SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, vs. COURT OF APPEALS & WILLIAM ONG GENATO, respondents.

DECISION CORONA, J.: Before us is a petition for review under Rule 45 of the Rules of Court, seeking to set aside the October 6, 2000 decision[1] of the Court of Appeals in CA-G.R. CV No. 56035. The facts as outlined by the trial court[2] follow. This is an action to declare null and void the mortgage executed by defendant Oakland Development Resources Corp. xxx in favor of defendant William Ong Genato over the house and lot plaintiffs spouses Godofredo and Dominica Flancia purchased from defendant corporation. In the complaint, plaintiffs allege that they purchased from defendant corporation a parcel of land known as Lot 12, Blk. 3, Phase III-A containing an area of 128.75 square meters situated in Prater Village Subd. II located at Brgy. Old Balara, Quezon City; that by virtue of the contract of sale, defendant corporation authorized plaintiffs to transport all their personal belongings to their house at the aforesaid lot; that on December 24, 1992, plaintiffs received a copy of the execution foreclosing [the] mortgage issued by the RTC, Branch 98 ordering defendant Sheriff Sula to sell at public auction several lots formerly owned by defendant corporation including subject lot of plaintiffs; that the alleged mortgage of subject lot is null and void as it is not authorized by plaintiffs pursuant to Art. 2085 of the Civil Code which requires that the mortgagor must be the absolute owner of the mortgaged property; that as a consequence of the nullity of said mortgage, the execution foreclosing [the] mortgage is likewise null and void; that plaintiffs advised defendants to exclude subject lot from the auction sale but the latter refused. Plaintiffs likewise prayed for damages in the sum of P50,000.00. Defendant William Ong Genato filed a motion to dismiss the complaint which was opposed by the plaintiffs and denied by the Court in its Order dated February 16, 1993. Defendant Genato, then filed his answer averring that on May 19, 1989 co-defendant Oakland Development Resources Corporation mortgaged to Genato two (2) parcels of land covered by TCT Nos. 356315 and 366380 as security and guaranty for the payment of a loan in the sum of P2,000,000.00; that it appears in the complaint that the subject parcel of land is an unsubdivided portion of the aforesaid TCT No. 366380 which covers an area of 4,334 square meters more or less; that said real estate mortgage has been duly annotated at the back of TCT No. 366380 on May 22, 1989; that for non-payment of the loan of P2,000,000.00 defendant Genato filed an action for foreclosure of real estate mortgage against codefendant corporation; that after [trial], a decision was rendered by the Regional Trial Court of Quezon City, Branch 98 against defendant corporation which decision was affirmed by the Honorable Court of Appeals; that the decision of the Court of Appeals has long become final and thus, the Regional Trial Court, Brach 98 of Quezon City issued an Order dated December 7, 1992 ordering defendant Sheriff Ernesto Sula to cause the sale at public auction of the properties covered by TCT No. 366380 for failure of defendant corporation to deposit in Court the money judgment within ninety (90) days from receipt of the decision of the Court of Appeals; that plaintiffs have no cause of action against defendant Genato; that the alleged plaintiffs Contract to Sell does not appear to have been registered

1.

with the Register of Deeds of Quezon City to affect defendant Genato and the latter is thus not bound by the plaintiffs Contract to Sell; that the registered mortgage is superior to plaintiffs alleged Contract to Sell and it is sufficient for defendant Genato as mortgagee to know that the subject TCT No. 366380 was clean at the time of the execution of the mortgage contract with defendant corporation and defendant Genato is not bound to go beyond the title to look for flaws in the mortgagors title; that plaintiffs alleged Contract to Sell is neither a mutual promise to buy and sell nor a Contract of Sale. Ownership is retained by the seller, regardless of delivery and is not to pass until full payment of the price; that defendant Genato has not received any advice from plaintiffs to exclude the subject lot from the auction sale, and by way of counterclaim, defendant Genato prays for P150,000.00 moral damages and P20,000.00 for attorneys fees. On the other hand, defendant Oakland Development Resources Corporation likewise filed its answer and alleged that the complaint states no cause of action; xxx Defendant corporation also prays for attorneys fees of P20,000.00 in its counterclaim.*3+ After trial, the assisting judge[4] of the trial court rendered a decision dated August 16, 1996, the decretal portion of which provided: Wherefore, premises considered, judgment is hereby rendered. 1) Ordering defendant Oakland Devt. Resources Corporation to pay plaintiffs: a) the amount of P10,000.00 representing payment for the option to purchase lot; b) the amount of P140,000.00 representing the first downpayment of the contract price; c) the amount of P20,520.80 representing five monthly amortizations for February, March, April, May and June 1990; d) the amount of P3,000.00 representing amortization for November 1990; all plus legal interest from the constitution of the mortgage up to the time the instant case was filed. 2) Ordering said defendant corporation to pay further to plaintiffs the sum of P30,000.00 for moral damages, P10,000.00 for exemplary damages and P20,000.00 for and as reasonable attorneys fees plus cost; 3) Dismissing defendant corporations counterclaim; 4) Dismissing defendant Genatos counterclaim.*5+ On motion for reconsideration, the regular presiding judge set aside the judgment of the assisting judge and rendered a new one on November 27, 1996, the decretal portion of which read: WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The decision dated August 16, 1996 is hereby set aside and a new one entered in favor of the plaintiffs, declaring the subject mortgage and the foreclosure proceedings held thereunder as null and void insofar as they affect the superior right of the plaintiffs over the subject lot, and ordering as follows: 1. Defendant Oakland Development Resources to pay to plaintiffs the amount of P20,000.00 for litigation-related expenses; 2. Ordering defendant Sheriff Ernesto L. Sula to desist from conducting further proceedings in the extra-judicial foreclosure insofar as they affect the plaintiffs, or, in the event that title has

been consolidated in the name of defendant William O. Genato, ordering said defendant to reconvey to plaintiffs the title corresponding to Lot 12, Blk. 3, Phase III-A of Prater Village [Subd. II], located in Old Balara, Quezon City, containing an area of 128.75 square meters; and 3. Dismissing the counterclaims of defendants Oakland and Genato and with costs against them.[6] On appeal, the Court of Appeals issued the assailed order: Wherefore, foregoing premises considered, the appeal having merit in fact and in law is hereby GRANTED and the decision of the Trial Court dated 27 November 1996 hereby SET ASIDE and REVERSED, and its judgment dated August 16, 1996 REINSTATED and AFFIRMED IN TOTO. No Costs. SO ORDERED.[7] Hence, this petition. For resolution before us now are the following issues:

that was granted to them by the occupancy permit was the right to possess it. Specifically, the contract between Oakland and petitioners stated: xxx xxx xxx

7. That the BUYER/S may be allowed to enter into and take possession of the property upon issuance of Occupancy Permit by the OWNER/DEVELOPER exclusively, although title has not yet passed to the BUYER/S, in which case his possession shall be that of a possessor by mere tolerance Lessee, subject to certain restrictions contained in this deed. xxx xxx xxx 13. That the BUYER/S cannot sell, mortgage, cede, transfer, assign or in any manner alienate or dispose of, in whole or in part, the rights acquired by and the obligations imposed on the BUYER/S by virtue of this contract, without the express written consent of the OWNER/DEVELOPER. xxx xxx xxx

(1) whether or not the registered mortgage constituted over the property was valid; (2) whether or not the registered mortgage was superior to the contract to sell; and (3) whether or not the mortgagee was in good faith. Under the Art. 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a) that it be constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. All these requirements are present in this case. FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?

24. That this Contract to Sell shall not in any way [authorize] the BUYER/S to occupy the assigned house and lot to them.[9] xxx xxx xxx

Clearly, when the property was mortgaged to Genato in May 1989, what was in effect between Oakland and petitioners was a contract to sell, not a contract of sale. Oakland retained absolute ownership over the property. Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby.[10] According to Art. 428 of the Civil Code, this means that: The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law. xxx xxx xxx

As to the first essential requisite of a mortgage, it is undisputed that the mortgage was executed on May 15, 1989 as security for a loan obtained by Oakland from Genato. As to the second and third requisites, we need to discuss the difference between a contract of sale and a contract to sell. In a contract of sale, title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved by the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it unless and until the contract is resolved or rescinded; in a contract to sell, title is retained by the vendor until full payment of the price.[8] In the contract between petitioners and Oakland, aside from the fact that it was denominated as a contract to sell, the intention of Oakland not to transfer ownership to petitioners until full payment of the purchase price was very clear. Acts of ownership over the property were expressly withheld by Oakland from petitioner. All

Aside from the jus utendi and the jus abutendi [11] inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi, is the power of the owner to alienate, encumber, transform and even destroy the thing owned.[12] Because Oakland retained all the foregoing rights as owner of the property, it was entitled absolutely to mortgage it to Genato. Hence, the mortgage was valid. SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE CONTRACT TO SELL? In their memorandum, petitioners cite our ruling in State Investment House, Inc. v. Court of Appeals [13] to the effect that an unregistered sale is preferred over a registered mortgage over the same property. The citation is misplaced. This Court in that case explained the rationale behind the rule:

The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner xxx had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing as to be able to mortgage it again. State Investment House is completely inapplicable to the case at bar. A contract of sale and a contract to sell are worlds apart. State Investment House clearly pertained to a contract of sale, not to a contract to sell which was what Oakland and petitioners had. In State Investment House, ownership had passed completely to the buyers and therefore, the former owner no longer had any legal right to mortgage the property, notwithstanding the fact that the new owner-buyers had not registered the sale. In the case before us, Oakland retained absolute ownership over the property under the contract to sell and therefore had every right to mortgage it. In sum, we rule that Genatos registered mortgage was superior to petitioners contract to sell, subject to any liabilities Oakland may have incurred in favor of petitioners by irresponsibly mortgaging the property to Genato despite its commitments to petitioners under their contract to sell. THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH? The third issue involves a factual matter which should not be raised in this petition. Only questions of law may be raised in a Rule 45 petition. This Court is not a trier of facts. The resolution of factual issues is the function of the lower courts. We therefore adopt the factual findings of the Court of Appeals and uphold the good faith of the mortgagee Genato. RELIANCE ON WHAT APPEARS IN THE TITLE Just as an innocent purchaser for value may rightfully rely on what appears in the certificate of title, a mortgagee has the right to rely on what appears in the title presented to him. In the absence of anything to arouse suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of the said certificate. [14] We agree with the findings and conclusions of the trial court regarding the liabilities of Oakland in its August 16, 1996 decision, as affirmed by the Court of Appeals: Anent *plaintiffs+ prayer for damages, the Court finds that defendant corporation is liable to return to plaintiffs all the installments/payments made by plaintiffs consisting of the amount of P10,000.00 representing payment for the option to purchase lot; the amount of P140,000.00 which was the first downpayment; the sum of P20,520.80 representing five monthly amortizations for February, March, April, May and June 1990 and the amount of P3,000.00 representing amortization for November 1990 plus legal interest from the time of the mortgage up to the time this instant case was filed. Further, considering that defendant corporation wantonly and fraudulently mortgaged the subject property without regard to *plaintiffs+ rights over the same, said defendant should pay plaintiffs moral damages in the reasonable amount of P30,000.00. xxx Furthermore, since defendant *corporations+ acts have compelled the plaintiffs to litigate and incur expenses to protect their interest, it should likewise be adjudged to pay plaintiffs attorneys fees of P20,000.00 under Article 2208 paragraph two (2) of the Civil Code.[15]

WHEREFORE, the petition for review is hereby DENIED. The decision of the Court of Appeals reinstating the August 16, 1996 decision of the trial court is hereby AFFIRMED.

2.

G.R. No. L-17072

October 31, 1961

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

finding the mortgage valid to the extent of the mortgagor's proindiviso share of 15,333 square meters in the land in question, on the theory that the Public Land Law does not apply in this case because the mortgage in question was executed before a patent was issued over the land in question; that the agreement of the parties could not be antichresis because the deed Exhibit "A" clearly shows a mortgage with usufruct in favor of the mortgagee; and ordered the payment of the mortgage loan of P2,000 to plaintiff or, upon defendant's failure to do so, the foreclosure of plaintiff's mortgage on defendant Brigida Marcos' undivided share in the land in question. From this judgment, defendants Brigida Marcos and her husband Osmondo Apolocio appealed to this Court. There is merit in the appeal. The right of plaintiff-appellee to foreclose her mortgage on the land in question depends not so much on whether she could take said land within the prohibitive period of five years from the issuance of defendants' patent for the satisfaction of the indebtedness in question, but on whether the deed of mortgage Exhibit "A" is at all valid and enforceable, since the land mortgaged was apparently still part of the public domain when the deed of mortgage was constituted. As it is an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the thing mortgaged (Art. 2085), the mortgage here in question is void and ineffective because at the time it was constituted, the mortgagor was not yet the owner of the land mortgaged and could not, for that reason, encumber the same to the plaintiff-appellee. Nor could the subsequent acquisition by the mortgagor of title over said land through the issuance of a free patent validate and legalize the deed of mortgage under the doctrine of estoppel (cf. Art. 1434, New Civil Code,1 since upon the issuance of said patient, the land in question was thereby brought under the operation of the Public Land Law that prohibits the taking of said land for the satisfaction of debts contracted prior to the expiration of five years from the date of the issuance of the patent (sec. 118, C.A. No. 141). This prohibition should include not only debts contracted during the five-year period immediately preceding the issuance of the patent but also those contracted before such issuance, if the purpose and policy of the law, which is "to preserve and keep in the family of the homesteader that portion of public land which the State has gratuitously given to him" (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De los Santos v. Roman Catholic Church of Midsayap, G.R. L-6088, Feb. 24, 1954), is to be upheld. The invalidity of the mortgage Exhibit "A" does not, however, imply the concomitant invalidity of the collate agreement in the same deed of mortgage whereby possession of the land mortgaged was transferred to plaintiff-appellee in usufruct, without any obligation on her part to account for its harvests or deduct them from defendants' indebtedness of P2,000. Defendant Brigida Marcos, who, together with her sisters, was in possession of said land by herself and through her deceased mother before her since 1915, had possessory rights over the same even before title vested in her as co-owner by the issuance of the free patent to her and her sisters, and these possessory right she could validly transfer and convey to plaintiff-appellee, as she did in the deed of mortgage Exhibit "A". The latter, upon the other hand, believing her mortgagor to be the owner of the land mortgaged and not being aware of any flaw which invalidated her mode of acquisition, was a possessor in good faith (Art. 526, N.C.C.), and as such had the right to all the fruits received during the entire period of her possession in good faith (Art. 544, N.C.C.). She is, therefore, entitled to the full payment of her credit of P2,000 from defendants, without any obligation to account for the fruits or benefits obtained by her from the land in question.

WHEREFORE, the judgment appealed from is reversed insofar as it orders the foreclosure of the mortgage in question, but affirmed in all other respects. Costs again defendants-appellants. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes and De Leon, JJ., concur. Barrera, J., took no part.

Footnotes 1 Art. 1434, N.C.C. provides that "When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee." 3. G.R. No. L-26371 September 30, 1969

MOBIL OIL PHILIPPINES, INC., plaintiff-appellant, vs. RUTH R. DIOCARES, ET AL., defendants-appellees. Faylona, Berroya, Norte and Associates for plaintiff-appellant. Vivencio G. Ibrado Jr. for defendants-appellees. FERNANDO, J.: It may very well be, as noted by jurists of repute, that to stress the element of a promise as the basis of contracts is to acknowledge the influence of natural law. 1 Nonetheless, it does not admit of doubt that whether under the civil law or the common law, the existence of a contract is unthinkable without one's word being plighted. So the New Civil Code provides: "A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service." 2 So it is likewise under American law. Thus: "A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." 3 The law may go further and require that certain formalities be executed. Thus, for a mortgage to be validly constituted, "it is indispensable, ..., that the document in which it appears be recorded in the Registry of Property." The same codal provision goes on: "If the instrument is not recorded, the mortgage is nevertheless binding between the parties." 4 The question before us in this appeal from a lower court decision, one we have to pass upon for the first time, is the effect, if any, to be given to a mortgage contract admittedly not registered, only the parties being involved in the suit. The lower court was of the opinion that while it "created a personal obligation [it] did not establish a real estate mortgage." 5 It did not decree foreclosure therefor. Plaintiff-appellant appealed. We view the matter differently and reverse the lower court.

The case for the plaintiff, Mobil Oil Philippines, Inc., now appellant, was summarized in the lower court order of February 25, 1966, subject of this appeal. Thus: "In its complaint plaintiff alleged that on Feb. 9, 1965 defendants Ruth R. Diocares and Lope T. Diocares entered into a contract of loan and real estate mortgage wherein the plaintiff extended to the said defendants a loan of P45,000.00; that said defendants also agreed to buy from the plaintiff on cash basis their petroleum requirements in an amount of not less than 50,000 liters per month; that the said defendants will pay to the plaintiff 9-1/2% per annum on the diminishing balance of the amount of their loan; that the defendants will repay the said

loan in monthly installments of P950.88 for a period of five (5) years from February 9, 1965; that to secure the performance of the foregoing obligation they executed a first mortgage on two parcels of land covered by Transfer Certificates of Title Nos. T-27136 and T27946, both issued by the Register of Deeds of Bacolod City. The agreement further provided that in case of failure of the defendants to pay any of the installments due and purchase their petroleum requirements in the minimum amount of 50,000 liters per month from the plaintiff, the latter has the right to foreclose the mortgage or recover the payment of the entire obligation or its remaining unpaid balance; that in case of foreclosure the plaintiff shall be entitled to 12% of the indebtedness as damages and attorney's fees. A copy of the loan and real estate mortgage contract executed between the plaintiff and the defendants is attached to the complaint and made a part thereof. The complaint further alleges that the defendant paid only the amount of P1,901.76 to the plaintiff, thus leaving a balance of P43,098.24, excluding interest, on their indebtedness. The said defendants also failed to buy on cash basis the minimum amount of petroleum which they agreed to purchase from the plaintiff. The plaintiff, therefore, prayed that the defendants be ordered to pay the amount of P43,098.24, with interest at 9-1/2% per annum from the date it fell due, and in default of such payment that the mortgaged properties be sold and the proceeds applied to the payment of defendants' obligation." 6

The lower court predicated its inability to order the foreclosure in view of the categorical nature of the opening sentence of the governing article 10 that 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." Note that it ignored the succeeding sentence: "If the instrument is not recorded, the mortgage is nevertheless binding between the parties." Its conclusion, however, is that what was thus created was merely "a personal obligation but did not establish a real estate mortgage." Such a conclusion does not commend itself for approval. The codal provision is clear and explicit. Even if the instrument were not recorded, "the mortgage is nevertheless binding between the parties." The law cannot be any clearer. Effect must be given to it as written. The mortgage subsists; the parties are bound. As between them, the mere fact that there is as yet no compliance with the requirement that it be recorded cannot be a bar to foreclosure.1awphl.nt A contrary conclusion would manifest less than full respect to what the codal provision ordains. The liability of the mortgagor is therein explicitly recognized. To hold, as the lower court did, that no foreclosure would lie under the circumstances would be to render the provision in question nugatory. That we are not allowed to do. What the law requires in unambiguous language must be lived up to. No interpretation is needed, only its application, the undisputed facts calling for it. 11 Moreover to rule as the lower court did would be to show less than fealty to the purpose that animated the legislators in giving expression to their will that the failure of the instrument to be recorded does not result in the mortgage being any the less "binding between the parties." In the language of the Report of the Code Commission: "In article [2125] an additional provision is made that if the instrument of mortgage is not recorded, the mortgage is nevertheless binding between the parties." 12 We are not free to adopt then an interpretation, even assuming that the codal provision lacks the forthrightness and clarity that this particular norm does and, therefore, requires construction, that would frustrate or nullify such legislative objective. Nor is the reason difficult to discern why such an exception should be made to the rule that is indispensable for a mortgage to be validly constituted that it be recorded. Equity so demands, and justice is served. There is thus full acknowledgment of the binding effect of a promise, which must be lived up to, otherwise the freedom a contracting party is supposed to possess becomes meaningless. It could be said of course that to allow foreclosure in the absence of such a formality is to offend against the demands of jural symmetry. What is "indispensable" may be dispense with. Such an objection is far from fatal. This would not be the first time when logic yields to what is fair and what is just. To such an overmastering requirement, law is not immune. WHEREFORE, the lower court order of February 25, 1966 is affirmed with the modification that in default of the payment of the above amount of P43,028.94 with interests at the rate of 9-1/2% per annum from the date of the filing of the complaint, that the mortgage be foreclosed with the properties subject thereof being sold and the proceeds of the sale applied to the payment of the amounts due the plaintiff in accordance with law. With costs against defendants-appellees. 4. G.R. No. L-50501 April 22, 1991

Defendants, Ruth R. Diocares and Lope T. Diocares, now appellees, admitted their indebtedness as set forth above, denying merely the alleged refusal to pay, the truth, according to them, being that they sought for an extension of time to do so, inasmuch as they were not in a position to comply with their obligation. They further set forth that they did request plaintiff to furnish them with the statement of accounts with the view of paying the same on installment basis, which request was, however, turned down by the plaintiff. Then came a motion from the plaintiff for a judgment on the pleadings, which motion was favorably acted on by the lower court. As was stated in the order appealed from: "The answer of the defendants dated October 21, 1965 did not raise any issue. On the contrary, said answer admitted the material allegations of the complaint. The plaintiff is entitled to a judgment on the pleadings." 7 As to why the foreclosure sought by plaintiff was denied, the lower court order on appeal reads thus: "The Court cannot, however, order the foreclosure of the mortgage of properties, as prayed for, because there is no allegation in the complaint nor does it appear from the copy of the loan and real estate mortgage contract attached to the complaint that the mortgage had been registered. The said loan agreement although binding among the parties merely created a personal obligation but did not establish a real estate mortgage. The document should have been registered. (Art. 2125, Civil Code of the Phil.)" 8 The dispositive portion is thus limited to ordering defendants "to pay the plaintiff the account of P43,098.24, with interest at the rate of 9-1/2% per annum from the date of the filing of the complaint until fully paid, plus the amount of P2,000.00 as attorneys' fees, and the costs of the suit." 9 Hence this appeal, plaintiff-appellant assigning as errors the holding of the lower court that no real estate mortgage was established and its consequent refusal to order the foreclosure of the mortgaged properties. As set forth at the outset, we find the appeal meritorious. The lower court should not have held that no real estate mortgage was established and should have ordered its foreclosure.

RODOLFO GUIANG, petitioner, vs. RICARDO C. SAMANO, JUDGE SERAFIN E. CAMILON, and HONORABLE COURT OF APPEALS, respondents. Manuel E. Yuzon for petitioner. Benjamin E. Paggao for private respondent.

In his Answer with Counterclaim dated October 13, 1976, petitioner alleged that: 3. Defendant specifically denies the allegations contained in paragraph 3 of the complaint to the effect that he has failed and refused to pay his arrearages the truth of the matter being those alleged in defendant's Affirmative and Special Defenses. The aforesaid Affirmative and Special Defenses allegations reads as follows:

BIDIN, J.:p This is a petition for review on certiorari seeking to reverse and set aside the Decision 1 of the Court of Appeals dated April 30, 1979 in CA-G.R. No. SP-08690 entitled "Rodolfo Guiang vs. Ricardo C. Samano, et. al." which affirmed the Decision 2 of the Court of First Instance of Rizal, Branch VIII dated November 9, 1978 in Civil Case No. 29475 entitled "Ricardo C. Samano vs. Rodolfo Guiang" which, in turn, affirmed in all respects the Decision 3 of the Municipal Court of Makati dated April 12, 1978 in Civil Case No. 15250 entitled "Ricardo C. Samano vs. Rodolfo Guiang", ordering therein defendant (herein petitioner) to vacate the premises and to pay therein plaintiff (herein private respondent) the amount of P40.00 a month from November, 1977 until he (herein petitioner) vacates the premises plus attorney's fees and the costs of suit. As culled from the records, the uncontroverted facts of this case are as follows: Sometime in 1961, petitioner verbally leased a portion of a parcel of land located at 533 Lacuna Street, Bangkal, Makati, Metro Manila belonging to private respondent at an agreed monthly rental of P40.00. Immediately after petitioner occupied the aforesaid lot, he constructed a house thereon for which he spent the amount of P8,000.00. On December 18, 1975, private respondent filed an ejectment case docketed as Civil Case No. 14704 against the petitioner before the Municipal Court of Makati on the ground that the petitioner as defendant failed to pay the monthly rentals of P40.00 from July to December, 1975 in the total sum of P240.00. But before said case could be tried on the merits, the parties thereto filed a joint motion to dismiss the same. Hence, an order dated August 20, 1976 was issued dismissing the case on the ground that it has been settled amicably. Barely a month thereafter or on September 14, 1976, private respondent filed another ejectment case docketed as Civil Case No. 15250 against petitioner before the same court, alleging, among others, as basis for his cause of action, the following: 3. That defendant has been in arrears since August, 1975 up to the present, on in total amount of Five Hundred Sixty (P560.00) Pesos, Philippine Currency, and despite oral and written demands, the last written demand of which is dated August 21, 1976, thru the personal service, a xerox copy of said demand is hereto attached, marked as Annex "A" and considered as an integral part hereof, defendant failed and refused as he fails and refuses to vacate the premises removing his house thereat and paying his obligations, to the damage and prejudice of the herein plaintiff.

7. That since 1961 up to and until 12 June 1975, date of receipt of payment for rental due for July 1975, defendant has been religiously paying the agreed rent on the premises; 8. That in or about the latter part of July 1975, plaintiff approached the defendant herein and intimated his (plaintiffs) intentions of increasing the rental on the premises from P40.00 to P120.00 a month, however, due to some financial problems the defendant then found himself confronted with, the latter declined and refused to accede to plaintiffs request and demands for a raise of rentals on the premises; 9. That since then and up to the present, the plaintiff had refused to accept the monthly payments of P40.00 tendered on him so that the defendant was constrained to deposit the rentals due thereon with a bank so that at any time, defendant could withdraw and pay his arrearages, the accumulation of which is not due to defendant's faults. After trial, a decision dated April 12, 1978 was rendered by the Municipal Court of Makati, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered for the plaintiff Ricardo, Samano and against the defendant Rodolfo Guiang, to wit: 1. ordering the defendant and all persons claiming rights under him to immediately vacate the premises in litis and restore possession thereof to herein plaintiff. 2. ordering the defendant to pay plaintiff the amount of Forty (P40.00) Pesos a month from November 1977 until he finally vacates the premises; 3. ordering the defendant to pay plaintiff the sum of Five Hundred (P500.00) Pesos by way attorney's fees; and 4. ordering the defendant to pay the costs of suit.

SO ORDERED. On appeal by petitioner to the Court of First Instance of Rizal, the decision of the trial court was affirmed in all respects. The dispositive portion of said CFI judgment dated November 9, 1978, reads FROM THE FOREGOING, this Court holds that the trial court committed no error in rendering its decision which conforms to the evidence presented and to the law, for which reason, the appeal is dismissed and the decision appealed from is affirmed in all respects, with costs against the defendant. SO ORDERED.

Petitioner filed a petition for review with the Court of Appeals attributing to the Court of First Instance of Rizal four (4) errors, to wit: 1. The respondent judge erred in not reversing the decision of the Municipal Court of Makati, Metro Manila, dated April 12, 1978 and in not considering that the same is barred by prior judgment or res judicata rendered in Civil Case No. 14704 entitled "Ricardo C. Samano versus Rodolfo Guiang", Municipal Court of Makati, Rizal. 2. The respondent judge erred in not ruling that the private respondent violated Presidential Decree No. 20 when he clearly told the petitioner that he was increasing the rentals from P40.00 to P120.00 a month. 3. The respondent judge erred, that on the assumption that the private respondent has the right to eject the petitioner, in not requiring the said respondent to pay for the value of the house, the petitioner being lessee is a builder in good faith. 4. That respondent judge erred in not ruling that the petitioner being a tenant of the premises in question since 1961 continuously up to the present there is a need to fix the period of the contract of lease. In a decision promulgated on April 30, 1979, the Court of Appeals dismissed said petition, the positive part of which reads Withal, we sustain the decision of the respondent court, the same being not only supported by substantial evidence, but fully in accord with the applicable law as well. WHEREFORE , the petition for review is hereby dismissed, with costs against petitioner Rodolfo Guiang. SO ORDERED. Hence, this petition. In the resolution of October 8, 1979, the First Division of the Supreme Court gave due course to the petition and both parties were required to file simultaneous memoranda. The memorandum for the petitioner was filed on November 13, 1979 while that of the private respondent was filed on January 15, 1980. The petition is devoid of merit. The main issue in this case is whether Civil Case No. 14704 for nonpayment of rentals from July, 1975 up to and including December 18, 1975 which was allegedly settled amicably constitutes res judicata and a bar to Civil Case No. 15250 which is also for nonpayment of rentals from August, 1975 to September 14, 1976. Petitioner contends that the findings of the respondent appellate court in dismissing the petition were grounded entirely on speculations, surmises, conjectures and without factual or legal basis, and said court acted with grave abuse of discretion in dismissing the same apparently on the basis of the following: firstly, that the respondent appellate court erred in ruling that the question of res judicata was not raised by the petitioner in his appeal memorandum and secondly, that the same court erred in ruling that the petitioner has not paid the rentals from August to December, 1975.

The issues of res judicata and non-payment of rentals from August to December, 1975 are purely factual in nature which the Supreme Court is not bound to review, much less reverse, on appeal. Wellsettled is the rule in this jurisdiction that the findings of fact of the Court of Appeals when supported by substantial evidence, as they are in the instant case, is beyond the Supreme Court's power of judicial review. It is not the function of the Supreme Court's power of judicial review. It is not the function of the Supreme Court to analyze and weigh such evidence all over again (PNB v. CA, 159 SCRA 433 [1988]). Even the findings of fact of the trial court are entitled to great respect, and carry even more weight when affirmed by the Court of Appeals (Go Ong vs. CA, 154 SCRA 270). Consequently, the factual findings of the Court of Appeals are conclusive on the parties (Investment & Development, Inc. vs. CA, 162 SCRA 636). Moreover, the issue in the case at bar has been settled in the case of Limpan Investment Corporation vs. Lim Sy, 159 SCRA 484 [1988], the pertinent portion of which reads: Although the first action of the owner for ejectment of tenant was dismissed by the court under a judgment that became final and executory, such dismissal does not preclude the owner from making a new demand upon the tenant to vacate should the tenant again fail to pay the rents due. Even assuming that the first ejectment suit docketed as Civil Case No. 14704 was dismissed on August 20, 1976 (although a copy of the dismissal order is nowhere to be found in the record transmitted from the Municipal Court to the respondent court) nonetheless petitioner's possession of the premises in question became unlawful and a new cause of action for ejectment accrued, after a written letter of demand to pay the rentals in arrears from August, 1975 was served by private respondent upon petitioner on August 21, 1976 when the latter failed and refused to comply therewith. Petitioner further contends that the conclusions of the respondent appellate court are contrary to law based on the following grounds: (1) that the respondent appellate court did not fix the period of the contract of lease, the same having been verbally made without any definite period, and (2) that granting that the private respondent has the right to eject the petitioner from the premises in question, the same court did not order the private respondent to reimburse the petitioner the value of his house in the amount of at least P20,000.00 considering the tremendous increases in the price of construction materials and labor. As correctly ruled by the respondent appellate court: It should be emphasized that the power granted to the court by Article 1687 of the Civil Code to fix a longer period for the lease is merely discretionary, not mandatory (Prieto vs. Santos and Gaddi, 98 Phil. 509). In the instant case, the respondent judge can hardly be faulted for refusing to extend the term of the lease, considering that petitioner has not sought such extension not sought such extension either in the trial court or in the respondent court. Besides, the fact that petitioner has not paid the rentals since August, 1975 up to the present hardly justifies an extension of petitioner's occupancy of the premises. In Divino vs. Marcos, 4 SCRA 186 [1962] this Court held that:

The power of the courts to "fix a longer term for lease" is protestative or discretionary, "may" is the word to be exercised or not in accordance with the particular circumstances of the case; a longer term to be granted where equities come into play demanding extension, to be denied where none appear, always with due reference to the parties' freedom to contract. Admittedly, no definite period for the lease of the premises was agreed upon between the petitioner and the private respondent. However, as the rent was paid monthly, the period of lease is considered to be from month-to-month in accordance with Article 1687. Thus, when the private respondent in the instant case gave the petitioner notice to vacate the premises on August 21, 1976, the contract of lease was deemed to have expired as of the end of the said month. As ruled in Baens vs. CA, 125 SCRA [1983]: "even if the month-to-month agreement is on a verbal basis, if it is shown that the lessor needs the property for his own use or for the use of an immediate member of the family or for any of the other statutory grounds to eject under Section 5 of Batas Pambansa Blg. 25 (in this case, arrears in payment of rent) which happens to be applicable, then the lease is considered terminated as of the end of the month, after proper notice or demand to vacate has been given (Zablan vs. CA, 154 SCRA 487 [1987]). Petitioner's contention that respondent appellate court should have ordered private respondent to remiburse petitioner the value of his house, is equally untenable. Under Article 1678 4 of the New Civil Code, the lessor is given the option to pay the lessee one-half of the value of the improvements upon termination of the lease. In case the lessor does not exercise such option, the lessee's remedy is to remove the improvements. Otherwise stated the lessee does not have the right to demand for the payment of the value of his improvements if the lessor does not elect to pay for them but he (the lessee) may remove them. As ruled by this court in Guzman vs. CA, 177 SCRA 604 [1989], where the lessees are builders in good faith. Article 1678 of the Civil Code governs the rights of the parties thereto. The lessors have the option to appropriate the house and other useful improvements made on the leased premises by paying one half of their value. But the lessees do not have the right to compel the lessors to appropriate the house and other useful improvements and make reimbursement nor to retain possession of the subject property until such reimbursement. Their right under the law is the removal of the house and other useful improvements should the lessor refuse to reimburse one half of their value. A careful review of the records yields no cogent reason that warrants a reversal of the decision under view; more importantly, it being obvious that this petitioner is intended merely to delay the final disposition of this case. WHEREFORE, the petition is Dismissed and the assailed decision of the Court of Appeals is Affirmed with treble costs against the petitioner. This decision shall be immediately executory. 5. G.R. No. 172020 December 6, 2010

VILLARAMA, JR., J.: Assailed in this petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision1 dated January 11, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 67257 which reversed the Joint Decision2 dated August 26, 1998 of the Regional Trial Court (RTC) of Cebu City, Branch 13 in Civil Case Nos. R-22608 and CEB-112. The Facts Respondent-spouses Norberto and Milagros Castaares are engaged in the business of exporting shell crafts and other handicrafts. Between 1977 and 1978, respondents obtained from petitioner Traders Royal Bank various loans and credit accommodations. Respondents executed two real estate mortgages (REMs) dated April 18, 1977 and January 25, 1978 covering their properties (TCT Nos. T38346, T-37536, T-37535, T-37192 and T-37191). As evidenced by Promissory Note No. BD-77-113 dated May 10, 1977, petitioner released only the amount of P35,000.00 although the mortgage deeds indicated the principal amounts as P86,000.00 and P60,000.00.3 Respondents were further granted additional funds on various dates under promissory notes4 they executed in favor of the petitioner: Type of Loan Amount Date Granted

Packing Credit May 10, 1977 P19,000.00 Packing Credit May 18, 1977 P25,000.00 Packing Credit June 23, 1977 P12,500.00 Packing Credit August 19, 1977 P 2,900.00 Packing Credit April 4, 1978 P18,000.00 Packing Credit April 19, 1978 P23,000.00 On June 22, 1977, petitioner transferred the amount of P1,150.00 from respondents current account to their savings account, which was erroneously posted as P1,500.00 but later corrected to reflect the figure P1,150.00 in the savings account passbook. By the second quarter of 1978, the loans began to mature and the letters of credit against which the packing advances were granted started to expire. Meanwhile, on December 7, 1979, petitioner, without notifying the respondents, applied to the payment of respondents outstanding obligations the sum of $4,220.00 or P30,930.49 which was remitted to the respondents thru telegraphic transfer from AMROBANK, Amsterdam by one Richard Wagner. The aforesaid entries in the passbook of respondents and the $4,220.00 telegraphic transfer were the subject of respondents letter-complaint5 dated September 20, 1982 addressed to the Manager of the Regional Office of the Central Bank of the Philippines. For failure of the respondents to pay their outstanding loans with petitioner, the latter proceeded with the extrajudicial foreclosure of the real estate mortgages.6 Thereafter, a Certificate of Sale7 covering all the mortgaged properties was issued by Deputy Sheriff Wilfredo P. Borces in favor of petitioner as the lone bidder for P117,000.00 during the auction sale conducted on November 24, 1981. Said certificate of sale was registered with the Office of the Register of Deeds on February 4, 1982. On November 24, 1982, petitioner instituted Civil Case No. R-22608 for deficiency judgment, claiming that after applying the proceeds of foreclosure sale to the total unpaid obligations of respondents (P200,397.78), respondents were still indebted to petitioner for the

TRADERS ROYAL BANK, Petitioner, vs. NORBERTO CASTAARES and MILAGROS CASTAARES, Respondents. DECISION

sum of P83,397.68.8 Respondents filed their Answer With Counterclaim on December 27, 1982.9 On February 10, 1983, respondents filed Civil Case No. CEB-112 for the recovery of the sums of P2,584.27 debited from their savings account passbook and the equivalent amount of $4,220.00 telegraphic transfer, and in addition, $55,258.85 representing the damage suffered by the respondents from letters of credit left unnegotiated because of petitioners refusal to pay the $4,220.00 demanded by the respondents.10 The cases were consolidated before Branch 13, RTC of Cebu City. Ruling of the RTC

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the appeal filed in this case and REVERSING AND SETTING ASIDE the Joint Decision dated August 26, 1998, Regional Trial Court, 7th Judicial Region, Branch 13, in Civil Case No. R-22608 and Civil Case No. CEB-112. With regard to Civil Case No. R-22608, the real estate mortgage dated April 18, 1977 is hereby DECLARED as valid in part as to the amount of P35,000.00 actually released in favor of appellants, while the real estate mortgage dated January 26, 1978 is hereby declared as null and void. Furthermore, in Civil Case No. CEB-112, TRB is hereby ordered to release the amount of US$4,220.90 to the appellants at its current rate of exchange. No pronouncement as to costs. SO ORDERED.16

In a Joint Decision11 dated August 26, 1998, the RTC ruled in favor of the petitioner, as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered in Civil Case No. R-22608 in favor of the plaintiff and against the defendants directing the defendants jointly and solidarily to pay plaintiff the sum of P83,397.68 with legal rate of interest to be computed from November 24, 1981 (the date of the auction sale) until full payment thereof. They are likewise directed to pay plaintiff attorneys fees in the sum of P10,000.00 plus litigation expenses in the amount of P2,500.00. With cost against defendants. In CEB-112, judgment is hereby rendered dismissing the complaint. With cost against the plaintiff. SO ORDERED.12 The trial court found that despite respondents insistence that the REM covered only a separate loan for P86,000.00 which they believed petitioner committed to lend them, the evidence clearly shows that said REM was constituted as security for all the promissory notes. No separate demand was made for the amount of P86,000.00 stated in the REM, as the demand was limited to the amounts of the promissory notes. The trial court further noted that respondents never questioned the judgment for extrajudicial foreclosure, the certificate of sale and the deficiency in that case.13 With respect to the passbook entries, the trial court stated that no objection thereto was made by the respondents until five years later when in a letter dated August 10, 1982, respondents counsel asked petitioner to be enlightened on the matter. Neither did respondents protest the application of the balance (P1,150.00) in the passbook to his account with petitioner. More important, respondent Norberto Castaares in his testimony admitted that the matter was already clarified to him by petitioner and that the latter had the right to apply his deposit to his loan accounts. Admittedly, his complaint has to do more with the lack of consent on his part and the non-issuance of official receipt. However, he did not follow up his request for official receipt as he did not want to be going back and forth to the bank.14 CA Ruling

The CA held that the RTC overlooked the fact that there were no adequate evidence presented to prove that petitioner released in full to the respondents the proceeds of the REM loan. Citing Filipinas Marble Corporation v. Intermediate Appellate Court17 and Naguiat v. Court of Appeals,18 the appellate court declared that where there was failure of the mortgagee bank to deliver the consideration for which the mortgage was executed, the contract of loan was invalid and consequently the accessory contract of mortgage is likewise null and void. In this case, only P35,000.00 out of the P86,000.00 stated in the REM dated April 18, 1977 was released to respondents, and hence the REM was valid only to that extent. For the same reason, the second REM was null and void since no actual loan proceeds were released to the respondents-mortgagors. The REMs are not connected to the subsequent promissory notes because these were signed by respondents for the sole purpose of securing packing credits and export advances. Further citing Acme Shoe, Rubber and Plastic Corp. v. Court of Appeals,19 the CA stated that the rule is that a pledge, real estate mortgage or antichresis may exceptionally secure after-incurred obligations only as long as these debts are accurately described therein. In this case, neither of the two REMs accurately described or even mentioned the securing of future debts or obligations.20 The CA thus held that petitioners remedy would be to file a collection case on the unpaid promissory notes which were not secured by the REMs. As to the $4,220.00 telegraphic transfer, the CA ruled that petitioner had no basis for withholding and applying the said amount to respondents loan account. Said transaction was separate and distinct from the contract of loan between petitioner and respondents. Petitioner had no authority to convert the said telegraphic transfer into cash since the participation of respondents was necessary to sign and indorse the disbursement voucher and check. Moreover, petitioner was not transparent in its actions as it did not inform the respondents of its intention to apply the proceeds of the telegraphic transfer to their loan account and worse, it did not even present an official receipt to prove payment. Section 5 of Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act, provides that there shall be no restriction on the withdrawability by the depositor of his deposit or the transferability of the same abroad except those arising from contract between the depositor and the bank.21 The Petition

With the trial courts denial of their motion for reconsideration, respondents appealed to the CA. Finding merit in respondents arguments, the appellate court set aside the trial courts judgment under its Decision15 dated January 11, 2006, thus:

Petitioner raised the following grounds in the review of the CA decision:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE REAL ESTATE MORTGAGE DATED 18 APRIL 1977 IS VALID ONLY IN PART TO THE EXTENT OF PHP35,000.00 WHICH IS ALLEGEDLY THE AMOUNT PROVED TO HAVE BEEN ACTUALLY RELEASED TO RESPONDENTS OUT OF THE SUM OF PHP86,000.00. II. THE COURT OF APPEALS ERRED IN DECLARING AS NULL AND VOID THE REAL ESTATE MORTGAGE DATED 26 JANUARY 1978 IN THAT NO ACTUAL LOAN PROCEEDS WERE RELEASED IN FAVOR OF THE RESPONDENTS. III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD NO BASIS IN WITHHOLDING AND SUBSEQUENTLY APPLYING IN PAYMENT OF RESPONDENTS OVERDUE ACCOUNT IN THE TELEGRAPHIC TRANSFER IN THE AMOUNT OF U.S.$4,220.00.22 Petitioner contends that the CA overlooked the specific stipulation in the REMs that the mortgage extends not only to the amounts specified therein but also to loans or credits subsequently granted, which include the packing credits and export advances obtained by the respondents. Moreover, the amounts indicated on the REMs need not exactly be the same amounts that should be released and covered by checks or credit memos, the same being only the maximum sum or "ceiling" which the REM secures, as explained by petitioners witness, Ms. Blesy Nemeo. Her testimony does not prove that the proceeds of the loans were not released in full, as no credit memos in the specific amounts received by the respondents can be presented. Petitioner argues that the rulings cited by the CA do not at all support its conclusion that the promissory notes were totally unrelated to the REMs. In the Acme case, the pronouncement was that the after-incurred obligations must, at the time they are contracted, only be accurately described in a proper instrument as in the case of a promissory note. The confusion was brought by the use in the CA decision of the word "therein" which is not found in the text of the Acme ruling. Besides, it is way too impossible that future loans can be accurately described, as the CA opined, at the time that a deed of real estate mortgage is executed. The CAs reliance on the case of Filipinas Marble Corporation, is likewise misplaced as it finds no application under the facts obtaining in the present case. The misappropriation by some individuals of the loan proceeds secured by petitioner was the consideration which compelled this Court to rule that there was failure on the part of DBP to deliver the consideration for which the mortgage was executed. Similarly, the case of Naguiat is inapplicable in that there was evidence that an agent of the creditor withheld from the debtor the checks representing the proceeds of the loan pending delivery of additional collateral. Finally, petitioner reiterates that it had the right by way of set-off the telegraphic transfer in the sum of $4,220.00 against the unpaid loan account of respondents. Citing Bank of the Philippine Islands v. Court of Appeals,23 petitioner asserts that they are bound principally as both creditors and debtors of each other, the debts consisting of a sum of money, both due, liquidated and demandable, and are not claimed by a third person. Hence, the RTC did not err in holding that petitioner validly applied the amount of P30,930.20 (peso equivalent of $4,220.00) to the loan account of the respondents. Our Ruling We rule for the petitioner.

The subject REMs contain the following provision: That, for and in consideration of certain loans, overdrafts and other credit accommodations obtained, from the Mortgagee by the Mortgagor and/or SPS. NORBERTO V. CASTAARES & MILAGROS M. CASTAARES and to secure the payment of the same, the principal of all of which is hereby fixed at EIGHTY-SIX THOUSAND PESOS ONLY (P86,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may hereafter extend to the Mortgagor x x x, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee x x x.24 (Emphasis supplied.) The above stipulation is also known as "dragnet clause" or "blanket mortgage clause" in American jurisprudence that would subsume all debts of past and future origins. It has been held as a valid and legal undertaking, the amounts specified as consideration in the contracts do not limit the amount for which the pledge or mortgage stands as security, if from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. A pledge or mortgage given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage until the full amount of all advancements shall have been paid.25 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.26 While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be sufficiently 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 In holding that the REMs were null and void, the CA opined that the full amount of the principal loan stated in the deed should have been released in full, sustaining the position of the respondents that the promissory notes were not secured by the mortgage and unrelated to it. However, a reading of the afore-quoted provision of the REMs shows that its terms are broad enough to cover packing credits and export advances granted by the petitioner to respondents. That the respondents subsequently availed of letters of credit and export advances in various amounts as reflected in the promissory notes, buttressed the claim of petitioner that the amounts of P86,000.00 and P60,000.00 stated in the REMs merely represent the maximum total loans which will be secured by the mortgage. This must be so as respondents confirmed that the mortgage was constituted for the purpose of obtaining additional capital as dictated by the needs of their export business. Significantly, no complaint was made by the respondents as to the non-release of P86,000.00 and P60,000.00, in full, simultaneous or immediately following the execution of the REMs -- under a single promissory note each equivalent to the said sums -- and no demand for the said specific amounts was ever made by the petitioner. Even the letter-complaint sent by respondents to the Central Bank almost a year after the extrajudicial foreclosure sale mentioned only the questioned entries in their passbook and the $4,220.00 telegraphic transfer. Considering that respondents deemed it a serious "banking malpractice" for petitioner not to release in full the loan amount stated in the REMs, it can only be inferred that respondents themselves understood that the P86,000.00 and P60,000.00 indicated in the REMs was intended merely to fix a ceiling for the loan accommodations which will be secured thereby and not the

10

actual principal loan to be released at one time. Thus, the RTC did not err in upholding the validity of the REMs and ordering the respondents to pay the deficiency in the foreclosure sale to satisfy the remaining mortgage indebtedness. The cases relied upon by the CA are all inapplicable to the present controversy.lawph!1 In Filipinas Marble Corporation, we held that pending the outcome of litigation between DBP which together with Bancom officers were alleged by the petitioner-mortgagor to have misspent and misappropriated the $5 million loan granted by DBP, the provisions of P.D. No. 385 prohibiting injunctions against foreclosures by government financial institutions, cannot be automatically applied. Foreclosure of the mortgaged properties for the whole amount of the loan was deemed prejudicial to the petitioner, its employees and their families since the true amount of the loan which was applied for the benefit of the petitioner can be determined only after a trial on the merits.28 No such act of misappropriation by corporate officers appointed by the mortgagee is involved in this case. Besides, the respondents never denied receiving the amounts under the promissory notes which were all covered by the REMs and the very obligations subject of the extrajudicial foreclosure. As to the ruling in Naguiat, we found therein no compelling reason to disturb the lower courts finding that the lender did not remit and the borrower did not receive the proceeds of the loan. Hence, we held the mortgage contract, being just an accessory contract, as null and void for absence of consideration.29 In this case, however, respondents admitted they received all the amounts under the promissory notes presented by the petitioner. The consideration in the execution of the REMs consist of those credit accommodations to fund their export transactions. Respondents as an afterthought raised issue on the nature of the amounts of principal loan indicated in the REMs long after these obligations have matured and the mortgage foreclosed due to their failure to fully settle their outstanding accounts with petitioner. Having expressly agreed to the terms of the REMs which are phrased to secure all such loans and advancements to be obtained from petitioner, although the principal amount stated therein were not released at one time and under several, not just one, subsequently issued promissory notes, respondents may not be allowed to complain later that the amounts they received were unrelated to the REMs. On the issue of the $4,220.00 telegraphic transfer which was applied by the petitioner to the loan account of respondents, we hold that the CA erred in holding that petitioner had no authority to do so by way of compensation or set off. In this case, the parties stipulated on the manner of such set off in case of non-payment of the amount due under each promissory note. The subject promissory notes thus provide: In case of non-payment of this note or any installments thereof at maturity, I/We jointly and severally, agree to pay an additional amount equivalent to two per cent (2%) per annum of the amount due and demandable as penalty and collection charges, in the form of liquidated damages, until fully paid; and the further sum of ten per cent (10%) thereof in full, without any deduction, as and for attorneys fees whether actually incurred or not, exclusive of costs and judicial/extrajudicial expenses; moreover, I/We, jointly and severally, further empower and authorize the TRADERS ROYAL BANK, at its option, and without notice, to set-off or to apply to the payment of this note any and all funds, which may be in its hands on deposit or otherwise belonging to anyone or all of us, and to hold as security therefor any real or personal property, which may be in its

possession or control by virtue of any other contract.30 (Emphasis supplied.) Agreements for compensation of debts or any obligations when the parties are mutually creditors and debtors are allowed under Art. 1282 of the Civil Code even though not all the legal requisites for legal compensation are present. Voluntary or conventional compensation is not limited to obligations which are not yet due.31 The only requirements for conventional compensation are (1) that each of the parties can fully dispose of the credit he seeks to compensate, and (2) that they agree to the extinguishment of their mutual credits.32 Consequently, no error was committed by the trial court in holding that petitioner validly applied, by way of compensation, the $4,220.00 telegraphic transfer remitted by respondents foreign client through the petitioner. WHEREFORE, the petition is GRANTED. The Decision dated January 11, 2006 of the Court of Appeals in CA-G.R. CV No. 67257 is REVERSED and SET ASIDE. The Joint Decision dated August 26, 1998 of the Regional Trial Court of Cebu City, Branch 13 in Civil Case Nos. R-22608 and CEB-112 is REINSTATED and UPHELD. No pronouncement as to costs. SO ORDERED. 6. G.R. No. 183987 July 25, 2012

ASIA TRUST DEVELOPMENT BANK, Petitioner, vs. CARMELO H. TUBLE, Respondent. DECISION SERENO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to respondent the refund of P845,805.491 representing the amount he had paid in excess of the redemption price. The antecedent facts are as follows: 2 Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed himself of the car incentive plan and loan privileges offered by the bank. He was also entitled to the banks Senior Managers Deferred Incentive Plan (DIP). Respondent acquired a Nissan Vanette through the companys car incentive plan. The arrangement was made to appear as a lease agreement requiring only the payment of monthly rentals. Accordingly, the lease would be terminated in case of the employees resignation or retirement prior to full payment of the price. As regards the loan privileges, Tuble obtained three separate loans. The first, a real estate loan evidenced by the 18 January 1993 Promissory Note No. 01423 with maturity date of 1 January 1999, was secured by a mortgage over his property covered by Transfer Certificate of Title No. T 145794. No interest on this loan was indicated.

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The second was a consumption loan, evidenced by the 10 January 1994 Promissory Note No. 01434 with the maturity date of 31 January 1995 and interest at 18% per annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan, his third loan. On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further obligation or retain the unit and pay its remaining book value. Respondent had the following obligations to the bank after his retirement: (1) the purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan; (3) P421,800 as real estate loan; and (4) P16,250 as salary loan.5 In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be issued after the bank had given the resigned employees clearance; and (2) P25,797.35 representing his final salary and corresponding 13th month pay. Respondent claimed that since he and the bank were debtors and creditors of each other, the offsetting of loans could legally take place. He then asked the bank to simply compute his DIP and apply his receivables to his outstanding loans.6 However, instead of heeding his request, the bank sent him a 1 June 1995 demand letter7 obliging him to pay his debts. The bank also required him to return the Nissan Vanette. Despite this demand, the vehicle was not surrendered. On 14 August 1995, Tuble wrote the bank again to follow up his request to offset the loans. This letter was not immediately acted upon. It was only on 13 October 1995 that the bank finally allowed the offsetting of his various claims and liabilities. As a result, his liabilities were reduced to P970,691.46 plus the unreturned value of the vehicle. In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against Tuble. Petitioner obtained a favorable judgment. Then, to collect the liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of real estate mortgage over his property. The Petition was based only on his real estate loan, which at that time amounted to P421,800. His other liabilities to the bank were excluded. The foreclosure proceedings terminated, with the bank emerging as the purchaser of the secured property. Thereafter, Tuble timely redeemed the property on 17 March 1997 for P1,318,401.91.8 Notably, the redemption price increased to this figure, because the bank had unilaterally imposed additional interest and other charges. With the payment of P1,318,401.91, Tuble was deemed to have fully paid his accountabilities. Thus, three years after his payment, the bank issued him a Clearance necessary for the release of his DIP share. Subsequently, he received a Managers Check in the amount of P166,049.73 representing his share in the DIP funds. Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the bank explained that this redemption price included the Nissan Vanettes book value, the salary loan, car insurance, 18% annual interest on the banks redemption price of P421,800, penalty and interest charges on Promissory Note No. 0142, and litigation expenses.9 By way of note, from these items, the amounts that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest on

the redemption price and (2) the interest charge on Promissory Note No. 0142. Because Tuble disputed the redemption price, he filed a Complaint for recovery of a sum of money and damages before the RTC. He specifically sought to collect P896,602.0210 representing the excess charges on the redemption price. Additionally, he prayed for moral and exemplary damages. The RTC ruled in favor of Tuble. The trial court characterized the redemption price as excessive and arbitrary, because the correct redemption price should not have included the above-mentioned charges. Moral and exemplary damages were also awarded to him. According to the trial court,11 the value of the car should not have been included, considering that the bank had already recovered the Nissan Vanette. The obligations arising from the salary loan and car insurance should have also been excluded, for there was no proof that these debts existed. The interest and penalty charges should have been deleted, too, because Promissory Note No. 0142 did not indicate any interest or penalty charges. Neither should litigation expenses have been added, since there was no proof that the bank incurred those expenses. As for the 18% annual interest on the bid price of P421,800, the RTC agreed with Tuble that this charge was unlawful. Act 313512 as amended, in relation to Section 28 of Rule 39 of the Rules of Court,13 only allows the mortgagee to charge an interest of 1% per month if the foreclosed property is redeemed. Ultimately, under the principle of solutio indebiti, the trial court required the refund of these amounts charged in excess of the correct redemption price. On appeal, the CA affirmed the findings of the RTC.14 The appellate court only expounded the rule that, at the time of redemption, the one who redeemed is liable to pay only 1% monthly interest plus taxes. Thus, the CA also concluded that there was practically no basis to impose the additional charges. Before this Court, petitioner reiterates its claims regarding the inclusion in the redemption price of the 18% annual interest on the bid price of P421,800 and the interest charges on Promissory Note No. 0142. Petitioner emphasizes that an 18% interest rate allegedly referred to in the mortgage deed is the proper basis of the interest. Pointing to the Real Estate Mortgage Contract, the bank highlights the blanket security clause or "dragnet clause" that purports to cover all obligations owed by Tuble:15 All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or novation irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of new, separate or additional obligations; All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee, executed before or after the execution of this document whether presently owing or hereinafter incurred and whether or not arising from or connection with the aforesaid loan/Credit accommodation; x x x. Tubles obligations are defined in Promissory Note Nos. 0142 and 0143. By way of recap, Promissory Note No. 0142 refers to the real estate loan; it does not contain any stipulation on interest. On the other hand, Promissory Note No. 0143 refers to the consumption loan; it charges an 18% annual interest rate. Petitioner uses this latter rate to impose an interest over the bid price of P421,800.

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Further, the bank sees the inclusion in the redemption price of an addition 12% annual interest on Tubles real estate loan. On top of these claims, the bank raises a new item the cars rental fee to be included in the redemption price. In dealing with this argument raised for the first time on certiorari, this Court dismisses the contention based on the well-entrenched prohibition on raising new issues, especially factual ones, on appeal.16 Thus, the pertinent issue in the instant appeal is whether or not the bank is entitled to include these items in the redemption price: (1) the interest charges on Promissory Note No. 0142; and (2) the 18% annual interest on the bid price of P421,800. RULING OF THE COURT The 18% Annual Interest on the Bid Price of P421,800 The Applicable Law The bank argues that instead of referring to the Rules of Court to compute the redemption price, the courts a quo should have applied the General Banking Law,17 considering that petitioner is a banking institution. The statute referred to requires that in the event of judicial or extrajudicial foreclosure of any mortgage on real estate that is used as security for an obligation to any bank, banking institution, or credit institution, the mortgagor can redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage.18 Petitioner is correct. We have already established in Union Bank of the Philippines v. Court of Appeals,19 citing Ponce de Leon v. Rehabilitation Finance Corporation20 and Sy v. Court of Appeals,21 that the General Banking Act being a special and subsequent legislation has the effect of amending Section 6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a bank. Thus, the amount to be paid in redeeming the property is determined by the General Banking Act, and not by the Rules of Court in Relation to Act 3135. The Remedy of Foreclosure In reviewing the banks additional charges on the redemption price as a result of the foreclosure, this Court will first clarify certain vital points of fact and law that both parties and the courts a quo seem to have missed. Firstly, at the time respondent resigned, which was chronologically before the foreclosure proceedings, he had several liabilities to the bank. Secondly, when the bank later on instituted the foreclosure proceedings, it foreclosed only the mortgage secured by the real estate loan of P421,800.22 It did not seek to include, in the foreclosure, the consumption loan under Promissory Note No. 0143 or the other alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed itself of the remedy of foreclosure and, in doing so, effectively gained the property. As a result of these established facts, one evident conclusion surfaces: the Real Estate Mortgage Contract on the secured property is already extinguished.

In foreclosures, the mortgaged property is subjected to the proceedings for the satisfaction of the obligation.23 As a result, payment is effected by abnormal means whereby the debtor is forced by a judicial proceeding to comply with the presentation or to pay indemnity.24 Once the proceeds from the sale of the property are applied to the payment of the obligation, the obligation is already extinguished.25 Thus, in Spouses Romero v. Court of Appeals,26 we held that the mortgage indebtedness was extinguished with the foreclosure and sale of the mortgaged property, and that what remained was the right of redemption granted by law. Consequently, since the Real Estate Mortgage Contract is already extinguished, petitioner can no longer rely on it or invoke its provisions, including the dragnet clause stipulated therein. It follows that the bank cannot refer to the 18% annual interest charged in Promissory Note No. 0143, an obligation allegedly covered by the terms of the Contract. Neither can the bank use the consummated contract to collect on the rest of the obligations, which were not included when it earlier instituted the foreclosure proceedings. It cannot be allowed to use the same security to collect on the other loans. To do so would be akin to foreclosing an already foreclosed property. Rather than relying on an expired contract, the bank should have collected on the excluded loans by instituting the proper actions for recovery of sums of money. Simply put, petitioner should have run after Tuble separately, instead of hostaging the same property to cover all of his liabilities. The Right of Redemption Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right to redeem the security by paying the redemption price. The right of redemption of foreclosed properties was a statutory privilege27 he enjoyed. Redemption is by force of law, and the purchaser at public auction is bound to accept it.28 Thus, it is the law that provides the terms of the right; the mortgagee cannot dictate them. The terms of this right, based on Section 47 of the General Banking Law, are as follows: 1. The redemptioner shall have the right within one year after the sale of the real estate, to redeem the property. 2. The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. 3. In case of redemptioners who are considered by law as juridical persons, they shall have the right to redeem not after the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Consequently, the bank cannot alter that right by imposing additional charges and including other loans. Verily, the freedom to stipulate the terms and conditions of an agreement is limited by law.29

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Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court30 that the power to decide whether or not to foreclose is the prerogative of the mortgagee; however, once it has made the decision by filing a petition with the sheriff, the acts of the latter shall thereafter be governed by the provisions of the mortgage laws, and not by the instructions of the mortgagee. In direct contravention of this ruling, though, the bank included numerous charges and loans in the redemption price, which inexplicably ballooned to P1,318,401.91. On this error alone, the claims of petitioner covering all the additional charges should be denied. Thus, considering the undue inclusions of the additional charges, the bank cannot impose the 18% annual interest on the redemption price. The Dragnet Clause In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that the dragnet clause therein does not justify the imposition of an 18% annual interest on the redemption price. This Court has recognized that, through a dragnet clause, a real estate mortgage contract may exceptionally secure future loans or advancements.31 But an obligation is not secured by a mortgage, unless, that mortgage comes fairly within the terms of the mortgage contract.32 We have also emphasized that the mortgage agreement, being a contract of adhesion, is to be carefully scrutinized and strictly construed against the bank, the party that prepared the agreement.33 Here, after reviewing the entire deed, this Court finds that there is no specific mention of interest to be added in case of either default or redemption. The Real Estate Mortgage Contract itself is silent on the computation of the redemption price. Although it refers to the Promissory Notes as constitutive of Tubles secured obligations, the said contract does not state that the interest to be charged in case of redemption should be what is specified in the Promissory Notes. In Philippine Banking Communications v. Court of Appeals,34 we have construed such silence or omission of additional charges strictly against the bank. In that case, we affirmed the findings of the courts a quo that penalties and charges are not due for want of stipulation in the mortgage contract. Worse, when petitioner invites us to look at the Promissory Notes in determining the interest, these loan agreements offer different interest charges: Promissory Note No. 0142, which corresponds exactly to the real estate loan, contains no stipulation on interest; while Promissory Note No. 0143, which in turn corresponds to the consumption loan, provides a charge of 18% interest per annum. Thus, an ambiguity results as to which interest shall be applied, for to apply an 18% interest per annum based on Promissory Note No. 0143 will negate the existence of the 0% interest charged by Promissory Note No. 0142. Notably, it is this latter Promissory Note that refers to the principal agreement to which the security attaches. In resolving this ambiguity, we refer to a basic principle in the law of contracts: "Any ambiguity is to be taken contra proferentem, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care."35 Therefore, the ambiguity in the mortgage deed whose terms are susceptible of different interpretations must be read against the bank that drafted

it. Consequently, we cannot impute grave error on the part of the courts a quo for not appreciating a charge of 18% interest per annum. Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real Estate Mortgage Contract to automatically include the consumption loan, and its corresponding interest, in computing the redemption price. As we have held in Prudential Bank v. Alviar,36 in the absence of clear and supportive evidence of a contrary intention, a mortgage containing a dragnet clause will not be extended to cover future advances, unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor. In this regard, this Court adopted the "reliance on the security test" used in the above-mentioned cases, Prudential Bank37 and Philippine Bank of Communications.38 In these Decisions, we elucidated the test as follows: x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.39 (Emphasis supplied) Here, the second loan agreement, or Promissory Note No. 0143, referring to the consumption loan makes no reference to the earlier loan with a real estate mortgage. Neither does the bank make any allegation that it relied on the security of the real estate mortgage in issuing the consumption loan to Tuble. It must be remembered that Tuble was petitioners previous vicepresident. Hence, as one of the senior officers, the consumption loan was given to him not as an ordinary loan, but as a form of accommodation or privilege.40 The banks grant of the salary loan to Tuble was apparently not motivated by the creation of a security in favor of the bank, but by the fact the he was a top executive of petitioner. Thus, the bank cannot claim that it relied on the previous security in granting the consumption loan to Tuble. For this reason, the dragnet clause will not be extended to cover the consumption loan. It follows, therefore, that its corresponding interest 18% per annum is inapplicable. Consequently, the courts a quo did not gravely abuse their discretion in refusing to apply an annual interest of 18% in computing the redemption price. A finding of grave abuse of discretion necessitates that the judgment must have been exercised arbitrarily and without basis in fact and in law.41 The Interest Charges on Promissory Note No. 0142 In addition to the 18% annual interest, the bank also claims a 12% interest per annum on the consumption loan. Notwithstanding that

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Promissory Note No. 0142 contains no stipulation on interest payments, the bank still claims that Tuble is liable to pay the legal interest. This interest is currently at 12% per annum, pursuant to Central Bank Circular No. 416 and Article 2209 of the Civil Code, which provides: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. (Emphasis supplied) While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a form of monetary interest, but as one of compensatory interest.42 Monetary interest refers to the compensation set by the parties for the use or forbearance of money.43 On the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or by the courts.44 Compensatory interest, as a form of damages, is due only if the obligor is proven to have defaulted in paying the loan.45 Thus, a default must exist before the bank can collect the compensatory legal interest of 12% per annum. In this regard, Tuble denies being in default since, by way of legal compensation, he effectively paid his liabilities on time. This argument is flawed. The bank correctly explains in its Petition that in order for legal compensation to take effect, Article 1279 of the Civil Code requires that the debts be liquidated and demandable. This provision reads: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Emphasis supplied) Liquidated debts are those whose exact amount has already been determined.46 In this case, the receivable of Tuble, including his DIP share, was not yet determined; it was the petitioners policy to compute and issue the computation only after the retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked legal compensation in addressing this issue of default. Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999. But then, he had already settled his liabilities on 17 March 1997 by paying P1,318,401.91 as redemption price. Then, in 1999, the bank issued his Clearance and share in the DIP in view of the full settlement of his obligations. Thus, there being no substantial delay on his part, the CA did not grievously err in not declaring him to be in default. The Award of Moral and Exemplary

Damages The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as exemplary damages.1wphi1 As appreciated by the RTC, which had the opportunity to examine the parties,47 the bank treated Tuble unfairly and unreasonably by refusing to lend even a little charity and human consideration when it immediately foreclosed the loans of its previous vice-president instead of heeding his request to make a straightforward calculation of his receivables and offset them against his liabilities.48 To the mind of the trial court, this was such a simple request within the control of the bank to grant; and if petitioner had only acceded, the troubles of the lawsuit would have been avoided.1wphi1 Moreover, the RTC found that the bank caused Tuble severe humiliation when the Nissan Vannette was seized from his new office at Kuok Properties Philippines. The trial court also highlighted the fact that respondent as the previous vice-president of petitioner was no ordinary employee he was a man of good professional standing, and one who actively participated in civic organizations. The RTC then concluded that a man of his standing deserved fair treatment from his employer, especially since they served common goals. This Court affirms the dispositions of the RTC and the CA. They correctly ruled that the award of moral damages also includes cases of besmirched reputation, moral shock, social humiliation and similar injury. In this regard, the social and financial standings of the parties are additional elements that should be taken into account in the determination of the amount of moral damages.49 Based on their findings that Tuble suffered undue embarrassment, given his social standing, the courts a quo had factual Basis50 to justify the award of moral damages and, consequently, exemplary damages51 in his favor. From all the foregoing, we rule that the appellate court correctly deleted the 18% annual interest charges, albeit for different reasons. First, the interest cannot be imposed, because any reference to it under the Real Estate Mortgage Contract is misplaced, as the contract is already extinguished. Second, the said interest cannot be collected without any basis in terms of Tuble's redemption rights. Third, assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect the interest because of the contract's ambiguity. Fourth, the dragnet clause referred to in the contract cannot be presumed to include the 18% annual interest specified in the consumption loan. Fifth, with respect to the compensatory interest claimed by the bank, we hold that neither is the interest due, because Tuble cannot be deemed to be in default of his obligations. IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.

7.

MARY ANN DEHEZA-INAMARGA vs. Alano

QUISUMBING, J.: This petition for review on certiorari assails the Decision[1] dated September 8, 2004 and Resolution[2] dated January 4, 2006 of the Court of Appeals in CA-G.R. CV No. 64164. The appellate court had affirmed the Decision[3] dated November 26, 1998 of the Regional Trial Court (RTC) Branch 1, Kalibo, Aklan in Civil Case No. 4278. The facts of the case are as follows:

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Tomas Alano, husband of respondent Celenia Alano, owned two parcels of land covered by Original Certificates of Title (OCT) Nos. P761 and P-762. He mortgaged the properties in favor of Renato Gepty on September 20, 1972. In 1976, Gepty demanded that Tomas pay the loan. Tomas, however, did not have money at that time to redeem his properties so he sought help from his niece, petitioner Mary Ann Deheza-Inamarga. Petitioner agreed to pay the loan while the spouses, in turn, mortgaged said properties to her. Petitioner kept in her possession OCT Nos. P-761 and P-762 and asked the spouses to sign blank pieces of paper which petitioner said will be converted into receipts evidencing their indebtedness to her. In November 1990, after Tomas had passed away, respondents Celenia and her children went to petitioner to redeem the property. Petitioner, however, told them that she had mortgaged the property to the Rural Bank of Libacao. Respondents verified the matter with the bank and discovered that OCT Nos. P-761 and P-762 have been cancelled and in lieu thereof, Transfer Certificates of Title (TCT) Nos. T-9080 and T-9081 were issued in petitioners name. Respondents learned that the TCTs in petitioners favor were issued by virtue of a Deed of Sale purportedly executed by the Spouses Alano in her favor. On January 24, 1991, respondents filed a complaint for the declaration of nullity of document, reconveyance and damages against petitioner and the Rural Bank of Libacao. Respondents contended that the deed of sale is null and void because the signatures of the Spouses Alano were forged and even if they were the signatures of the spouses, they were affixed on blank sheets of paper which were not intended to be a deed of sale. Petitioner, on the other hand, denied the allegation of forgery and maintained that the deed of sale was valid. She claimed that the spouses offered to sell her the property so they can use the purchase price of P7,000 to redeem the property from Gepty. Petitioner added that the action is barred by prescription, laches and estoppel. On November 26, 1998, the RTC rendered its decision, the dispositive portion of which reads as follows: WHEREFORE, judgment is hereby rendered: 1. Declaring the transaction between the plaintiffs and defendant Mary Ann Deheza (Inamarga) as an EQUITABLE MORTGAGE and declaring the plaintiffs entitled to redeem the mortgaged properties which shall be effected upon payment of the mortgage debt to said defendant in the amount of P2,400.00 with legal rate of interest from 1983, the year plaintiffs ceased paying said defendant interests; 2. Declaring the nullity of the Deed of Absolute Sale (Exh. B) dated March 4, 1978 allegedly executed by Tomas Alano in favor of Mary Ann Deheza; 3. Declaring the nullity of Transfer Certificate of Title No. T-9080 and Transfer Certificate of Title No. T-9081 in the name of Mary Ann Deheza; 4. Ordering the reconveyance of Lot 7 and Lot 2, all of Psu-235010, by defendant Mary Ann Deheza Inamarga in favor of the plaintiffs. In the event that said defendant fails to reconvey to plaintiffs said lots, the Clerk of Court is hereby directed to execute it pursuant to the provisions of Section 10 of Rule 39 of the 1997 Rules of Civil Procedure. As Amended; 5. Ordering defendant Mary Ann Deheza-Inamarga to pay plaintiffs exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of P10,000.00. Costs against said defendant. SO ORDERED.[4] Petitioner elevated the case to the Court of Appeals but her appeal was denied.[5] The appellate court held that the signatures in the Deed of Sale were forged and even if they were genuine, the

agreement entered into by the parties was one of equitable mortgage. It likewise upheld the trial courts award of damages, ruling that the transactions involved in the case were repeatedly tainted with fraud. Petitioners motion for reconsideration having been denied, petitioner filed the instant appeal, assigning errors as follows: I. THE LOWER COURT ERRED IN DECLARING THE TRANSACTION BETWEEN [THE] SPOUSES TOMAS AND CELENIA ALANO AND THE [PETITIONER] MARY ANN DEHEZA-INAMARGA AS ONE OF EQUITABLE MORTGAGE AND NOT ONE OF SALE. II. THE LOWER COURT ERRED IN ORDERING THE RECONVEYANCE OF THE LANDS IN QUESTION IN FAVOR OF THE [RESPONDENTS] AND ORDERING THE NULLITY OF TCT NO. T-9080 AND TCT NO. T-9081 IN THE NAME OF MARY ANN DEHEZA. III. THE LOWER COURT ERRED IN FINDING THAT THE QUESTIONED DEED OF SALE WAS A FORGERY OR THAT IT WAS SIGNED IN BLANK BY [THE] SPOUSES TOMAS AND CELENIA ALANO AND I[N] GIVING CREDENCE TO THE EVIDENCE OF THE [RESPONDENTS]. IV. THE LOWER COURT ERRED IN NOT DECLARING THAT *RESPONDENTS+ ACTION IS ALREADY BARRED BY PRESCRIPTION, LACHES OR ESTOPPEL. V. THE LOWER COURT ERRED IN AWARDING EXEMPLARY DAMAGES AND ATTORNEYS FEE*S+ TO THE *RESPONDENTS+.*6+ Essentially, the issues for resolution are: (1) whether the Deed of Sale is a forgery; (2) whether the transaction between petitioner and the Spouses Alano is one of sale or equitable mortgage; (3) whether respondents action is already barred by prescription, laches or estoppel; and (4) whether the award of exemplary damages and attorneys fees in favor of respondents is legal and justifiable. As to the first issue, petitioner contends that respondents never presented a handwriting expert to prove that the signatures of Tomas and Celenia Alano were forged and such allegation of forgery cannot overcome the presumption of regularity in the performance of duty of the notary public as well as the due execution of the public document.[7] Respondents, in turn, contend that the findings of handwriting experts are not conclusive upon the trial court. The question of forgery is one of fact.[8] It is well-settled that when supported by substantial evidence or borne out by the records, the findings of fact of the Court of Appeals are conclusive and binding on the parties and are not reviewable by this Court.[9] It is a hornbook doctrine that the findings of fact of trial courts are entitled to great weight on appeal and should not be disturbed except for strong and valid reasons. It is not a function of this Court to analyze and weigh evidence by the parties all over again. Our jurisdiction is limited to reviewing errors of law that might have been committed by the Court of Appeals. Where the factual findings of the trial court are affirmed in toto by the Court of Appeals as in this case, there is great reason for not disturbing such findings and for regarding them as not reviewable by this Court.[10] Moreover, after a careful perusal of the records and a thorough consideration of this case, this Court finds sufficient basis for the finding of the Court of Appeals that the said signatures were indeed forged. The Court of Appeals cited apparent differences in the signatures on the face of the documentary evidence submitted before the RTC. Also, it found that the signatures on the deed of sale appeared to be different in characteristics, spacing and strokes from the signatures of the Spouses Alano appearing in other documents forming part of the records of this case which are admittedly genuine.

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Moreover, contrary to petitioners contention, the presentation of a handwriting expert is not necessary. Handwriting experts are usually helpful in the examination of forged documents because of the technical procedure involved in analyzing them. But resort to these experts is not mandatory or indispensable to the examination or the comparison of handwriting.[11] The findings of handwriting experts are not conclusive upon the courts. As this Court has once observed, the authenticity of signatures is not a highly technical issue in the same sense that questions concerning, e.g., quantum physics or topology or molecular biology, would constitute matters of a highly technical nature. The opinion of a handwriting expert on the genuineness of a questioned signature is certainly much less compelling upon a judge than an opinion rendered by a specialist on a highly technical issue. The signatures on a questioned document can be examined visually by a judge who can and should exercise independent judgment on the issue of authenticity of such signatures.*12+ With regard to the second issue, petitioner contends that it was the Spouses Alano who caused the execution of the deed of sale in question and that the document was signed by them in the presence of the notary public. She likewise argues that after the sale, she took possession of the land; and she adds that the consideration for the property was adequate because the property was not productive.[13] On the other hand, respondents aver that the transaction between the Spouses Alano and petitioner is not one of sale but one of equitable mortgage. Respondents stress that they continued to be in possession of the property even after the alleged execution of the Deed of Sale and they claim that the P7,000 consideration is grossly inadequate for the market value of the property. Respondents further stated that they paid P500 interest annually for the loan.[14] In our considered view, the appellate court did not err in sustaining the decision of the trial court holding that the transaction between the parties is an equitable mortgage. An equitable mortgage is one which, although lacking in some formality, or form, or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.[15] Articles 1602 and 1604 of the Civil Code of the Philippines state: ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of the sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. ART. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. In the instant case, the RTC, as affirmed by the Court of Appeals, correctly found that more than one of the circumstances enumerated in Article 1602 are present, to wit: the inadequacy of the selling price of the properties in relation to its true value; the

vendors (Spouses Alano) remained in possession as lessee or otherwise; respondents paid the real property taxes; and the spouses secured the payment of the principal debt owed to petitioner with said properties.[16] On this score, we are in agreement that the parties intended an equitable mortgage and not a contract of sale. On the third issue, petitioner claims that the complaint was barred by extinctive prescription as it was filed only on January 24, 1991, or almost 13 years from March 7, 1978 when the TCTs were issued in favor of petitioner. Petitioner argues that the prescriptive period for reconveyance of land based on implied or constructive trust is 10 years.[17] Respondents counter that since the deed of sale and the certificates of title in the name of petitioner are all null and void, prescription, laches or estoppel has not set in.[18] Again, we find for the respondents. Where there is no consent given by one party in a purported contract, such contract was not perfected; therefore, there is no contract to speak of. The deed of sale relied upon by petitioner is deemed a void contract. This being so, the action based on said deed of sale shall not prescribe in accordance with Article 1410[19] of the Civil Code. On the issue of damages, petitioner contends that the award of exemplary damages and attorneys fees were not justified under the law and the facts obtaining in this case.[20] Respondents, on their part, state that petitioner having acted in bad faith to the damage and prejudice of respondents, it is but proper that she should pay for such deception and unlawful acts.[21] We do not find any cogent reason to disturb the findings of the RTC on this point as affirmed by the Court of Appeals with respect to the award of damages and attorneys fees. As correctly held by the RTC, the act of petitioner of inducing her two trusting old relatives to sign blank pieces of paper purporting to be a deed of sale so that the certificates of title of their properties could be transferred in her name is a fraudulent act. Exemplary damages were rightfully imposed in order to deter persons similarly disposed from committing such acts of fraud. Consequently, with the grant of exemplary damages, attorneys fees should likewise be awarded.[22] WHEREFORE, the Decision dated September 8, 2004 and the Resolution dated January 4, 2006 of the Court of Appeals in CA-G.R. CV No. 64164 are AFFIRMED. Costs against petitioner. 8. ROCKVILLE EXCEL INTERNATIONAL EXIM CORPORATION, PETITIONER, VS. SPOUSES OLIGARIO CULLA AND BERNARDITA MIRANDA, RESPONDENTS.

DECISION BRION, J.: Whether a Deed of Absolute Sale is really an absolute sale of real property or an equitable mortgage is the main issue now before us. Petitioner Rockville Excel International Exim Corporation (Rockville) prays in this petition[1] that we reverse the October 9, 2002 decision[2] of the Court of Appeals (CA) in CA G.R. SP No. 66070, denying its appeal and affirming the decision of the Regional Trial Court (RTC), Batangas City, Branch 2 in Civil Case No. 4789, which dismissed their complaint for specific performance against the respondents Spouses Oligario (Oligario) and Bernardita Culla. BACKGROUND FACTS The spouses Oligario and Bernardita (Sps. Culla) are the registered owners of a parcel of land covered by Transfer Certificate of Title

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(TCT) No. 5416. They mortgaged this property to PS Bank to secure a loan of P1,400,000.00. Sometime in 1993, the Office of the Clerk of Court and the Ex-Officio Sheriff issued a Sheriff's Notice of Sale for the extrajudicial foreclosure of the property. To prevent the foreclosure, Oligario approached Rockville - represented by its president and chairman, Diana Young - for financial assistance. Rockville accommodated Oligario's request and extended him a loan of P1,400,000.00. This amount was increased by P600,000.00 for the cash advances Oligario requested, for a total loan amount of P2,000,000.00. According to Rockville, when Oligario failed to pay the P2,000,000.00 loan after repeated demands and promises to pay, the Sps. Culla agreed to pay their indebtedness by selling to Rockville another property the spouses owned in Brgy. Calicanto, Batangas City (property). The property has an area of approximately 7,074 square meters and is covered by TCT No. T-19538. Since a survey of the surrounding properties revealed that the property is worth more than the Sps. Culla's P2,000,000.00 loan, the parties agreed to fix the purchase price at P3,500,000.00. As narrated by Rockville, it accepted the offer for a dacion en pago; on June 25, 1994, Rockville and Oligario executed a Deed of Absolute Sale over the property. While the property was a conjugal property of the Sps. Culla, only Oligario signed the Deed of Absolute Sale. Rockville asserted that, by agreement with the Sps. Culla, Rockville would pay the additional P1,500,000.00 after Bernardita affixes her signature to the Deed of Absolute Sale. Rockville claimed that it had always been ready and willing to comply with its obligation to deliver the P1,500,000.00. In fact, Rockville initially deposited this whole amount with May Bank of Malaysia, with notice to Oligario, which amount was subsequently transferred to Rockville's law firm. However, when Bernardita continued to refuse to sign the Deed of Absolute Sale, Rockville caused the annotation of an adverse claim on TCT No. T-19538 in order to protect its interest in the property. Furthermore, Rockville tried to transfer the title of the property in its name but the Registry of Deeds refused to carry out the transfer, given the absence of Bernardita's signature in the Deed of Absolute Sale. On February 4, 1997, Rockville filed a complaint for Specific Performance and Damages before the Regional Trial Court (RTC) of Batangas City, Branch 2 against the Sps. Culla, praying that the lower court order Bernardita to sign the Deed of Absolute Sale or, in the alternative, to authorize the sale even without Bernardita's signature. In their Answer, the Sps. Culla alleged that the purported Deed of Absolute Sale failed to reflect their true intentions, as the deed was meant only to guarantee the debt to Diana Young, not to Rockville. Contrary to Rockville's contention, the agreement was that the P1,500,000.00 had to be paid before Bernardita would sign the Deed of Absolute Sale. When neither Rockville nor Diana Young paid the P1,500,000.00, the Sps. Culla volunteered to repay the P2,000,000.00 and opted to rescind the sale. On October 26, 1999, the RTC decided the case in the respondents' favor,[3] dismissing Rockville's complaint after finding that the transaction between the parties was in reality an equitable mortgage, not an absolute sale. The dispositive portion of the RTC decision states:

WHEREFORE, in view of all the foregoing, the complaint filed by the plaintiff, Rockville Excel International Exim Corporation against defendants Oligario Culla and Bernardita Miranda is hereby DISMISSED. The Absolute Deed of Sale executed between the said plaintiff and defendants on June 25, 1994 is hereby declared as an equitable mortgage and, defendants are hereby entitled to redeem the mortgaged property upon full payment of their mortgaged debt to the plaintiff in the total amount of two million pesos (P2,000,000.00) with legal rate of interest from June 25, 1994, the time the loan matured, until it is fully satisfied. With costs against the plaintiff. SO ORDERED. THE CA DECISION Rockville appealed to the CA. In the assailed October 9, 2002 decision, the CA concluded that the purported contract of sale between Rockville and the Sps. Culla was in reality an equitable mortgage based on the following factual circumstances: (a) the glaring inadequacy in the consideration for the sale and the actual market value of the property; (b) the fact that the Sps. Culla remained in possession of the property even after the execution of the Deed of Absolute Sale; (c) the fact that Rockville never paid the Sps. Culla the agreed P1,500,000.00 balance in the purchase price; and (d) Rockville's continuous grant of extensions to the Sps. Culla to pay their loan despite the execution of the deed of sale. THE PETITION The present petition - filed after the CA denied Rockville's motion for reconsideration - asks us to resolve whether the parties' agreement is an absolute sale or an equitable mortgage of real property. Rockville submits that the CA erred in finding that the contract of sale with the Sps. Culla was an equitable mortgage, insisting that the transaction was a dacion en pago. Rockville points out that the Sps. Culla themselves admitted that they agreed to sell the property as payment for the P2,000,000.00 loan and for the additional payment of P1,500,000.00 Rockville was to pay. Rockville further argues that even without Bernardita's signature on the Deed of Absolute Sale, the document is still binding as Oligario represented the spouses in the transaction. Since Bernardita benefited from the transaction, with the P1,400,000.00 of the purchase price having been used to redeem the mortgaged conjugal property, Rockville posits that Bernardita impliedly and effectively ratified the sale. The Sps. Culla, on the other hand, maintain the contrary view and insist that the RTC and the CA were correct in holding that the sale was in fact an equitable mortgage. THE COURT'S RULING We find the petitioner's arguments to be legally flawed, and therefore deny the petition for lack of merit. No dacion en pago Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an existing obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent to the payment of an outstanding debt.[4] For dacion en pago to exist, the following elements must concur: (a) existence of a money obligation; (b) the alienation to the creditor of

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a property by the debtor with the consent of the former; and (c) satisfaction of the money obligation of the debtor.[5] Rockville mainly contends that the Sps. Culla sold their property to pay their due and demandable P2,000,000.00 debt; the transaction is therefore a dacion en pago. It also repeatedly emphasized that Bernardita admitted in her testimony that she would have signed the Deed of Absolute Sale if Rockville had paid the P1,500,000.00. Rockville's arguments would have been telling and convincing were it not for the undisputed fact that even after the execution of the Deed of Absolute Sale, Rockville still granted Oligario time to repay his P2,000,000.00 indebtedness. In fact, as Diana Young admitted in her testimony, Rockville gave Oligario the chance to pay off the loan on the same day that the deed was executed. As Diana Young stated: Q. Why, he was asking for the extension of P2 million pesos that he barrowed (sic) from you to be paid by him?

intention of the parties, as shown, not necessarily by the terminology used in the contract but, by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.[7] Thus, to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. Once the intention of the parties is duly ascertained, that intent is deemed as integral to the contract as its originally expressed unequivocal terms.[8] Thus, we agree with the factual findings of the RTC and the CA that no agreement of sale was perfected between Rockville and the Sps. Culla. On the contrary, what they denominated as a Deed of Absolute Sale was in fact an equitable mortgage. Definition of equitable mortgage An equitable mortgage has been defined "as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent."[9] A contract of sale is presumed to be an equitable mortgage when any of the following circumstances, enumerated in Article 1602 of the Civil Code, is present: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5)When the vendor binds himself to pay the taxes on the thing sold; (6)In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. [Emphasis supplied.] The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.[10] For the presumption of an equitable mortgage to arise under Article 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the circumstances laid out in Article 1602, not the concurrence nor an overwhelming number of the enumerated circumstances, is sufficient to support the conclusion that a contract of sale is in fact an equitable mortgage.[11] In several cases, we have not hesitated to declare a purported contract of sale to be an equitable mortgage based solely on one of the enumerated circumstances under Article

A. He asked me for the extension of time to pay.

Q. After the execution of the deed of sale (Exhibit "C")?

A. On the very day. Yes, after the lapse of the six (6) months to pay back the property.

Q. So what appears was a document of sale Exhibit "C" was executed signed by the defendant, Oligario Culla, signed by you and then notarized by a Notary Public.

A. Yes, sir.

Q. On same occasion he asked from you that he be given an extension of six (6) months within which to pay the loan of P2 million pesos?

A. Yes, sir.[6] If the parties had truly intended a dacion en pago transaction to extinguish the Sps. Culla's P2,000,000.00 loan and Oligario had sold the property in payment for this debt, it made no sense for him to continue to ask for extensions of the time to pay the loan. More importantly, Rockville would not have granted the requested extensions to Oligario if payment through a dacion en pago had taken place. That Rockville granted the extensions simply belied its contention that they had intended a dacion en pago. On several occasions, we have decreed that in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating an agreement is the

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1602.[12] This approach follows the rule that when doubt exists on the nature of the parties' transaction, the law favors the least transmission of property rights.[13] Indicators of equitable mortgage In the present case, three attendant circumstances indicate that the purported sale was in fact an equitable mortgage. First, the Sps. Culla retained possession of the property. Second, Rockville kept a part of the purchase price. Third, as previously discussed, Rockville continued to give the Sps. Culla extensions on the period to repay their loan even after the parties allegedly agreed to a dacion en pago. These circumstances, coupled with the clear and unequivocal testimonies of Oligario and Bernardita that the purpose of the Deed of Absolute Sale was merely to guarantee their loan, clearly reveal the parties' true intention to execute an equitable mortgage and not a contract of sale. That a contract where the vendor remains in physical possession of the land, as lessee or otherwise, is an equitable mortgage is wellsettled.[14] The reason for this rule lies in the legal reality that in a contract of sale, the legal title to the property is immediately transferred to the vendee; retention by the vendor of the possession of the property is inconsistent with the vendee's acquisition of ownership under a true sale.[15] It discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale.[16] According to Rockville, it took possession of the property, albeit constructively and not through actual occupation. Rockville contends, too, that its possession of the title to the property and its subsequent attempt to register the property in its name are clear indicators of its intent to enforce the contract of sale. We cannot agree with these positions. In the first place, the Sps. Culla retained actual possession of the property and this was never disputed. Rockville itself admits this in its petition, but claims in justification that since the property is contiguous to the site of the Sps. Culla's family home, it would have been impossible for Rockville to obtain actual possession of the property. Regardless of where the property is located, however, if the transaction had really been a sale as Rockville claimed, it should have asserted its rights for the immediate delivery and possession of the lot instead of allowing the Sps. Culla to freely stay in the premises. Its failure to do so suggests that Rockville did not truly intend to enforce the contract of sale. Moreover, we observe that while Rockville did take steps to register the property in its name, it did so more than two years after the Deed of Absolute Sale was executed, and only after Oligario's continued failure to pay the P2,000,000.00 loan. In addition, Rockville admitted that it never paid the P1,500,000.00 balance to the Sps. Culla. As found by the RTC, while Rockville claims that it deposited this amount with May Bank of Malaysia and notified Oligario of the deposit, no evidence was presented to support this claim. Besides, even if this contention had been true, the deposit in a foreign bank was neither a valid tender of payment nor an effective consignation. Lastly, the numerous extensions granted by Rockville to Oligario to pay his debt after the execution of the Deed of Sale convince us that the parties never intended to enter into a contract of sale; instead, the intent was merely to secure the payment of Oligario's loan.

All told, we see no reason to depart from the findings and conclusions of both the trial court and the Court of Appeals. WHEREFORE, premises considered, we DENY the petition for lack of merit; the assailed Decision dated October 9, 2002 in CA G.R. SP No. 66070 is thus AFFIRMED. Costs against the petitioner. SO ORDERED. 10. A. Francisco Realty v. CA, G.R. No. 125055 October 30, 1998 MENDOZA, J.: This is a petition for review on certiorari of the decision rendered on February 29, 1996 by the Court of Appeals[1] reversing, in toto, the decision of the Regional Trial Court of Pasig City in Civil Case No. 62290, as well as the appellate courts resolution of May 7, 1996 denying reconsideration. Petitioner A. Francisco Realty and Development Corporation granted a loan of P7.5 Million to private respondents, the spouses Romulo and Erlinda Javillonar, in consideration of which the latter executed the following documents: (a) a promissory note, dated November 27, 1991, stating an interest charge of 4% per month for six months; (b) a deed of mortgage over realty covered by TCT No. 58748, together with the improvements thereon; and (c) an undated deed of sale of the mortgaged property in favor of the mortgagee, petitioner A. Francisco Realty.[2] The interest on the said loan was to be paid in four installments: half of the total amount agreed upon (P900,000.00) to be paid in advance through a deduction from the proceeds of the loan, while the balance to be paid monthly by means of checks post-dated March 27, April 27, and May 27, 1992. The promissory note expressly provided that upon failure of the MORTGAGOR *private respondents] to pay the interest without prior arrangement with the MORTGAGEE [petitioner], full possession of the property will be transferred and the deed of sale will be registered.*3+ For this purpose, the owners duplicate of TCT No. 58748 was delivered to petitioner A. Francisco Realty. Petitioner claims that private respondents failed to pay the interest and, as a consequence, it registered the sale of the land in its favor on February 21, 1992. As a result, TCT No. 58748 was cancelled and in lieu thereof TCT No. PT-85569 was issued in the name of petitioner A. Francisco Realty.[4] Private respondents subsequently obtained an additional loan of P2.5 Million from petitioner on March 13, 1992 for which they signed a promissory note which reads: PROMISSORY NOTE For value received, I promise to pay A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION, the additional sum of Two Million Five Hundred Thousand Pesos (P2,500,000.00) on or before April 27, 1992, with interest at the rate of four percent (4%) a month until fully paid and if after the said date this note and/or the other promissory note of P7.5 Million remains unpaid and/or unsettled, without any need for prior demand or notification, I promise to vacate voluntarily and willfully and/or allow A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION to appropriate and occupy for their exclusive use the real property located at 56 Dragonfly, Valle Verde VI, Pasig, Metro Manila.[5]

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Petitioner demanded possession of the mortgaged realty and the payment of 4% monthly interest from May 1992, plus surcharges. As respondent spouses refused to vacate, petitioner filed the present action for possession before the Regional Trial Court in Pasig City.[6] In their answer, respondents admitted liability on the loan but alleged that it was not their intent to sell the realty as the undated deed of sale was executed by them merely as an additional security for the payment of their loan. Furthermore, they claimed that they were not notified of the registration of the sale in favor of petitioner A. Francisco Realty and that there was no interest then unpaid as they had in fact been paying interest even subsequent to the registration of the sale. As an alternative defense, respondents contended that the complaint was actually for ejectment and, therefore, the Regional Trial Court had no jurisdiction to try the case. As counterclaim, respondents sought the cancellation of TCT No. PT-85569 as secured by petitioner and the issuance of a new title evidencing their ownership of the property.[7] On December 19, 1992, the Regional Trial Court rendered a decision, the dispositive portion of which reads as follows: WHEREFORE, prescinding from the foregoing considerations, judgment is hereby rendered declaring as legal and valid, the right of ownership of A. Francisco Realty And Development Corporation, over the property subject of this case and now registered in its name as owner thereof, under TCT No. 85569 of the Register of Deeds of Rizal, situated at No. 56 Dragonfly Street, Valle Verde VI, Pasig, Metro Manila. Consequently, defendants are hereby ordered to cease and desist from further committing acts of dispossession or from withholding possession from plaintiff, of the said property as herein described and specified. Claim for damages in all its forms, however, including attorneys fees, are hereby denied, no competent proofs having been adduced on record, in support thereof.[8] Respondent spouses appealed to the Court of Appeals which reversed the decision of the trial court and dismissed the complaint against them. The appellate court ruled that the Regional Trial Court had no jurisdiction over the case because it was actually an action for unlawful detainer which is exclusively cognizable by municipal trial courts. Furthermore, it ruled that, even presuming jurisdiction of the trial court, the deed of sale was void for being in fact a pactum commissorium which is prohibited by Art. 2088 of the Civil Code. Petitioner A. Francisco Realty filed a motion for reconsideration, but the Court of Appeals denied the motion in its resolution, dated May 7, 1996. Hence, this petition for review on certiorari raising the following issues: WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE REGIONAL TRIAL COURT HAD NO JURISDICTION OVER THE COMPLAINT FILED BY THE PETITIONER. WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACTUAL DOCUMENTS SUBJECT OF THE INSTANT CASE ARE CONSTITUTIVE OF PACTUM COMMISSORIUM AS DEFINED UNDER ARTICLE 2088 OF THE CIVIL CODE OF THE PHILIPPINES. On the first issue, the appellate court stated:

Ostensibly, the cause of action in the complaint indicates a case for unlawful detainer, as contra-distinguished from accion publiciana. As contemplated by Rule 70 of the Rules of Court, an action for unlawful detainer which falls under the exclusive jurisdiction of the Metropolitan or Municipal Trial Courts, is defined as withholding from by a person from another for not more than one year, the possession of the land or building to which the latter is entitled after the expiration or termination of the supposed rights to hold possession by virtue of a contract, express or implied. (Tenorio vs. Gamboa, 81 Phil. 54; Dikit vs. Dicaciano, 89 Phil. 44). If no action is initiated for forcible entry or unlawful detainer within the expiration of the 1 year period, the case may still be filed under the plenary action to recover possession by accion publiciana before the Court of First Instance (now the Regional Trial Court) (Medina vs. Valdellon, 63 SCRA 278). In plain language, the case at bar is a legitimate ejectment case filed within the 1 year period from the jurisdictional demand to vacate. Thus, the Regional Trial Court has no jurisdiction over the case. Accordingly, under Section 33 of B.P. Blg. 129 Municipal Trial Courts are vested with the exclusive original jurisdiction over forcible entry and unlawful detainer case. (Sen Po Ek Marketing Corp. vs. CA, 212 SCRA 154 [1990])[9] We think the appellate court is in error. What really distinguishes an action for unlawful detainer from a possessory action (accion publiciana) and from a reivindicatory action (accion reivindicatoria) is that the first is limited to the question of possession de facto. An unlawful detainer suit (accion interdictal) together with forcible entry are the two forms of an ejectment suit that may be filed to recover possession of real property. Aside from the summary action of ejectment, accion publiciana or the plenary action to recover the right of possession and accion reivindicatoria or the action to recover ownership which includes recovery of possession, make up the three kinds of actions to judicially recover possession. Illegal detainer consists in withholding by a person from another of the possession of a land or building to which the latter is entitled after the expiration or termination of the formers right to hold possession by virtue of a contract, express or implied. An ejectment suit is brought before the proper inferior court to recover physical possession only or possession de facto and not possession de jure, where dispossession has lasted for not more than one year. Forcible entry and unlawful detainer are quieting processes and the one-year time bar to the suit is in pursuance of the summary nature of the action. The use of summary procedure in ejectment cases is intended to provide an expeditious means of protecting actual possession or right to possession of the property. They are not processes to determine the actual title to an estate. If at all, inferior courts are empowered to rule on the question of ownership raised by the defendant in such suits, only to resolve the issue of possession. Its determination on the ownership issue is, however, not conclusive.[10] The allegations in both the original and the amended complaints of petitioner before the trial court clearly raise issues involving more than the question of possession, to wit: (a) the validity of the transfer of ownership to petitioner; (b) the alleged new liability of private respondents for P400,000.00 a month from the time petitioner made its demand on them to vacate; and (c) the alleged continuing liability of private respondents under both loans to pay interest and surcharges on such. As petitioner A. Francisco Realty alleged in its amended complaint:

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5. To secure the payment of the sum of P7.5 Million together with the monthly interest, the defendant spouses agreed to execute a Deed of Mortgage over the property with the express condition that if and when they fail to pay monthly interest or any infringement thereof they agreed to convert the mortgage into a Deed of Absolute Sale in favor of the plaintiff by executing Deed of Sale thereto, copy of which is hereto attached and incorporated herein as Annex A; 6. That in order to authorize the Register of Deeds into registering the Absolute Sale and transfer to the plaintiff, defendant delivered unto the plaintiff the said Deed of Sale together with the original owners copy of Transfer Certificate of Title No. 58748 of the Registry of Rizal, copy of which is hereto attached and made an integral part herein as Annex B; 7. That defendant spouses later secured from the plaintiff an additional loan of P2.5 Million with the same condition as aforementioned with 4% monthly interest; 8. That defendants spouses failed to pay the stipulated monthly interest and as per agreement of the parties, plaintiff recorded and registered the Absolute Deed of Sale in its favor on and was issued Transfer Certificate of Title No. PT-85569, copy of which is hereto attached and incorporated herein as Annex C; 9. That upon registration and transfer of the Transfer Certificate of Title in the name of the plaintiff, copy of which is hereto attached and incorporated herein as Annex C, plaintiff demanded the surrender of the possession of the above-described parcel of land together with the improvements thereon, but defendants failed and refused to surrender the same to the plaintiff without justifiable reasons thereto; Neither did the defendants pay the interest of 4% a month from May, 1992 plus surcharges up to the present; 10. That it was the understanding of the parties that if and when the defendants shall fail to pay the interest due and that the Deed of Sale be registered in favor of plaintiff, the defendants shall pay a monthly rental of P400,000.00 a month until they vacate the premises, and that if they still fail to pay as they are still failing to pay the amount of P400,000.00 a month as rentals and/or interest, the plaintiff shall take physical possession of the said property;[11] It is therefore clear from the foregoing that petitioner A. Francisco Realty raised issues which involved more than a simple claim for the immediate possession of the subject property. Such issues range across the full scope of rights of the respective parties under their contractual arrangements. As held in an analogous case: The disagreement of the parties in Civil Case No. 96 of the Justice of the Peace of Hagonoy, Bulacan extended far beyond the issues generally involved in unlawful detainer suits. The litigants therein did not raise merely the question of who among them was entitled to the possession of the fishpond of Federico Suntay. For all judicial purposes, they likewise prayed of the court to rule on their respective rights under the various contractual documents their respective deeds of lease, the deed of assignment and the promissory note upon which they predicate their claims to the possession of the said fishpond. In other words, they gave the court no alternative but to rule on the validity or nullity of the above documents. Clearly, the case was converted into the determination of the nature of the proceedings from a mere detainer suit to one that is incapable of pecuniary estimation and thus beyond the legitimate authority of the Justice of the Peace Court to rule on.[12]

Nor can it be said that the compulsory counterclaim filed by respondent spouses challenging the title of petitioner A. Francisco Realty was merely a collateral attack which would bar a ruling here on the validity of the said title. A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 (1986). It stands on the same footing and is to be tested by the same rules as if it were an independent action. Hence, the same rules on jurisdiction in an independent action apply to a counterclaim (Vivar v. Vivar, 8 SCRA 847 (1963); Calo v. Ajax International, Inc. v. 22 SCRA 996 (1968); Javier v. Intermediate Appellate Court, 171 SCRA 605 (1989); Quiason, Philippine Courts and Their Jurisdictions, 1993 ed., p. 203).[13] On the second issue, the Court of Appeals held that, even on the assumption that the trial court has jurisdiction over the instant case, petitioners action could not succeed because the deed of sale on which it was based was void, being in the nature of a pactum commissorium prohibited by Art. 2088 of the Civil Code which provides: ART. 2088. The creditor cannot appropriate the things given by way to pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. With respect to this question, the ruling of the appellate court should be affirmed. Petitioner denies, however, that the promissory notes contain a pactum commissorium. It contends that What is envisioned by Article 2088 of the Civil Code of the Philippines is a provision in the deed of mortgage providing for the automatic conveyance of the mortgaged property in case of the failure of the debtor to pay the loan (Tan v. West Coast Life Assurance Co., 54 Phil. 361). A pactum commissorium is a forfeiture clause in a deed of mortgage (Hechanova v. Adil, 144 SCRA 450; Montevergen v. Court of Appeals, 112 SCRA 641; Report of the Code Commission, 156). Thus, before Article 2088 can find application herein, the subject deed of mortgage must be scrutinized to determine if it contains such a provision giving the creditor the right to appropriate the things given by way of mortgage without following the procedure prescribed by law for the foreclosure of the mortgage (Ranjo v. Salmon, 15 Phil. 436). IN SHORT, THE PROSCRIBED STIPULATION SHOULD BE FOUND IN THE MORTGAGE DEED ITSELF.[14] The contention is patently without merit. To sustain the theory of petitioner would be to allow a subversion of the prohibition in Art. 2088. In Nakpil v. Intermediate Appellate Court,[15] which involved the violation of a constructive trust, no deed of mortgage was expressly executed between the parties in that case. Nevertheless, this Court ruled that an agreement whereby property held in trust was ceded to the trustee upon failure of the beneficiary to pay his debt to the former as secured by the said property was void for being a pactum commissorium. It was there held: The arrangement entered into between the parties, whereby Pulong Maulap was to be considered sold to him (respondent) x x x in case petitioner fails to reimburse Valdes, must then be construed as tantamount to a pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic appropriation of the property by Valdez in the event of

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failure of petitioner to pay the value of the advances. Thus, contrary to respondents manifestations, all the elements of a pactum commissorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and, there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner.[16] Similarly, the Court has struck down such stipulations as contained in deeds of sale purporting to be pacto de retro sales but found actually to be equitable mortgages. It has been consistently held that the presence of even one of the circumstances enumerated in Art. 1602 of the New Civil Code is sufficient to declare a contract of sale with right to repurchase an equitable mortgage. This is so because pacto de retro sales with the stringent and onerous effects that accompany them are not favored. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. Petitioner, to prove her claim, cannot rely on the stipulation in the contract providing that complete and absolute title shall be vested on the vendee should the vendors fail to redeem the property on the specified date. Such stipulation that the ownership of the property would automatically pass to the vendee in case no redemption was effected within the stipulated period is void for being a pactum commissorium which enables the mortgagee to acquire ownership of the mortgaged property without need of foreclosure. Its insertion in the contract is an avowal of the intention to mortgage rather that to sell the property.[17] Indeed, in Reyes v. Sierra[18] this Court categorically ruled that a mortgagees mere act of registering the mortgaged property in his own name upon the mortgagors failure to redeem the property amounted to the exercise of the privilege of a mortgagee in a pactum commissorium. Obviously, from the nature of the transaction, applicants predecessor-in-interest is a mere mortgagee, and ownership of the thing mortgaged is retained by Basilia Beltran, the mortgagor. The mortgagee, however, may recover the loan, although the mortgage document evidencing the loan was nonregistrable being a purely private instrument. Failure of mortgagor to redeem the property does not automatically vest ownership of the property to the mortgagee, which would grant the latter the right to appropriate the thing mortgaged or dispose of it. This violates the provision of Article 2088 of the New Civil Code, which reads: The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose by them. Any stipulation to the contrary is null and void. The act of applicant in registering the property in his own name upon mortgagors failure to redeem the property would amount to a pactum commissorium which is against good morals and public policy.[19] Thus, in the case at bar, the stipulations in the promissory notes providing that, upon failure of respondent spouses to pay interest, ownership of the property would be automatically transferred to petitioner A. Francisco Realty and the deed of sale in its favor would be registered, are in substance a pactum commissorium. They embody the two elements of pactum commissorium as laid down in Uy Tong v. Court of Appeals,[20] to wit:

The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgagee, or dispose of the same. Any stipulation to the contrary is null and void. The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of nonpayment of the principal obligation within the stipulated period.[21] The subject transaction being void, the registration of the deed of sale, by virtue of which petitioner A. Francisco Realty was able to obtain TCT No. PT-85569 covering the subject lot, must also be declared void, as prayed for by respondents in their counterclaim. WHEREFORE, the decision of the Court of Appeals is AFFIRMED, insofar as it dismissed petitioners complaint against respondent spouses on the ground that the stipulations in the promissory notes are void for being a pactum commissorium, but REVERSED insofar as it ruled that the trial court had no jurisdiction over this case. The Register of Deeds of Pasig City is hereby ORDERED to CANCEL TCT No. PT-85569 issued to petitioner and ISSUE a new one in the name of respondent spouses. SO ORDERED.

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