EDUARDO L. RAYO vs. METROPOLITAN BANK AND TRUST COMPANY partially implemented as to TCT No.
implemented as to TCT No. N-163455, as evidenced by the Turn-
(G.R. No. 165142, December 10, 2007)
Before us is a petition for review assailing the Resolutions dated June 15,
20041 and August 23, 20042 of the Court of Appeals in CA-G.R. SP No.
83895 for annulment of judgment.
The pertinent facts are undisputed.
Midas Diversified Export Corp. (Midas), thru its president, Mr. Samuel U.
Lee, obtained six (6) loans from private respondent Metropolitan Bank and
Trust Company (Metrobank), amounting to P588,870,000 as evidenced by
promissory notes. To secure the payment of an P8,000,000 loan, Louisville
Realty & Development Corporation (Louisville), thru its president, Mr. Samuel
U. Lee, executed in favor of Metrobank, a real estate mortgage over three
parcels of land situated at No. 40 Timog Ave., Brgy. Laging Handa, Quezon
City, with all the buildings and improvements thereon. The properties are
covered by Transfer Certificates of Title (TCT) Nos. N-163455, N-166349
and N-166350 issued by the Registry of Deeds of Quezon City.
When the debtor-mortgagor failed to pay, Metrobank extra-judicially
foreclosed the real estate mortgage in accordance with Act No. 3135, 3 as
amended. Thereafter, in a public auction, Metrobank was the highest bidder.
A Certificate of Sale4 dated December 11, 2000 was duly registered with the
Registry of Deeds of Quezon City on December 13, 2000. When Louisville
refused to turn over the real properties, on March 17, 2001, Metrobank filed
before the Regional Trial Court (RTC), Branch 223, Quezon City, an ex
parte petition5 for the issuance of a writ of possession docketed as LRC Case
No. Q-13915(01). After presentation of evidence ex parte, the RTC granted
the petition in an Order6 dated July 5, 2001, the dispositive portion of which
reads as follows:
WHEREFORE, in consideration of the foregoing premises, the instant
petition is hereby GRANTED. Upon the filing of a bond in the amount of ONE
HUNDRED THOUSAND PESOS ([P]100,000.00), let a Writ of Possession
over the properties covered by Transfer Certificates of Title Nos. N-163455,
N-166349 & N-166350 issue in favor of the petitioner METROPOLITAN
BANK & TRUST COMPANY to be implemented by the Deputy Sheriff of
Branch 223, Regional Trial Court of Quezon City by placing the petitioner in
possession over the parcels of land with all its improvements.
SO ORDERED.7
On September 24, 2001, Metrobank posted the required bond.
Consequently, a writ of possession was issued on October 9, 2001. This was
Over Receipt8 dated December 13, 2002. The writ over the two remaining
properties, under TCT Nos. N-166349 and N-166350, were subsequently
implemented as evidenced by the Turn-Over Receipt9 dated December 3,
2003.
Meanwhile, on April 3, 2002, petitioner Eduardo L. Rayo filed a
complaint10 docketed as Civil Case No. Q02-46514 against Metrobank for
Nullification of Real Estate Mortgage Contract(s) and Extrajudicial
Foreclosure Sale, in the RTC, Branch 99, Quezon City.
On May 13, 2004, petitioner Rayo filed with the Court of Appeals a
Petition11 for Annulment of Judgment on the ground of "absolute lack of due
process." Petitioner alleged that his predecessor, Louisville, was not notified
of the proceedings and that Section 712 (ex parte motion or petition for the
issuance of a writ of possession) of Act No. 3135 is unconstitutional.
On June 15, 2004, the Court of Appeals denied the petition for lack of merit.
The Court of Appeals ruled that petitioner is neither the registered owner nor
the successor-in-interest of the registered owner; hence, not a real party-in-
interest. It also ruled that there is no basis to challenge the constitutionality of
Section 7 of Act No. 3135, as amended as it constitutes a collateral attack
against said provision. Further, petitioner availed of the wrong remedy in
filing Civil Case No. Q02-46514. Petitioner sought reconsideration, but was
likewise denied.
Petitioner now comes before us raising the following as primary issue:
WHETHER OR NOT SECTION 7 OF ACT NO. 3135 IS CONTRARY TO
THE DUE PROCESS PROVISION OF THE PHILIPPINE CONSTITUTION
CONSIDERING THAT SUCH SECTION 7 OF THE LAW PROVIDES OR
ALLOWS, ACCORDING TO THIS HONORABLE COURT, FOR AN EX-
PARTE PROCEEDING WHICH IS A "JUDICIAL PROCEEDING BROUGHT
FOR THE BENEFIT OF ONE PARTY ONLY, AND WITHOUT NOTICE TO,
OR CONSENT BY ANY PERSON ADVERSELY INTERESTED" "OR A
PROCEEDING WHEREIN RELIEF IS GRANTED WITHOUT AN
OPPORTUNITY FOR THE PERSON AGAINST WHOM THE RELIEF IS
SOUGHT TO BE HEARD," AS HELD IN THE CASE OF GOVERNMENT
SERVICE INSURANCE SYSTEM VS. COURT OF APPEALS, 169 SCRA
244 @ 255, JANUARY 20, 1989.13
He also raises the following as secondary issues:
I.
 WHETHER OR NOT THE PETITIONER HAS THE LEGAL
PERSONALITY TO SEEK THE ANNULMENT OF JUDGMENT IN
[THE] SUBJECT LRC CASE NO. Q-13915(01).
II.
WHETHER OR NOT PRIVATE RESPONDENT VIOLATED THE
RULE AGAINST FORUM-SHOPPING WHEN IT DID NOT INFORM
THE HONORABLE BRANCH 223 OF THE REGIONAL TRIAL
COURT OF QUEZON CITY REGARDING THE FILING OF CIVIL
CASE NO. Q-02-46514 FOR NULLIFICATION OF REAL ESTATE
MORTGAGE CONTRACT AND THE EXTRA-JUDICIAL
FORECLOSURE SALE OF THE SAME SUBJECT REAL
PROPERTIES AND THE PENDENCY OF THE SAME BEFORE
THE HONORABLE BRANCH 99 OF THE SAME REGIONAL TRIAL
COURT.14
Stated simply, the issues raised are: (1) Does petitioner have the legal
personality in the annulment of judgment proceedings? (2) Is Section 7 of Act
No. 3135, as amended, unconstitutional? (3) Is respondent guilty of forum-
shopping?
Petitioner insists that contrary to the ruling of the Court of Appeals, he has
the legal personality to institute the annulment of judgment case against
Metrobank, considering that the March 25, 2002 deed of assignment he
entered into with Louisville and Winston Linwy L. Chua makes him a co-
assignee over the subject real properties.
For its part, Metrobank claims that it was not a party to the deed of
assignment among Louisville, Chua and petitioner, hence, it has no privity of
contract with petitioner Rayo. Moreover, Metrobank points out that the real
properties had already been extrajudicially foreclosed when petitioner and his
assignors executed the deed of assignment.
Under Section 2,15 Rule 3 of the Rules of Court, every action must be
prosecuted or defended in the name of the real party-in-interest, or one "who
stands to be 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 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
Now, is petitioner Rayo a real party-in-interest? Initially, we recognized
herein petitioner as the co-assignee of the subject real properties as shown
in the March 25, 2002 deed of assignment. However, while petitioner would
be injured by the judgment in this suit, we find that petitioner has no present
substantial interest to institute the annulment of judgment proceedings and
nullify the order granting the writ of possession.
First, there was no violation of petitioner’s right to constitutional due process.
In a long line of cases,18 we have consistently ruled that the issuance of a
writ of possession in favor of the purchaser in a foreclosure sale of a
mortgaged property under Section 7 of Act No. 3135, as amended is a
ministerial duty of the court. The purchaser of the foreclosed property,
upon ex parte application and the posting of the required bond, has the right
to acquire possession of the foreclosed property during the 12-month
redemption period and with more reason, after the expiration of the
redemption period.
An ex parte petition for the issuance of a writ of possession under Section 7
of Act No. 3135 is not, strictly speaking, a "judicial process" as contemplated
in Article 43319 of the Civil Code. It is a judicial proceeding for the
enforcement of one’s right of possession as purchaser in a foreclosure sale.
It is not an ordinary suit filed in court, by which one party "sues another for
the enforcement of a wrong or protection of a right, or the prevention or
redress of a wrong." It is a non-litigious proceeding authorized in an
extrajudicial foreclosure of mortgage pursuant to Act No. 3135, as amended,
and is brought for the benefit of one party only, and without notice to, or
consent by any person adversely interested. It is a proceeding where the
relief is granted without requiring an opportunity for the person against whom
the relief is sought to be heard. No notice is needed to be served upon
persons interested in the subject property. 20
Second, in the deed of assignment, petitioner also acknowledged that the
subject real properties were already sold at various extrajudicial foreclosure
sales and bought by Metrobank. Clearly, petitioner recognized the prior
existing right of Metrobank as the mortgagee-purchaser over the subject real
properties.21 Actual knowledge of a prior mortgage with Metrobank is
equivalent to notice of registration22 in accordance with Article 212523 of the
Civil Code. Conformably with Articles 131224 and 212625 of the Civil Code, a
real right or lien in favor of Metrobank had already been established,
subsisting over the properties until the 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 827 of Act No.
3135, as amended. Hence, even petitioner’s action for annulment of
judgment cannot prosper as it cannot be a substitute for a lost remedy.

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

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

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

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

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

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

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

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

SO ORDERED.
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO) vs. NEW
DAGUPAN METRO GAS CORPORATION
(G.R. No. 173171, July 11, 2012)
This is a petition for review under Rule 45 of the Rules of Court, assailing the
Decision1 dated September 29, 2005 and Resolution2 dated June 9, 2006 of
the Court of Appeals (CA) in CA-G.R. CV No. 59590.
In the assailed Decision, the CA Affirmed the Decision 3 dated January 28,
1998 of the Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil
Case No. 94-00200-D, ordering petitioner Philippine Charity Sweepstakes
Office (PCSO) to surrender the owner’s duplicate of Transfer
Certificate of Title (TCT) No. 52135 to the Register of Deeds of Dagupan City
for cancellation and issuance of a new certificate of title in the name of
respondent New Dagupan Metro Gas Corporation (New Dagupan).
In its Resolution4 dated June 9, 2006, the CA denied PCSO’s motion for
reconsideration.
The Factual Antecedents
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of
land located at Bonuan Blue Beach Subdivision, Dagupan City under TCT
No. 52135. On March 8, 1989, a real estate mortgage was constituted over
such property in favor of PCSO to secure the payment of the sweepstakes
tickets purchased by one of its provincial distributors, Patricia P. Galang
(Galang). The salient provisions of the Deed of Undertaking with First Real
Estate Mortgage,5 where Galang, PCSO and Peralta were respectively
designated as "principal", "mortgagee" and "mortgagor", are as follows:
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding
and unpaid account with the MORTGAGEE in the amount of FOUR
HUNDRED FIFTY THOUSAND (P450,000.00), representing the balance of
his/her accountabilities for all draws;
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10)
days after each draw with interest at the rate of 14% per annum.
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED
FIFTY THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE,
provided that the said balance shall bear interest thereon at the rate of 14%
per annum;
To secure the faithful compliance and as security to the obligation of the
PRINCIPAL stated in the next preceding paragraph hereof, the
MORTGAGOR hereby convey unto and in favor of the MORTGAGEE, its
successor and assigns by way of its first real estate mortgage, a parcel/s of
land together with all the improvements now or hereafter existing thereon
located at BOQUIG, DAGUPAN CITY, covered by TCT No. 52135, of the
Register of Deeds of DAGUPAN CITY, and more particularly described as
follows:
xxxx
4. During the lifetime of this mortgage, the MORTGAGOR shall not alienate,
sell, or in any manner dispose of or encumber the above-mentioned property,
without the prior written consent of the MORTGAGEE;
xxxx
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above undertaking is
considered terminated.6
On July 31, 1990, Peralta sold, under a conditional sale, the subject property
to New Dagupan, the conveyance to be absolute upon the latter’s full
payment of the price of P800,000.00. New Dagupan obliged to pay Peralta
P200,000.00 upon the execution of the corresponding deed and the balance
of P600,000.00 by monthly instalments of P70,000.00, the first instalment
falling due on August 31, 1990. Peralta showed to New Dagupan a
photocopy of TCT No. 52135, which bore no liens and encumbrances, and
undertook to deliver the owner’s duplicate within three (3) months from the
execution of the contract.7
New Dagupan withheld payment of the last instalment, which was intended
to cover the payment of the capital gains tax, in view of Peralta’s failure to
deliver the owner’s duplicate of TCT No. 52135 and to execute a deed of
absolute sale in its favor. Further, New Dagupan, through its President,
Julian Ong Cuña (Cuña), executed an affidavit of adverse claim, which was
annotated on TCT No. 52135 on October 1, 1991 as Entry No. 14826.8
In view of Peralta’s continued failure to deliver a deed of absolute sale and
the owner’s duplicate of the title, New Dagupan filed a complaint for specific
performance against her with the RTC on February 28, 1992. New
Dagupan’s complaint was raffled to Branch 43 and docketed as Civil Case
No. D-10160.
On May 20, 1992, during the pendency of New Dagupan’s complaint against
Peralta, PCSO caused the registration of the mortgage.9
On February 10, 1993, PCSO filed an application for the extrajudicial
foreclosure sale of the subject property in view of Galang’s failure to fully pay
the sweepstakes she purchased in 1992.10 A public auction took place on
June 15, 1993 where PCSO was the highest bidder. A certificate of sale was
correspondingly issued to PCSO.11
The certified true copy of TCT No. 52135 that New Dagupan obtained from
the Register of Deeds of Dagupan City for its use in Civil Case No. D-10160
reflected PCSO’s mortgage lien. New Dagupan, claiming that it is only then
that it was informed of the subject mortgage, sent a letter to PCSO on
October 28, 1993, notifying the latter of its complaint against Peralta and its
claim over the subject property and suggesting that PCSO intervene and
participate in the case.
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving
the compromise agreement between Peralta and New Dagupan. Some of the
stipulations made are as follows:
3. For her failure to execute, sign and deliver a Deed of Absolute
Sale to plaintiff by way of transferring TCT No. 52135 in the name of
the latter, defendant hereby waives and quitclaims the remaining
balance of the purchase price in the amount of P60,000.00 in favor
of the plaintiff, it being understood that the said amount shall be
treated as a penalty for such failure;
xxxx
6. Upon the signing of this compromise agreement, possession and
ownership of the above described property, together with all the
improvements existing thereon, are hereby vested absolutely upon,
and transferred to the plaintiff whom the defendant hereby declares
and acknowledges to be the absolute owner thereof, now and
hereafter;
7. This compromise agreement shall be without prejudice to
whatever rights and remedies, if any, that the Philippine Charity
Sweepstakes Office has against the herein defendant and Patricia P.
Galang under the Deed of Undertaking adverted to under par. 2(f)
hereof.12
As the RTC Branch 43 Decision dated January 21, 1994 became final and
executory, New Dagupan once again demanded Peralta’s delivery of the
owner’s duplicate of TCT No. 52135. Also, in a letter dated March 29, 1994,
New Dagupan made a similar demand from PCSO, who in response, stated
that it had already foreclosed the mortgage on the subject property and it has
in its name a certificate of sale for being the highest bidder in the public
auction that took place on June 15, 1993.
Thus, on June 1, 1994, New Dagupan filed with the RTC a petition against
PCSO for the annulment of TCT No. 52135 or surrender of the owner’s
duplicate thereof.13 The petition was docketed as Civil Case No. 94-00200-D
and raffled to Branch 43.
In an Answer14 dated March 7, 1995, PCSO alleged that: (a) New Dagupan
was a buyer in bad faith; (b) New Dagupan and Peralta colluded to deprive
PCSO of its rights under the subject mortgage; (c) New Dagupan is estopped
from questioning the superior right of PCSO to the subject property when it
entered into the compromise agreement subject of the RTC Branch 43
Decision dated January 21, 1994; and (d) New Dagupan is bound by the
foreclosure proceedings where PCSO obtained title to the subject property.
In a Motion for Leave to File Third-Party Complaint15 dated April 17, 1995,
PCSO sought the inclusion of Peralta and Galang who are allegedly
indispensable parties. In its Third-Party Complaint,16 PCSO reiterated its
allegations in its Answer dated March 7, 1995 and made the further claim
that the sale of the subject property to New Dagupan is void for being
expressly prohibited under the Deed of Undertaking with First Real Estate
Mortgage.
In their Answer to Third-Party Complaint with Counterclaims17 dated January
2, 1996, Peralta and Galang claimed that: (a) the provision in the Deed of
Undertaking with First Real Estate Mortgage prohibiting the sale of the
subject property is void under Article 2130 of the Civil Code; (b) PCSO’s
failure to intervene in Civil Case No. D-10160 despite notice barred it from
questioning the sale of the subject property to New Dagupan and the
compromise agreement approved by the RTC Branch 43; (c) it was due to
PCSO’s very own neglect in registering its mortgage lien that preference is
accorded to New Dagupan’s rights as a buyer of the subject property; and (d)
PCSO no longer has any cause of action against them following its decision
to foreclose the subject mortgage.
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42,
after the presiding judge of Branch 43 inhibited himself.
On January 28, 1998, the RTC Branch 42 rendered a Decision18 in New
Dagupan’s favor, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and
against the defendant, ordering PCSO to deliver the owner’s duplicate copy
of TCT No. 52135 in its possession to the Registry of Deeds of Dagupan City
for the purpose of having the decision in favor of the petitioner annotated at
the back thereof. Should said defendant fail to deliver the said title within 30
days from the date this decision becomes final and executory, the said
owner’s duplicate certificate of title is hereby cancelled and the Register of
Deeds can issue a new one carrying all the encumbrances of the original
owner’s duplicate subject of this case. Further, the defendant is ordered to
pay to petitioner the sum of Ten Thousand Pesos (P10,000.00) as attorney’s
fees. It is also ordered to pay costs.
SO ORDERED.19
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith,
ratiocinating that:
In other words, the evidence of the petitioner would show that although the
Deed of Undertaking with First Real Estate Mortgage was executed on
March 8, 1989 its annotation was made long after the conditional sale in
favor of the petitioner was executed and annotated at the back of the title in
question. Because of the said exhibits, petitioner contended that it was a
buyer in good faith and for value.
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged
that Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong
Cuña to the effect that when defendants sold the property to petitioner only
the xerox copy of the title was shown and petitioner should have verified the
original as it was a buyer in bad faith. Defendant also alleged that the
decision in Civil Case D-10160 dated January 21, 1994 would show that
there was a collusion between the petitioner and the third-party defendants.
The Court cannot go along with the reasoning of the defendant because what
was shown to Mr. Cuña by the third-party defendants was Exhibit "C" which
did not carry any encumbrance at the back of the subject title and the
annotation made on May 20, 1992 in favor of the PCSO. Mr. Cuña verified
the title x x x but the encumbrance on the title was not still there at [that] time.
One thing more, there was nothing indicated in the decision in Civil Case No.
D-10160 that petitioner already knew that there was already a mortgage in
favor of the PCSO. Worst, defendant did not even introduce any oral
evidence to show that petitioner was in bad faith except the manifestations of
counsel. Unfortunately, manifestations could not be considered evidence.
xxxx
Defendant should not be allowed to profit from its negligence of not
registering the Deed of Undertaking with First Real Estate Mortgage in its
favor.20
Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject
property is void. Specifically:
Suffice it to say that there is no law prohibiting a mortgagor from
encumbering or alienating the property mortgaged. On the contrary, there is
a law prohibiting an agreement forbidding the owner from alienating a
mortgaged property. We are referring to Article 2130 of the New Civil Code
which provides as follows:
"A stipulation forbidding the owner from alienating the immovable mortgage
shall be void."21
Moreover, the RTC Branch 42 ruled that PCSO had no right to foreclose the
subject mortgage as the land in question had already been disencumbered
after Galang’s full payment of all the sweepstakes tickets she purchased in
1989 and 1990.
It should be recalled that Amparo Abrigo, OIC Chief of the Credit Accounts
Division of the PCSO, admitted not only once but twice that Patricia Galang
has no more liability with the PCSO for the years 1989 and 1990 x x x.
Another witness, Carlos Castillo who is the OIC of the Sales Department of
the PCSO, joined Amparo Abrigo in saying that Patricia Galang has already
paid her liability with the PCSO for the years 1989 and 1990 x x x. Thus, the
undertaking was already discharged. Both of the said witnesses of the PCSO
alleged that the undertaking has been re-used by Patricia Galang for the
years 1991 to 1992 yet there is no proof whatsoever showing that Purita
Peralta consented to the use of the undertaking by Patricia Galang for 1991
to 1992. Incidentally, it is not far-fetched to say that Purita Peralta might have
thought that the undertaking was already discharged which was the reason
she executed the Deed of Conditional Sale x x x in favor of petitioner in 1990.
That being the case, the foreclosure sale in favor of the PCSO has no legal
leg to stand as the Deed of Undertaking with First Real Estate Mortgage has
already been discharged before the foreclosure sale was conducted. 22
According to the RTC Branch 42, the intent to use the subject property as
security for Galang’s purchases for the years after 1989, as PCSO claimed,
is not clear from the Deed of Undertaking with First Real Estate Mortgage:
Was it not provided in the deed that the undertaking would be for "all draws".
That might be true but the terms of the Contract should be understood to
mean only to cover the draws relative to the current liabilities of Patricia
Galang at the time of the execution of the undertaking in 1989. It could have
not been agreed upon that it should also cover her liability for 1991 up to
1992 because if that was the intention of the parties, the undertaking should
have so provided expressly. The term of the undertaking with respect to the
period was ambiguous but any ambiguity in the Contract should be resolved
against PCSO because the form used was a standard form of the defendant
and it appeared that it was its lawyers who prepared it, therefore, it was the
latter which caused the ambiguity.23
PCSO’s appeal from the foregoing adverse decision was dismissed. By way
of its assailed decision, the CA did not agree with PCSO’s claim that the
subject mortgage is in the nature of a continuing guaranty, holding that
Peralta’s undertaking to secure Galang’s liability to PCSO is only for a period
of one year and was extinguished when Peralta completed payment on the
sweepstakes tickets she purchased in 1989.
The instant appeal must fail. There is nothing in the Deed of Undertaking with
First Real Estate Mortgage, expressly or impliedly, that would indicate that
Peralta agreed to let her property be burdened as long as the contract of
undertaking with real estate mortgage was not cancelled or revoked. x x x
xxxx
A perusal of the deed of undertaking between the PCSO and Peralta would
reveal nothing but the undertaking of Peralta to guarantee the payment of the
pre-existing obligation of Galang, constituting the unpaid sweepstakes tickets
issued to the latter before the deed of undertaking was executed, with the
PCSO in the amount of P450,000.00. No words were added therein to show
the intention of the parties to regard it as a contract of continuing guaranty. In
other jurisdictions, it has been held that the use of the particular words and
expressions such as payment of "any debt", "any indebtedness", "any
deficiency", or "any sum", or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time", or "on such time" that the
principal debtor may require, have been construed to indicate a continuing
guaranty. Similar phrases or words of the same import or tenor are not extant
in the deed of undertaking. The deed of undertaking states:
"WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding
and unpaid account with the MORTGAGEE in the amount of FOUR
HUNDRED FIFTY THOUSAND (P450,000.00), representing the balance of
his/her ticket accountabilities for all draws."
xxxx
Upon full payment of the principal obligation, which from the testimonies of
the officers of the PCSO had been paid as early as 1990, the subsidiary
contract of guaranty was automatically terminated. The parties have not
executed another contract of guaranty to secure the subsequent obligations
of Galang for the tickets issued thereafter. It must be noted that a contract of
guaranty is not presumed; it must be express and cannot extend to more
than what is stipulated therein.
xxxx
The arguments of PCSO fail to persuade us. The phrase "for all draws" is
limited to the draws covered by the original transaction. In its pleadings, the
PCSO asserted that the contract of undertaking was renewed and the
collateral was re-used by Galang to obtain again tickets from the PCSO after
she had settled her account under the original contract. From such
admission, it is thus clear that the contract is not in the nature of a continuing
guaranty. For a contract of continuing guaranty is not renewed as it is
understood to be of a continuing nature without the necessity of renewing the
same every time a new transaction contemplated under the original contract
is entered into. x x x 24 (Citations omitted)
In this petition, PCSO claims that the CA erred in holding that the subject
mortgage had been extinguished by Galang’s payment of P450,000.00,
representing the amount of the sweepstakes tickets she purchased in 1989.
According to PCSO, the said amount is actually the credit line granted to
Galang and the phrase "all draws" refers to her ticket purchases for
subsequent years drawn against such credit line. Consequently, PCSO
posits, the subject mortgage had not been extinguished by Peralta’s payment
of her ticket purchases in 1989 and its coverage extends to her purchases
after 1989, which she made against the credit line that was granted to her.
That when Galang failed to pay her ticket purchases in 1992, PCSO’s right to
foreclose the subject mortgage arose.
PCSO also maintains that its rights over the subject property are superior to
those of New Dagupan. Considering that the contract between New Dagupan
is a conditional sale, there was no conveyance of ownership at the time of
the execution thereof on July 31, 1989. It was only on January 21, 1994, or
when the RTC Branch 43 approved the compromise agreement, that a
supposed transfer of title between Peralta and New Dagupan took place.
However, since PCSO had earlier foreclosed the subject mortgage and
obtained title to the subject property as evidenced by the certificate of sale
dated June 15, 1993, Peralta had nothing to cede or assign to New
Dagupan.
PCSO likewise attributes bad faith to New Dagupan, claiming that Peralta’s
presentation of a mere photocopy of TCT No. 52135, albeit without any
annotation of a lien or encumbrance, sufficed to raise reasonable suspicions
against Peralta’s claim of a clean title and should have prompted it to
conduct an investigation that went beyond the face of TCT No. 52135.
PCSO even assails the validity of the subject sale for being against the
prohibition contained in the Deed of Undertaking with First Real Estate
Mortgage.
New Dagupan, in its Comment,25 avers that it was a purchaser in good faith
and it has a superior right to the subject property, considering that PCSO’s
mortgage lien was annotated only on May 20, 1992 or long after the
execution of the conditional sale on July 31, 1990 and the annotation of New
Dagupan’s adverse claim on October 1, 1991. While the subject mortgage
antedated the subject sale, PCSO was already aware of the latter at the time
of its belated registration of its mortgage lien. PCSO’s registration was
therefore in bad faith, rendering its claim over the subject property defeasible
by New Dagupan’s adverse claim.
New Dagupan also claims that the subject property had already been
discharged from the mortgage, hence, PCSO had nothing to foreclose when
it filed its application for extra-judicial foreclosure on February 10, 1993. The
subject mortgage was intended to secure Galang’s ticket purchases that
were outstanding at the time of the execution of the same, the amount of
which has been specified to be P450,000.00 and does not extend to
Galang’s future purchases. Thus, upon Galang’s full payment of
P450,000.00, which PCSO admits, the subject mortgage had been
automatically terminated as expressly provided under Section 15 of the Deed
of Undertaking with First Real Estate Mortgage quoted above.
Issue
The rise and fall of this recourse is dependent on the resolution of the issue
who between New Dagupan and PCSO has a better right to the property in
question.
Our Ruling
PCSO is undeterred by the denial of its appeal to the CA and now seeks to
convince this Court that it has a superior right over the subject property.
However, PCSO’s resolve fails to move this Court and the ineluctability of the
denial of this petition is owing to the following:
a. At the time of PCSO’s registration of its mortgage lien on May 20,
1992, the subject mortgage had already been discharged by
Galang’s full payment of P450,000.00, the amount specified in the
Deed of Undertaking with First Real Estate Mortgage;
b. There is nothing in the Deed of Undertaking with First Real Estate
Mortgage that would indicate that it is a continuing security or that
there is an intent to secure Galang’s future debts;
c. Assuming the contrary, New Dagupan is not bound by PCSO’s
mortgage lien and was a purchaser in good faith and for value; and
d. While the subject mortgage predated the sale of the subject
property to New Dagupan, the absence of any evidence that the
latter had knowledge of PCSO’s mortgage lien at the time of the sale
and its prior registration of an adverse claim created a preference in
its favor.
I
As a general rule, a mortgage liability is usually limited to the amount
mentioned in the contract. However, the amounts named as consideration in
a contract of mortgage do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered.26
Alternatively, while a real estate mortgage may exceptionally secure future
loans or advancements, these future debts must be specifically described in
the mortgage contract. An obligation is not secured by a mortgage unless it
comes fairly within the terms of the mortgage contract.27
The stipulation extending the coverage of a mortgage to advances or loans
other than those already obtained or specified in the contract is valid and has
been commonly referred to as a "blanket mortgage" or "dragnet" clause. In
Prudential Bank v. Alviar,28 this Court elucidated on the nature and purpose
of such a clause as follows:
A "blanket mortgage clause," also known as a "dragnet clause" in American
jurisprudence, is one which is specifically phrased to subsume all debts of
past or future origins. Such clauses are "carefully scrutinized and strictly
construed." Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A "dragnet clause"
operates as a convenience and accommodation to the borrowers as it makes
available additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra
legal services, recording fees, et cetera. x x x.29 (Citations omitted)
A mortgage that provides for a dragnet clause is in the nature of a continuing
guaranty and constitutes an exception to the rule than an action to foreclose
a mortgage must be limited to the amount mentioned in the mortgage
contract. Its validity is anchored on Article 2053 of the Civil Code and is not
limited to a single transaction, but contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time or until
revoked. It is prospective in its operation and is generally intended to provide
security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the
guarantor becomes liable. In other words, a continuing guaranty is one that
covers all transactions, including those arising in the future, which are within
the description or contemplation of the contract of guaranty, until the
expiration or termination thereof.30
In this case, PCSO claims the subject mortgage is a continuing guaranty.
According to PCSO, the intent was to secure Galang’s ticket purchases other
than those outstanding at the time of the execution of the Deed of
Undertaking with First Real Estate Mortgage on March 8, 1989 such that it
can foreclose the subject mortgage for Galang’s non-payment of her ticket
purchases in 1992. PCSO does not deny and even admits that Galang had
already settled the amount of P450,000.00. However, PCSO refuses to
concede that the subject mortgage had already been discharged, claiming
that Galang had unpaid ticket purchases in 1992 and these are likewise
secured as evidenced by the following clause in the Deed of Undertaking
with First Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10)
days after each draw with interest at the rate of 14% per annum;31
This Court has to disagree with PCSO in view of the principles quoted above.
A reading of the other pertinent clauses of the subject mortgage, not only of
the provision invoked by PCSO, does not show that the security provided in
the subject mortgage is continuing in nature. That the subject mortgage shall
only secure Galang’s liability in the amount of P450,000.00 is evident from
the following:
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding
and unpaid account with the MORTGAGEE in the amount of FOUR
HUNDRED FIFTY THOUSAND (P450,000.00), representing the balance of
his/her ticket accountabilities for all draws;
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED
FIFTY THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE,
provided that the said balance shall bear interest thereon at the rate of 14%
per annum;
To secure the faithful compliance and as security to the obligation of the
PRINCIPAL stated in the next preceding paragraph hereof, the
MORTGAGOR hereby convey unto and in favor of the MORTGAGEE, its
successor and assigns by way of its first real estate mortgage, a parcel/s of
land together with all the improvements now or hereafter existing thereon,
located at BOQUIG, DAGUPAN CITY, covered by TCT No. 52135, of the
Register of Deeds of DAGUPAN CITY, and more particularly described as
follows:32
As the CA correctly observed, the use of the terms "outstanding" and
"unpaid" militates against PCSO’s claim that future ticket purchases are
likewise secured. That there is a seeming ambiguity between the provision
relied upon by PCSO containing the phrase "after each draw" and the other
provisions, which mention with particularity the amount of P450,000.00 as
Galang’s unpaid and outstanding account and secured by the subject
mortgage, should be construed against PCSO. The subject mortgage is a
contract of adhesion as it was prepared solely by PCSO and the only
participation of Galang and Peralta was the act of affixing their signatures
thereto.
Considering that the debt secured had already been fully paid, the subject
mortgage had already been discharged and there is no necessity for any act
or document to be executed for the purpose. As provided in the Deed of
Undertaking with First Real Estate Mortgage:
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above-undertaking is
considered terminated.33
Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the
execution of an instrument in order for a mortgage to be cancelled or
discharged. However, this rule presupposes that there has been a prior
registration of the mortgage lien prior to its discharge. In this case, the
subject mortgage had already been cancelled or terminated upon Galang’s
full payment before PCSO availed of registration in 1992. As the subject
mortgage was not annotated on TCT No. 52135 at the time it was
terminated, there was no need for Peralta to secure a deed of cancellation in
order for such discharge to be fully effective and duly reflected on the face of
her title.
Therefore, since the subject mortgage is not in the nature of a continuing
guaranty and given the automatic termination thereof, PCSO cannot claim
that Galang’s ticket purchases in 1992 are also secured. From the time the
amount of P450,000.00 was fully settled, the subject mortgage had already
been cancelled such that Galang’s subsequent ticket purchases are
unsecured. Simply put, PCSO had nothing to register, much less, foreclose.
Consequently, PCSO’s registration of its non-existent mortgage lien and
subsequent foreclosure of a mortgage that was no longer extant cannot
defeat New Dagupan’s title over the subject property.
II
Sections 51 and 53 of P.D. No. 1529 provide:
Section 51. Conveyance and other dealings by registered owner. An owner
of registered land may convey, mortgage, lease, charge or otherwise deal
with the same in accordance with existing laws. He may use such forms of
deeds, mortgages, leases or other voluntary instrument, except a will
purporting to convey or affect registered land, but shall operate only as a
contract between the parties and as evidence of authority to the Register of
Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land
insofar as third persons are concerned, and in all cases under this Decree,
the registration shall be made in the office of the Register of Deeds for the
province or city where the land lies.
Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed or entered in the office of the
Register of Deeds for the province or city where the land to which it relates
lies, be constructive notice to all persons from the time of such registering,
filing or entering.
On the other hand, Article 2125 of the Civil Code states:
Article 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the
parties.
The persons in whose favor the law establishes a mortgage have no other
right than to demand the execution and the recording of the document in
which the mortgage is formalized.
Construing the foregoing conjunctively, as to third persons, a property
registered under the Torrens system is, for all legal purposes, unencumbered
or remains to be the property of the person in whose name it is registered,
notwithstanding the execution of any conveyance, mortgage, lease, lien,
order or judgment unless the corresponding deed is registered.
The law does not require a person dealing with the owner of registered land
to go beyond the certificate of title as he may rely on the notices of the
encumbrances on the property annotated on the certificate of title or absence
of any annotation.35 Registration affords legal protection such that the claim
of an innocent purchaser for value is recognized as valid despite a defect in
the title of the vendor.36
In Cruz v. Bancom Finance Corporation,37 the foregoing principle was
applied as follows:
Second, respondent was already aware that there was an adverse claim and
notice of lis pendens annotated on the Certificate of Title when it registered
the mortgage on March 14, 1980. Unless duly registered, a mortgage does
not affect third parties like herein petitioners, as provided under Section 51 of
PD NO. 1529, which we reproduce hereunder:
xxxx
True, registration is not the operative act for a mortgage to be binding
between the parties. But to third persons, it is indispensible. In the present
case, the adverse claim and the notice of lis pendens were annotated on the
title on October 30, 1979 and December 10, 1979, respectively; the real
estate mortgage over the subject property was registered by respondent only
on March 14, 1980. Settled in this jurisdiction is the doctrine that a prior
registration of a lien creates a preference. Even a subsequent registration of
the prior mortgage will not diminish this preference, which retroacts to the
date of the annotation of the notice of lis pendens and the adverse claim.
Thus, respondent’s failure to register the real estate mortgage prior to these
annotations, resulted in the mortgage being binding only between it and the
mortgagor, Sulit. Petitioners, being third parties to the mortgage, were not
bound by it. Contrary to respondent’s claim that petitioners were in bad faith
because they already had knowledge of the existence of the mortgage in
favor of respondent when they caused the aforesaid annotations, petitioner
Edilberto Cruz said that they only knew of this mortgage when respondent
intervened in the RTC proceedings.38 (Citations omitted)
It is undisputed that it was only on May 20, 1992 that PCSO registered its
mortgage lien. By that time, New Dagupan had already purchased the
subject property, albeit under a conditional sale. In fact, PCSO’s mortgage
lien was yet to be registered at the time New Dagupan filed its adverse claim
on October 1, 1991 and its complaint against Peralta for the surrender of the
owner’s duplicate of TCT No. 52135 on February 28, 1992. It was only during
the pendency of Civil Case No. D-10160, or sometime in 1993, that New
Dagupan was informed of PCSO’s mortgage lien. On the other hand, PCSO
was already charged with knowledge of New Dagupan’s adverse claim at the
time of the annotation of the subject mortgage. PCSO’s attempt to conceal
these damning facts is palpable. However, they are patent from the records
such that there is no gainsaying that New Dagupan is a purchaser in good
faith and for value and is not bound by PCSO’s mortgage lien.
A purchaser in good faith and for value is one who buys property of another,
without notice that some other person has a right to, or interest in, such
property, and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other
person in the property.39 Good faith is the opposite of fraud and of bad faith,
and its non-existence must be established by competent proof.40 Sans such
proof, a buyer is deemed to be in good faith and his interest in the subject
property will not be disturbed. A purchaser of a registered property can rely
on the guarantee afforded by pertinent laws on registration that he can take
and hold it free from any and all prior liens and claims except those set forth
in or preserved against the certificate of title.41
This Court cannot give credence to PCSO’s claim to the contrary. PCSO did
not present evidence, showing that New Dagupan had knowledge of the
mortgage despite its being unregistered at the time the subject sale was
entered into. Peralta, in the compromise agreement, even admitted that she
did not inform New Dagupan of the subject mortgage.42 PCSO’s only basis
for claiming that New Dagupan was a buyer in bad faith was the latter’s
reliance on a mere photocopy of TCT No. 52135. However, apart from the
fact that the facsimile bore no annotation of a lien or encumbrance, PCSO
failed to refute the testimony of Cuña that his verification of TCT No. 52135
with the Register of Deeds of Dagupan City confirmed Peralta’s claim of a
clean title.
Since PCSO had notice of New Dagupan’s adverse claim prior to the
registration of its mortgage lien, it is bound thereby and thus legally
compelled to respect the proceedings on the validity of such adverse claim. It
is therefore of no moment if PCSO’s foreclosure of the subject mortgage and
purchase of the subject property at the auction sale took place prior to New
Dagupan’s acquisition of title as decreed in the Decision dated January 21,
1994 of RTC Branch 43. The effects of a foreclosure sale retroact to the date
the mortgage was registered.43 Hence, while PCSO may be deemed to have
acquired title over the subject property on May 20, 1992, such title is
rendered inferior by New Dagupan’s adverse claim, the validity of which was
confirmed per the Decision dated January 21, 1994 of RTC Branch 43.
Otherwise, if PCSO’s mortgage lien is allowed to prevail by the mere
expediency of registration over an adverse claim that was registered ahead
of time, the object of an adverse claim – to apprise third persons that any
transaction regarding the disputed property is subject to the outcome of the
dispute – would be rendered naught. A different conclusion would remove
the primary motivation for the public to rely on and respect the Torrens
system of registration. Such would be inconsistent with the well-settled, even
axiomatic, rule that a person dealing with registered property need not go
beyond the title and is not required to explore outside the four (4) corners
thereof in search for any hidden defect or inchoate right that may turn out to
be superior.
Worthy of extrapolation is the fact that there is no conflict between the
disposition of this case and Garbin v. CA44where this Court decided the
controversy between a buyer with an earlier registered adverse claim and a
subsequent buyer, who is charged with notice of such adverse claim at the
time of the registration of her title, in favor of the latter. As to why the adverse
claim cannot prevail against the rights of the later buyer notwithstanding its
prior registration was discussed by this Court in this wise:
It is undisputed that the adverse claim of private respondents was registered
pursuant to Sec. 110 of Act No. 496, the same having been accomplished by
the filing of a sworn statement with the Register of Deeds of the province
where the property was located. However, what was registered was merely
the adverse claim and not the Deed of Sale, which supposedly conveyed the
northern half portion of the subject property. Therefore, there is still need to
resolve the validity of the adverse claim in separate proceedings, as there is
an absence of registration of the actual conveyance of the portion of land
herein claimed by private respondents.
From the provisions of the law, it is clear that mere registration of an adverse
claim does not make such claim valid, nor is it permanent in character. More
importantly, such registration does not confer instant title of ownership since
judicial determination on the issue of the ownership is still
necessary.45 (Citation omitted)
Apart from the foregoing, the more important consideration was the improper
resort to an adverse claim.1âwphi1 In L.P. Leviste & Co. v. Noblejas,46 this
Court emphasized that the availability of the special remedy of an adverse
claim is subject to the absence of any other statutory provision for the
registration of the claimant’s alleged right or interest in the property. That if
the claimant’s interest is based on a perfected contract of sale or any
voluntary instrument executed by the registered owner of the land, the
procedure that should be followed is that prescribed under Section 51 in
relation to Section 52 of P.D. No. 1529. Specifically, the owner’s duplicate
certificate must be presented to the Register of Deeds for the inscription of
the corresponding memorandum thereon and in the entry day book. It is only
when the owner refuses or fails to surrender the duplicate certificate for
annotation that a statement setting forth an adverse claim may be filed with
the Register of Deeds. Otherwise, the adverse claim filed will not have the
effect of a conveyance of any right or interest on the disputed property that
could prejudice the rights that have been subsequently acquired by third
persons.

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

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

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

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

At any rate, in Sajonas v.CA,47 this Court clarified that there is no necessity
for a prior judicial determination of the validity of an adverse claim for it to be
considered a flaw in the vendor’s title as that would be repugnant to the very
purpose thereof.48

WHEREFORE, premises considered, the petition is DISMISSED and the

Decision dated September 29, 2005 and Resolution dated June9, 2006 of
the Court of Appeals in CA-G.R. CV No. 59590 are hereby AFFIRMED.

SO ORDERED.
Spouses PADERES vs. The Hon. COURT OF APPEALS
(G. R. No. 147074 & G. R. No. 147075, July 15, 2005)
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 Bergado seek the reversal of the September 20, 2000 Decision 3 and
February 16, 2001 Resolution of the Court of Appeals, which dismissed their
original Petition and denied their Motion for Reconsideration, respectively.
On September 14, 1982, Manila International Construction Corporation
(MICC) executed a real estate mortgage4 over 21 registered parcels of land
including the improvements thereon in favor of Banco Filipino Savings and
Mortgage Bank (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 corresponding transfer certificates of title (TCTs) covering
the properties onDecember 17, 1982.5
The 21 mortgaged properties included two lots, one with an area of 264
square meters, and the other with an area of 263, both located in the then
Municipality of Parañaque (now Parañaque City) covered by TCT Nos.
610626 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
On January 25, 1985, for failure of MICC to settle its obligations, Banco
Filipino filed a verified Petition12 for the extrajudicial foreclosure of MICC’s
mortgage. At the auction sale of the foreclosed properties on March 25,
1985, Banco Filipino submitted a bid of P3,092,547.82 and was declared the
highest bidder. A Certificate 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.
No redemption of the foreclosed mortgage having been made within the
reglementary period, Carlota P. Valenzuela, the then Liquidator of Banco
Filipino, filed on October 16, 1987 an ex parte Petition14 for the issuance of a
Writ of Possession of the foreclosed properties with the Regional Trial Court
(RTC) of Makati. After hearing, the Petition was granted by Order dated
September 8, 198815 of Branch 59 of the RTC.
On November 7, 1996, copies of the Writ of Possession dated November 5,
1996, together with a notice addressed to MICC "and/or All persons claiming
rights under them" to voluntarily vacate the premises within 7 days from
receipt thereof, were served on petitioners.16
Instead of vacating the two lots, however, petitioners filed separate petitions
before the Court of Appeals, docketed as C.A. G.R. Numbers 42470 and
42471 which were later consolidated,17 assailing the validity of the Writ of
Possession.
On September 20, 2000, the Court of Appeals promulgated its questioned
Decision18 dismissing the consolidated petitions for lack of merit and
upholding the validity of the Writ of Possession.
Petitioners’ Motion for Reconsideration of the appellate court’s decision
having 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 Filipino; (2) they are still entitled to redeem the
properties and in fact a binding 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 properties; (4) on the contrary, as builders
in good faith, they are entitled to the 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 and efficacy.
The petition must be denied.
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
possession of the foreclosed property,19 is governed by Section 7 of Act No.
3135 (an act to regulate the sale of property under special powers inserted in
or annexed to real estate mortgages), as amended:
Sec. 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the
property or any part thereof is situated, to give him possession thereof during
the redemption period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the debtor in case it
be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion in the registration or
cadastral proceedings if the property is registered, or in special proceedings
in the case of property registered under the Mortgage Law or under section
one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any
register of deeds in accordance with any existing law, and in each case the
clerk of the court shall, upon the filing of such petition, collect the fees
specified in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act Numbered
Twenty-eight hundred and sixty-six, and the court shall, upon approval of the
bond, order that a writ of possession issue, addressed to the sheriff of the
province in which the property is situated, who shall execute said order
immediately.
That petitioners purchased their properties from MICC in good faith is of no
moment. The purchases took place afterMICC’s mortgage to Banco Filipino
had been registered in accordance with Article 212520 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 already been established, subsisting over the properties
until the discharge of the principal obligation, whoever the possessor(s) of
the land might be.
In rejecting a similar argument, this Court, in Philippine National Bank v.
Mallorca,24 ratiocinated:
1. Appellant’s stand is that her undivided interest consisting of 20,000 square
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 bank. What PNB foreclosed, she
maintains, "was that portion belonging to Ruperta Lavilles only," not the part
belonging to her.
Appellant’s position clashes with precepts well-entrenched in law. By Article
2126 of the Civil Code, a "mortgage directly and immediately subjects the
property on which it is imposed, whoever the possessor may be, to the
fulfillment of the obligation for whose security it was constituted." Sale or
transfer cannot affect or release the mortgage. A purchaser is
necessarily bound to acknowledge and respect the encumbrance to
which is subjected the purchased thing and which is at the disposal of
the creditor "in order that he, under the terms of the contract, may
recover the amount of his credit therefrom." For, a recorded real estate
mortgage is a right in rem, a lien on the property whoever its owner
may be. Because the personality of the owner is disregarded; the
mortgage subsists notwithstanding changes of ownership; the last
transferee is just as much of a debtor as the first one; and this,
independent of whether the transferee knows or not the person of the
mortgagee. So it is, that a mortgage lien is inseperable from the
property mortgaged. All subsequent purchasers thereof must respect
the mortgage, whether the transfer to them be with or without the
consent of the mortgagee. For, the mortgage, until discharge, follows
the property.25 (Emphasis and underscoring supplied; italics in the original;
citations omitted)
And in Roxas v. Buan26 this Court held:
Contending that petitioner Roxas is a party actually holding the property
adversely 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 whether, under the circumstances, petitioner Roxas
indeed is a party actually holding the property adversely to Valentin.
It will be recalled that Roxas' possession of the property was premised
on its alleged sale to him by Valentin for the amount of P100,000.00.
Assuming this to 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 from that of Valentin. As
transferee, he steps into the latter's shoes. Thus, in the instant case,
considering that the property had already been sold at public auction
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 law. Roxas is therefore the successor-in-interest
of Valentin, to whom the latter 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 of the
property cannot be considered adverse to Valentin.
Thus, in Belleza v. Zandaga [98 Phil. 702 (1956)], the Court held that where
the 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 be a "successor-in-interest of the judgment
debtor," unless it is adjudged that the alleged successor has a better right to
the property than the purchaser at the 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 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].
The rule in Belleza, although relating to the possession of property sold in
execution sales under what is now Sec. 35, Rule 39 of the Revised Rules of
Court, is also applicable to the possession of property sold at extrajudicial
foreclosure sales pursuant to Sec. 6 of Act No. 3135 [see IFC Service
Leasing and Acceptance Corp. v. Nera, supra]. Thus, as petitioner Roxas is
not a party holding the property adversely to Valentin, being the latter's
successor-in-interest, there was no bar to the respondent trial court's
issuance of a writ of possession upon private respondent Buan's
application.
It does not matter that petitioner Roxas was not specifically named in the writ
of 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 house as Roxas' alleged tenant [Rollo, p. 24]. Moreover,
respondent court's decision granting private respondent Buan's petition for
the issuance of a writ of 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 [Rollo, p. 16]. Undeniably, petitioners
fell under this category.27 (Emphasis supplied)
As transferees of mortgagor MICC, petitioners merely stepped into its shoes
and are necessarily bound to acknowledge and respect the mortgage it had
earlier executed in favor of Banco Filipino.
As for petitioners’ argument that they are still entitled to redeem the
foreclosed properties, it must be rejected too.
The debtor in extra-judicial foreclosures under Act No. 3135, or his
successor-in-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 the Certificate of Sale on July 29, 1985
or until July 29, 1986 for the purpose.
Petitioners, however, failed to do so. Ownership of the subject properties was
thus consolidated in favor of Banco Filipino,29 and TCT Nos. 112352 (in lieu
of TCT No. 61078) and 112353 (in lieu of TCT No. 61062) were issued in its
name.
As this Court held in F. David Enterprises v. Insular Bank of Asia and
America:30
It is settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period
of one year after the registration of the sale. As such, he is entitled to
the possession of the said property and can demand it at any time
following the consolidation of ownership in his name and the issuance
to him of a new transfer certificate of title. The buyer can in fact demand
possession of the land even during the redemption period except that he has
to post a bond in accordance with Section 7 of Act No. 3135 as amended. No
such bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right of
the purchaser as confirmed owner. Upon proper application and proof
of title, the issuance of the writ of possession becomes a ministerial
duty of the court.31 (Emphasis supplied)
Petitioners assert, however, that a binding agreement for the repurchase of
the subject properties was reached with Banco Filipino as, so they claim,
reflected in the following exchange of communications:
October 17, 1996
Mrs. Luz B. Dacasin
Asst. Vice-President
Real Estate Dept.
Banco Filipino Savings and Mortgage Bank
101 Paseo De Roxas cro. [sic] Dela Rosa Sts.
Makati City
Dear Madam:
I am writing to you, on behalf of spouses Sonia and Rodrigo Paderes re: TCT
No. 61078 formerly owned by Manila International Construction Corporation
(MICC for short) now TCT No. 112352, registered in the name of Banco
Filipino Savings and Mortgage Bank in July 30, 1996 at the Register of
Deeds of Parañaque, Metro Manila. Incidentally, the property is denominated
as Block 48, Lot 5 located at Leon Florentino St., BF Executive , Parañaque,
Metro Manila.
The background facts of TCT No. 61078 are as follows:
In August 1983, the MICC executed a Deed of Absolute Sale of that lot
covered by TCT No. 61078 in favor of spouses Sonia and Rodrigo Paderes
which was acknowledged before a Notary Public on October 1, 1983. The
value of the lot was P115,720.00. In the same year, the parties executed an
addendum to the said deed of absolute sale which covered a house valued
at P242,874.45. The net package price of the house and lot was fixed
at P329,405.75. From this amount, the spouses Sonia and Rodrigo Paderes
paid MICC inclusive of equity the amount of P125,437.35 leaving a balance x x x (Emphasis supplied).
of P212,985.60. The spouses moved in the house in November 1983.
October 25, 1996
Unknown to the spouses, MICC mortgaged TCT No. 61078 in favor of Banco
Filipino Savings and Mortgage Bank forP1,885.00 duly inscribed in TCT No. Mr. Luciano D. Valencia
112352 on December 12, 1982. It was foreclosed by the bank
for P3,092,547.82 pursuant to the certificate of sale executed by the sheriff Counsel for Sps. Paderes
as inscribed on TCT No. 112352 [should be TCT No. 61078] on July 29,
1985 . . .
JPA Subdivision, Muntinlupa
Then came the news that Banco Filipino Savings and Mortgage Bank was
under conservatorship by the Board of Liquidators. On the other hand, MICC Dear Sir:
became bankrupt and closed shop. The spouses were [sic] nowhere to go to
then at the time to get the title of the property they purchased from MICC. This is with regard to your letter dated October 17, 1996 concerning the
property formerly owned by Manila International Construction Corporation
Until, the spouses received a letter dated April 6, 1987 from the Board of (MICC) foreclosed by the Bank.
Liquidators via Alberto Reyes, Deputy Liquidator, informing the spouses that
the property they purchased from MICC was already foreclosed by the bank. Please inform Sps. Rodrigo and Sonia Paderes to come to the bank to
The spouses answered the letter and disclaimed any knowledge of the discuss said foreclosed property directly with the bank.
foreclosure. In their answer to the said letter, they emphasized that their
unpaid balance with MICC was P188,985.60. Thank you.

We are addressing your goodself [sic] to inform the bank that the spouses Very truly yours,
Sonia and Rodrigo Paderes are exercising their right of redemption as
subrogees of the defunct MICC under special laws. [SGD.]

From reliable information, the bank had already made appraisal of the LUZ B. DACASIN
property and from that end, may we be informed [at] the soonest
possible time the value of the property to enable the spouses to
Assistant Vice-President
prepare for such eventuality. And, upon receipt of the said appraisal
value we shall immediately inform you [of] our position on the matter.
Real Estate Department33
Thank you very much.
x x x (Emphasis supplied; italics in the original).
Very truly yours,
November 4, 1996
[SGD.]
Mrs. Luz B. Dacasin
LUCIANO D. VALENCIA
Asst. Vice-President
Counsel for Spouses Paderes
Real Estate Dept., Banco Filipino
JPA Subdivision, City of Muntinlupa32
Makati City
Dear Madam: Banco Filipino Savings & Mortgage Bank

Thank you very much for your letter dated October 25, 1996, which was Makati City
received on October 31, 1996, the contents of which had been duly noted.
Pursuant thereto I advised my clients – spouses Rodrigo and Sonia Paderes Re: Lot 18, Block 48 Gamboa St.
to see [you].
BF Homes, Parañaque, MM (264 SQ.M.)
With your indulgence, I also advised my other clients – spouses Isabelo and
Juana Herminia Bergado to go along with the spouses Paderes, who are
Occupied by Sps. Isabelo Bergado &
similarly situated with spouses Paderes property.
Juana Herminia Bergado
Incidentally, on October 28, 1996, I also wrote your goodself another letter at
the behest of spouses Isabelo and Juana Herminia Bergado whose property
is equally footed with spouses Paderes. Lot 5, Block 48, L. Florentino St.

It is hoped that, out of that conference per your invitation my clients above- BF Homes, Parañaque, MM (263 SQ.M.)
named be informed formally the total amounts due the bank as a
consequence of the right of redemption extended to them. Of course, Occupied by Sps. Rodrigo Paderes &
whatever appraised value arrived at by the bank on the properties
subject of redemption the same shall not be construed as my clients’ Sonia Paderes
committed liability.
Dear Madam Asst. Vice-President:
Thank you very much.
Pursuant to our conference this morning November 8, 1996, regarding our
Very truly yours, desire to redeem the properties above-captioned, which your good office
accommodated, and per your advi[c]e, we submit the following facts taken
[SGD.] out and our proposals:

LUCIANO D. VALENCIA 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
Counsel for Spouses Paderes high. Although, we are still to have the amount re-negotiated.

JPA Subdivision, City of Muntinlupa34 2. We appreciate very much your having excluded the house built in the said
lot for purposes of fixing the redemption price.
x x x (Emphasis supplied).
3. Your advi[c]e to subject the properties (house and lot) to a real-estate
mortgage with the bank so that the amount to be loaned will be used as
November 8, 1996 payment of the properties to be redeemed is accepted, and we are
committed to it.
Mrs. Luz B. Dacasin
Thank you very much
Asst. Vice-President
Very truly yours,
Real Estate Department
[SGD.]
SPS. SONIA &
RODRIGO PADERES
[SGD.]
SPS. ISABELO &
JUANA HERMINIA BERGADO35
(Emphasis supplied).
Petitioners’ assertion does not pass muster.
Under Article 1318 of the Civil Code, there are three essential requisites
which must concur in order to give rise to a binding contract: (1) consent of
the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established. "Consent" is
further defined in Article 1319 of the Code as follows:
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance 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 counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from
the 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. (Emphasis
supplied)
By "offer" is meant a unilateral proposition which one party makes to the
other for the celebration of the contract. There is an "offer" in the context of
Article 1319 only if the contract can come into existence by the mere
acceptance of the offeree, without any further act on the part of the offeror.
Hence, the "offer" must be definite, complete and intentional. 36
With regard to the "acceptance," a learned authority notes that:
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 established, or changed, in the acceptance, or when a
simple obligation is converted by the acceptance into an alternative one; in
other words, when something is desired which is not exactly what is
proposed in the offer. It is necessary that the acceptance be unequivocal
and unconditional, and the 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 frees the
offeror.37 (Emphasis supplied)
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.
The letters dated October 17, 1996 and November 4, 1996, signed by
petitioners’ counsel, while ostensibly proposing to redeem the foreclosed
properties and requesting Banco Filipino to suggest a price for their
repurchase, made it clear that any proposal by the bank would be subject to
further action on the part of petitioners.
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 does not contain a recognition of petitioners’ claimed right
of redemption or a definite offer to sell the subject properties back to them.
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 mortgage with the bank so that the amount to be loaned will be used
as payment of the properties to be redeemed." It is clear from item no. 1 of
the same letter, however, that petitioners did not accept Banco Filipino’s
valuation of the properties at P7,500.00 per square meter and intended to
"have the amount [renegotiated]."
Moreover, while purporting to be a memorandum of the matters taken up in
the conference between petitioners and Banco Filipino Vice-President
Dacasin, petitioners’ letter of November 8, 1996 does not contain the
concurrence of Ms. Dacasin or any other authorized agent of Banco Filipino.
Where the alleged 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
The Court of Appeals, therefore, committed no error in concluding that
"nothing concrete came out of the meeting" between petitioners and Banco
Filipino.
Respecting petitioners’ claim that their houses should have been excluded
from the auction sale of the mortgaged properties, it does not lie. The
provision of Article 44839 of the Civil Code, cited by petitioners, which pertain
to those who, in good faith, mistakenly build, plant or sow on the land of
another, has no application to the case at bar.
Here, the record clearly shows that petitioners purchased their respective
houses 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.
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 Code:
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received when
the obligation becomes due, and to the amount of the indemnity granted or
owing to the proprietor from the insurers of the property mortgaged, or in
virtue of expropriation for public use, with the declarations, amplifications and
limitations established by law, whether the estate remains in the possession
of the mortgagor, or it passes into the hands of a third person. (Underscoring
supplied).
The early case of Cu Unjieng e Hijos v. Mabalacat Sugar Co.40 is illustrative.
In that case, this Court held:
. . . (1) That a mortgage constituted on a sugar central includes not only
the land on which it is built but also the buildings, machinery, and
accessories installed at the time the mortgage was constituted as well
as all the buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof(Bischoff vs. Pomar and
Compañia General de Tabacos, 12 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 and installed in its mill after the
constitution of the mortgage; (3) that the court, that has ordered the placing
of the mortgaged properties in the hands of a receiver in a foreclosure suit,
has jurisdiction to order the sale at public auction of the said 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
auction is inadequate, is not in itself sufficient to justify the annulment of the
sale.41(Emphasis supplied)
Petitioners finally proffer that the issuance, on Banco Filipino’s mere motion,
of the Writ of Possession on November 5, 1996, more than 8 years since the
promulgation of the RTC Order granting its petition on September 8, 1988,
violated Section 6, Rule 39 of the Rules of Court, viz:
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 limitations, a judgment may be enforced by action. The
revived judgment may also be enforced by motion within five (5) years from
the date of its entry and thereafter by action before it is barred by the statute
of limitations.
Hence, petitioners argue, the writ of possession had lost its validity and
efficacy and should therefore be declared null and void.
Petitioners’ ultimate argument fails too. In Rodil vs. Benedicto,42 this Court
categorically held that the right of the applicant or a subsequent purchaser to
request for the issuance of a writ of possession of the land never prescribes:
The respondents claim that the petition for the issuance of a writ of
possession was filed out of time, the said petition having been filed more
than five years after the issuance of the final decree of registration. In
support of their contention, the respondents cite the case of Soroñgon vs.
Makalintal [80 Phil. 259 (1948)], wherein the following was stated:
"It is the law and well settled doctrine in this jurisdiction that a writ of
possession must be issued within the same period of time in which a
judgment in ordinary civil actions may be summarily executed (section 17,
Act 496, as amended), upon the petition of the registered owner or his
successors in interest and against all parties who claim a right to or interest
in the land registered prior to the registration proceeding."
The better rule, however, is that enunciated in the case of Manlapas and
Tolentino vs. Lorente [48 Phil. 298 (1925)], which has not yet been
abandoned, that the right of the applicant or a subsequent purchaser to
ask for the issuance of a writ of possession of the land never
prescribes. . .
xxx
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 enforced within five years by motion, and after five years but within
ten years by an action (Section 6, Rule 39) refers to civil actions and is
not applicable to special proceedings, such as land registration cases.
The Court said:
"The second assignment of error is as follows:
'That the lower court erred in ordering that the decision rendered in this land Costs against petitioners.
registration case on November 28, 1931 or twenty six years ago, has not yet
become final and unenforceable. SO ORDERED.

We fail to understand the arguments of the appellant in support of the above

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)

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 845 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.

PABLO P. GARCIA vs. YOLANDA VALDEZ VILLAR
(G.R. No. 158891, June 27, 2012)
certiorari1
This is a petition for review on of the February 27, 2003
Decision2 and July 2, 2003 Resolution3 of the Court of Appeals in CA-G.R.
SP No. 72714, which reversed the May 27, 2002 Decision4 of the Regional
Trial Court (RTC), Branch 92 of Quezon City in Civil Case No. Q-99-39139.
Lourdes V. Galas (Galas) was the original owner of a piece of property
(subject property) located at Malindang St., Quezon City, covered by
Transfer Certificate of Title (TCT) No. RT-67970(253279).5
On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-
maker, mortgaged the subject property to Yolanda Valdez Villar (Villar) as
security for a loan in the amount of Two Million Two Hundred Thousand
Pesos (P2,200,000.00).6
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 (P1,800,000.00).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 P2,200,000- 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
Date of Inscription: 7-7-93
SECOND REAL ESTATE MORTGAGE
Entry No. 821/T-RT-67970(253279) MORTGAGE – In favor of Pablo Garcia
m/to Isabela Garcia to guarantee a principal obligation in the sum
of P1,800,000.00 mortgagee’s consent necessary in case of subsequent
encumbrance or alienation of the property; Other conditions set forth in Doc.
No. 08, Book No. VII, Page No. 03 of the Not. Pub. of Azucena Espejo
Lozada
Date of Instrument: 10/10/94
Date of Inscription: 10/11/94
LRC Consulta No. 1698
On November 21, 1996, Galas sold the subject property to Villar for One
Million Five Hundred Thousand Pesos (P1,500,000.00), and declared in the
Deed of Sale9 that such property was "free and clear of all liens and
encumbrances of any kind whatsoever."10
On December 3, 1996, the Deed of Sale was registered and, consequently,
TCT No. RT-67970(253279) was cancelled and TCT No. N-16836111 was
issued in the name of Villar. Both Villar’s and Garcia’s mortgages were
carried over and annotated at the back of Villar’s new TCT.12
On October 27, 1999, Garcia filed a Petition for Mandamus with
Damages13 against Villar before the RTC, Branch 92 of Quezon City. Garcia
subsequently amended his petition to a Complaint for Foreclosure of Real
Estate Mortgage with 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 provisions on laws on judicial and extrajudicial
foreclosure of mortgaged property. Garcia further claimed that when Villar
purchased the subject property, Galas was relieved of her contractual
obligation and the characters of creditor and debtor 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
demanded payment from Villar,15 whose refusal compelled him to incur
expenses in filing an action in court.16
Villar, in her Answer,17 claimed that the complaint stated no cause of action
and that the second mortgage was done in bad faith as it was without her
consent and knowledge. Villar alleged that she only discovered the second
mortgage when she 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 there could be no subrogation as the assignment
of credit was done with neither her knowledge nor prior consent. Villar added
that Garcia should seek recourse against Galas and Pingol, with whom he
had privity insofar as the second mortgage of property is concerned.
On May 23, 2000, the RTC issued a Pre-Trial Order18 wherein the parties
agreed on the following facts and issue:
STIPULATIONS OF FACTS/ADMISSIONS
The following are admitted:
1. the defendant admits the second mortgage annotated at the back
of TCT No. RT-67970 of Lourdes V. Galas with the qualification that
the existence of said mortgage was discovered only in 1996 after the
sale;
2. the defendant admits the existence of the annotation of the
second mortgage at the back of the title despite the transfer of the
title in the name of the defendant;
3. the plaintiff admits that defendant Yolanda Valdez Villar is the first
mortgagee;
4. the plaintiff admits that the first mortgage was annotated at the
back of the title 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 transferred from the previous owner in favor of
defendant Yolanda Valdez Villar.
xxxx
ISSUE
Whether or not the plaintiff, at this point in time, could judicially foreclose the
property in question.
On June 8, 2000, upon Garcia’s manifestation, in open court, of his intention
to file a Motion for Summary Judgment,19 the RTC issued an
Order20 directing the parties to simultaneously file their respective
memoranda within 20 days.
On June 26, 2000, Garcia filed a Motion for Summary Judgment with
Affidavit of Merit21 on the grounds that there was no genuine issue as to any
of the material facts of the case and that he was entitled to a judgment as a
matter of law.
On June 28, 2000, Garcia filed his Memorandum 22 in support of his Motion
for Summary Judgment and in compliance with the RTC’s June 8, 2000
Order. Garcia alleged that his equity of redemption had not yet been claimed
since Villar did not foreclose the mortgaged property to satisfy her claim.
On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of
Time to File Her Memorandum.23This, however, was denied24 by the RTC in
view of Garcia’s Opposition.25
On May 27, 2002, the RTC rendered its Decision, the dispositive portion of
which reads:
WHEREFORE, the foregoing premises considered, judgment is hereby
rendered in favor of the plaintiff Pablo P. Garcia and against the defendant
Yolanda V. Villar, who is ordered to pay to the former within a period of not
less than ninety (90) days nor more than one hundred twenty (120) days
from entry of judgment, the sum ofP1,800,000.00 plus legal interest from
October 27, 1999 and upon failure of the defendant to pay the said amount
within the prescribed period, the property 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 other regulations
governing sale of real estate under execution in order to satisfy the judgment
in this case. The defendant is further ordered to pay costs.26
The RTC declared that the direct sale of the subject property to Villar, the
first 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 foreclosed the subject property pursuant to Act No. 3135
as amended, to provide junior mortgagees like Garcia, the opportunity to
satisfy their claims from the residue, if any, of the foreclosure sale proceeds.
This, the RTC added, would have resulted in the extinguishment of the
mortgages.27
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 with a subsisting mortgage, was liable for it.28
Villar appealed29 this Decision to the Court of Appeals based on the
arguments that Garcia had no valid cause of action against her; that he was
in bad faith when he 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 commission of fraud, should suffer. Villar
further asseverated that the second 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 she was concerned. 30
Garcia, in his Memorandum,31 reiterated his position that his equity of
redemption remained "unforeclosed" since Villar did not institute foreclosure
proceedings. Garcia added that "the mortgage, until discharged, follows the
property to whomever it may be transferred no matter how many times over it
changes hands as long as the annotation is carried over."32
The Court of Appeals reversed the RTC in a Decision dated February 27,
2003, to wit:
WHEREFORE, the decision appealed from is REVERSED and another one
entered DISMISSING the complaint for judicial foreclosure of real estate
mortgage with damages.33
The Court of Appeals declared that Galas was free to mortgage the subject
property even without Villar’s consent as the restriction that the mortgagee’s
consent was necessary in case of a subsequent encumbrance was absent in
the Deed of Real Estate Mortgage. In the same vein, the Court of Appeals
said that the 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 sale.34
In dismissing the complaint for judicial foreclosure of real estate mortgage
with damages, the Court of Appeals held that Garcia had no cause of action
against Villar "in the absence of evidence showing that the second mortgage
executed in his favor by Lourdes V. Galas [had] been violated and that he
[had] made a demand on the latter for the payment of the obligation secured
by said mortgage prior to the institution of his complaint against Villar."35
On March 20, 2003, Garcia filed a Motion for Reconsideration36 on the
ground that 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 after the subject property had been sold by Galas,
the mortgage debtor, to Villar, the mortgage creditor.
This motion was denied for lack of merit by the Court of Appeals in its July 2,
2003 Resolution.
Garcia is now before this Court, with the same arguments he posited before
the 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 commissorium.
Issues
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 P1,800,000.00, or to
judicially foreclose the subject property to satisfy the aforesaid debt. This
Court will, however, address the following issues in seriatim:
1. Whether or not the second mortgage to Garcia was valid;
2. Whether or not the sale of the subject property to Villar was valid;
3. Whether or not the sale of the subject property to Villar was in
violation of the prohibition on pactum commissorium;
4. Whether or not Garcia’s action for foreclosure of mortgage on the
subject property can prosper.
Discussion
Validity of second mortgage to Garcia
and sale of subject property to Villar
At the onset, this Court would like to address the validity of the second
mortgage to Garcia and the sale of the subject property to Villar. We agree
with the Court of Appeals that both are valid under the terms and conditions
of the Deed of Real Estate Mortgage executed by Galas and Villar.
While it is true that the annotation of the first mortgage to Villar on Galas’s
TCT contained a restriction on further encumbrances without the
mortgagee’s prior consent, this restriction was nowhere to be found in the
Deed of Real Estate Mortgage. As this Deed became the basis for the
annotation on Galas’s title, its terms and conditions take precedence over the
standard, stamped annotation placed on her title. If it were the intention of
the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.
Neither did this Deed proscribe the sale or alienation of the subject property
during 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 in case Galas or Pingol fail to pay their loan.
Nowhere was it stated in the Deed that 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 2130 of the Civil Code, to wit:
Art. 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.
Prohibition on pactum commissorium
Garcia claims that the stipulation appointing Villar, the mortgagee, as the
mortgagor’s attorney-in-fact, to sell the property in case of default in the
payment of the loan, is in violation of the prohibition on pactum
commissorium, as stated under Article 2088 of the Civil Code, viz:
Art. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and
void.
The power of attorney provision in the Deed of Real Estate Mortgage reads:
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 MORTGAGEE is likewise appointed attorney-in-fact of the
MORTGAGOR with full power and authority to take actual possession of the
mortgaged properties, to sell, lease any of the mortgaged properties, to
collect rents, to execute deeds of sale, 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 administration of the
mortgaged properties. The payment of any expenses advanced by the
MORTGAGEE in connection with the purpose indicated herein is also
secured by this Mortgage. Any amount received from the sale, disposal or
administration abovementioned maybe applied by assessments and other
incidental expenses and obligations and to the payment of original
indebtedness including interest and penalties thereon. The power herein
granted shall not be revoked during the life of this Mortgage and all acts
which may be executed by the MORTGAGEE by virtue of said power are
hereby ratified.38
The following are the elements of pactum commissorium:
(1) There should be a property mortgaged by way of security for the
payment of the principal obligation; and
(2) There should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.39
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 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 subject property, and to apply the proceeds to the
payment of the loan.40 This provision is customary in mortgage contracts,
and is in conformity with Article 2087 of the Civil Code, which reads:
Art. 2087. It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists
may be alienated for the payment to the creditor.
Galas’s decision to eventually sell the subject property to Villar for an
additional P1,500,000.00 was well within the scope of her rights as the owner
of the subject 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 of the subject property to Villar was automatic
upon Galas’s failure to discharge her debt, or that the sale was simulated to
cover up such automatic transfer.
Propriety of Garcia’s action
for foreclosure of mortgage
The real nature of a mortgage is described in Article 2126 of the Civil Code,
to wit:
Art. 2126. The mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the
obligation for whose security it was constituted.
Simply put, a mortgage is a real right, which follows the property, even after
subsequent transfers by the mortgagor.1âwphi1 "A registered mortgage lien
is considered inseparable from the property inasmuch as it is a right in
rem."41
The sale or transfer of the mortgaged property cannot affect or release the
mortgage; thus the purchaser or transferee is necessarily bound to
acknowledge and respect the encumbrance.42 In fact, under Article 2129 of
the Civil Code, the mortgage on the property may still be foreclosed despite
the transfer, viz:
Art. 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the
property which said third person possesses, in terms and with the formalities
which the law establishes.
While we agree with Garcia that since the second mortgage, of which he is
the 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 was mortgaged, only undertook to pay such
mortgage or allow the subject property to be sold upon failure of the
mortgage creditor to obtain payment from 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 the creditor’s consent.43 Article
1293 of the Civil Code provides:
Art. 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him the rights mentioned in articles 1236 and 1237.
Therefore, the obligation to pay the mortgage indebtedness remains with the
original debtors Galas and Pingol.44The case of E.C. McCullough & Co. v.
Veloso and Serna45 is square on this point:
The effects of a transfer of a mortgaged property to a third person are well
determined by the Civil Code.1âwphi1According to article 187946 of this
Code, the 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 the manner and form established by the law.
The Mortgage Law in force at the promulgation of the Civil Code and referred
to in the latter, provided, among other 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 the new possessor to
pay the debt originated only from the right of the creditor to demand payment
of him, it being necessary that a demand for payment should 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 might
abandon the property mortgaged, and in that case it is considered to be in
the possession of the debtor. (Art. 136 of the same law.) This clearly shows
that the spirit of the Civil Code is to let the obligation of the debtor to pay the
debt stand 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 these provisions, it contained nothing indicating any change
in the spirit of the law in this respect. Article 129 of this law, which provides
the substitution of the debtor by the third person in possession of the
property, for the purposes of the giving of 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 Regulation.) 47
This pronouncement was reiterated in Rodriguez v. Reyes48 wherein this
Court, even before quoting the same above portion in E.C. McCullough & Co.
v. Veloso and Serna, held:
We find the stand of petitioners-appellants to be unmeritorious and
untenable. The 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 realty is encumbered with a mortgage does not
render him liable for the payment 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 mortgage is merely an encumbrance
on the property, entitling the mortgagee to have the property foreclosed, i.e.,
sold, in case the principal obligor does not pay the mortgage debt, and apply
the proceeds of the sale to the satisfaction of his credit. Mortgage is merely
an accessory undertaking for the convenience and security of the mortgage
creditor, and exists independently of the obligation to pay the debt secured
by it. The mortgagee, if he is so minded, can waive the mortgage security
and proceed to collect the principal debt by personal action against the
original mortgagor.49
In view of the foregoing, Garcia has no cause of action against Villar in the
absence of evidence to show that the second mortgage executed in favor of
Garcia has been violated by his debtors, Galas and Pingol, i.e., specifically
that Garcia has made a demand on said debtors for the payment of the
obligation secured by the second mortgage and they have failed to pay.
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision
and March 8, 2003 Resolution of the Court of Appeals in CA-G.R. SP No.
72714.
SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES vs. ENVIRONMENTAL
AQUATICS, INC., LAND SERVICES AND MANAGEMENT ENTERPRISES,
INC. (G.R. No. 174329, October 20, 2010)
The Case
This is a petition1 for review on certiorari under Rule 45 of the Rules of Court.
The petition challenges the 16 January 2006 Decision2 and 16 August 2006
Resolution3 of the Court of Appeals in CA-G.R. CV No. 46207. The Court of
Appeals affirmed with modification the 7 January 1994 Decision4 of the
Regional Trial Court (RTC), National Capital Judicial Region, Branch 84,
Quezon City, in Civil Case No. Q-91-10563.
The Facts
On 10 September 1976, respondents Environmental Aquatics, Inc. (EAI) and
Land Services and Management Enterprises, Inc. (LSMEI)
loaned P1,792,600 from petitioner Development Bank of the Philippines
(DBP). As security for the loan, LSMEI mortgaged to DBP its 411-square
meter parcel of land situated in New Manila, Quezon City, and covered by
Transfer Certificate of Title No. 209937.5 The mortgage contract6 stated that:
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 secured or to comply with any of the conditions and stipulations herein
agreed, or shall initiate insolvency proceedings or be declared involuntary
insolvent (sic), or uses the proceeds of the loan for purposes other than
those specified herein then all the amortizations and other obligations of the
Mortgagor of any nature, shall become due, payable and defaulted and the
Mortgagee may immediately foreclose this mortgage judicially or
extrajudicially under Act No. 3135 as amended, or under Republic Act No.
85, as amended and or under Act No. 1508 as amended.7
On 31 August 1981, DBP restructured the loan. In their promissory
notes,8 EAI and LSMEI stated that:
On or before March 14, 1986, for value received, we jointly and severally,
promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its
office at Makati, Metro Manila, Philippines, the sum of * * ONE MILLION
NINE HUNDRED SEVENTY THREE THOUSAND ONE HUNDRED PESOS
(P1,973,100.00), Philippine Currency, with interest at the rate of sixteen per
centum (16%) per annum.9
On or before March 14, 1986, for value received, we jointly and severally,
promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its
office at Makati, Metro Manila, Philippines, the sum of * * ONE HUNDRED
NINETY THOUSAND SEVEN HUNDRED PESOS * * (P190,700), Philippine
Currency, with interest at the rate of fourteen per centum (14%) per annum. 10
On or before March 14, 1982, for value received, I/We, jointly and severally,
promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or order
at its office 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.11
EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan
had increased to P16,384,419.90.12 On 25 October 1990, DBP applied for
extrajudicial foreclosure of the real estate mortgage. In its application
letter,13DBP stated that:
[W]e request [the ex-officio sheriff] to take possession of the properties
described in the above-mentioned mortgages as well as those embraced in
the after acquired properties clause thereof, and sell the same at public
auction in accordance with the provisions of Act 3135, as amended by Act
4118, with respect to the real estate and Act 1508 with respect to the
chattels, as amended by Presidential Decree No. 385 aforecited.14
During the 19 December 1990 public auction, the ex-officio sheriff sold the
property to DBP as the highest bidder for P1,507,000.15
On 15 May 1991, LSMEI transferred its right to redeem the property to
respondent Mario Matute (Matute). In his 27 July 1991 letter,16 Atty. Julian R.
Vitug, Jr. (Atty. Vitug, Jr.) informed DBP that his client Matute was interested
in redeeming the property by paying the P1,507,000 purchase price, plus
other costs. In its 29 August 1991 letter,17 DBP informed Atty. Vitug, Jr. that
Matute could redeem the property by paying the remaining balance of EAI
and LSMEI's loan. As of 31 August 1991, the loan amounted
to P19,279,106.22.18
On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a
complaint19 praying that DBP be ordered "to accept x x x Matute's bonafide
offer to redeem the foreclosed property."20
The RTC's Ruling
In its 7 January 1994 Decision, the RTC allowed Matute to redeem the
property at its P1,507,000 purchase price. The RTC held that:
The question is whether, as the defendant DBP contends, the redemption
should be made by paying to the Bank the entire amount owed by plaintiffs-
corporations "in the amount of P18,301,653.11 as of the date of foreclosure
on December 12, 1990", invoking Sec. 16 of Executive Order No. 81
otherwise known as the 1986 Revised Charter of DBP. On the other hand,
the plaintiffs contend that this redemption may be made only by reimbursing
the defendant Bank what it has paid for at the auction sale made to it (sic), in
the amount of P1,507,000.00, pursuant to Section 5 of Act No. 3135 and
Sections 26 to 30 of Rule 39 of the Revised Rules of Court.
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 Amend Republic Act Numbered Eighty-Five and Other
Pertinent Laws, to Provide Facilities for Intermediate and Long-Term Credit
by Converting the Rehabilitation Finance Corporation into the Development
Bank of the Philippines, Authorizing the said Bank to Aid in the Establishment
of Provincial and City Private Development Banks, and for Other Purposes"
was approved and made effective on June 14, 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 Section 16
thereof (sic) reading as follows:
"Sec. 16. Right of Redemption. — Any mortgagor of the Bank whose real
property has been extrajudicially sold at public auction shall, within one (1)
year counted from the date of registration of the certificate of sale, have the
right to redeem the real property by paying to the Bank all of the latter's claim
against him, as determined by the Bank."
is of recent vintage. Executive Order No. 81, issued by then President
Corazon C. Aquino, was made effective on December 3, 1986. Clearly, the
application of Executive Order No. 81 to the mortgage herein involved would
violate the constitutional proscription against the impairment of contracts.
Sec. 16 of Executive Order No. 81, which governs the right of redemption in
extrajudicial foreclosures, is not found in Rep. Act No. 2081 or even in Rep.
Act No. 85. And so, 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 time of the mortgage cannot be given retroactive
effect.
Under the terms of the mortgage contract, "Exh. "2", specifically paragraph 4
thereof:
"x x x the Mortgagee may immediately foreclose this mortgage judicially or
extrajudicially under Act No. 3135 as amended, or under Republic Act No.
85, as amended and or under Act No. 1508 as amended. x x x x."
Going by the literal terms of this quoted provision of the mortgage contract,
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 the least intervention of plaintiffs. We cannot, therefore,
escape the conclusion that what defendant DBP agreed to in respect to (sic)
the possible foreclosure of its mortgage was to subject the same to the
provisions of Act No. 3135, as amended, should the DBP opt to utilize said
law. Section 6 of Act No. 3135 very clearly governs the right of redemption in
extrajudicial foreclosures thus:
"SEC. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successors in interest or any
judicial creditor or judgment creditor of said debtor, or any person having a
lien on the property subsequent to the mortgage or deed of trust under which
the property is sold, may redeem the same at any time within the term of one
year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as
these are not inconsistent with the provisions of this Act."
Sections four hundred sixty-four to four hundred sixty-five, inclusive, of the
Code of 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 Revised Rules of Court.
Having thus come to the conclusion that Act 3135 and Sections 29 to 32 of
Rule 39 of the Rules of Court rather than Executive Order No. 81 are the
laws applicable to 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 Section 30 of Rule 39, "the judgment debtor
— or his successor-in-interest per Sec. 29, 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 his purchase, with one
per centum per month interest thereon in addition, up to the time of
redemption, together with the amount of any assessments or taxes which the
purchaser may have paid thereon after the purchase, and interest on such
last-named amount at the same rate; x x x".21
DBP appealed to the Court of Appeals.
The Court of Appeals' Ruling
In its 16 January 2006 Decision, the Court of Appeals affirmed with
modification the RTC's 7 January 1994 Decision. The Court of Appeals
imposed a 16% annual interest on the remaining balance of the loan. The
Court of Appeals held that:
The dearth of merit in appellant bank's position is, however, evident from the
fact that, as hereinbefore quoted, paragraph 4 of the September 10,
1976 Deed of Real Estate Mortgage executed in its favor by
appellees EAIand LSMEI provided for three options by which the
extrajudicial foreclosure thereof may be effected. 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 opted
for the first of the aforesaid laws as may be gleaned from the following prayer
it interposed in the application for foreclosure of mortgage it filed with the Ex-
Officio Sheriff of Quezon City on October 25, 1990, viz:
"WHEREFORE, we request you to take possession of the properties
described in the 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 to the real estate xxx xxx xxx"
With appellant bank's categorical election of Act No. 3135 as the controlling
law for 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 law are deemed written into the parties' agreement and, as
such, should be respected as the law between them.
Anent the redemption of mortgaged properties extrajudicially foreclosed in
accordance therewith, Section 6 of Act No. 3135 provides as follows:
"Section 6. In all cases in which an extrajudicial sale is made under the
special power hereinbefore referred to, the debtor, his successors in interests
(sic) or any judicial creditor or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within
the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to
four hundred sixty-six, inclusive, of the Code of Civil Procedure, in so far as
these are not inconsistent with 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 guidelines for redemption, viz:
"Section 28. Time and manner of, and amounts payable on, successive
redemptions; notice to be given and filed. — The judgment obligor, or
redemptioner, may redeem the property from the purchaser, at any time
within one (1) year from the date of the registration of the certificate of sale,
by paying the purchaser the amount of his purchase, with one per centum
per month interest thereon in addition, up to the time of redemption, together
with the amount of any assessments or taxes which may have been paid
thereon after purchase, and interest on such last named amount at the same
rate; and if the purchaser be also a creditor having a prior lien to that of the
redemptioner, other than the judgment under which such purchase (sic), the
amount of such other lien, with interest.1avvphil
Written notice of any redemption must be given to the officer who made the
sale and a duplicate filed with the registry of deeds of the place, and if any
assessments or taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was made, notice thereof
must in like manner be given to the officer and filed with the registry of
deeds; if such notice be not filed, the property may be redeemed without
paying such assessments, taxes or liens."
In order to effect the redemption of the foreclosed property, the foregoing
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 centum (1%) per month; and (c) the assessments or taxes, if any, paid by
the purchaser, with the same rate of interest.
When the statute is clear and explicit, the basic principle in legal
hermeneutics is to the effect that there is no need for an extended court
ratiocination on the law — there is no room for interpretation, vacillation or
equivocation, only application. Having been made in accordance with Act No.
3135, we find that appellee Matute's offer to redeem the subject property in
the amount of P1,672,770.00 was, therefore, unjustifiably refused by
appellant bank. Corollarily, the rule is settled that the person effecting
redemption is not mandated to pay the whole debt since, in redemption of
properties, the amount payable is no longer the judgment debt but, rather,
the purchase price thereby fetched at the auction sale.
As for the deficiency x x x, the consistent ruling in a cantena of Supreme
Court decisions is to the effect that the mortgagee has the right to recover
the same from the debtor where, in the extrajudicial foreclosure of mortgage,
the proceeds of the sale are insufficient to pay the debt. x x x
Considering, however, that the amount offered by appellee by way of
redemption consisted merely of the purchase price for the foreclosed
property, together with the interests thereon, we find that appellant bank
correctly takes exception to the trial court's imposition of legal interest on the
balance of the mortgage debt. If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest which is six
per cent per annum. In the case at bench, the interest imposable on the
balance of the mortgage debt should, therefore, be the sixteen per cent
(16%) per annum provided under the August 31, 1981 Promissory Note
appellees EAI and LSMEI executed in favor of appellant.22
DBP filed a motion for reconsideration. In its 16 August 2006 Resolution, the
Court of Appeals denied the motion. Hence, the present petition.
Issues
DBP raises as issues that the lower courts erred in finding that the bank
chose Act No. 3135 as the governing law for the extrajudicial foreclosure of
the property, including the determination of the redemption price, and in
ruling that the redemption price is equivalent to the P1,507,000 purchase
price.
The Court's Ruling
The petition is meritorious.
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 balance of the loan. Section 16 states that, "Any mortgagor of the
Bank whose property has been extrajudicially sold at public auction shall x x
x have the right to redeem the real property by paying to the Bank all of
the latter's claims against him, as determined by the Bank."
In Development Bank of the Philippines v. West Negros College, Inc.,23 the
Court held that the redemption price for properties mortgaged to and
foreclosed by DBP is equivalent to the remaining balance of the loan, with
interest at the agreed rate. The Court held that:
It has long been settled that where the real property is mortgaged to and
foreclosed judicially or extrajudicially by the Development Bank of the
Philippines, the right of redemption may be exercised only by paying to
"the Bank all the amount he owed the latter on the date of the sale, with
interest on the total indebtedness at the rate agreed upon in the
obligation from said date, unless the bidder has taken material possession
of the property or unless this had been delivered to him, in which case the
proceeds of the property shall compensate the interest." x x x
The foregoing rule is embodied consistently in the charters of petitioner DBP
and its predecessor agencies. Section 31 of CA 459 creating the Agricultural
and 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 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 transferred to the
Rehabilitation Finance Corporation. It has been held that among the salutary
provisions of CA 459 ceded to the Rehabilitation Finance Corporation by RA
85 was Sec. 31 defining the manner of redeeming properties mortgaged with
the corporation. Subsequently, by virtue of RA 2081 (1958), the powers,
assets, liabilities and personnel of the Rehabilitation Finance Corporation
under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred to
petitioner DBP. Significantly, Sec. 31 of CA 459 has been reenacted
substantially in Sec. 16 of the present charter of the DBP, i.e., EO 81 (1986)
as amended by RA 8523 (1998).
xxxx
The unavoidable conclusion is that in redeeming the foreclosed property
respondent West Negros College as assignee of Bacolod Medical
Center should pay the balance of the amount owed by the latter to
petitioner DBP with interest thereon at the rate agreed upon as of the
date of the public auction on 24 August 1989.24 (Emphasis supplied)
In Development Bank of the Philippines v. Mirang,25 the Court held that the
redemption 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, "The unavoidable conclusion is that the appellant,
in redeeming the foreclosed property, should pay the entire amount he
owed to the Bank on the date of the sale, with interest thereon at the
rate agreed upon."26
As early as 1960, the Court has already settled the issue. In Nepomuceno, et
al. v. Rehabilitation Finance Corporation,27 the Court held that the
redemption 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:
The issue posed in this appeal is: considering that the loan of P300,000.00
was obtained from the Rehabilitation Finance Corporation [now DBP] by
spouses Jose Nepomuceno and Isabela Acuña and Jesus Nepomuceno
merely acted as accomodation mortgagor, for what price may the mortgagor
redeem his property 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 loan obtained by the borrowers from the
banking institution, as contended by appellant?
xxxx
[T]he inescapable conclusion is that the mortgagor herein or his
assignees cannot redeem the property in dispute without paying the
balance of the total indebtedness then outstanding on the date of the
sale to the Rehabilitation Finance Corporation.28 (Emphasis supplied)
The lower courts ruled that the redemption price for the property is equivalent
to the P1,507,000 purchase price because DBP chose Act No. 3135 as the
governing law for the extrajudicial foreclosure. The RTC and Court of
Appeals, respectively, stated that:
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, therefore, escape the conclusion that what defendant
DBP agreed to in respect to (sic) the possible foreclosure of its mortgage
was to subject the same to the provisions of Act No. 3135, as amended,
should the DBP opt to utilize said law.29
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 opted for the first of the aforesaid laws as may be gleaned
from the following prayer it interposed in the application for foreclosure of
mortgage it filed with the Ex-Officio Sheriff of Quezon City on October 25,
1990.30
The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not
provide a 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 accordance with the provisions of Act 3135," it did so
merely to find a proceeding for the sale.
In Development Bank of the Philippines v. Zaragoza,31 Development Bank of
the Philippines v. Mirang,32 andDevelopment Bank of the Philippines v.
Jimenez, et al.,33 the Court held that when the bank resorted to Act No. 3135
in order to sell the mortgaged property extrajudicially, it did so merely to find
a proceeding for the sale.
In its 10 October 2006 petition, DBP claims that when it resorted to Act No.
3135 in order to sell the mortgaged property extrajudicially, it did so merely to
find a proceeding for the sale. DBP stated that:
[W]hen herein petitioner resorted to Act 3135 in its application for
extrajudicial foreclosure of the subject mortgaged real estate, it did so only
to find a proceeding for the extrajudicial sale. The Court of Appeals
should have noted that neither Republic Act No. 85 (the Charter of the
Rehabilitation Finance Corporation) nor Act 1508 (Chattel Mortgage Law)
prescribe a procedure for extrajudicial foreclosure of real estate mortgage as
provided under Act 3135. Such action, therefore, cannot be 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 waiveron
the part of the petitioner.
xxxx
[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of
other laws in the extrajudicial foreclosure of the subject mortgaged real
property. Such a conclusion is definitely contrary to law and jurisprudence,
which settled the rule that Act 3135 is the general law that governs the
procedure and requirements in extra-judicial foreclosure of real estate
mortgage, but in determining the redemption price of the property mortgaged
to the Development Bank of the Philippines, the DBP Charter shall prevail.
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, governs the extrajudicial foreclosure of chattel mortgage, and
should not be in issue in the instant case which involves a real estate
mortgage.
It should likewise be of judicial notice that Republic Act No. 85 is the charter
of the Rehabilitation Finance Corporation, predecessor of appellant DBP. RA
85 prescribes the redemption price, not the proceedings and requirements in
an extrajudicial foreclosure of real estate mortgage such as those found in
Act 3135.
x x x When appellant DBP cited Act 3135 in its Deed of Real Estate
Mortgage or even in the application for foreclosure of mortgage, it was not a
matter of making an exclusive option or choice because Act 3135 governs
the procedure and requirements for an extrajudicial foreclosure or real estate
mortgage. In citing said 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 not apply in the determination of the
redemption price on [sic] mortgages to DBP. In the latter case, the DBP
Charter will prevail.34
Even assuming that DBP chose Act No. 3135 as the governing law for the
extrajudicial foreclosure, the redemption price would still be equvalent to the
remaining balance of the loan. EO No. 81, being a special and subsequent respondent Mario Matute a grace period of 60 calendar days from notice of
law, amended Act No. 3135 insofar as the as redemption price is concerned. finality of this Decision to redeem the property, by paying petitioner
Development Bank of the Philippines the remaining balance of respondents
In Sy v. Court of Appeals,35 the Court held that RA No. 337 amended Act No. Environmental Aquatics, Inc. and Land Services and Management
3135 insofar as the redemption price is concerned. The Court held that: Enterprises, Inc.'s loan, plus expenses and interest at the agreed rate
computed from the 19 December 1990 public auction. If the bank has taken
[T]he General Banking Act partakes of the nature of an amendment to material possession of the property, the possession of the property shall
Act No. 3135 insofar as the redemption price is concerned, when the compensate for the interest during the period of possession.
mortgagee is a bank or banking or credit institution, Section 6 of Act No.
3135 being, in this respect, inconsistent with Section 78 of the General SO ORDERED.
Banking Act. Although foreclosure and sale of the subject property was
done by SIHI pursuant to Act. No. 3135, x x x Section 78 of the General
Banking Act, as amended provides the amount at which the subject
property is redeemable from SIHI, which is, in this case, the amount
due under the mortgage deed, or the outstanding obligation of Carlos
Coquinco, plus interest and expenses.36 (Emphasis supplied)

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

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

Rep. Act No. 337, otherwise known as "The General Banking Act," is entitled
"An Act Regulating Banks and Banking Institutions and for other purposes."
Section 78 thereof limits the amount of the loans that may be given by banks
and banking or credit institutions on the basis of the appraised value of the
property given as security, as well as provides that, in the event of
foreclosure of a real estate mortgage to said banks or institutions, the
property sold may be redeemed "by paying the amount fixed by the court in
the order of execution," or the amount judicially adjudicated to the creditor
bank. This provision had the effect of amending Section 6 of Act No.
3135, insofar as the redemption price is concerned, when the
mortgagee is a bank or a banking or credit institution, said Section 6 of
Act No. 3135 being, in this respect, inconsistent with the above-quoted
portion of Section 78 of Rep. Act No. 337. In short, the Parañaque
property was sold pursuant to said Act No. 3135, but the sum for which
it is redeemable shall be governed by Rep. Act No. 337, which partakes
of the nature of an amendment to Act No. 3135, insofar as mortgages to
banks or banking or credit institutions are concerned, to which class
the RFC belongs. At any rate, the conflict between the two (2) laws must
be resolved in favor of Rep. Act No. 337, both as a special and as the
subsequent legislation.38 (Emphasis supplied)

WHEREFORE, the Court GRANTS the petition. The Court PARTIALLY

SETS ASIDE the 16 January 2006 Decision and 16 August 2006 Resolution
of the Court of Appeals in CA-G.R. CV No. 46207. The Court gives
BANK OF THE PHILIPPINE ISLANDS, AS SUCCESSOR-IN-INTEREST OF
FAR EAST BANK & TRUST COMPANY vs. CYNTHIA L. REYES (G.R. No.
182769, February 1, 2012)
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure of the Decision1 dated April 30, 2008 of the Court of Appeals
in CA-G.R. CV No. 88004, entitled "Bank of the Philippine Islands, as
successor-in-interest of Far East Bank & Trust Company vs. Cynthia L.
Reyes" which reversed the Decision2dated November 3, 2005 of the
Regional Trial Court (RTC) of Makati City, Branch 148 in Civil Case No. 03-
180.
The background facts of this case, as summed by the trial court, follow:
This is an action for sum of money filed [b]y [p]laintiff Bank of the Philippine
Islands, hereinafter referred to as BPI, as successor-in-interest of Far East
Bank & Trust Company, referred hereto as Far East Bank, against defendant
Cynthia L. Reyes, hereinafter referred to as defendant Reyes.
As alleged in the Complaint, defendant Reyes borrowed, renewed and
received from Far East Bank the principal of Twenty Million Nine Hundred
Thousand Pesos [sic] (P20,950,000.00). In support of such allegation, four
promissory notes were presented during the course of the trial of the case.
As security for the obligation, defendant Reyes executed Real Estate
Mortgage Agreements involving twenty[-]two (22) parcels of land. When the
debt became due and demandable, the defendant failed to settle her
obligation and the plaintiff was constrained to foreclose the properties. As
alleged, after due publication, the mortgaged properties were sold at public
auction on December 20, 2001 by the Office of the Clerk of Court & Ex-
Officio Sheriff of the Regional Trial Court of Malolos, Bulacan.
At the public auction, the mortgaged properties were awarded to BPI in
consideration of its highest bid price amounting to Nine Million Thirty[-]Two
Thousand Nine Hundred Sixty Pesos (P9,032,960.00). On said date, the
obligation already reached Thirty Million Forty (sic) Hundred Twenty
Thousand Forty[-]One & 67/100 Pesos (P30,420,041.67), inclusive of interest
but excluding attorney’s fees, publication and other charges. After applying
the proceeds of the public auction to the outstanding obligation, there
remains to be a deficiency and defendant Reyes is still indebted, as of
January 20, 2003, to the plaintiff in the amount of P24,545,094.67, broken
down as follows:
Principal P19,700,000.00
Unsatisfied Interest 2,244,694.67
Interest 2,383,700.00
Penalty 216,700.00
TOTAL P24,545,094.67
Also included in the prayer of the plaintiff is the payment of attorney’s fees of
at least Five Hundred Thousand Pesos and the cost of suit.
In the Answer, the defendant claims that based on the plaintiff’s appraisal of
the properties mortgaged to Far East Bank, the twenty[-]two properties
fetched a total appraisal value of P47,436,000.00 as of January 6, 1998. This
appraisal value is evidenced by the Appraisal, which is attached as Annex 1
of the Answer. Considering the appraisal value and the outstanding
obligation of the defendant, it appears that the mortgaged properties sold
during the public auction are more than enough as payment to the
outstanding obligation of the defendant.3
Subsequently, upon petitioner’s motion, the trial court issued an Order4 dated
October 6, 2005 recognizing Asset Pool A (SPV-AMC), Inc. as substitute
plaintiff in lieu of petitioner.
After due trial, the trial court rendered its Decision dated November 3, 2005,
the dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of plaintiff BANK OF THE PHILIPPINE ISLANDS, as successor-in-interest of
Far East Bank & Trust Company, and against defendant CYNTHIA L.
REYES. Accordingly, the defendant is ordered:
1. To pay the plaintiff the amount of Php22,083,700.00, representing
said defendant’s outstanding obligation, plus interest at the rate of
twelve percent (12%) per annum, computed from January 20, 2003
until the whole amount is fully paid;
2. To pay plaintiff the amount of Php200,000.00 as attorney’s fees;
3. Costs of suit against the defendant.5
Respondent filed a motion for reconsideration but the same was denied by
the trial court through an Order6 dated January 9, 2006.
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 Appeals, the dispositive portion of which states:
WHEREFORE, the instant appeal is GRANTED. The assailed Decision
dated November 3, 2005 is hereby REVERSED AND SET ASIDE. 7
Aggrieved, petitioner filed the instant petition in which the following issues
were put into consideration:
A. WHETHER OR NOT THERE WAS DEFICIENCY WHEN
RESPONDENT’S PROPERTY WHICH SHE SUPPOSEDLY
VALUED AT P47,536,000.00 WAS SOLD AT THE EXTRA-
JUDICIAL FORECLOSURE SALE AT ONLY [P9,032,960.00] BY
PETITIONER;
B. WHETHER OR NOT RESPONDENT’S PROPERTY WAS
OVERVALUED WHEN IT WAS MORTGAGED TO FEBTC/BPI;
C. WHETHER OR NOT RESPONDENT CAN RAISE THE ISSUE
ON THE NULLITY OF THE EXTRA-JUDICIAL FORECLOSURE
SALE IN AN ACTION FILED BY THE PETITIONER (CREDITOR-
MORTGAGEE) FOR THE RECOVERY OF DEFICIENCY AND FOR
THE FIRST TIME ON APPEAL;
D. WHETHER OR NOT THE PRICE OF P9,032,960.00 FOR
RESPONDENT’S PROPERTY AT THE EXTRAJUDICIAL
FORECLOSURE SALE WAS UNCONCIONABLE OR SHOCKING
TO THE CONSCIENCE OR GROSSLY INADEQUATE.
E. WHETHER OR NOT THE PETITION RAISES QUESTIONS OF
LAW AND THE QUESTIONS OF FACT RAISED FALL WITHIN THE
EXCEPTIONS TO THE RULE THAT ONLY QUESTIONS OF LAW
MAY BE REVIEWED BY THIS HONORABLE COURT UNDER
RULE 45 OF THE RULES OF COURT.8
On the other hand, respondent submits the following issues:
Whether or not the Court of Appeals erred in ruling that there exists no
deficiency owed by mortgagor-debtor as the mortgagee-creditor bank
acquired the mortgaged property at the foreclosure sale worth P47,536,000
at onlyP9,032,960;
Whether or not the Court of Appeals erred in ruling that the properties of the
respondent were not overvalued atP47,536,000;
Whether or not the Court of Appeals erred in entertaining the issue that the
foreclosure sale was null and void;
Whether or not the Court of Appeals erred in ruling that the purchase price
of P9,032,000 at the foreclosure sale of respondent’s mortgaged properties
was unconscionable or grossly inadequate.9
After consideration of the issues and arguments raised by the opposing
sides, the Court finds the petition meritorious.
Stripped of surplusage, the singular issue in this case is whether or not
petitioner is entitled to recover the unpaid balance or deficiency from
respondent despite the fact that respondent’s property, which were appraised
by petitioner’s predecessor-in-interest at P47,536,000.00, was sold and later
bought by petitioner in an extrajudicial foreclosure sale for
only P9,032,960.00 in order to satisfy respondent’s outstanding obligation to
petitioner which, at the time of the sale, amounted to P30,420,041.67
inclusive of interest but excluding attorney’s fees, publication and other
charges.
There is no dispute with regard to the total amount of the outstanding loan
obligation that respondent owed to petitioner at the time of the extrajudicial
foreclosure sale of the property subject of the real estate mortgage. Likewise,
it is uncontested that by subtracting the amount obtained at the sale of the
property, a loan balance still remains. Petitioner merely contends that,
contrary to the ruling of the Court of Appeals, it has the right to collect from
the respondent the remainder of her obligation after deducting the amount
obtained from the extrajudicial foreclosure sale. On the other hand,
respondent avers that since petitioner’s predecessor’s own valuation of the
subject property shows that its value is more than the amount of
respondent’s outstanding obligation, then respondent cannot be held liable
for the balance especially because it was petitioner who bought the property
at the foreclosure sale.
In the recent case of BPI Family Savings Bank, Inc. v. Avenido,10 we
reiterated the well-entrenched rule that a creditor is not precluded from
recovering any unpaid balance on the principal obligation if the extrajudicial
foreclosure sale of the property subject of the real estate mortgage results in
a deficiency, to wit:
It is settled that if "the proceeds of the sale are insufficient to cover the debt
in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim
the deficiency from the debtor. While Act No. 3135, as amended, does not
discuss the mortgagee’s right to recover the deficiency, neither does it
contain any provision expressly or impliedly prohibiting recovery. If the
legislature had intended to deny the creditor the right to sue for any
deficiency resulting from the foreclosure of a security given to guarantee an
obligation, the law would expressly so provide. Absent such a provision in
Act No. 3135, as amended, the creditor is not precluded from taking action to
recover any unpaid balance on the principal obligation simply because he
chose to extrajudicially foreclose the real estate mortgage."11
Furthermore, we have also ruled in Suico Rattan & Buri Interiors, Inc. v.
Court of 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 barred from recovering the deficiency even if it bought the
mortgaged property at the extrajudicial foreclosure sale at a lower price than
its market value notwithstanding the fact that said value is more than or equal
to the total amount of the debtor’s obligation. We quote from the relevant
portion of said decision:
Hence, it is wrong for petitioners to conclude that when respondent bank
supposedly bought the foreclosed properties at a very low price, the latter
effectively prevented the former from satisfying their whole obligation.
Petitioners still had the option of either redeeming the properties and,
thereafter, selling the same for a price which corresponds to what they claim
as the properties’ actual market value or by simply selling their right to
redeem for a price which is equivalent to the difference between the
supposed market value of the said properties and the price obtained during
the foreclosure sale. In either case, petitioners will be able to recoup the loss
they claim to have suffered by reason of the inadequate price obtained at the
auction sale and, thus, enable them to settle their obligation with respondent
bank. Moreover, petitioners are not justified in concluding that they should be
considered as having paid their obligations in full since respondent bank was
the one who acquired the mortgaged properties and that the price it paid was
very inadequate. The fact that it is respondent bank, as the mortgagee, which
eventually acquired the mortgaged properties and that the bid price was low
is not a valid reason for petitioners to refuse to pay the remaining balance of
their obligation. Settled is the rule that a mortgage is simply a security
and not a satisfaction of indebtedness.13 (Emphases supplied.)
We are aware of our earlier pronouncements in Cometa v. Court of
Appeals14 and in 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 shockingly low, unconscionable and grossly
inadequate, thus, warranting a nullification of the foreclosure sale. In both
cases, we declared that where the inadequacy of the price is purely shocking
to the conscience, such that the mind revolts at it and such that a reasonable
man would neither directly nor indirectly be likely to consent to it, the sale
shall be declared null and void. On the other hand, we are likewise reminded
of our ruling in Cortes v. Intermediate Appellate Court16 and in Ponce De
Leon v. Rehabilitation Finance Corporation17 wherein we upheld the validity
of foreclosure sales in which the property subject thereof were sold at 11%
and 17%, respectively, of their value.
In the case at bar, the winning bid price of P9,032,960.00 is nineteen percent
(19%) of the appraised value of the property subject of the extrajudicial
foreclosure sale that is pegged at P47,536,000.00 which amount, notably, is
only an arbitrary valuation made by the appraising officers of petitioner’s
predecessor-in-interest ostensibly for loan purposes only. Unsettled
questions arise over the correctness of this valuation in light of conflicting
evidence on record.
Notwithstanding the doubtful validity of the valuation of the property at issue,
the resolution of which is a question of fact that we are precluded from
addressing at this juncture of the litigation, and confronted by the divergent
jurisprudential benchmarks which define what can be considered as
shockingly or unconscionably low price in a sale of property, we,
nevertheless, proceed to adjudicate this case on an aspect in which it is most
plain and unambiguous – that it involves a forced sale with a right of
redemption.
Throughout a long line of jurisprudence, we have declared that unlike in an
ordinary sale, inadequacy of the price at a forced sale is immaterial and does
not nullify a sale since, in a forced sale, a low price is more beneficial to the
mortgage debtor for it makes redemption of the property easier.18
In the early case of The National Loan and Investment Board v.
Meneses,19 we also had the occasion to state that:
As to the inadequacy of the price of the sale, this court has repeatedly
held that the fact that a property is sold at public auction for a price lower
than its alleged value, is not of itself sufficient to annul said sale, where
there has been strict compliance with all the requisites marked out by
law to obtain the highest possible price, and where there is no showing
that a better price is obtainable. (Government of the Philippines vs. De
Asis, G. R. No. 45483, April 12, 1939; Guerrero vs. Guerrero, 57 Phil., 442;
La Urbana vs. Belando, 54 Phil., 930; Bank of the Philippine Islands v .
Green, 52 Phil., 491.)20 (Emphases supplied.)
In Hulst v. PR Builders, Inc.,21 we further elaborated on this principle:
[G]ross inadequacy of price does not nullify an execution sale. In an ordinary basis for petitioner’s claim against respondent for the balance of her loan
sale, for reason of equity, a transaction may be invalidated on the ground of obligation.
inadequacy of price, or when such inadequacy shocks one’s conscience as
to justify the courts to interfere; such does not follow when the law gives the WHEREFORE, premises considered, the petition is hereby GRANTED. The
owner the right to redeem as when a sale is made at public auction, upon the assailed Decision dated April 30, 2008 of the Court of Appeals in CA-G.R.
theory that the lesser the price, the easier it is for the owner to effect CV No. 88004 is REVERSED and SET ASIDE. The RTC’s November 3,
redemption. When there is a right to redeem, inadequacy of price should 2005 Decision in Civil Case No. 03-180 is hereby REINSTATED.
not be material because the judgment debtor may re-acquire the
property or else sell his right to redeem and thus recover any loss he
SO ORDERED.
claims to have suffered by reason of the price obtained at the execution
sale. Thus, respondent stood to gain rather than be harmed by the low
sale value of the auctioned properties because it possesses the right of
redemption. x x x22 (Emphasis supplied.)1âwphi1

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

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

Even if we are so inclined out of sympathy for respondent’s plight, neither

could we temper respondent’s liability to the petitioner on the ground of
equity. We are barred by our own often repeated admonition that equity,
which has been aptly described as "justice outside legality," is applied only in
the absence of, and never against, statutory law or judicial rules of
procedure.24 The law and jurisprudence on the matter is clear enough to
close the door on a recourse to equity.

Moreover, we fail to see any unjust enrichment resulting from upholding the
validity of the foreclosure sale and of the right of the petitioner to collect any
deficiency from respondent. Unjust enrichment exists "when a person
unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice,
equity and good governance."25 As discussed above, there is a strong legal
PHILIPPINE SAVINGS BANK vs. SPOUSES GERONIMO
(G.R. No. 170241, April 19, 2010)
The Case
This petition forreview1assails the 30 August 2005 Decision2 and 3
November 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No.
66672. The Court of Appeals reversed the decision of Branch 121 of the
Regional Trial Court of Caloocan City, National Capital Region (trial court) by
declaring void the questioned extrajudicial foreclosure of real estate
mortgage for non-compliance 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-50575.4 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,5 being the highest bidder,
for P3,000,000. Consequently, a Certificate of Sale was issued in favor of
petitioner.6
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. 7
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.
SO ORDERED.8
On appeal, the Court of Appeals held:
WHEREFORE, the assailed decision dated 26 November 1999 of the
Regional Trial Court of Caloocan City is REVERSED and SET ASIDE. The
Extrajudicial Foreclosure of Mortgage conducted on 29 March 1996 is
declared NULL and VOID.
SO ORDERED.9
The Court of Appeals denied petitioner’s motion for reconsideration.
Hence, this petition.
The Ruling of the Trial Court
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 property is situated, and publication once a week for at least
three consecutive weeks in a newspaper of general circulation in the
municipality or city, if the property is worth more than four hundred pesos."
The trial court further ruled there was compliance with the statutory
publication requirement. Since the affidavit of publication was excluded as
petitioner’s evidence, the trial court relied instead on the positive testimony of
Deputy Sheriff Alberto Castillo, that he caused the publication of the Notice of
Sale, in holding 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, failed to discharge their burden of proving
petitioner’s alleged non-compliance with the requisite publication. The trial
court stated that the testimony of respondents’ witness, a newsstand owner,
"that he has never sold Ang Pinoynewspaper can never lead to the
conclusion that such publication does not exist."
The Ruling of the Court of Appeals
The Court of Appeals reversed the ruling of the trial court.
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 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:
1. If Ang Pinoy newspaper is a newspaper of general circulation
particularly for the years 1995 and 1996; and
 2. If there was compliance with Sec. 2 of P.D. No. 1079 which
provides:
"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 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
Executive Judge Victoria Isabel A. Paredes (Executive Judge Paredes)
complied with the directive by stating that:
a) Ang Pinoy newspaper is not an accredited periodical in Caloocan
City. Hence, we are unable to categorically state whether it is a
newspaper of general circulation at present or for the years 1995 and
1996 (Certification marked as Annex "A")
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 courtroom of RTC,
Branch 124 (Certification marked as Annex "B"); and
c) We have no knowledge on whether Ang Pinoy was included in the
raffles conducted in 1995 and 1996, as we do not have the case
record where the information may be verified.11
The Court of Appeals concluded that, based on the compliance of Executive
Judge Paredes, Ang Pinoy is not a newspaper of general circulation in
Caloocan City. Therefore, the extrajudicial foreclosure is void for non-
compliance with the requirement of the publication of the notice of sale in a
newspaper of general circulation.
The Issue
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 Ruling of the Court
The petition lacks merit.
Section 3 of Act No. 313512 reads:
SECTION 3. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three public places of the municipality or city
where the property is situated, and if such property is worth more than four
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 supplied)
Petitioner claims that it complied with the above provision in foreclosing
extrajudicially the subject real estate mortgage. To buttress its claim,
petitioner presented the testimony of Deputy Sheriff Alberto Castillo of the
trial court, the pertinent portion of which states:
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?
xxxx
A. Yes, sir.
ATTY. DAVIS:
Q. In what connection?
A. In connection with the extra judicial foreclosure filed by the PS
Bank, sir.
xxxx
Q. When this was assigned to you what action did you take thereon?
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 three conspicuous places of Caloocan City, sir.
Q. You mentioned about your issuance of Notice of Sale I am
referring you now to the document previously marked as Exhibit "6."
What relation is this if any to the one you have mentioned?
A. This is the Notice of Sale I have prepared, sir.
Q. Now you also mentioned that you have caused the publication of
this Notice of Sheriff’s Sale to a newspaper of general circulation, do
you remember what newspaper it was?
A. Ang Pinoy, sir.
Q. How come that this newspaper was selected for purposes of
publication?
A. It was the executive judge who awarded that publication, sir.
Q. How do you know particularly that this notice was published in the
newspaper?
A. That during the auction sale the mortgagee bank presented
affidavit of publication, sir.13
On the other hand, respondents dispute the existence of the
publication of the notice of sale. Assuming that the notice of sale was
published, respondents contend that Ang Pinoy, where it was
published, is not a newspaper of general circulation. To bolster their
claim of non-publication, respondents offered the testimony of Danilo
Magistrado, a newsstand owner, which pertinently states:
ATTY. SAYA:
Do you know by chance the Pinoy Newspaper?
ATTY. DAVIS:
No basis.
COURT:
Objection overruled. Witness may answer.
A. None, sir. I do not sell Pinoy Newspaper, sir.
ATTY. SAYA:
Why do you say that you do not know Pinoy Newspaper?
A. From the time I sold newspapers, sir, I have not seen Pinoy
Newspaper.
ATTY. SAYA:
That would be all, your Honor.
Before resolving the principal issue, we must point out the requirement of
accreditation was imposed by the Court only in 2001, through A.M. No. 01-1-
07-SC or the Guidelines in the Accreditation of Newspapers and Periodicals
Seeking to Publish Judicial and Legal Notices and Other Similar
Announcements and in the Raffle Thereof.14 The present case involves an
extrajudicial foreclosure conducted in 1996; thus, there were no such
guidelines in effect during the questioned foreclosure. At any rate, the
accreditation by the Executive Judge is not decisive of whether a newspaper
is of general circulation.15
It is settled that for the purpose of extrajudicial foreclosure of mortgage, the
party alleging non-compliance with the requisite publication has the burden of
proving the same.16 In this case, respondents presented the testimony of a
newsstand owner to prove that Ang Pinoy is not a newspaper of general
circulation. However, this particular evidence is unreliable, as the same
witness testified that he sells newspapers in Quezon City, not in Caloocan
City, and that he is unaware of Ang Pinoy newspaper simply because he is
not selling the same and he had not heard of it. His testimony states:
Q. Where is this place that you traditionally or usually sell
newspaper?
A. Corner of A. Bonifacio and 6th Avenue.
Q. This is in Quezon City?
A. Yes, sir.
Q. Not in Caloocan?
A. In Quezon City, sir.
xxxx
COURT: Clarificatory question.
 Q. You said that there is no Pinoy magazine simply because you are
not selling Pinoy magazine?
A. Yes, your Honor.
Q. But you are not certain that there is really no Pinoy magazine?
COURT:
But have you heard about Pinoy magazine or Pinoy newspaper?
A. I have not heard, your Honor.17
Notwithstanding, petitioner could have easily produced the affidavit of
publication and other competent evidence (such as the published notices) to
refute respondents’ claim of lack of publication of the notice of sale.
In Spouses Pulido v. Court of Appeals,18 the Court held:
While it may be true that the party alleging non-compliance with the requisite
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 existence of a document the custody of which belongs to the
other party.
In relation to the evidentiary weight of the affidavit of publication, the Court
ruled in China Banking Corporation v. Spouses Martir19 that the affidavit of
publication executed by the account executive of the newspaper is prima
facie proof that the newspaper is generally circulated in the place where the
properties are located.20
In the present case, the Affidavit of Publication or Exhibit "8," although
formally offered by petitioner, was excluded by the trial court for being
hearsay.21 Petitioner never challenged the exclusion of the affidavit of
publication. Instead, petitioner relies solely on the testimony of Deputy Sheriff
Alberto Castillo to prove compliance with the publication requirement under
Section 3 of Act No. 3135. However, there is nothing in such testimony to
clearly and convincingly prove that petitioner complied with the mandatory
requirement of publication. When Sheriff Castillo was asked how he knew
that the notice of sale was published, he simply replied that "during the
auction sale the mortgagee bank presented the affidavit of
publication."22 Evidently, such an answer does not suffice to establish
petitioner’s claim of compliance with the statutory requirement of publication.
On the contrary, Sheriff Castillo’s testimony reveals that he had no personal
knowledge of the actual publication of the notice of sale, much less the
extent of the circulation of Ang Pinoy.
Moreover, the Court notes that Ang Pinoy is a newspaper of general
circulation printed and published in Manila, not in Caloocan City where the
mortgaged property is located, as indicated in the excluded Affidavit of
Publication. This is contrary to the requirement under Section 3 of Act No.
3135 pertaining to the publication of the notice of sale in a newspaper of
general circulation in the city where the property is situated. Hence, even if
the Affidavit of Publication was admitted as part of petitioner’s evidence, it
would not support petitioner’s case as it does not clearly prove petitioner’s
compliance with the publication requirement.
Petitioner’s invocation of the presumption of regularity in the performance of
official duty on the part of Sheriff Castillo is misplaced. While posting the
notice of sale is part of a sheriff’s official functions,23 the actual publication of
the notice 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 published in a newspaper of general circulation.
The Court further notes that the Notice of Extra-Judicial Sale,24 prepared and
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 be was left blank, with only the dates of publication clearly
written. This omission raises serious doubts as to whether there was indeed
publication of the notice of sale.1avvphi1
Once again, the Court stresses the importance of the notice requirement, as
enunciated in Metropolitan Bank and Trust Company, Inc. v. Peñafiel,25 thus:
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 [sale] of the property. The goal of the notice requirement is to
achieve a "reasonably wide publicity" of the auction sale. This is why
publication in a newspaper of general circulation is required. The Court has
previously taken judicial notice of the "far-reaching effects" of publishing the
notice of sale in a newspaper of general circulation.
In addition, the Court reminds mortgagees of their duty to comply faithfully
with the statutory requirements of foreclosure. In Metropolitan Bank v.
Wong,26 the Court declared:
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 must be complied with, lest, the valid exercise of the right would end. It
must be remembered that the exercise of a right ends when the right
disappears, and it disappears when it is abused especially to the prejudice of
others.

In sum, petitioner failed to establish its compliance with the publication

requirement under Section 3 of Act No. 3135. Consequently, the questioned
extrajudicial foreclosure of real estate mortgage and sale are void.27

WHEREFORE, we DENY the petition. We AFFIRM the 30 August 2005

Decision and 3 November 2005 Resolution of the Court of Appeals in CA-
G.R. CV No. 66672.

SO ORDERED.
SPOUSES OCHOA vs. CHINA BANKING CORPORATION
G.R. No. 192877, March 23, 2011
For resolution is petitioners’ motion for reconsideration1 of our January 17,
2011 Resolution2 denying their petition for review on certiorari3 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 is situated.5
The case at bar involves petitioners’ mortgaged real property located in
Parañaque City over which respondent bank was granted a special power to
foreclose extra-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 Section 4, Rule 4 of the Rules of Court,7 cannot be made to
apply to the Petition for Extrajudicial Foreclosure filed by respondent bank
because the provisions of Rule 4 pertain to venue of actions, which an
extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa: 8
Section 1, Rule 2 [of the Rules of Court] defines an action in this wise:
"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 of a wrong."
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 prescribed by the court or by the law. x x x." It is clear that the
determinative or operative fact which converts a claim into an "action or suit"
is the filing of the same with a "court of justice." Filed elsewhere, as with
some other body or office not a court of justice, the claim may not be
categorized under either term. Unlike an action, an extrajudicial foreclosure
of real estate mortgage is initiated by filing a petition not with any court of
justice but with the office of the sheriff of the province where the sale is to be
made.1avvphi1 By no stretch of the imagination can the office of the sheriff
come under the category of a court of justice. And as 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:
1. All applications for extrajudicial foreclosure of mortgage whether under the
direction of the sheriff or a notary public, pursuant to Act 3135, as amended
by Act 4118, and Act 1508, as amended, shall be filed with the Executive
Judge, through the Clerk of Court who is also the Ex-Officio Sheriff.
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 extrajudicial foreclosure sales of real estate mortgages, and not the
general provisions of the Rules of Court on Venue of Actions.
Consequently, the stipulated exclusive venue of Makati City is relevant only
to actions arising from or related to the mortgage, such as petitioners’
complaint for Annulment of Foreclosure, Sale, and Damages.

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

WHEREFORE, premises considered, the motion for reconsideration is

hereby DENIED.

SO ORDERED.
ROYAL SAVINGS BANK, formerly Comsavings Bank, now GSIS FAMILY
BANK vs. ASIA, et al (G.R. No. 183658, April 10, 2013)
This is a Petition for Review1 filed by Royal Savings Bank (petitioner),
praying for the reversal of the Orders dated 4 October 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.
Petitioner appealed to the Court of Appeals (CA), which reversed the
Decision of the RTC. Since Salita did not appeal the CA ruling, it became
final and executory. Accordingly, the Entry of Judgment was issued on 4
June 2002.
Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte
Petition for the Issuance of a Writ of Possession.5 The Court, through its
Order dated 14 February 2007, required petitioner to present its evidence.
Petitioner then submitted a Memorandum of Jurisprudence (In Lieu of Oral
Testimony).6
In a Decision dated 28 May 2007,7 the RTC ruled in favor of petitioner and
ordered the issuance of the Writ of Possession in the latter’s favor.
Respondents Fernando Asia, Mika Latag, Cornelia Maranan, Jimmy Ong,
Conrado Macaralaya, Rolando Saba, Tomas Gallega, Lilia Fedelimo,
Milagros Hagutay and Norma Gabatic claimed to have been in open,
continuous, exclusive and notorious possession in the concept of owners
of the land in question for 40 years.8 Allegedly, they had no knowledge and
notice of all proceedings involving the property until they were served a
Notice to Vacate9 by RTC Sheriff IV Neri Loy, on 20 July 2007.10 They further
claimed that, prior to the service of the Notice to Vacate, they had no
knowledge or notice of the lower court’s proceedings or the foreclosure suit
of petitioner.11
The Notice to Vacate gave respondents three days or until 25 July 2007 to
voluntarily vacate the property. In order to prevent the execution of the
notice, they filed an Urgent Motion to Quash Writ of Possession and Writ of
Execution12 on even date.
Petitioner filed their Comment13 on respondents’ Motion to Quash on 14
August 2007.
In an Order dated 4 October 2007,14 the RTC granted the Motion to Quash.
Petitioner filed a Motion for Reconsideration (MR),15 to which an Opposition
was filed by respondents.16 Petitioner claimed that, six months after the filing
of the Opposition, there was still no action taken by the RTC on the MR.
Thus, it filed a Motion for Early Resolution17 on 16 June 2008. Through an
Order dated 25 June 2008,18 the RTC denied petitioner’s MR.
Claiming that it raises no factual issues, petitioner came straight to this Court
through a Petition for Review under Rule 45 of the Rules on Civil Procedure.
Petitioner insists that because it is a government-owned financial institution,
the general rules on real estate mortgage found in Act 3135 do not apply to
it. It prays that this Court rule that Presidential Decree (P.D.) No. 38519—the
law intended specifically to govern mortgage foreclosures initiated by
government-owned financial institutions—should be applied to this case.
According to petitioner, when the RTC quashed the Writ of Possession,20 the
latter violated Section 2 of P.D. 385, which reads:
Section 2. No restraining order, temporary or permanent injunction shall be
issued by the court against any government financial institution in any action
taken by such institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining order, temporary or
permanent injunction is sought by the borrower(s) or any third party or
parties, except after due hearing in which it is established by the borrower
and admitted by the government financial institution concerned that twenty
percent (20%) of the outstanding arrearages has been paid after the filing of
foreclosure proceedings.
Thus, petitioner is now saying that, as a government financial institution
(GFI), it cannot be enjoined from foreclosing on its delinquent accounts in
observance of the mandate of P.D. 385.
We are not persuaded.
Assuming that petitioner is, as it claims, a GFI protected under P.D. 385, this
Court is still of the opinion and thus rules that the RTC committed no error in
granting respondents’ Urgent Motion to Quash Writ of Possession.
Indeed, while this Court had already declared in Philippine National Bank v.
Adil21 that once the property of a debtor is foreclosed and sold to a GFI, it
would be mandatory for the court to place the GFI in the possession and
control of the property—pursuant to Section 4 of P.D. No. 385—this rule
should not be construed as absolute or without exception.
The evident purpose underlying P.D. 385 is sufficiently served by allowing
foreclosure proceedings initiated by GFIs to continue until a judgment therein
becomes final and executory, without a restraining order, temporary or
permanent injunction against it being issued. But if a parcel of land is
occupied by a party other than the judgment debtor, the proper procedure is
for the court to order a hearing to determine the nature of said adverse
possession before it issues a writ of possession.22
This is because a third party, who is not privy to the debtor, is protected by
the law. Such third party may be ejected from the premises only after he has
been given an opportunity to be heard, to comply with the time-honored
principle of due process.23
In the same vein, under Section 33 of Rule 39 of the Rules on Civil
Procedure, the possession of a mortgaged property may be awarded to a
purchaser in the extrajudicial foreclosure, unless a third party is actually
holding the property adversely vis-à-vis the judgment debtor.24
Respondents insist that they are actual possessors in the concept of owners
and that they have been occupying the land in the concept of owners for 40
years already.25 Furthermore, respondents made it clear in the Motion to
Quash that they were not "claiming rights as attorney-in-fact, nor lessee, nor
anything from Mortgagor PACENCIA SALITA."26 Thus, whatever rights Salita
had over the property that were acquired by petitioner when the latter
purchased it, cannot be used against respondents, as their claim is adverse
to that of Salita.
In the eyes of this Court, the RTC did not err in issuing the herein assailed
Orders on the basis of its initial finding that respondents are third parties who
are actually holding the property adversely vis-à-vis the judgment debtor. The
RTC did not err in applying the doctrine laid down in Barican v. Intermediate
Appellate Court,27 in which we ruled that the obligation of a court to issue a
writ of possession in favor of the purchaser in an extrajudicial foreclosure
sale ceases to be ministerial, once it appears that there is a third party who is
in possession of the property and is claiming a right adverse to that of the
debtor/mortgagor.
We explained in Philippine National Bank v. Austria 28 that the foregoing
doctrinal pronouncements are not without support in substantive law, to wit:
x x x. Notably, the Civil Code protects the actual possessor of a property, to
wit:
Art. 433.Actual possession under claim of ownership raises a disputable
presumption of ownership. The true owner must resort to judicial process for
the recovery of the property.
Under the aforequoted provision, one who claims to be the owner of a
property possessed by another must bring the appropriate judicial action for
its physical recovery. The term "judicial process" could mean no less than an
ejectment suit or reivindicatory action, in which the ownership claims of the
contending parties may be properly heard and adjudicated.
We find that it was only proper for the RTC to quash the Writ of Possession
until a determination is made as to who, between petitioner and respondents,
has the better right to possess the property.
Lastly, petitioner alleges that the pairing judge violated the hierarchy of
courts when she quashed the writ of possession validly issued by the then
presiding Judge of the RTC Quezon City, a co-equal body.29
No court has the power to interfere by injunction in the issuance or
enforcement of a writ of possession issued by another court of concurrent
jurisdiction having the power to issue that writ.30 However, as correctly
pointed out by respondents in their Comment, it was the same trial court and
"not another court or co-equal court body that quashed the subject writ of
possession."31 The pairing judge, who issued the Order quashing the Writ of
Possession, issued it in her capacity as the judge of Branch 222 of Quezon
City-the same branch, albeit then under a different judge, that issued the Writ
of Possession.1âwphi1

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

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

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

SO ORDERED.
METROPOLITAN BANK and TRUST COMPANY vs. CENTRO
DEVELOPMENT CORPORATION (G.R. No. 180974, June 13, 2012)
The present Petition for Review1 assails the Court of Appeals (CA)
Decision2 promulgated on 30 August 2007 and Resolution3 dated 26
November 2007 in CA-G.R. CV No. 80778. The antecedent facts follow.
On 20 March 1990, in a special meeting of the board of directors of
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 P 84 million of Lucky Two Corporation and Lucky Two
Repacking. The properties and assets consisted of a parcel of land with a
building and improvements located at Salcedo St., Legaspi Village, Makati
City, and covered by Transfer Certificate of Title (TCT) Nos. 139880 and
139881. This authorization was subsequently approved on the same day by
the stockholders.4 Maria Jacinta V. Go, the corporate secretary, issued a
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;
R E S O L U T I O N:
"RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of
Centro Development Corporation, be as he is hereby authorized to mortgage
and use as collateral the real estate property of the Corporation identified as
a parcel of land with building and improvements located at Salcedo St.,
Legaspi Village, Makati, Metro Manila covered by Transfer Certificate of Title
Nos. 139880 and 139881 to secure the medium-term loan of LUCKY TWO
CORPORATION, a corporation duly organized and existing under the
Philippine laws, and LUCKY TWO REPACKING, a single proprietorship with
principal office at Concepcion, Tarlac, with the Bank of the Philippine Islands
for EIGHTY FOUR (84) MILLION PESOS, Philippine Currency
(P 84,000,000.00);
"RESOLVED FURTHER, that said GO ENG UY, be as he is hereby
authorized to sign all papers and documents needed and necessary to carry
into effect the aforesaid purpose or undertaking for the benefit and to the
credit of Lucky Two Corporation and Lucky Two Repacking."
Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy,
executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines
Islands (BPI).5 Under the MTI, respondent Centro, together with its affiliates
Lucky Two Corporation and Lucky Two Repacking or Go Eng Uy, expressed
its desire to obtain from time to time loans and other credit accommodations
from certain creditors for corporate and other business purposes.6 To secure
these obligations from different creditors, respondent Centro constituted a
continuing mortgage on all or substantially all of its properties and assets
enumerated above unto and in favor of BPI, the trustee. Should respondent
Centro or any of its affiliates fail to pay their obligations when due, the trustee
shall cause the foreclosure of the mortgaged property.
Thereafter, the mortgage was duly recorded with the Registry of Deeds of
Makati City.7
On 31 March 1993, Centro and BPI amended the MTI to allow an additional
loan of P 36 million and to include San Carlos Milling Company, Inc. (San
Carlos) as a borrower in addition to Centro, Lucky Two Corp. and Lucky Two
Repacking.8 Then, on 28 July 1994, Centro and BPI again amended the MTI
for another loan of P 24 million, bringing the total obligation to P 144 million.9
Meanwhile, respondent Centro, represented by Go Eng Uy, approached
petitioner Metropolitan Bank and Trust Company (Metrobank) sometime in
1994 and proposed that the latter assume the role of successor-trustee of the
existing MTI. After petitioner Metrobank agreed to the proposal, the board of
directors of respondent Centro allegedly resolved on 12 August 1994 to
constitute petitioner as successor-trustee of BPI.10
Thereafter, on 27 September 1994,11 petitioner and respondent Centro
executed the assailed MTI,12 amending the previous agreements by
appointing the former as the successor-trustee of BPI. It is worth noting that
this MTI did not amend the amount of the total obligations covered by the
previous MTIs.
It was only sometime in 1998 that respondents herein, Chongking Kehyeng,
Manuel Co Kehyeng and Quirino Kehyeng, allegedly discovered that the
properties of respondent Centro had been mortgaged, and that the MTI that
had been executed appointing petitioner as trustee. Notably, respondent
Chongking Kehyeng had been a member of the board of directors of Centro
since 1989, while the two other respondents, Manuel Co Kehyeng and
Quirino Keyheng, had been stockholders since 1987. Respondents Kehyeng
were minority stockholders who owned thirty percent (30%) of the
outstanding capital stock of respondent Centro.
On different dates, 4 September 1998, 9 September 1998 and 2 October
1998, the Kehyengs allegedly questioned the mortgage of the properties
through letters addressed to Go Eng Uy and Jacinta Go.13 They alleged that
they were not aware of any board or stockholders’ meeting held on 12
August 1994, when petitioner was appointed as successor-trustee of BPI in
the MTI. Respondents demanded a copy of the minutes of the meeting held
on that date, but received no response.
Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs
allegedly wrote to petitioner, informing it that they were not aware of the 12
August 1994 board of directors meeting. Petitioner did not respond to the
letters.14
Meanwhile, during the period April 1998 to December 1998, San Carlos
obtained loans in the total principal amount of P 812,793,513.23 from
petitioner Metrobank.15
San Carlos failed to pay these outstanding obligations despite demand.
Thus, petitioner, as trustee of the MTI, enforced the conditions thereof and
initiated foreclosure proceedings, denominated as Foreclosure No. S-04-11,
on the mortgaged properties. On 22 June 2000, petitioner Metrobank filed a
Petition for Extrajudicial Foreclosure of Mortgage with the executive judge of
the Regional Trial Court (RTC) of Makati City. Petitioner alleged that the total
amount of the Promissory Notes that San Carlos executed in favor of the
former amounted to P812,793,513.23. As of 30 April 2000, the total
outstanding obligation, inclusive of interests and penalties,
was P1,178,961,181.45.16
We note that there are no documents in the records evidencing the
amendment of the MTI to accommodate these additional obligations. As of
27 September 1994, the date of the last amendment as borne out by the
records, the total outstanding obligation reflected in the MTI amounted to
only P 144 million. The latest MTI merely referred to the amendments made
on 31 March 1993 and 28 July 1994.
Before the scheduled foreclosure date, on 3 August 2000, respondents
herein filed a Complaint for the annulment of the 27 September 1994 MTI
with a prayer for a temporary restraining order (TRO) and preliminary
injunction at Branch 138 of the RTC of Makati City. Docketed as Civil Case
No. 00-942, the Complaint was against petitioner, Go Eng Uy, Alexander V.
Go, Ramon V. Go, Maria Jacinta Go and Enriqueto Magpantay.
The bone of contention in Civil Case No. 00-942 was that since the
mortgaged properties constituted all or substantially all of the corporate
assets, the amendment of the MTI failed to meet the requirements of Section
40 of the Corporation Code on notice and voting requirements. Under this
provision, in order for a corporation to mortgage all or substantially all of its
properties and assets, it should be authorized by the vote of its stockholders
representing at least 2/3 of the outstanding capital stock in a meeting held for
that purpose. Furthermore, there must be a written notice of the proposed
action and of the time and place of the meeting. Thus, respondents alleged,
the representation of Go Eng Uy that he was authorized by the board of
directors and/or stockholders of Centro was false.
On 15 December 2003, after trial on the merits, the RTC dismissed the
Complaint.17 It held that the evidence presented by respondents was
insufficient to support their claim that there were no meetings held
authorizing the mortgage of Centro’s properties. It noted that the stocks of
respondents Kehyeng constituted only 30% of the outstanding capital stock,
while the Go family owned the majority 70%, which represented more than
the 2/3 vote required by Section 40 of the Corporation Code. The trial court
ruled that respondents Kehyeng, particularly Chongking Kehyeng, who sat in
the board of directors, should have done periodic inquiries and verifications
of documents pertaining to corporate properties. The RTC also held that
laches had attached, considering that eight (8) years had lapsed before
respondents questioned the mortgage executed in 1990.
The trial court also noted the absence of evidence showing the steps
respondents had taken to seek redress for the alleged misrepresentations of
Go Eng Uy and Maria Jacinta Go. On the other hand, the court found that no
neglect could be imputed to petitioner for relying on the Secretary’s
Certificate, which apparently established Go Eng Uy’s authority to mortgage
Centro’s properties and assets.
Respondents subsequently filed an appeal with the CA docketed as CA-G.R.
CV No. 80778. On 26 February 2004, they filed an Urgent Motion for the
Issuance of a Temporary Restraining Order and Writ of Preliminary Injunction
seeking to restrain petitioner, the clerk of court, the ex-officio sheriff of the
RTC, and their agents from foreclosing and selling at public auction on 4 and
22 March 2004 the mortgaged properties subject of Civil Case No. 00-942.
On 3 March 2004, a TRO was issued by the CA effective for a period of sixty
(60) days, unless earlier set aside by a resolution.18
On 19 May 2004, the CA issued a Resolution19 in CA-G.R. CV No. 80778
denying the application for the issuance of a writ of preliminary injunction.
Not giving up, on 27 May 2004, respondents Centro and San Carlos filed a
Complaint docketed as Civil Case No. 04-612 at Branch 56 of the RTC of
Makati City. They prayed for the nullification of the foreclosure proceedings
and prayed for the issuance of a TRO/injunction. Centro and San Carlos
alleged that the total obligation due was only P 657,000,000 and
not P 812,793,513.23; that the sale of the San Carlos properties found in
Negros Occidental fully satisfied their outstanding obligations; and that the
action to foreclose the Makati properties was illegal and void.20
While Civil Case No. 04-612 was pending, the clerk of court and the ex-
officio sheriff of the RTC of Makati City held an auction sale of the disputed
property, during which petitioner was adjudged as the highest bidder
for P344,700,000. A Certificate of Sale was accordingly issued on 3 June
2004, which states:21
On June 2, 2004, a public auction sale was conducted and METROPOLITAN
BANK & TRUST CO. submitted a bid for the sale to him/it of the mortgaged
property in the amount of P 344,700,000 xxx, which was the highest bid
hence declared as the winning bidder and being the creditor he/it did not
delivery or pay cash/monies to the Clerk of Court and Ex-Officio Sheriff the
bid price of P 344,700,000 xxx and the selling price was credited as
partial/full satisfaction of indebtedness secured by the mortgage.
In consideration thereof, the Certificate of Sale was issued in favor of
METROPOLITAN BANK& TRUST CO. of Metrobank Plaza, Sen. Gil Puyat
Ave., Makati.
This sale is subject to redemption in the manner provided by law.
Because of this development, the Complaint in Civil Case No. 04-612 was
amended, and Centro and San Carlos prayed for the issuance of a writ of
injunction to prevent the registration of the Certificate of Sale and the
subsequent transfer to petitioner of the title to the properties. However,
Branch 56 of the RTC of Makati City subsequently denied the application.
Respondent Centro thereafter filed before the CA a Petition for Certiorari
docketed as CA-G.R. SP No. 84447. The Petition assailed the Order of the
RTC in Civil Case No. 04-612.
During this time, CA-G.R. CV No. 80778, which involved the legality of the
MTI, was still pending.
On 30 August 2007, the CA promulgated the assailed Decision in CA-G.R.
CV No. 80778. The appellate court first determined whether the requirements
of Section 40 of the Corporation Code on the sale of all or substantially all of
the corporation’s property were complied with. Based on the 18 August 1994
Secretary’s Certificate, the CA found that only a quorum was present during
the stockholders’ meeting on 12 August 1994. The appellate court thus held
that the 2/3 vote required by Section 40 was not met. It ruled that the minority
stockholders were deprived of their right to dissent from or to approve the
proposed mortgage, considering that they had not been notified in writing of
the meeting in which the corporate action was to be discussed.
The CA also considered the testimony of Perla Saballe, an officer of
petitioner Metrobank, who opined that the term "quorum" meant only the
majority of the stockholders.
Furthermore, the appellate court held that petitioner was duty-bound to
ensure that respondent Centro submitted proof that the proposed corporate
action had been duly approved by a vote of the stockholders representing 2/3
of the outstanding capital stock.
Regarding the issue of whether laches had already attached, the CA ruled
that the MTI could not be ratified, considering that the requirements of the
Corporation Code were not complied with.
Thus, the dispositive portion of the CA Decision in CA-G.R. CV No. 80778
reads:22
WHEREFORE, the Appeal is PARTIALLY GRANTED. The Judgment dated
15 December 2003 of the Regional Trial Court of Makati City, Branch 138, is
REVERSED and SET ASIDE insofar as the dismissal of the Complaint for
Annulment of Trust Indenture Agreement is concerned. The Trust Indenture
executed on 27 September 1994 is hereby declared NULL and VOID.
Accordingly, the foreclosure of the mortgage and the sale at public auction
involving the subject properties are declared of no force and effect. The
certificates of title issued in the name of Metropolitan Bank and Trust
Company are CANCELLED.
Conformably with the foregoing discussion, the appellants’ prayer for
damages is hereby DENIED.
SO ORDERED.
On 14 September 2007, a different Division of the CA rendered a
Decision23 denying the Petition in CA-G.R. SP No. 84447. That Petition had
questioned the Decision of Branch 56 of the RTC of Makati City denying a
Petition to enjoin the foreclosure of the mortgaged properties on the ground
that respondents Centro and San Carlos had failed to show any clear right of
the RTC to issue an injunctive writ. The CA further ruled that the foreclosure
of the property became a matter of right on the part of petitioner because of
respondents’ failure to pay the loans due.
On 26 November 2007, the CA in CA-G.R. CV No. 80778 rendered the
assailed Resolution denying petitioner’s Motion for Reconsideration.
Hence, this Petition.
Petitioner contends that the stockholders’ Resolution No. 005, s. 1994 did not
constitute a new mortgage in favor of petitioner. Instead, the stockholders
merely amended the existing MTI by appointing petitioner as the new trustee
for the MTI, which was already existing and held by BPI. Thus, there was no
need to secure a 2/3 vote from the stockholders. Petitioner posits that the
authority to mortgage the properties was granted in 1990, upon the execution
of the first MTI between respondent Centro and BPI.
Further, petitioner alleges that respondents do not deny or question the
previous MTI and its subsequent amendments. It further alleges that the
constituted mortgage under the MTI was duly annotated with the Registry of
Deeds of Makati City.
Petitioner also maintains that the CA erred in interpreting the phrase "at
which meeting a quorum was present" contained in the Secretary’s
Certificate dated 18 August 1994. The bank points out that the phrase
indicates that at least a quorum was present, rather than that only a quorum
was present. Thus, the Secretary’s Certificate did not in any way limit the
number of those actually present.
Additionally, petitioner argues that Perla Saballe, whose testimony was
considered by the CA, was not a competent witness to interpret the directors’
Resolution. Allegedly, she was never present during the meetings of Centro
regarding the present issue, and she was not in a position to answer the
questions propounded to her in relation to the requirements of Section 40 of
the Corporation Code.
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which
upheld the validity of the foreclosure of the mortgage. It also challenges the
CA ruling that the former failed to exercise due diligence in transacting with
respondent Centro. Finally, petitioner insists that laches attached when
respondents failed to question the MTI and the stockholders’ Resolution at
the earliest possible time.
On the other hand, respondents contend that, based on the Pre-Trial Brief
and the Amended Pre-Trial Order, petitioner admitted that the subject
properties were mortgaged under the MTI of 27 September 1994, and not
under that of 21 March 1990.
Second, on the issue of whether the 2/3 voting requirement was met,
respondents claim that petitioner cannot impugn the testimony of its own
officer and witness, Perla Saballe, on the interpretation of the term "quorum"
as referred to in the Secretary’s Certificate dated 18 August 1994.
Respondents also allege that petitioner failed to controvert the testimony of
Chongking Kehyeng, a member and vice-chairperson of the board of
directors, that he was unaware of any stockholders’ meeting ever being held,
and that he and the other Kehyengs were not informed of that meeting.
Respondents further insist that petitioner was negligent when it merely relied
on the Secretary’s Certificate, instead of exercising due diligence to ensure
that all legal requirements had been complied with under the MTI. On the
issue of laches, respondents contend that it was not raised before the trial
court, and is thus improperly invoked in the present Petition. Nevertheless,
they allegedly undertook a number of measures to question the transactions
between petitioner and CENTRO. Moreover, they argue that the MTI, being
null and void, cannot be given effect through laches.
The Court’s Ruling
In summary, this Court is tasked to resolve the following issues:
1. Whether the requirements of Section 40 of the Corporation Code
was complied with in the execution of the MTI;
2. Whether petitioner was negligent or failed to exercise due
diligence;
3. Whether laches has already attached, such that respondents can
no longer question the MTI.
We shall first discuss the issue of laches.
Laches is defined as the failure or neglect for an unreasonable and
unexplained length of time to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to assert
a right within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it.24
In the case at bar, the RTC in Civil Case No. 00-942 held that laches
attached when respondents allowed eight (8) years to pass before
questioning the mortgage, which was constituted in 1990. Thus, the trial
court said:
As it appears now, the mortgage on the land and building of Centro was first
constituted in 1990 in favor of [the] Bank of the Philippine Islands. Individual
plaintiffs stated that discovery of the mortgage was "sometime in 1998", (par.
6, Affidavit of Chongking Kehyeng). He was in the Board of Directors of
Centro and he holds office at the fourth floor of the building on the mortgaged
property. There is evidence that the holding of meetings of the Board of
Directors was irregular and purely "reportorial".
Considering that as shown by planitiffs’ evidence, conduct of business in
Centro was informal, vigilance over its property was required from all
individual plaintiffs, particularly plaintiff Chongking Kehyeng who sits in the
Board of Directors. Periodic inquiries and verification of documents pertaining
to corporate properties should have been done and the existence of the
mortgage was verifiable. A simple inquiry about the status of the title,
information on the title number and actual verification with the Register of
Deeds – a task which can be accomplished in an hour or two –will provide
information about the existence of the mortgage. None of the individual
plaintiffs did this.
The inaction of the plaintiffs for which no explanation was submitted resulted
in the acquisition of rights by the defendant Bank adverse to them. Such
neglect, taken in conjunction with the lapse of time of about eight (8) years
operates as a bar.25
A perusal of the TCTs26 of the subject properties would reveal that only the
values of the mortgage securing the loans totalling P 144 million were
annotated, based on the MTIs executed on 21 March 1990, 31 March 1993
and 28 July 1994. As for the last annotation, it only stated that petitioner was
the successor-trustee to all obligations due to the creditors. Respondents, in
their Complaint, did not question these mortgages constituted by the MTIs
executed on 21 March 1990, 31 March 1993 and 28 July 1994, respectively.
What they questioned was the additional loans granted to San Carlos after
the execution of the 27 September 1994 MTI and the foreclosure of the
mortgage resulting from the nonpayment of San Carlos’ obligations. Thus,
contrary to the finding of the trial court, only four years had lapsed from the
execution of the 27 September 1994 MTI when respondents questioned the
mortgage allegedly constituted to cover these loans.
Furthermore, as mentioned earlier, the TCTs were not accordingly annotated
to cover these additional loans. Also, the mortgage of the property securing
all the loans were not disclosed in Centro’s financial statements for the years
1991 to 1998.27 Thus, absent any proof that the individual respondents were
notified of the stockholders’ meeting on 12 August 1994 or that they were
present during the meeting, these respondents could not have been informed
of the alleged additional loans and the corresponding mortgage constituted
over the properties.
It cannot therefore be said that laches had attached and that respondents
were already barred from assailing the MTI in 1998. We now proceed to
discuss the validity of the challenged MTI.
The 18 August 1994 Secretary’s Certificate issued by Maria Jacinta V. Go
reads as follows:28
I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT
CORPORATION, a corporation duly organized and existing under our laws
with principal office located at the 2nd Floor Centro Buidling, 180 Salcedo
St., Legaspi Village, Makati, Metro Manila, do hereby certify that during a
special meeting of the board of Directors of the Corporation held at its main
office in Makati, Metro Manila on August 12, 1994, at 3:00 p.m., at which
meeting a quorum was present, the following resolution was approved and
adopted:
"Resolution No. 005, s. 1994
APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW
TRUSTEE FOR THE EXISTING MTI OF CDC REAL ESTATE PROPERTY
RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the
existing Mortgage Trust Indenture of real estate property covered by Transfer
Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St.,
Legaspi Village, Makati, Metro Manila, with an area of 1,608 square meters
more or less, the Corporation be [sic], as it is hereby authorized, to appoint
Metrobank Trust Banking Group ("Metrobank") as the new trustee for the
existing mortgage trust indenture presently held by the Bank of the
Philippines Islands;
RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is
hereby, authorized and empowered to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in behalf of the Company
which are necessary and pertinent thereto;
RESOLVED FINALLY, that any resolution or resolutions heretofore adopted
by this Board, inconsistent with the provisions hereof be, as they hereby are
amended and/or revoked accordingly."
That at the meeting of the Stockholders of said corporation held on August Nevertheless, while we uphold the validity of the stockholders’ Resolution
12, 1994 at 4:00 p.m., at which meeting a quorum was present and acting appointing Metrobank as successor-trustee, this is not to say that we uphold
throughout, the following resolution was unanimously approved: the validity of the extrajudicial foreclosure of the mortgage.

STOCKHOLDERS’ RESOLUTION After a careful review of the records of this case, we find that petitioner failed
to establish its right to be entitled to the proceeds of the MTI.
RESOLVED, that the stockholders approve, ratify and confirm, as they have
hereby approved, ratified and confirmed, the board resolution dated August There is no evidence that petitioner, as creditor or as trustee, had a cause of
12, 1994 appointing Metrobank Trust Banking Group as the new trustee, action to move for the extrajudicial foreclosure of the subject properties
presently held by the Bank of the Philippine Islands, for the existing MTI of mortgaged under the MTI.
real estate property covered by Transfer Certificate of Title Nos. 139880 and
139881 situated at 180 Salcedo St., Legaspi Village, Makati, Metro Manila The conditions of the MTI are very clear. Section 3.3 of the MTI provides: 30
with an area of 1,608 square meters, and that the President, Mr. Go Eng
Uy[,] to sign the Real Estate Mortgage and all documents/ instruments with
It is the intent of the COMPANY that the BORROWERS will obtain additional
the said bank, for and in behalf of the Company which are necessary and
loans or credit accommodations from certain other banking or financial
pertinent thereto; xxx.
institutions in accordance with arrangements made by the BORROWERS
with the CREDITORS.
Reading carefully the Secretary’s Certificate, it is clear that the main purpose
of the directors’ Resolution was to appoint petitioner as the new trustee of the
ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a
previously executed and amended MTI. Going through the original and the
Mortgage Participation Certificate in the form of Schedule II hereof, the
revised MTI, we find no substantial amendments to the provisions of the
issuance of which by the TRUSTEE to the participating CREDITOR/S shall
contract. We agree with petitioner that the act of appointing a new trustee of
be in accordance with Section 7 of this INDENTURE, provided the aggregate
the MTI was a regular business transaction. The appointment necessitated LOAN VALUES of the COLLATERAL, based on the latest appraisal thereof,
only a decision of at least a majority of the directors present at the meeting in are not exceeded. (Emphasis supplied.)
which there was a quorum, pursuant to Section 25 of the Corporation Code.
Section 1.11 of the MTI defines a Mortgage Participation Certificate (MPC)
The second paragraph of the directors’ Resolution No. 005, s. 1994, which
as a certificate issued by the trustee to a creditor pursuant to the MTI,
empowered Go Eng Uy "to sign the Real Estate Mortgage and all representing an aliquot interest in the mortgage created by the MTI. The face
documents/instruments with the said bank, for and in behalf of the Company
amount of the MPC is the value in money of its holder’s participation or
which are necessary and pertinent thereto," must be construed to mean that
interest in the mortgaged property.
such power was limited by the conditions of the existing mortgage, and not
that a new mortgage was thereby constituted.
To address the gaps in the facts as presented by the parties and by the lower
courts, we issued a Resolution31on 5 September 2011. We required
Moreover, it is worthy to note that respondents do not assail the previous MTI
petitioner to submit, among others, all amendments to the MTI and all the
executed with BPI. They do not question the validity of the mortgage
MPCs issued. Petitioner failed to comply with this directive. For one reason
constituted over all or substantially all of respondent Centro’s assets
or another, instead of submitting MPCs evidencing its interest in the MTI, it
pursuant to the 21 March 1994 MTI in the amount of P 84 million. Nor do
submitted to this Court documents referring to different instruments
they question the additional loans increasing the value of the mortgage altogether.32 Petitioner should have been more careful in complying with this
to P 144 million; or the use of Centro’s properties as collateral for the loans of Court’s Orders.
San Carlos, Lucky Two Corporation, and Lucky Two Repacking.
More glaring is the fact that the assailed MTI is not even referred to in the
Thus, Section 4029 of the Corporation Code finds no application in the
Promissory Notes executed by petitioner in favor of San Carlos, evidencing
present case, as there was no new mortgage to speak of under the assailed the loans extended by the latter to the former. This omission violated Section
directors’ Resolution. 1.13 of the MTI, which requires that a promissory note must be covered by
 an outstanding MPC and secured by the lien of the MTI. The Promissory However, Section 9.4 of the 27 September 1994 MTI clearly states:35
Notes reveal the following:33
The written consent of the COMPANY, the TRUSTEE and all the
romissory Note No. Date Amount Collateral CREDITORS shall be required for any amendment of the terms and
conditions of this INDENTURE. Additional loans which will be covered by the
1333.69288.00.999 20 April 1998 P 328,000,000 "Others" – Not specified INDENTURE shall require the written consent of the MAJORITY
CREDITORS and shall be within the loan value stipulated in Section 1.836 of
1333.70316.00.999 19 October 1998 P 97,859,472.03 Unsecured this INDENTURE. (Emphasis supplied.)
1333.70359.00.999 30 October 1998 P 82,849,981.44 "Others" – Not specified
The fact that the foreclosure of the mortgaged property was undertaken
1333.70464.000.99 17 November 1998 P 98,114,959.13 "Others" – Not specified pursuant to the 27 September 1994 MTI is an indication that the parties had
1333.70502.000.99 25 November 1998 P 40,150,059.85 "Others" – Not specified failed to amend it accordingly.
1333.70618.000.99 9 December 1998 P 39,673,569.58 "Others" – Not specified Because the 27 September 1994 MTI was not amended to secure the loan
granted to the debtors, petitioner could not have applied for an extrajudicial
1333.70642.000.99 17 December 1998 P 126,145,471.20 "Others" – Not specified
foreclosure on the basis of all the Promissory Notes granted to San Carlos.
Instead, petitioner could have only applied for the foreclosure of the property
Petitioner thus miserably failed to prove that it was entitled to the benefits of corresponding to P 144 million, which was the maximum amount embodied
the MTI. in the 27 September 1994 MTI. In other words, as an accommodation debtor,
Centro’s properties may not be liable for San Carlos’ debts beyond this
Even if we assume that petitioner was indeed a creditor protected by the maximum amount, pursuant to the MTI executed with petitioner. In Caltex
MTI, we find that, as trustee and as creditor, it failed to comply with the MTI’s Philippines v. Intermediate Appellate Court,37 we likewise held that the value
conditions for granting additional loans to San Carlos – additions that brought of the mortgage should be limited only to the amount provided by the
the total loan amount to P 1,178,961,181.45 – when it did not amend the MTI contract between the parties.
to accommodate the additional loans in excess of P 144 million.
Section 4 of Rule 68 of the Rules of Court provides:
In its application for an extrajudicial foreclosure of Centro’s properties,
petitioner states:34 Disposition of proceeds of sale - The amount realized from the foreclosure
sale of the mortgaged property shall, after deducting the costs of the sale, be
We have the honor to request your good Office to conduct/undertake paid to the person foreclosing the mortgage, and when there shall be any
extrajudicial foreclosure sale proceedings under Act No. 3135, as amended, balance or residue, after paying off the mortgage debt due, the same shall be
and other applicable laws, on the properties covered by the Mortgage Trust paid to junior encumbrancers in the order of their priority, to be ascertained
Indenture, dated March 21, 1990, as amended on March 31, 1993 and by the court, or if there be no such encumbrancers or there be a balance or
further amended on July 28, 1994 executed by the Mortgagor, CENTRO residue after payment to them, then to the mortgagor or his duly authorized
DEVELOPMENT CORPORATION, in favor of the Former Trustee, BANK OF agent, or to the person entitled to it.
THE PHILIPPINE ISLANDS and Trust Indenture, dated September 27, 1994,
also executed by the Mortgagor, CENTRO DEVELOPMENT While it is true that some of the documents required by this Court to be
CORPORATION, in favor of the Mortgagee/Trustee, METROPOLITAN submitted by the parties were not presented at the trial stage, when the legal
BANK AND TRUST COMPANY-TRUST BANKING GROUP, to secure issues raised begs the reception of that evidence – especially considering
among others, several obligations of SAN CARLOS MILLING CO., INC. that a case, like the present one has been pending for more than a decade –
under various Promissory Notes, with a total principal amount of EIGHT then the Court may require the parties to submit such evidence in the interest
HUNDRED TWELVE MILLION SEVEN HUNDRED NINETY-THREE of justice. This is clearly provided under Rule 45, Section 7 of the Rules of
THOUSAND FIVE HUNDRED THIRTEEN PESOS AND TWENTY-THREE Court.38
CENTAVOS (P 812,793,513.23), for breach of the terms and conditions of
the said Trust Indenture. (Emphasis in the original.)
On a final note, Republic Act No. 8971, or the General Banking Law of 2000,
recognizes the vital role of banks in providing an environment conducive to
the sustained development of the national economy and the fiduciary nature
of banking; thus, the law requires banks to have high standards of integrity
and performance. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family. 39In the
case at bar, petitioner itself was negligent in the conduct of its business when
it extended unsecured loans to the debtors. Worse, it was in serious breach
of its duty as the trustee of the MTI. It was not able to protect the interests of
the parties and was even instrumental in violating the terms of the MTI, to the
detriment of the parties thereto. Thus, petitioner has only itself to blame for
being left with insufficient recourse against petitioner under the assailed MTI.

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

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

SO ORDERED.
RURAL BANK OF STA. BARBARA (ILOILO), INC. vs. GERRY CENTENO
(G.R. No. 200667, March 11, 2013)
Assailed in this Petition for Review onCertiorari1is the January 31, 2012
Decision2 of the Cebu City Court of Appeals (CA) in CA-G.R. CV No. 78398
which set aside the October 8, 2002 Decision of the Regional Trial Court of
Barotac Viejo, Iloilo City, Branch -66 (RTC} in Cadastral Case No. 98-
0693 and denied the issuance of a writ of possession for Cadastral Lot Nos.
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 P1,753.65 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 Auction4 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 period pursuant to Section 66 of Act No. 3135.7 Nonetheless,
they still continued with the possession and cultivation of the aforesaid
properties. Sometime in 1983, respondent Gerry Centeno, son of Sps.
Centeno, took over the cultivation of the 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 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 declarations in its name.9
On March 19, 1998, petitioner filed a petition for the issuance of a writ of
possession before the RTC, claiming entitlement to the said writ by virtue of
the Final Deed of Sale covering the subject lots.10 Respondent opposed the
petition, asserting that he purchased and has, in fact, been in actual, open
and exclusive possession of the same properties for at least fifteen (15)
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 subject lots had already prescribed.12
Ruling of the RTC
On October 8, 2002, the RTC rendered its Decision13 in Cadastral Case No.
98-069, finding petitioner to be the lawful owner of the subject lots whose
rights became absolute due to respondent’s failure to redeem the same.
Consequently, it found the issuance of a writ of possession ministerial on its
part.14 Dissatisfied, respondent appealed to the CA.
Ruling of the CA
The CA, through its January 31, 2012 Decision,15 reversed the RTC and
ruled against the issuance of a writ of possession. It considered respondent
as a third party who is actually holding the property adverse to the judgment
obligor and as such, has the right to ventilate his claims in a proper judicial
proceeding i.e., an ejectment suit or reinvindicatory action.16
Aggrieved, petitioner filed the instant petition.
Issue Before The Court
The sole issue in this case is whether or not petitioner is entitled to a writ of
possession over the subject lots.
The Court’s Ruling
The petition is meritorious.
It is well-established that after consolidation of title in the purchaser’s name
for 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 purchaser in an extrajudicial foreclosure sale becomes merely a
ministerial function, 17 unless it appears that the property is in possession of
a third party claiming a right adverse to that of the mortgagor.18 The
foregoing rule is contained in Section 33, Rule 39 of the Rules of Court which
partly provides:
Sec. 33. Deed and possession to be given at expiration of redemption period;
by whom executed or given. —
xxxx
Upon the expiration of the right of redemption, the purchaser or redemptioner
shall be substituted to and acquire all the rights, title, interest and claim of the
judgment obligor to the property as of the time of the levy. The possession of SO ORDERED.
the property shall be given to the purchaser or last redemptioner by the same
officer unless a third party is actually holding the property adversely to the
judgment obligor. (Emphasis and underscoring supplied)

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" contemplates a situation in which a third party holds the property by
adverse title or right, such as that of a co-owner, tenant or usufructuary. The
co-owner, agricultural tenant, and usufructuary possess the property in their
own right, and they are not merely the successor or transferee of the right of
possession of another co-owner or the owner of the property.20 Notably, the
property should not only be possessed by a third party, but also held by the
third party adversely to the judgment obligor.21

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

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

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

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

the Cebu City Court of Appeals in CA-G.R. CV No. 78398 is REVERSED and
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.
CARLOS LIM, et al. vs. DEVELOPMENT BANK OF THE PHILIPPINES
(G.R. No. 177050, July 01, 2013)
"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 must be complied with, lest, the valid exercise of the right would end."1
This Petition for Review on Certiorari2 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
(g) TCT No. T-28922 x x x in the name of Consolacion Lim;
(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
(j) TCT No. T-25018 x x x in the name of Trinidad D. Chua’s
deceased husband Juan Chua.12
Due to violent confrontations between government troops and Muslim rebels
in Mindanao from 1972 to 1977, petitioners were forced to abandon their
cattle ranch.13 As a result, their business collapsed and they failed to pay the
loan amortizations.14

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all In 1978, petitioners made a partial payment in the amount
surnamed Lim, obtained a loan ofP40,000.00 (Lim Account) from respondent of P902,800.00,15 leaving an outstanding loan balance of P610,498.30,
Development Bank of the Philippines (DBP) to finance their cattle raising inclusive of charges and unpaid interest, as of September 30, 1978.16
business.4 On the same day, they executed a Promissory Note5 undertaking
to pay the annual amortization with an interest rate of 9% per annum and
In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested
penalty charge of 11% per annum.
from DBP Statements of Account for the "Lim Account" and the "Diamond L
Ranch Account."17 Quoted below are the computations in the Statements of
On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Account, as of January 31, 1989 which were stamped with the words "Errors
Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez, & Omissions Excepted/Subject to Audit:"
Juan S. Chua,6 and Trinidad D. Chua7 obtained another loan from DBP8in the
amount of P960,000.00 (Diamond L Ranch Account).9 They also executed a 1âwphi1
Promissory Note,10 promising to pay the loan annually from August 22, 1973
until August 22, 1982 with an interest rate of 12% per annum and a penalty Diamond L Ranch Account:
charge of 1/3% per month on the overdue amortization.
Matured [Obligation]:
To secure the loans, petitioners executed a Mortgage11 in favor of DBP over Principal P 939,973.33
real properties covered by the following titles registered in the Registry of
Deeds for the Province of South Cotabato: Regular Interest 561,037.14

(a) TCT No. T-6005 x x x in the name of Edmundo Lim; Advances 34,589.45

Additional Interest 2,590,786.26

(b) TCT No. T-6182 x x x in the name of Carlos Lim;
Penalty Charges 1,068,147.19
(c) TCT No. T-7013 x x x in the name of Carlos Lim; 18
Total claims as of January 31, 1989 P 5,194,533.37
(d) TCT No. T-7012 x x x in the name of Carlos Lim; Lim Account:

(e) TCT No. T-7014 x x x in the name of Edmundo Lim; Matured [Obligation]:

Principal P 40,000.00
(f) TCT No. T-7016 x x x in the name of Carlito Lim;
 Regular Interest 5,046.97
Additional Interest 92,113.56
Penalty Charges 39,915.46
19
Total claims as of January 31, 1989 P 177,075.99
Claiming to have already paid P902,800.00, Edmundo requested for an
amended statement of account.20
On May 4, 1990, Edmundo made a follow-up on the request for
recomputation of the two accounts.21 On May 17, 1990, DBP’s General
Santos Branch informed Edmundo that the Diamond L Ranch Account
amounted toP2,542,285.60 as of May 31, 199022 and that the mortgaged
properties located at San Isidro, Lagao, 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 Main Office
of DBP24 the matter of the expropriated properties.
Edmundo asked DBP how the mortgaged properties were ceded by DAR to
other persons without their knowledge.25 No reply was made.26
On April 30, 1991, Edmundo again signified petitioners’ intention to settle the
Diamond L Ranch Account.27 Again, no reply was made.28
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 Counsel to pay an interest covering a 60-days period or the
amount of P60,000.00 to postpone the foreclosure for 60 days.30 He was also
advised to submit a written proposal for the settlement of the loan accounts. 31
In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the
accounts through dacion en pago, with the balance to be paid in equal
quarterly payments over five years.
In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and
informed Edmundo that unless the accounts are fully settled as soon as
possible, the bank will pursue foreclosure proceedings.
DBP then sent Edmundo the Statements of Account34 as of June 15, 1992
which were stamped with the words "Errors & Omissions Excepted/Subject to
Audit" indicating the following amounts: (1) Diamond L Ranch:P7,210,990.27
and (2) Lim Account: P187,494.40.
On June 11, 1992, Edmundo proposed to pay the principal and the regular
interest of the loans in 36 equal monthly installments.35
On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head
Bonifacio Tamayo, Jr. (Tamayo).36Tamayo promised to review the
accounts.37
On September 21, 1992, Edmundo received another Notice from the Sheriff
that the mortgaged properties would be auctioned on November 22,
1992.38 Edmundo again paid P30,000.00 as additional interest to postpone
the auction.39 But despite payment of P30,000.00, the mortgaged properties
were still auctioned with DBP emerging as the highest bidder in the amount
of P1,086,867.26.40 The auction sale, however, was later withdrawn by DBP
for lack of jurisdiction.41
Thereafter, Tamayo informed Edmundo of the bank’s new guidelines for the
settlement of outstanding loan accounts under Board Resolution No. 0290-
92.42 Based on these guidelines, petitioners’ outstanding loan obligation was
computed at P3,500,000.00 plus.43 Tamayo then proposed that petitioners
pay 10% 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 settlement have been "pre-cleared" with the bank’s
Regional Credit Committee.45 Thus, Edmundo wrote a letter46 on October 30,
1992 manifesting petitioners’ assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo that the proposal was
accepted with some minor adjustments and that an initial payment should be
made by November 27, 1992.47
On December 15, 1992, Edmundo paid the downpayment
of P362,271.7548 and was asked to wait for the draft Restructuring
Agreement.49
However, on March 16, 1993, Edmundo received a letter50 from Tamayo
informing him that the Regional Credit Committee rejected the proposed
Restructuring Agreement; that it required downpayment of 50% of the total
obligation; that the remaining balance should be paid within one year; that
the interest rate should be 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
Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their
previous agreement.53 On June 5, 1993, the bank replied,54 viz:
This has reference to your letter dated May 28, 1993, which has connection
to your desire to restructure the Diamond L Ranch/Carlos Lim Accounts.
We wish to clarify that what have been agreed between you and the Branch
are not final until [the] same has been approved by higher authorities of the
Bank. We 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 Regional Credit Committee did not agree to the terms and
conditions as recommended, hence, the subject of our letter to you on March
15, 1993.
Please be informed further, that the Branch cannot do otherwise but to
comply with the conditions imposed by the Regional Credit Committee. More
so, the time frame given had already lapsed on June 2, 1993.
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
On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit
Committee.
In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the
previous Restructuring Agreement was reconsidered and approved by the
Regional Credit Committee subject to the following additional conditions, to
wit:
1) Submission of Board Resolution and Secretary’s Certificate
designating you as authorized representative in behalf of Diamond L
Ranch;
2) Payment of March 15 and June 15, 1993 amortizations within 30
days from date hereof; and
3) Submission of SEC registration.
In this connection, please call immediately x x x our Legal Division to guide
you for the early documentation of your approved restructuring.
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 deposit of P362,271.75 shall be applied to your
account.
No compliance was made by Edmundo.58
On September 21, 1993, Edmundo received Notice that the mortgaged
properties were scheduled to be auctioned on that day.59 To stop the auction
sale, Edmundo asked for an extension until November 15, 199360which was
approved subject to additional conditions:
Your request for extension is hereby granted with the conditions that:
1) This will be the last and final extension to be granted your
accounts; and
2) That all amortizations due from March 1993 to November 1993
shall be paid including the additional interest computed at straight
18.5% from date of your receipt of notice of approval, viz:
xxxx
Failure on your part to comply with these conditions, the Bank will undertake
appropriate legal measures to protect its interest.
Please give this matter your preferential attention.61
On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:
Acknowledge receipt of your Sept. 27 letter. I would like to finalize
documentation 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 Legal Department at DBP Head Office by Nov. 11.
Pls. advise who[m] I should contact. Thank you. 62
Receiving no response, Edmundo scheduled a meeting with Tamayo in
Manila.63 During their meeting, Tamayo told Edmundo that he would send the
draft of the Restructuring Agreement by courier on November 15, 1993 to the
Main Office of DBP in Makati, and that Diamond L Ranch need not submit
the Board Resolution, the Secretary’s Certificate, and the SEC Registration
since it is a single proprietorship.64
On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to
Tamayo asking for the draft of the Restructuring Agreement.65
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 P1,300,672.75, plus
a daily interest of P632.15 starting November 16, 1993 up to the date of
actual payment of the said amount.66
On December 19, 1993, Edmundo received the draft of the Restructuring
Agreement.67
In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank
cancelled the Restructuring Agreement due to his failure to comply with the
conditions within a reasonable time.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that
he pay the outstanding amount ofP6,404,412.92, as of November 16, 1993,
exclusive of interest and penalty charges.69
Edmundo, in a letter70 dated January 18, 1994, explained that his lawyer was
not able to review the agreement due to the Christmas holidays. He also said
that his lawyer was requesting clarification on the following points:
Can the existing obligations of the Mortgagors, if any, be specified in the
Restructuring Agreement already?
Is there a statement showing all the accrued interest and advances that shall
first be paid before the restructuring shall be implemented?
Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to
sign as Mortgagors considering that Mr. Chua is deceased and the pasture
lease which he used to hold has already expired?71
Edmundo also indicated that he was prepared to pay the first quarterly
amortization on March 15, 1994 based on the total obligations
of P3,260,445.71, as of December 15, 1992, plus interest.72
On January 28, 1994, Edmundo received from the bank a telegram 73 which
reads:
We refer to your cattle ranch loan carried at our DBP General Santos City
Branch.
Please coordinate immediately with our Branch Head not later than 29
January 1994, to forestall the impending foreclosure action on your account.
Please give the matter your utmost attention.
The bank also answered Edmundo’s queries, viz:
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 your letter of January 18, 1994. However, he gave us the
instruction to answer your letter on direct to the point basis as follows:
- Yes to Items No. 1 and 2,
- No longer needed on Item No. 3
AVP Tamayo would like us also to convey to you to hurry up with your move
to settle the obligation, while the foreclosure action is still pending with the
legal division. He is afraid you might miss your last chance to settle the
account of your parents.74
Edmundo then asked about the status of the Restructuring Agreement as
well as the computation of the accrued interest and advances 75 but the bank
could not provide any definite answer.76
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 Notice77 resetting the
public auction sale of the mortgaged properties on July 11, 1994. Said Notice
was published for three consecutive weeks in a newspaper of general
circulation in General Santos City.78
On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of
the mortgaged properties for the satisfaction of petitioners’ total obligations in
the amount of P5,902,476.34. DBP was the highest bidder in the amount
of P3,310,176.55.79
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
In a letter81 dated September 16, 1994, DBP informed Edmundo that their
right of redemption over the foreclosed properties would expire on July 28,
1995, to wit:
This is to inform you that your right of redemption over your former
property/ies acquired by the Bank on July 13, 1994, thru Extra-Judicial
Foreclosure under Act 3135 will lapse on July 28, 1995.
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 exercise your right within six (6) months from the date of
auction sale on or before January 12, 1995.
Further, failure on your part to exercise your redemption right by July 28, (2) Declaring the foreclosure of [petitioners’] mortgaged properties,
1995 will constrain us to offer your former property/ies in a public bidding. the sale of the properties under the foreclosure proceedings and the
resultant certificate of sale issued by the foreclosing Sheriff by
Please give this matter your preferential attention. Thank you.82 reason of the foreclosure NULL and VOID;

On July 28, 1995, petitioners filed before the RTC of General Santos City, a (3) Ordering the return of the [properties] to [petitioners] free from
Complaint83 against DBP for Annulment of Foreclosure and Damages with mortgage liens;
Prayer for Issuance of a Writ of Preliminary Injunction and/or Temporary
Restraining Order. Petitioners alleged that DBP’s acts and omissions (4) Ordering [respondent] bank to pay [petitioners], actual and
prevented them from fulfilling their obligation; thus, they prayed that they be compensatory damages of P170,325.80;
discharged from their obligation and that the foreclosure of the mortgaged
properties be declared void. They likewise prayed for actual damages for (5) Temperate damages of P50,000.00;
loss of business opportunities, moral and exemplary damages, attorney’s
fees, and expenses of litigation.84
(c) Moral damages of P500,000.00;

On same date, the RTC issued a Temporary Restraining Order85 directing

(d) Exemplary damages of P500,000.00;
DBP to cease and desist from consolidating the titles over petitioners’
foreclosed properties and from disposing the same.
(e) Attorney’s fees in the amount of P100,000.00; and
In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary
Injunction and directed petitioners to post a bond in the amount (f) Expenses of litigation in the amount of P20,000.00.
of P3,000,000.00.
[Respondent] Bank’s counterclaims are hereby DISMISSED.
DBP filed itsAnswer,87 arguing that petitioners have no cause of
action;88 that petitioners failed to pay their loan obligation;89 that as mandated [Respondent] Bank is likewise ordered to pay the costs of suit.
by Presidential Decree No. 385, initial foreclosure proceedings were
undertaken in 1977 but were aborted because petitioners were able to obtain SO ORDERED.96
a restraining order;90 that on December 18, 1990, DBP revived its application
for foreclosure but it was again held in abeyance upon petitioners’ Ruling of the Court of Appeals
request;91 that DBP gave petitioners written and verbal demands as well as
sufficient time to settle their obligations;92 and that under Act 3135,93 DBP
On appeal, the CA reversed and set aside the RTC Decision. Thus:
has the right to foreclose the properties.94

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

Ruling of the Regional Trial Court
GRANTED. The assailed Decision dated 10 December 1996 is hereby
REVERSED and SET ASIDE. A new judgment is hereby rendered. It shall
On December 10, 1996, the RTC rendered a Decision,95 the dispositive now read as follows:
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
WHEREFORE, in light of the foregoing, judgment is hereby rendered:
Ordering the dismissal of the Complaint in Civil Case No. 5608;
(1) Declaring that the [petitioners] have fully extinguished and
discharged their obligation to the [respondent] Bank;
Declaring the extrajudicial foreclosure of [petitioners’] mortgaged properties
as valid;
Ordering [petitioners] to pay the [respondent] the amount of Two Million Five
Hundred Ninety Two Thousand Two Hundred Ninety Nine [Pesos] and
Seventy-Nine Centavos (P2,592,299.79) plus interest and penalties as
stipulated in the Promissory Note computed from 11 July 1994 until full
payment; and
Ordering [petitioners] to pay the costs.
SO ORDERED.
SO ORDERED.97
Issues
Hence, the instant recourse by petitioners raising the following issues:
1. Whether x x x respondent’s own wanton, reckless and oppressive
acts and omissions in discharging its reciprocal obligations to
petitioners effectively prevented the petitioners from paying their loan
obligations in a proper and suitable manner;
2. Whether x x x as a result of respondent’s said acts and omissions,
petitioners’ obligations should be deemed fully complied with and
extinguished in accordance with the principle of constructive
fulfillment;
3. Whether x x x the return by the trial Court of the mortgaged
properties to petitioners free from mortgage liens constitutes unjust
enrichment;
4. Whether x x x the low bid price made by the respondent for
petitioners’ mortgaged properties during the foreclosure sale is so
gross, shocking to the conscience and inherently iniquitous as to
constitute sufficient ground for setting aside the foreclosure sale;
5. Whether x x x the restructuring agreement reached and perfected
between the petitioners and the respondent novated and
extinguished petitioners’ loan obligations to respondent under the
Promissory Notes sued upon; and
6. Whether x x x the respondent should be held liable to pay
petitioners actual and compensatory damages, temperate damages,
moral damages, exemplary damages, attorney’s fees and expenses
of litigation.98
Petitioners’ Arguments
Petitioners seek the reinstatement of the RTC Decision which declared their
obligation fully extinguished and the foreclosure proceedings of their
mortgaged properties void.
Relying on the Principle of Constructive Fulfillment, petitioners insist that their
obligation should be deemed fulfilled since DBP prevented them from
performing 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 paid P362,271.75 as downpayment.99 They
likewise deny any fault or delay on their part in finalizing the Restructuring
Agreement.100
In addition, petitioners insist that the foreclosure sale is void for lack of
personal notice101 and the inadequacy of the bid price.102 They contend that
at the time of the foreclosure, petitioners’ obligation was not yet due and
demandable,103 and that the restructuring agreement novated and
extinguished petitioners’ loan obligation.104
Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless,
or oppressive manner; hence, they are entitled to actual, temperate, moral
and exemplary damages, attorney’s fees, and expenses of litigation. 105
Respondent’s Arguments
DBP, on the other hand, denies acting in bad faith or in a wanton, reckless,
or oppressive manner106 and in charging excessive interest and
penalties.107 According to it, the amounts in the Statements of Account vary
because the computations were based on different cut-off dates and different
incentive schemes.108
DBP further argues that the foreclosure sale is valid because gross
inadequacy of the bid price as a ground for the annulment of the sale applies
only to judicial foreclosure.109 It likewise maintains that the Promissory Notes
and the Mortgage were not novated by the proposed Restructuring
Agreement.110
As to petitioners’ claim for damages, DBP contends it is without basis
because it did not act in bad faith or in a wanton, reckless, or oppressive
manner.111
Our Ruling
The Petition is partly meritorious.
The obligation was not extinguished
or discharged.
The Promissory Notes subject of the instant case became due and
demandable as 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, petitioners made a partial payment of P902,800.00.
No subsequent payments were 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 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, thus, prompting DBP to
cancel the Restructuring Agreement.
Petitioners, however, insist that DBP’s cancellation of the Restructuring
Agreement justifies the extinguishment of their loan obligation under the
Principle of Constructive Fulfillment found in Article 1186 of the Civil Code.
We do not agree.
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 fulfillment," does not apply in this case,112 viz:
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive
conditions, which applies when the following three (3) requisites concur, viz:
(1) The condition is suspensive; (2) The obligor actually prevents the
fulfillment of the 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 suspensive condition in the Promissory Note or the
Restructuring Agreement that will allow the debtor-promissor to be freed from
the duty to pay the loan without paying it.113
Besides, petitioners have no one to blame but themselves for the
cancellation of the Restructuring Agreement. It is significant to point out that
when the Regional Credit Committee reconsidered petitioners’ proposal to
restructure the loan, it imposed additional conditions. In fact, when DBP’s
General Santos Branch forwarded the Restructuring Agreement to the Legal
Services Department of DBP in Makati, petitioners were required to pay the
amount of P1,300,672.75, plus a daily interest of P632.15 starting November
16, 1993 up to the date of actual payment of the said amount.114 This,
petitioners failed to do. DBP therefore had reason to cancel the Restructuring
Agreement.
Moreover, since the Restructuring Agreement was cancelled, it could not
have novated or extinguished petitioners’ loan obligation. And in the absence
of a perfected Restructuring Agreement, there was no impediment for DBP to
exercise its right to foreclose the mortgaged properties.115
The foreclosure sale is not valid.
But while DBP had a right to foreclose the mortgage, we are constrained to
nullify the foreclosure sale due to the bank’s failure to send a notice of
foreclosure to petitioners.
We have consistently held that unless the parties stipulate, "personal notice
to the 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 public places and the publication of that notice in a
newspaper of general circulation.
In this case, the parties stipulated in paragraph 11 of the Mortgage that:
11. All correspondence relative to this mortgage, including demand letters,
summons, subpoenas, or notification of any judicial or extra-judicial action
shall be sent to the Mortgagor at xxx or at the address that may hereafter be
given in writing by the Mortgagor or the Mortgagee;118
However, no notice of the extrajudicial foreclosure was sent by DBP to
petitioners about the foreclosure sale scheduled on July 11, 1994. The letters
dated January 28, 1994 and March 11, 1994 advising petitioners to
immediately pay their 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 comply with their contractual agreement with
petitioners, i.e., to send notice, is a breach sufficient to invalidate the
foreclosure sale.
In Metropolitan Bank and Trust Company v. Wong,119 we explained that:
x x x a contract is the law between the parties and, that absent any showing
that its provisions are wholly or in part contrary to law, morals, good customs,
public order, or public policy, it shall be enforced to the letter by the courts.
Section 3, Act No. 3135 reads:
Sec. 3. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where
the property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality
and city.
The Act only requires (1) the posting of notices of sale in three public places,
and (2) the publication of the same in a newspaper of general circulation.
Personal notice to the mortgagor is not necessary. Nevertheless, the parties
to the mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in entering into a
contract of real estate mortgage, agreed inter alia:
all correspondence relative to this mortgage, including demand letters,
summonses, subpoenas, or notifications of any judicial or extra-judicial action
shall be sent to the MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the
address that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of
any action which petitioner might take on the subject property, thus according
him the opportunity to safeguard his rights. When petitioner failed to send the
notice of foreclosure sale to respondent, he committed a contractual breach
sufficient to render the foreclosure sale on November 23, 1981 null and
void.120 (Emphasis supplied)
In view of foregoing, the CA erred in finding the foreclosure sale valid.
Penalties and interest rates should
be expressly stipulated in writing.
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
specifically states that "no interest shall be due unless it has been expressly
stipulated in writing." Thus, the payment of interest and penalties in loans is
allowed only if the parties agreed to it and reduced their agreement in
writing.121
In this case, petitioners never agreed to pay additional interest and penalties.
Hence, we agree with the RTC that these are illegal, and thus, void. Quoted
below are the findings of the RTC on the matter, to wit:
Moreover, in its various statements of account, [respondent] Bank charged
[petitioners] for additional interests and penalties which were not stipulated in
the promissory notes.
In the Promissory Note, Exhibit "A," for the principal amount of P960,000.00,
only the following interest and penalty charges were stipulated:
(1) interest at the rate of twelve percent (12%) per annum;
(2) penalty charge of one-third percent (1/3%) per month on overdue
amortization;
(3) attorney’s fees equivalent to ten percent (10%) of the total
indebtedness then unpaid; and
(4) advances and interest thereon at one percent (1%) per month.
[Respondent] bank, however, charged [petitioners] the following items as
shown in its Statement of Account for the period as of 31 January 1989,
Exhibit "D:"
(1) regular interest in the amount of P561,037.14;
(2) advances in the amount of P34,589.45;
(3) additional interest in the amount of P2,590,786.26; and
(4) penalty charges in the amount of P1,068,147.19.
The Court finds no basis under the Promissory Note, Exhibit "A," for charging
the additional interest in the amount of P2,590,786.26. Moreover, it is
incomprehensible how the penalty charge of 1/3% per month on the overdue
amortization could amount to P1,086,147.19 while the regular interest, which
was stipulated at the higher rate of 12% per annum, amounted to
only P561,037.14 or about half of the amount allegedly due as penalties.
In Exhibit "N," which is the statement of account x x x as of 15 June 1992,
[respondent] bank charged plaintiffs the following items:
(1) regular interest in the amount of P561,037.14;
(2) advances in the amount of P106,893.93;
(3) additional interest on principal in the amount of P1,233,893.79;
(4) additional interest on regular interest in the amount of P859,966.83;
(5) additional interest on advances in the amount of P27,206.45;
(6) penalty charges on principal in the amount of P1,639,331.15;
(7) penalty charges on regular interest in the amount of P1,146,622.55;
(8) penalty charges on advances in the amount of P40,520.53.
Again, the Court finds no basis in the Promissory Note, Exhibit "A," for the
imposition of additional interest on principal in the amount of P1,233,893.79,
additional interest on regular interest in the amount of P859,966.83, penalty
charges on regular interest in the amount of P1,146,622.55 and penalty
charges on advances in the amount of P40,520.53.
In the Promissory Note, Exhibit "C," for the principal amount of P40,000.00,
only the following charges were stipulated:
(1) interest at the rate of nine percent (9%) per annum;
(2) all unpaid amortization[s] shall bear interest at the rate of eleven
percent (11%) per annum; and,
(3) attorney’s fees equivalent to ten percent (10%) of the total
indebtedness then unpaid.
In its statement of account x x x as of 31 January 1989, Exhibit "E,"
[respondent] bank charged [petitioners] with the following items:
(1) regular interest in the amount of P5,046.97
(2) additional interest in the amount of P92,113.56; and
(3) penalty charges in the amount of P39,915.46.
There was nothing in the Promissory Note, Exhibit "C," which authorized the
imposition of additional interest. Again, this Court notes that the additional
interest in the amount of P92,113.56 is even larger than the regular interest
in the amount of P5,046.97. Moreover, based on the Promissory Note,
Exhibit "C," if the 11% 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 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 separately charge plaintiffs
additional interest. The same provision cannot be used to charge plaintiffs
both interest and penalties.
In Exhibit "O," which is the statement of account x x x as of 15 June 1992,
[respondent] charged [petitioners] with the following:
(1) regular interest in the amount of P4,621.25;
(2) additional interest on principal in the amount of P65,303.33;
(3) additional interest on regular interest in the amount of P7,544.58;
(4) penalty charges on principal in the amount of P47,493.33;
(5) penalty charges on regular interest in the amount of P5,486.97;
(6) penalty charges on advances in the amount of P40,520.53.
[Respondent] bank failed to show the basis for charging additional interest on
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.
Moreover, [respondent] bank charged [petitioners] twice under the same
provisions in the promissory notes. It categorically admitted that the
additional interests and penalty charges separately being charged
[petitioners] referred to the same provision of the Promissory Notes, Exhibits
"A" and "C." Thus, for the Lim Account in the amount of P40,000.00,
[respondent’s] Mr. Ancheta stated:
Q:
In Exhibit 14, it is stated that for a principal amount of P40,000.00 you
imposed an additional interest in the amount of P65,303.33 in addition to the
regular interest of P7,544.58, can you tell us looking [at] the mortgage
contract and promissory note what is your basis for charging that additional
interest?
A:
The same as that when I answered Exhibit No. 3, which shall cover
amortization on the principal and interest at the above-mentioned rate. All
unpaid amortization[s] shall bear interest at the rate of eleven per centum
(11%) per annum.
Q:
You also imposed penalty which is on the principal in the amount
of P40,000.00 in the amount of P47,493.33 in addition to regular interest
of P5,486.96. Can you point what portion of Exhibit 3 gives DBP the right to A:
impose such penalty?
In Exhibit 1: "in case of failure to pay in full any amortization when due, a
A: penalty charge of 1/3% per month on the overdue amortization shall be paid."

The same paragraph as stated. Q:

Q: What is the rate?

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

A: 1/3% per month.

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

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

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

Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)
With respect to the Diamond L. Ranch account in the amount
of P960,000.00, Mr. Ancheta testified as follows:
Q:
Going back to Exhibit 14 Statement of Accounts. Out of the principal
of P939,973.33 you imposed an additional interest of P1,233,893.79
plus P859,966.83 plus P27,206.45. Can you tell us what is the basis of the
imposition?
A:
As earlier stated, it is only the Promissory Note as well as the Mortgage
Contract.
Q:
Please point to us where in the Promissory Note is the specific portion?
A perusal of the promissory notes, however, failed to justify [respondent]
bank’s computation of both interest and penalty under the same provision in
each of the promissory notes.
[Respondent] bank also admitted that the additional interests and penalties
being charged [petitioners] were not based on the stipulations in the
Promissory Notes but were imposed unilaterally as a matter of its internal
banking policies. (TSN, 19 March 1996, pp. 23-24.) This banking policy,
however, has been declared null and void in Philippine National Bank vs. CA,
196 SCRA 536 (1991). The act of [respondent] bank in unilaterally changing
the stipulated interest rate is violative of the principle of mutuality of contracts
under 1308 of the Civil Code and contravenes 1956 of the Civil Code.
[Respondent] bank completely ignored [petitioners’] "right to assent to an
important modification in their agreement and (negated) the element of
mutuality in contracts." (Philippine National Bank vs. CA, G.R. No. 109563, 9
July 1996; Philippine National Bank vs. CA, 238 SCRA 20 1994). As in the
PNB cases, [petitioners] herein never agreed in writing to pay the additional
interest, or the penalties, as fixed by [respondent] bank; hence [respondent]
bank’s imposition of additional interest and penalties is null and
void.122 (Emphasis supplied)
Consequently, this case should be remanded to the RTC for the proper
determination of petitioners’ total loan obligation based on the interest and
penalties stipulated in the Promissory Notes.
DBP did not act in bad faith or in a
wanton, reckless, or oppressive manner.
Finally, as to petitioners’ claim for damages, we find the same devoid of
merit.
DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in
cancelling the Restructuring Agreement. As we have said, DBP had reason
to cancel the Restructuring Agreement because petitioners failed to pay the
amount required by it when it reconsidered petitioners’ request to restructure
the loan.
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.

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

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

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

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

We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or
in wanton disregard of its contractual obligations, simply because it increased
the interest rates and delayed the foreclosure of the mortgages. Bad faith
cannot be imputed simply because the defendant acted with bad judgment or
with attendant negligence. Bad faith is more than these; it pertains to a
dishonest purpose, to some moral obliquity, or to the conscious doing of a
wrong, a breach of a known duty attributable to a motive, interest or ill will
that partakes of the nature of fraud. Proof of actions of this character is
undisputably lacking in this case. Consequently, we do not find the spouses
Rocamora entitled to an award of moral and exemplary damages. Under
these circumstances, neither should they recover attorney’s fees and
litigation expense. These awards are accordingly deleted.124(Emphasis
supplied)
ATTY. LEO N. CAUBANG vs. SPOUSES CRISOLOGO
(G.R. No. 174581, February 4, 2015)
For the Court's resolution is a Petition for Review under Rule 45 of the Rules
of Court which petitioner Atty. Leo N. Caubang filed, questioning the
Decision1 of the Court of Appeals (CA), dated May 22, 2006, and its
Resolution2dated August 16, 2006 in CA-G.R. CV. No. 68365. The CA
affirmed the Decision3 of the Regional Trial Court (RTC) of Davao City,
Branch 12, dated August 1, 2000, with modifications, in Civil Case No.
27168-99.
The facts, as gathered from the records, are as follows:
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo
(the Spouses Crisologo) obtained an Express Loan in the amount
of P200,000.00 from 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 P1,500,000.00 covered by a Loan
Agreement. As security for both loans,the spouses mortgaged their property
covered by Transfer Certificate of Title (TCT) No. T-181103. Upon release of
the Term Loan, they were given two (2) promissory notes, for the amount
of P500,000.00 on February 9, 1994 and P1,000,000.00 on February 21,
1994.
Under the promissory notes, the Spouses Crisologo agreed to pay the
principal amount of the loan over a periodof three (3) years in twelve (12)
equal quarterly amortizations. Although they were able to pay the Express
Loan, starting August 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 by the bank,the spouses still failed to pay.
On May 31, 1996, the spouses received a detailed breakdown of their
outstanding obligation. Finding the charges to be excessive, they wrote a
letter to the bank proposing to pay their loan in full with a request that the
interest and penalty charges be waived. The manager of PDCP Bank, Davao
Branch, advised them to deposit theirP1,500,000.00 obligation as
manifestation of their intent to pay the loan. As a counter-offer, the spouses
agreed to deposit the amount but on the condition that the bank should first
return to them the title over the mortgaged property. The bank did not reply
until July 7, 1997, where they senta letter denying the spouses’ counteroffer
and demanding payment of the loan already amounting to P2,822,469.90. By
October 20, 1997, the debt had ballooned to P3,041,287.00. 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 a Petition for the Extrajudicial Foreclosure of the Mortgage.
On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the
Notices of Sale, announcing the foreclosure of the real estate mortgage and
the sale of the mortgaged property at public auction on July 15, 1998. He
caused the posting of said notices in three (3) public places: the Barangay
Hall of Matina, City Hall of Davao,and Bangkerohan Public Market.
Publication was, likewise, made in the Oriental Daily Examiner, one of the
local newspapers in Davao City.
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 P1,331,460.00, leaving a deficiencyof P2,207,349.97. Thereafter, a
Certificate of Sale in favor of the bank was issued.
Later, the Spouses Crisologo were surprised to learn that their mortgaged
property had already been soldto the bank. Thus, they filed a Complaint for
Nullity of Extrajudicial Foreclosure and Auction Sale and Damages against
PDCP Bank and Caubang.
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 requirement, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property,
covered by TCT No. T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel
Entry No. 113255 on TCT No. T-181103, the entry relative to the
Certificate of Sale executed by Atty. Leo Caubang 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, of legal age, Filipino, married to Jesus
Crisologo, and a resident of Davao City, Philippines.
All the other claims of the parties are disallowed.
No pronouncement as to costs.
SO ORDERED.4
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 modified the decretal portion to read:
WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property,
covered by TCT # T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel
Entry No. T-181103, the entry relative to the Certificate of Sale
executed by Atty. Leo Caubang 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, of
legal age, Filipino, married to Jesus Crisologo, and a resident of
Davao City, Philippines; and
3. Atty. Caubang is ordered to pay appellants the sum of P41,500.00
as attorney’s fees and P30,248.50 as litigation expenses.
All other claims of the parties are disallowed.
SO ORDERED.5
Caubang filed a Motion for Reconsideration, but the same was denied.
Hence, he filed the present petition.
Caubang mainly assails the CA’s ruling on the publication of the notices in
the Oriental Daily Examiner. He firmly contends that the CA’s finding was
based on assumptions and speculations.
The petition lacks merit.
Under Section 3 of Act No. 3135:6
Section 3. Notice of sale; posting; when publication required.– Notice shall be
given by posting notices ofthe sale for not less than twenty days in at least
three public places ofthe municipality or city where the property is situated,
and if such property is worth more than four hundred pesos, such notices
shall also be published once a week for at least three consecutive weeksin a
newspaper of general circulation in the municipality or city. 7
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 shown that the Oriental Daily Examineris not even on the list of
newspapers accredited to publish legal notices, as recorded in the Davao
RTC’s Office of the Clerk of Court. It also has no paying subscribers and it
would only publish whenever there are customers. Since there was no proper
publication of the notice of sale, the Spouses Crisologo, as well as the rest of
the general public, were never informed thatthe mortgaged property was
about to be foreclosed and auctioned. As a result,PDCP Bank became the
sole bidder. This allowed the bank to bid for a very low price (P1,331,460.00)
and go after the spouses for a bigger amount as deficiency.1âwphi1
The principal object of a notice of sale in a foreclosure of mortgage is not so
much to notify the mortgagor as to inform the public generally of the nature
and condition of the property to be sold, and of the time, place, and terms of
the sale. Notices are given to secure bidders and prevent a sacrifice of the
property. Therefore, statutory provisions governing publication of notice of
mortgage foreclosure sales must be strictly complied with and slight
deviations therefrom will 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 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
consequently vitiate the sale.8
Since it was Caubang who caused the improper publication of the notices
which, in turn, compelled the Spouses Crisologo to litigate and incur
expenses involving the declaration of nullity of the auction sale for the
protection of their interest on the property, the CA aptly held that Caubang
shall be the one liable for the spouses' claim for litigation expenses and
attorney's fees.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals,
dated May 22, 2006, and its Resolution dated August 16, 2006, in CA-G.R.
CV. No. 68365, are hereby AFFIRMED.
SO ORDERED.