office of Register of Deeds for the province of Tarlac.
Defendant Brigida Marcos' indebtedness of P2,000 to plaintiff having remained unpaid up to
1959, the latter, on March 4, 1959, filed the present action against Brigida and her husband
(Civil Case No. 3382) in the court below for the payment thereof, or in default of the debtors to
pay, for the foreclosure of her mortgage on the land give as security. Defendants moved to
dismiss the action, pointing out that the land in question is covered by a free patent and could
not, therefore, under the Public Land Law, be taken within five years from the issuance of the
12

patent for the payment of any debts of the patentees contracted prior to the expiration of said
five-year period; but the lower court denied the motion to dismiss on the ground that the law
cited does not apply because the mortgage sought to be foreclosed was executed before the
patent was issued. Defendants then filed their answer, reiterating the defense invoked in their
motion to dismiss, and alleging as well that the real contract between the parties was an
antichresis and not a mortgage. Pre-trial of the case followed, after which the lower court
rendered judgment finding the mortgage valid to the extent of the mortgagor's pro-indiviso
share of 15,333 square meters in the land in question, on the theory that the Public Land Law
does not apply in this case because the mortgage in question was executed before a patent was
issued over the land in question; that the agreement of the parties could not be antichresis
because the deed Exhibit "A" clearly shows a mortgage with usufruct in favor of the mortgagee;
and ordered the payment of the mortgage loan of P2,000 to plaintiff or, upon defendant's failure
to do so, the foreclosure of plaintiff's mortgage on defendant Brigida Marcos' undivided share in
the land in question. From this judgment, defendants Brigida Marcos and her husband
Osmondo Apolocio appealed to this Court.
There is merit in the appeal.
The right of plaintiff-appellee to foreclose her mortgage on the land in question depends not so
much on whether she could take said land within the prohibitive period of five years from the
issuance of defendants' patent for the satisfaction of the indebtedness in question, but on
whether the deed of mortgage Exhibit "A" is at all valid and enforceable, since the land
mortgaged was apparently still part of the public domain when the deed of mortgage was
constituted. As it is an essential requisite for the validity of a mortgage that the mortgagor be the
absolute owner of the thing mortgaged (Art. 2085), the mortgage here in question is void and
ineffective because at the time it was constituted, the mortgagor was not yet the owner of the
land mortgaged and could not, for that reason, encumber the same to the plaintiff-appellee. Nor
could the subsequent acquisition by the mortgagor of title over said land through the issuance of
a free patent validate and legalize the deed of mortgage under the doctrine of estoppel (cf. Art.
1434, New Civil Code,1 since upon the issuance of said patient, the land in question was thereby
brought under the operation of the Public Land Law that prohibits the taking of said land for the
satisfaction of debts contracted prior to the expiration of five years from the date of the issuance
of the patent (sec. 118, C.A. No. 141). This prohibition should include not only debts contracted
during the five-year period immediately preceding the issuance of the patent but also those
contracted before such issuance, if the purpose and policy of the law, which is "to preserve and
keep in the family of the homesteader that portion of public land which the State has
gratuitously given to him" (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De los Santos v. Roman
Catholic Church of Midsayap, G.R. L-6088, Feb. 24, 1954), is to be upheld.
The invalidity of the mortgage Exhibit "A" does not, however, imply the concomitant invalidity
of the collate agreement in the same deed of mortgage whereby possession of the land
mortgaged was transferred to plaintiff-appellee in usufruct, without any obligation on her part
to account for its harvests or deduct them from defendants' indebtedness of P2,000. Defendant
Brigida Marcos, who, together with her sisters, was in possession of said land by herself and
through her deceased mother before her since 1915, had possessory rights over the same even
before title vested in her as co-owner by the issuance of the free patent to her and her sisters,
and these possessory right she could validly transfer and convey to plaintiff-appellee, as she did
13

in the deed of mortgage Exhibit "A". The latter, upon the other hand, believing her mortgagor to
be the owner of the land mortgaged and not being aware of any flaw which invalidated her mode
of acquisition, was a possessor in good faith (Art. 526, N.C.C.), and as such had the right to all
the fruits received during the entire period of her possession in good faith (Art. 544, N.C.C.). She
is, therefore, entitled to the full payment of her credit of P2,000 from defendants, without any
obligation to account for the fruits or benefits obtained by her from the land in question.
WHEREFORE, the judgment appealed from is reversed insofar as it orders the foreclosure of
the mortgage in question, but affirmed in all other respects. Costs again defendants-appellants.

14

EN BANC
[G.R. No. L-29388. December 28, 1970.]
VINCENT P. DAYRIT, Petitioner, v. THE COURT OF APPEALS, HON. FRANCISCO
ARCA, Judge of the Court of First Instance of Manila, Branch I, MOBIL OIL
PHILIPPINES, INC., and ELADIO YLAGAN, Special Sheriff, Respondents.
Ramon Quisumbing, Jr., for Petitioner.
Faylona, Cruz, Berroya, Norte & Nentanilla for respondent Mobil Oil Philippines,
Inc.
DECISION
CASTRO, J.:
Petition for certiorari by way of appeal from the Court of Appeals minute resolution of June 14,
1968 dismissing the petition for certiorari in CA-G.R. No. 41359-R, as well as its resolutions of
July 9, 1968 and August 5, 1968 denying the first and second motions for reconsideration,
respectively, in the same case.
On July 21, 1965, the defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles
entered into a contract with the Mobil Oil Philippines, Inc., entitled "LOAN & MORTGAGE
AGREEMENT," providing, among others, that:jgc:chanrobles.com.ph
"(a) For and in consideration of Sales Agreement dated July 21, 1965 among, the parties herein,
Mobil grants a loan of P150,000 to borrowers.
"(b) Defendants-Borrowers shall repay Mobil the whole amount of P150,000 plus 10% interest
per annum on the diminishing balance for 48 months.
"(c) To secure the prompt repayment of such loan by defendants-borrowers to Mobil and the
faithful performance by Borrowers of that Sales Agreement, Defendants-Borrowers hereby
transfer in favor of Mobil by way of first mortgage lands covered by TCT No. 45169 and TCT No.
45170, together with the improvements existing in said two (2) parcels of land.
"(d) In case of default of Defendants-Borrowers in payment of any of the installments and/or
their failure to purchase the quantity of products stated therein Mobil shall have the right to
foreclose this mortgage.
"(e) Mobil, in case of default and foreclosure, shall be entitled to attorneys fees and cost of
collection equivalent to not less than 25% of total indebtedness remaining unpaid.
"(f) All expenses in connection with the preparation and registration of this mortgage as well as
cancellation of same shall be for the account of Defendants-Borrowers.
"(g) If Defendants-Borrowers shall perform the full obligation above stated according to the
15

terms thereof, then this obligation shall be null and void, otherwise, it shall remain in full force
and effect."cralaw virtua1aw library
The defendants violated the Loan & Mortgage Agreement, they having paid but one installment
in the amount of P3,816, of which P1,250 was applied to interest, and the remaining P2,566 to
the principal obligation. The defendants likewise failed to buy the quantities of products as
required in the Sales Agreement (exh. D). The plaintiff made due demand (exh. I), which the
defendant Dayrit answered, acknowledging his liability in his letter exh. I-1.
On November 17, 1967, after trial and after the parties had submitted their memoranda, 1 the
trial court rendered its decision, the dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants
Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering them to pay to the plaintiff
one-third each of the sum of P147,434.00 with interest of 10% per annum from the time it fell
due according to agreement, and in default of such payment, the properties put up in collateral
shall be sold in foreclosure sale in accordance with law, the proceeds to be applied in payment of
the amount due to the plaintiff from the defendants as claimed in the complaint provided that,
as to Dayrit, his liability shall in no case exceed 1/3 of the total obligation.
"The defendants are likewise ordered to pay to the plaintiff, in the same proportion of 1/3 each,
25% of the obligation as attorneys fees as provided in the contract; and P300.60 for the
registration of the contract.
x

"Each of the three said defendants shall also pay 1/3 of the costs."cralaw virtua1aw library
No appeal having been interposed by the defendants, the above decision became final and
executory.
An undated Mobils motion for execution of the decision and for the appointment of Eladio
Ylagan as special sheriff (annex D) was received by the herein petitioner Dayrit on February 8,
1968. Whereupon, he filed his opposition and motion to stay execution, alleging that before the
finality of the aforesaid judgment, he and the plaintiff had agreed not to appeal and/or file any
motion for reconsideration, the petitioner offering to pay his one-third share with a reasonable
discount, if possible, in so far as the interests and the award for attorneys fees were concerned,
with the corresponding release of the mortgage on all his properties, and praying, in view
thereof, for a 30-day grace period within which to pay the plaintiff. The 30-day grace period was
granted by the court in its order of February 24, 1968.
On March 25, 1968 the petitioner filed another motion for 20 days extension within which to
pay his one-third share of the judgment obligation and to submit the corresponding compromise
agreement for the satisfaction of the judgment. The said motion was granted on April 1, 1968.
Thereafter, the respondent Mobil filed an "Urgent Reply to Opposition and Motion to Stay
Execution dated Feb. 21, 1968 and Motion dated March 25, 1968," alleging therein that the
respondent agreed to release the mortgage or collateral for the entire judgment obligation only if
"the whole principal mortgaged debt plus the whole accrued interest" were fully paid. Mobil
further prayed for a writ of execution to be issued against the petitioner after the lapse of 20
16

days from March 25, 1968, if by then the parties shall not have submitted to compromise
agreement for the satisfaction of the judgment; Mobil also reiterated its prayer for the
appointment of respondent Eladio Ylagan as special sheriff.
On April 3, 1968 the petitioner filed a manifestation and motion, praying that he be allowed to
deposit with the Clerk of Court the amount corresponding to his one-third share of the
obligation under the decision of November 17, 1967, and that thereupon the collateral or
mortgage over petitioners properties or lands be ordered released or cancelled.
On April 10, 1968 the court a quo ordered all pending incidents set for hearing on April 19, 1968,
"so that the Court may have the opportunity to confer with the parties to thresh out the
settlement of this case." At this hearing Mobil did not appear; the court reset the hearing for
May 23, 1968.
Under date of May 8, 1968, Mobil filed an addendum to its reply dated April 1, 1968 and
opposition to petitioners motion dated April 3, 1968, praying that the motion of petitioner
Dayrit that the entire mortgaged collateral be released upon his payment of mere 1/3 of the loan
obligation, be denied and instead a writ of execution against him in accordance with the
dispositive portion of the decision and sections 2 and 3 of Rule 68 of the Revised Rules of Court
be issued.
On May 18, 1968 the petitioner filed his rejoinder to respondent Mobils aforesaid addendum
and opposition.
On May 23, 1968, after hearing oral argument, the court denied the manifestation and motion of
Dayrit filed thru counsel and dated April 3, 1968; the court further ruled that "There is no
further need to issue an order for the issuance of a writ of execution and appointment of special
sheriff . . . considering that the Court, in its order of February 24, 1968, has already ordered the
issuance of a writ of execution for the satisfaction of the judgment."cralaw virtua1aw library
The petitioner then filed his petition for certiorari with the Court of Appeals, dated May 30,
1968, alleging that "respondent Judge Arca acted without or in excess of his jurisdiction and/or
with grave abuse of discretion, in denying petitioners motion to allow him to pay or deposit his
one-third share of the judgment obligation" as well as the consequent release or cancellation of
the mortgage on his properties.
The Court of Appeals, however, in its minute resolution of June 14, 1968, dismissed the petition
forcertiorari, in the following words:jgc:chanrobles.com.ph
"Upon consideration of the petition for certiorari filed in this case, the Court RESOLVED TO
DISMISS the petition, there being no abuse of discretion in ordering the execution of a final
judgment. Details of execution for satisfaction of Vincent Dayrits liability will be worked out in
connection with the sale of the collateral for mortgaged debt, and the judgment in Civil Case No.
64138 of the CFI-Manila will control the disposition and application of the collateral."cralaw
virtua1aw library
The petitioner filed a motion for reconsideration dated June 9, 1968 which the Court of Appeals
denied in its resolution of July 9, 1968, as follows:jgc:chanrobles.com.ph
"Both the petition and the motion for reconsideration are based on a misapprehension of the
terms of the judgment. The mortgage obligation is one and indivisible. it was executed to assure
17

payment of the total indebtedness of the three defendants in Civil Case No. 64138, and not
merely one-third (1/3) thereof corresponding to petitioner Vincent P. Dayrits liability."cralaw
virtua1aw library
The petitioners second motion for reconsideration of July 25, 1968 was summarily dismissed on
August 5, 1968, for lack of merit.
The petitioner, in his present petition, tenders the following issues for
resolution:jgc:chanrobles.com.ph
"1) Whether or not respondent Judge [CFI-Manila] acted without or in excess of his jurisdiction,
and/or with grave abuse of discretion in denying petitioners motion to allow him to exercise his
clearly legal right to pay or deposit his one-third share of the judgment obligation;
"2) The next issue was that brought about by the Court of Appeals resolution dismissing the
petition for certiorari, and which was raised in petitioners motion dated June 19, 1968 for
reconsideration of said resolution, contending that the ground for dismissal did not jibe with the
issue raised in the petition for certiorari
"3) And lastly the Court of Appeals resolution of July 9, 1968 denying said motion for
reconsideration injected the issue of alleged misapprehension on the part of petitioner of the
terms of the judgment of respondent judge."cralaw virtua1aw library
1. The question raised by the respondent Mobil that the present petition for certiorari was filed
way beyond the reglementary period of 15 days from appellants receipt of notice of judgment or
of the denial of his motion for reconsideration pursuant to section 1, Rule 45 of the Revised
Rules of Court, 2 needs to be resolved before consideration of this case on the merits.
Admittedly, the ex parte first motion for reconsideration filed by the herein petitioner was
denied, and copy of such denial was received by the petitioner on July 15, 1968. Still not
satisfied, petitioner filed another ex parte motion for reconsideration on July 26, 1968, notice of
the denial of which, under CA resolution dated August 5, 1968, was received by said petitioner
on August 9, 1968.
Respondent Mobil contends that the second motion for reconsideration filed by the petitioner
was a mere scrap of paper and pro-forma since it was filed ex parte and without express leave of
court, contrary to the mandate of section 1, Rule 52 of the Rules of Court. 3
The rule appears to be inflexible in the sense that no more than one motion for reconsideration
shall be filed without express leave of court. The requirement that the second motion for
reconsideration must be presented, with leave of court, within fifteen days from notice of the
order or judgment, deducting the time during which the first motion was pending, is to afford
the court sufficient time to evaluate whether there is prima facie merit therein, so that, "if the
court finds merit prima facie in the motion for re-hearing or reconsideration, the adverse party
shall be given time to answer, after which the court, in its discretion, may set the case for oral
argument." 4 And only upon compliance with the above stated requirements may the second
motion for reconsideration stay the final order or judgment sought to be re-examined. 5
The Court of Appeals gave due course to the second motion for reconsideration of the herein
petitioner, but nevertheless, dismissed the same summarily for lack of merit.
However, even assuming, that the ex parte second motion for reconsideration was properly filed
18

so as to toll the reglementary period within which to appeal, it appears that the petition
for certiorarifiled with this Court on August 20, 1968 was time-barred. From the date of denial
of the petitioners ex parte first motion for reconsideration received by him on July 15, 1968
assuming that the period was interrupted by the ex parte second motion for reconsideration
from July 26, 1968 to August 9, 1968 (15 days) to the elevation of the said case to this Court
on August 20, 1968, 36 days had elapsed. Deducting the 15 days during which the ex parte
second motion for reconsideration was pending from the total period of 36 days leaves 21 days.
This means that the present petition was filed with this Court six days late, contrary to and in
violation of section 1, Rule 45, which specifically provides that a petition for certiorari under
such Rule should be filed within 15 days from notice of judgment or denial of motion for
reconsideration. Hence, the present petition may be dismissed on the aforestated ground.
But we opt, nevertheless, to consider the merits of this case, if only to demonstrate to the
petitioner his error.
2. The decision of the lower court, let it not be forgotten, has admittedly become final and
executory. The controverted judgment ordered the defendants (Dayrit, Sumbillo and Angeles)
"to pay to the plaintiff one-third each of the sum of P147,434.00 with interest of 10% per annum
from the time it fell due according to agreement, and in default of such payment, the properties
put up in collateral shall be sold in foreclosure sale in accordance with law, the proceeds to be
applied in payment of the amount due to the plaintiff from the defendants as claimed in the
complaint, provided that, as to Dayrit, his liability shall in no case exceed 1/3 of the total
obligation."cralaw virtua1aw library
In sum, the issue that must be resolved in the instant case is, whether or not the Court of First
Instance of Manila erred in ordering the sale at public auction of the mortgaged properties to
answer for the entire P147,434 principal obligation after the defendants (Dayrit, Sumbillo and
Angeles) had failed to pay their respective one-third shares of the obligation to the respondent
Mobil; otherwise stated, whether or not the respondents Court of First Instance and the Court of
Appeals erred in refusing to allow the alleged proposed deposit of a sum equivalent to 1/3 of the
loan agreed upon and in refusing to release forever the collaterals owned by Dayrit, although the
other 2/3 portion of the loan obligation had not been satisfied due to insolvency of the other two
co-defendants.
To begin with, the prayer of the complaint filed with the respondent Court of First Instance
recites as follows:jgc:chanrobles.com.ph
"WHEREFORE, it is respectfully prayed that judgment be rendered
"a) Ordering the defendants to pay the sum of P147,434 with 10% interest per annum from the
time it fell due as agreed upon and that in default of such payment, the above described
properties be sold and the proceeds of sale be applied to the payment of the amount due to the
plaintiff from the defendant under this complaint."cralaw virtua1aw library
The complaint, in effect, is a collection suit with damages and foreclosure of mortgage against
the three defendants, Leonila Sumbillo, Reynaldo Angeles and Vincent Dayrit. Although the
Loan and Mortgage Agreement was signed by the three defendants as mortgagors, the
properties being foreclosed belong solely to, and are registered solely in the name of, the
petitioner Vincent Dayrit.
The pertinent dispositive portion of the decision rendered by the lower court
19

reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants
Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering them to pay to the plaintiff
one-third each of the sum of P147,434 with interest of 10% per annum from the time it fell due
according to agreement, and in default of such payment, the properties put up in collateral shall
be sold in foreclosure sale in accordance with law, the proceeds to be applied in payment of the
amount due to the plaintiff from the defendants as claimed in the complaint, provided that, as to
Dayrit, his liability shall in no case exceed 1/3 of the total obligation."cralaw virtua1aw library
The petitioner contends that the said judgment is a simple money judgment and not a
foreclosure judgment, and that because the respondent Mobil resorted to the remedy of
enforcing his right by a complaint against the defendant-petitioner for collection of a sum of
money, with the consequent simple money judgment, the satisfaction of his 1/3 share of the
joint obligation would release all the mortgaged properties put up as collateral to secure the
payment of the whole obligation. The reason advanced by the petitioner is that the decision
rendered being a simple money judgment and not a mortgage-foreclosure judgment, the
distinction in its execution is decisive, that is, whereas in mortgage foreclosure the judgment
should conform to the requirement, embodied in section 2, Rule 68 of the Rules of Court, that
the order of payment be made into the court "within a period not less than ninety (90) days . . .
and in default of such payment, the property mortgaged be sold to realize" the indebtedness, in a
simple money judgment, upon satisfaction of part in the instant case his 1/3 share) of the joint
obligation, the mortgaged properties should be released from such mortgage contract.
This contention of the petitioner is clearly devoid of merit.
The decision which the petitioner describes as a simple money judgment orders the defendants
Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles to pay the plaintiff the sum of
P147,434, and in default of such payment, the properties put up in collateral shall be sold in
foreclosure sale in accordance with law, the proceeds to be applied in payment of the amount
due to the plaintiff from the defendants as claimed in the complaint. While it is true that the
obligation is merely joint and each of the defendants is obliged to pay only his/her 1/3 share of
the joint obligation, the undisputed fact remains that the intent and purpose of the Loan and
Mortgage Agreement was to secure, inter alia, the entire loan of P150,000 that the respondent
Mobil extended to the defendants. The court below found that the defendants had violated the
Loan and Mortgage Agreement, they having paid but one installment. The undisputed fact also
remains that the petitioner alone benefited from the proceeds of the loan of P150,000, the said
amount having been paid directly to the Bank of the Philippines to bail out the same properties
from a mortgage that was about to be foreclosed. In effect, Mobil merely stepped into the shoes
of the Bank of the Philippines.
The petitioner insists that the dispositive portion of the judgment declaring the obligation
merely joint with the proviso that "as to Dayrit, his liability shall in no case exceed 1/3 of the
total obligation," should be construed in the light of the opinion of the lower court that "said
collateral must answer in full but only to the extent of Dayrits liability which as above
determined" is 1/3 of the obligation," thereby entitling him to pay or deposit in court his
corresponding share of the joint obligation in satisfaction thereof, with the automatic release of
all the mortgaged properties.
A judgment must be distinguished from an opinion. The latter is the informal expression of the
views of the court and cannot prevail against its final order or decision. "While the two may be
20

combined in one instrument, the opinion forms no part of the judgment. There is a distinction
between the findings and conclusion of a court and its judgment. While they may constitute its
decision and amount to a rendition of a judgment they are not the judgment itself. They amount
to nothing more than an order for judgment which must be distinguished from the judgment
Only the dispositive portion may be executed." 6
Besides, well-entrenched in law is the rule that a mortgage directly and immediately subjects the
property upon which it is imposed, 7 the same being indivisible even though the debt may be
divided, 8 and such indivisibility likewise being unaffected by the fact that the debtors are not
solidarily liable. 9 As Tolentino, in his Commentaries and Jurisprudence on the Civil Code of the
Philippines, 10 puts it
"When several things are pledged or mortgaged, each thing for a determinate portion of the
debt, the pledges or mortgages are considered separate from each other. But when the several
things are given to secure the same debt in its entirety, all of them are liable for the debt, and the
creditor does not have to divide his action by distributing the debt among the various things
pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are still
liable for such balance. Hence, a mortgage voluntarily constituted by the debtor on two or more
parcels of land is one and indivisible, and the mortgagee has the right to have either or both
parcels, jointly or singly, sold to satisfy his claim. In case the mortgaged properties are a house
and lot, it can not be claimed that the lot and the house should be sold separately and not
together."cralaw virtua1aw library
But then there is this other seeming posture of the petitioner: that the judgment which has
become final and executory either modified or superseded the Loan and Mortgage Agreement
between the parties, and since the obligation is merely joint, upon payment thereof, as in
attachment, the properties mortgaged are released from liability. The decision under
consideration, however, did nothing of the sort. The petitioner conveniently refuses to recognize
the true import of the dispositive portion of the judgment. The said portion unequivocally states
that "in default of such payment, the properties put up in collateral shall be sold in foreclosure
sale in accordance with law, the proceeds to be applied in payment of the amount due to the
plaintiff as claimed in the complaint." And the claim in the complaint was the full satisfaction of
the total indebtedness of P147,434; therefore, the release of all the mortgaged properties may be
authorized only upon the full payment of the above-stated amount secured by the said mortgage.
With respect to the provisions of section 2 of Rule 68 of the Rules of Court giving the petitioner
a period of 90 days within which he might voluntarily pay the debt before the sale of the
collateral at public auction was ordered, we agree that the trial court failed to provide such
period. However, this failure can be regarded as having resulted in mere damnum absque
injuria. From November 17, 1967 when the decision was rendered to May 23, 1968 when the
final order to sell the mortgaged properties was issued, a period of more than six months had
passed, which is considerably much more than the 90-day period of grace allowed the petitioner
to validly tender the proper payment.
ACCORDINGLY, the petition is denied, at petitioners cost.

21

epublic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19227

February 17, 1968

DIOSDADO YULIONGSIU, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee.
Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-appellant.
Tomas Besa, R. B. de los Reyes and C. E. Medina for defendant-appellee.
BENGZON, J.P., J.:
Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels, namely: The
M/S Surigao, valued at P109,925.78 and the M/S Don Dino, valued at P63,000.00, and
operated the FS-203, valued at P210,672.24, which was purchased by him from the Philippine
Shipping Commission, by installment or on account. As of January or February, 1943, plaintiff
had paid to the Philippine Shipping Commission only the sum of P76,500 and the balance of the
purchase price was payable at P50,000 a year, due on or before the end of the current year. 2
On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant Philippine
National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged the M/S Surigao, M/S
Don Dino and its equity in the FS-203 to the defendant bank, as evidenced by the pledge
contract, Exhibit "A" & "1-Bank", executed on the same day and duly registered with the office of
the Collector of Customs for the Port of Cebu. 3
Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The
remaining balance was renewed by the execution of two (2) promissory notes in the bank's
favor. The first note, dated December 18, 1947, for P20,000, was due on April 16, 1948 while the
second, dated February 26, 1948, for P10,000, was due on June 25, 1948. These two notes were
never paid at all by plaintiff on their respective due dates. 4
On April 6, 1948, the bank filed criminal charges against plaintiff and two other accused
for estafa thru falsification of commercial documents, because plaintiff had, as last indorsee,
deposited with defendant bank, from March 11 to March 31, 1948, seven Bank of the Philippine
Islands checks totalling P184,000. The drawer thereof one of the co-accused had no funds
in the drawee bank. However, in connivance with one employee of defendant bank, plaintiff was
able to withdraw the amount credited to him before the discovery of the defraudation on April 2,
1948. Plaintiff and his co-accused were convicted by the trial court and sentenced to indemnify
the defendant bank in the sum of P184,000. On appeal, the conviction was affirmed by the
Court of Appeals on October 31, 1950. The corresponding writ of execution issued to implement
the order for indemnification was returned unsatisfied as plaintiff was totally insolvent. 5

22

Meanwhile, together with the institution of the criminal action, defendant bank took
physical possession of three pledged vessels while they were at the Port of Cebu, and on April 29,
1948, after the first note fell due and was not paid, the Cebu Branch Manager of defendant bank,
acting as attorney-in-fact of plaintiff pursuant to the terms of the pledge contract, executed a
document of sale, Exhibit "4", transferring the two pledged vessels and plaintiff's equity in FS203, to defendant bank for P30,042.72. 6
The FS-203 was subsequently surrendered by the defendant bank to the Philippine
Shipping Commission which rescinded the sale to plaintiff on September 8, 1948, for failure to
pay the remaining installments on the purchase price thereof. 7 The other two boats, the M/S
Surigao and the M/S Don Dino were sold by defendant bank to third parties on March 15, 1951.
On July 19, 1948, plaintiff commenced action in the Court of First Instance of Cebu to
recover the three vessels or their value and damages from defendant bank. The latter filed its
answer, with a counterclaim for P202,000 plus P5,000 damages. After issues were joined, a
pretrial was held resulting in a partial stipulation of facts dated October 2, 1958, reciting most of
the facts above-narrated. During the course of the trial, defendant amended its answer reducing
its claim from P202,000 to P8,846.01, 8 but increasing its alleged damages to P35,000.
The lower court rendered its decision on February 13, 1960 ruling: (a) that the bank's
taking of physical possession of the vessels on April 6, 1948 was justified by the pledge contract,
Exhibit "A" & "1-Bank" and the law; (b) that the private sale of the pledged vessels by defendant
bank to itself without notice to the plaintiff-pledgor as stipulated in the pledge contract was
likewise valid; and (c) that the defendant bank should pay to plaintiff the sums of P1,153.99 and
P8,000, as his remaining account balance, or set-off these sums against the indemnity which
plaintiff was ordered to pay to it in the criminal cases.
When his motion for reconsideration and new trial was denied, plaintiff brought the appeal
to Us, the amount involved being more than P200,000.00.
In support of the first assignment of error, plaintiff-appellant would have this Court hold
that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the creditor defendant could
not take possession of the chattels object thereof until after there has been default. The
submission is without merit. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a
pledge contract
3. That a credit line of P50,000.00 was extended to the plaintiff by the defendant
Bank, and the plaintiff obtained and received from the said Bank the sum of P50,000.00,
and in order to guarantee the payment of this loan, the pledge contract, Exhibit "A" &
Exhibit "1-Bank", was executed and duly registered with the Office of the Collector of
Customs for the Port of Cebu on the date appearing therein; (Emphasis
supplied)1wph1.t
Necessarily, this judicial admission binds the plaintiff. Without any showing that this was
made thru palpable mistake, no amount of rationalization can offset it. 9

23

The defendant bank as pledgee was therefore entitled to the actual possession of the
vessels. While it is true that plaintiff continued operating the vessels after the pledge contract
was entered into, his possession was expressly made "subject to the order of the pledgee." 10 The
provision of Art. 2110 of the present Civil Code 11being new cannot apply to the pledge
contract here which was entered into on June 30, 1947. On the other hand, there is an authority
supporting the proposition that the pledgee can temporarily entrust the physical possession of
the chattels pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is
regarded as holding the pledged property merely as trustee for the pledgee. 12
Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to
make pledge effective. He points to Betita v. Ganzon, 49 Phil. 87 which ruled that there has to
be actual delivery of the chattels pledged. But then there is also Banco Espaol-Filipino v.
Peterson, 7 Phil. 409 ruling that symbolic delivery would suffice. An examination of the peculiar
nature of the things pledged in the two cases will readily dispel the apparent contradiction
between the two rulings. In Betita v. Ganzon, the objects pledged carabaos were easily
capable of actual, manual delivery unto the pledgee. In Banco Espaol-Filipino v. Peterson, the
objects pledged goods contained in a warehouse were hardly capable of actual, manual
delivery in the sense that it was impractical as a whole for the particular transaction and would
have been an unreasonable requirement. Thus, for purposes of showing the transfer of control to
the pledgee, delivery to him of the keys to the warehouse sufficed. In other words, the type of
delivery will depend upon the nature and the peculiar circumstances of each case. The parties
here agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said
property subject to the order of the pledgee." Considering the circumstances of this case and the
nature of the objects pledged, i.e., vessels used in maritime business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of pledge contract, in full control of
the vessels thru the plaintiff, the former could take actual possession at any time during the life
of the pledge to make more effective its security. Its taking of the vessels therefore on April 6,
1948, was not unlawful. Nor was it unjustified considering that plaintiff had just defrauded the
defendant bank in the huge sum of P184,000.
The stand We have taken is not without precedent. The Supreme Court of Spain, in a
similar case involving Art. 1863 of the old Civil Code, 13 has ruled: 14
Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder
del acreedor o de un tercero y no quedar en la del deudor, como ha sucedido en el caso
de autos, es lo cierto que todas las partes interesadas, o sean acreedor, deudor y
Sociedad, convinieron que continuaran los coches en poder del deudor para no
suspender el trafico, y el derecho de no uso de la prenda pertenence al deudor, y el de
dejar la cosa bajo su responsabilidad al acreedor, y ambos convinieron por creerlo util
para las partes contratantes, y estas no reclaman perjuicios no se infringio, entre otros
este articulo.
In the second assignment of error imputed to the lower court plaintiff-appellant attacks
the validity of the private sale of the pledged vessels in favor of the defendant bank itself. It is
contended first, that the cases holding that the statutory requirements as to public sales with
prior notice in connection with foreclosure proceedings are waivable, are no longer authoritative
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in view of the passage of Act 3135, as amended; second, that the charter of defendant bank does
not allow it to buy the property object of foreclosure in case of private sales; and third, that the
price obtained at the sale is unconscionable.
There is no merit in the claims. The rulings in Philippine National Bank v. De Poli, 44 Phil.
763 and El Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative despite the passage of
Act 3135. This law refers only, and is limited, to foreclosure of real estate mortgages. 15 So,
whatever formalities there are in Act 3135 do not apply to pledge. Regarding the bank's
authority to be the purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts
2747 and 2938 only states that if the sale is public, the bank could purchase the whole or part of
the property sold " free from any right of redemption on the part of the mortgagor or pledgor."
This even argues against plaintiff's case since the import thereof is this if the sale were private
and the bank became the purchaser, the mortgagor or pledgor could redeem the property.
Hence, plaintiff could have recovered the vessels by exercising this right of redemption. He is
the only one to blame for not doing so.
Regarding the third contention, on the assumption that the purchase price was
unconscionable, plaintiff's remedy was to have set aside the sale. He did not avail of this.
Moreover, Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21069

October 26, 1967

MANILA SURETY and FIDELITY COMPANY, INC., plaintiff-appellee,

vs.
RODOLFO R. VELAYO, defendant-appellant.
Villaluz Law Office for plaintiff-appellee.
Rodolfo R. Velayo for and in his own behalf as defendant-appellant.
REYES, J.B.L., J.:
Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case No. 49435)
sentencing appellant Rodolfo Velayo to pay appellee Manila Surety & Fidelity Co., Inc. the sum
of P2,565.00 with interest at 12-% per annum from July 13, 1954; P120.93 as premiums with
interest at the same rate from June 13, 1954: attorneys' fees in an amount equivalent to 15% of
the total award, and the costs.
Hub of the controversy are the applicability and extinctive effect of Article 2115 of the Civil Code
of the Philippines (1950).
The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon request of Rodolfo
Velayo, executed a bond for P2,800.00 for the dissolution of a writ of attachment obtained by
one Jovita Granados in a suit against Rodolfo Velayo in the Court of First Instance of Manila.
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Velayo undertook to pay the surety company an annual premium of P112.00; to indemnify the
Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as
well as reimburse the same for all money it should pay or become liable to pay under the bond
including costs and attorneys' fees.
As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the
Surety Company "for the latter's further protection", with power to sell the same in case the
surety paid or become obligated to pay any amount of money in connection with said bond,
applying the proceeds to the payment of any amounts it paid or will be liable to pay, and turning
the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs (Rec.
App. pp. 12-15).
Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and
execution having been returned unsatisfied, the surety company was forced to pay P2,800.00
that it later sought to recoup from Velayo; and upon the latter's failure to do so, the surety
caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00 only.
Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit in the
Municipal Court. Velayo countered with a claim that the sale of the pledged jewelry extinguished
any further liability on his part under Article 2115 of the 1950 Civil Code, which recites:
Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether
or not the proceeds of the sale are equal to the amount of the principal obligation,
interest and expenses in a proper case. If the price of the sale is more than said amount,
the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the price of
the sale is less, neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary.
The Municipal Court disallowed Velayo's claims and rendered judgment against him. Appealed
to the Court of First Instance, the defense was once more overruled, and the case decided in the
terms set down at the start of this opinion.
Thereupon, Velayo resorted to this Court on appeal.
The core of the appealed decision is the following portion thereof (Rec. Appeal pp. 71-72):
It is thus crystal clear that the main agreement between the parties is the Indemnity
Agreement and if the pieces of jewelry mentioned by the defendant were delivered to the
plaintiff, it was merely as an added protection to the latter. There was no understanding
that, should the same be sold at public auction and the value thereof should be short of
the undertaking, the defendant would have no further liability to the plaintiff. On the
contrary, the last portion of the said agreement specifies that in case the said collateral
should diminish in value, the plaintiff may demand additional securities. This stipulation
is incompatible with the idea of pledge as a principal agreement. In this case, the status
of the pledge is nothing more nor less than that of a mortgage given as a collateral for the
principal obligation in which the creditor is entitled to a deficiency judgment for the
balance should the collateral not command the price equal to the undertaking.

26

It appearing that the collateral given by the defendant in favor of the plaintiff to secure
this obligation has already been sold for only the amount of P235.00, the liability of the
defendant should be limited to the difference between the amounts of P2,800.00 and
P235.00 or P2,565.00.
We agree with the appellant that the above quoted reasoning of the appealed decision is
unsound. The accessory character is of the essence of pledge and mortgage. As stated in Article
2085 of the 1950 Civil Code, an essential requisite of these contracts is that they be constituted
to secure the fulfillment of a principal obligation, which in the present case is Velayo's
undertaking to indemnify the surety company for any disbursements made on account of its
attachment counterbond. Hence, the fact that the pledge is not the principal agreement is of no
significance nor is it an obstacle to the application of Article 2115 of the Civil Code.
The reviewed decision further assumes that the extinctive effect of the sale of the pledged
chattels must be derived from stipulation. This is incorrect, because Article 2115, in its last
portion, clearly establishes that the extinction of the principal obligation supervenes by
operation of imperative law that the parties cannot override:
If the price of the sale is less, neither shall the creditor be entitled to recover the
deficiency notwithstanding any stipulation to the contrary.
The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the
articles pledged, instead of suing on the principal obligation, the creditor has waived any other
remedy, and must abide by the results of the sale. No deficiency is recoverable.
It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the
legal prescription contained in Article 1484(3) of the same Code, concerning the effect of a
foreclosure of a chattel mortgage constituted to secure the price of the personal property sold in
installments, and which originated in Act 4110 promulgated by the Philippine Legislature in
1933.
WHEREFORE, the decision under appeal is modified and the defendant absolved from the
complaint, except as to his liability for the 1954 premium in the sum of P120.93, and interest at
12-1/2% per annum from June 13, 1954. In this respect the decision of the Court below is
affirmed. No costs. So ordered.
as pointed out by the lower court, plaintiff had at the time an obligation to return the P184,000
fraudulently taken by him from defendant bank.
The last assignment of error has to do with the damages allegedly suffered by plaintiffappellant by virtue of the taking of the vessels. But in view of the results reached above, there is
no more need to discuss the same.
On the whole, We cannot say the lower court erred in disposing of the case as it did.
Plaintiff-appellant was not all-too-innocent as he would have Us believe. He did defraud the
defendant bank first. If the latter countered with the seizure and sale of the pledged vessels
pursuant to the pledge contract, it was only to protect its interests after plaintiff had defaulted in
27

the payment of the first promissory note. Plaintiff-appellant did not come to court with clean
hands.
WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiffappellant. So ordered.

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