On their part, defendant-appellant alleged that plaintiffs-appellees are indebted to them.
Plaintiffs-appellees' admission that they signed the real estate mortgage document in
Civil Law; Mortgages; Real Estate Mortgage; The registration of a real estate mortgage
(REM) deed is not essential to its validity.—At the outset, We stress that the registration
of a REM deed is not essential to its validity. The law is clear on the requisites for the
validity of a mortgage, to wit: Art. 2085. The following requisites are essential to the
contracts of pledge and mortgage: (1) That they be constituted to secure the fulfillment
of a principal obligation; (2) That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;
COCA-COLA BOTTLERS PHILS., INC., PETITIONER, V. SPOUSES EFREN AND
LOLITA SORIANO, RESPONDENTS.
DECISION
TIJAM, J.:
This petition for review on certiorari[1] under Rule 45 of the Rules of Court seeks to
reverse and set aside the Decision[2] dated June 18, 2013 and Resolution[3] dated
February 4, 2014 of the Court of Appeals (CA) in CA G.R. CV No. 97687, affirming the
Decision[4] dated February 9, 2011 of the Regional Trial Court (RTC), Branch 01,
Tuguegarao, Cagayan, in Case No. 6821.
The Antecedents
The CA summarized the antecedents as follows:
Plaintiffs-appellees spouses Efren and Lolita Soriano are engaged in the business of
selling defendant-appellant Coca-Cola products in Tuguegarao City, Cagayan.
Sometime in 1999, defendant-appellant thru Cipriano informed plaintiffs-appellees that
the former required security for the continuation of their business. Plaintiffs-appellees
were convinced to hand over two (2) certificates of titles over their property and were
made to sign a document. Defendant Cipriano assured plaintiffs-appellees that it will
be a mere formality and will never be notarized.
Subsequently, plaintiffs-appellees informed defendant-appellant Coca-Cola of their
intention to stop selling Coca-Cola products due to their advanced age. Thus, plaintiffs-
appellees verbally demanded from defendant-appellant the return of their certificates
of titles. However, the titles were not given back to them.
When plaintiffs-appellees were contemplating on filing a petition for the issuance of new
titles, they discovered for the first time that their land was mortgaged in favor of
defendant-appellant Coca-Cola. Worse, the mortgage land was already foreclosed.
Hence, plaintiffs-appellees filed a complaint for annulment of sheriffs foreclosure sale.
They alleged that they never signed a mortgaged document and that they were never
notified of the foreclosure sale. In addition, plaintiffs-appellees aver that they never had
monetary obligations or debts with defendant-appellant. They always paid their product
deliveries in cash.
Furthermore, plaintiffs-appellees claimed that they merely signed a document in
Tuguegarao. They never signed any document in Ilagan, lsabela nor did they appear
before a certain Atty. Reymundo Ilagan on 06 January 2000 for the notarization of the
said mortgage document.
Tuguegarao, Cagayan indicates that the mortgage agreement was duly executed. The
failure of the parties to appear before the notary public for the execution ofthe document
does not render the same null and void or unenforceable. [5]
Ruling of the RTC
On February 9, 2011, the RTC rendered its decision nullifying the real estate mortgage
and the foreclosure proceedings. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the court hereby renders judgment in favor of the
plaintiffs and against the defendants as follows:
1. Declaring the real estate mortgage (Exhibit "A") to be null and void:
2. Declaring the Sheriff’s Certificate of Sale (Exhibit "B") to be null and void;
3. Declaring the claim of the defendants that the land of the plaintiffs had been
mortgaged to defendant corporation to be unlawful;
4. Declaring the cloud over the title and interest of the plaintiffs be removed;
5. Ordering the defendants to surrender and deliver TCT No. T-86200 and TCT No. T-
84673 to the plaintiffs; and
6. Ordering the defendants in solidum to pay to plaintiffs the sum of P50,000.00 as
moral damages and P20,000.00 as attorney's fees.
No pronouncement as to cost.
SO DECIDED.
Aggrieved, petitioner appealed to the CA.
Ruling of the CA
On June 18, 2013, the CA rendered the assailed decision affirming the RTC decision in
toto. The CA ruled that the Real Estate Mortgage deed (REM deed) failed to comply
substantially with the required form. Thus, it made the following findings:
A careful perusal of the mortgage deed has revealed that although the spouses signed
the real estate mortgage deed, they never acknowledged the same before the Clerk of
Court during the notarization. Likewise, only one witness has signed the document,
instead of the required presence of two (2) witnesses as provided by law.
In the acknowledgment portion, only defendant Cipriano and defendant-appellant Coca
Cola has appeared and acknowledged the real estate mortgage deed before the Clerk
of Court. Nowhere did the plaintiffs-appellees acknowledge before the Clerk of Court
the said deed as their free and voluntary act. Contrary to defendant-appellant's
contention, this acknowledgment is not a mere superfluity because it is expressly
required by law. Even granting arguendo that the document should be considered
properly notarized, the aforementioned real estate mortgage deed still fell short of the
legal requirements under Section 112 of P.D. 1529.
Therefore, for failure to comply substantially with the required form, We find that
plaintiffs-appellees' land cannot be bound by the real estate mortgage. We uphold the
court a quo in finding both the real estate mortgage constituted over plaintiffs-
appellees' property and the subsequent extrajudicial foreclosure invalid. [6]
Hence, the instant petition before Us. In its Petition and Reply, [7] petitioner argues that
the defect in the notarization of the REM deed does not in any way affect its validity.
Section 112 of Presidential Decree No. 1529 (P.D. 1529) only provides for the formal
requirements for registrability and not validity. Assuming that the mortgage contract
cannot be registrable due to lack of certain requirements, its only effect is that it does
not bind third parties but the mortgage remains valid as between the parties.[8] Finally,
petitioner alleges that there was no forgery considering that respondents admitted the
due execution of the REM deed in their complaint. On the other hand, respondents, in
their Comment[9], reiterated the findings of the courts a quo and asseverated that
petitioner failed to show any reversible error in the CA decision.
The Issue
Ultimately, the question posed before Us is the validity of a REM, the deed of which
was: (1) admittedly signed by the mortgagors, albeit in a place other than that stated in
the document, on the belief that the same would not be notarized; and (2) notarized
without authority and compliance with the prescribed form under Section 112 of P.D.
1529. Corollary to the validity of the said mortgage is the validity of the foreclosure sale
pursuant to it.
Our Ruling
The petition is impressed with merit.
At the outset, We stress that the registration of a REM deed is not essential to its
validity. The law is clear on the requisites for the validity of a mortgage, to wit:
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.
In relation thereto, Article 2125 provides:
Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties. (Emphasis supplied)
Thus, as between the parties to a mortgage, the non-registration of a REM deed is
immaterial to its validity. In the case of Paradigm Development Corporation of the
Philippines, v. Bank of the Philippine Islands,[10] the mortgagee allegedly represented
that it will not register one of the REMs signed by the mortgagor. In upholding the
validity of the questioned REM between the said parties, the Court ruled that "with or
without the registration of the REMs, as between the parties thereto, the same is valid
and [the mortgagor] is bound thereby." The Court, thus, cited its ruling in the case
of Mobil Oil Philippines, Inc., v. Ruth R. Diocares, et al.[11] a portion of which reads:
Xxx. The codal provision is clear and explicit. Even if the instrument were not recorded,
"the mortgage is nevertheless binding between the parties." The law 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.
xxxx
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." 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.[12] (Citation omitted; emphasis ours)
Based on the foregoing, the CA, in the case at bar, clearly erred in ruling that the parties
in the instant case cannot be bound by the REM deed. In arriving at such ruling, the CA
relied on the following pronouncements of this Court in the case of Spouses Adelina S.
Cuyco and Feliciano U Cuyco, v. Spouses Renaoa Cuyco and Filipina Cuyco: [13]
In order to constitute a legal mortgage, it must be executed in a public document,
besides being recorded. A provision in a private document, although denominating
the agreement as one of mortgage, cannot be considered as it is not susceptible of
inscription in the property registry. A mortgage in legal form is not constituted by a
private document, even if such mortgage be accompanied with delivery of possession
of the mortgage property. Besides, by express provisions of Section 127 of Act No.
496, a mortgage affecting land, whether registered under said Act or not
registered at all, is not deemed to be sufficient in law nor may it be effective to
encumber or bind the land unless made substantially in the form therein
prescribed. It is required, among other things, that the document be signed by the
mortgagor executing the same, in the presence of two witnesses, and acknowledged
as his free act and deed before a notary public. A mortgage constituted by means of a
private document obviously does not comply with such legal requirements.[14] (Citations
omitted; emphasis ours)
The aforecited pronouncements by this Court, however, relate to the issue on whether
the subject realty of the REM was bound by the additional loans executed between the
parties. The validity of the said REM was not put into question in the said case. Thus,
in the present case, the CA erred in relying on the said pronouncements.
To reiterate, the law is clear and explicit as to the validity of an unregistered REM a) By anyone who saw the document executed or written; or
between the parties. Indeed, if an unregistered REM is binding between the parties
thereto, all the more is a registered REM, such as the REM deed in this case. b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
Here, although the REM deed was registered and annotated on the back of the title, (Emphasis supplied)
the petitioner failed to comply with the provisions under Section 112 of P.D. 1529, viz:
xxxx
Moreover, the party invoking the validity of the private document has the burden of
proving its due execution and authenticity. [19] Here, the respondents claim that their
Deeds, conveyances, encumbrances, discharges, powers of attorney and other signature was a forgery because they signed the REM deed in Tuguegarao and not in
voluntary instruments, whether affecting registered or unregistered land, executed in Isabela, as stated therein. Further, they alleged that they were assured by petitioner
accordance with law in the form of public instruments shall be registerable: that the same will not be notarized and is a mere formality.
Provided, that, every such instrument shall be signed by the person or persons Although the burden was on the petitioner to prove the REM deed's due execution and
executing the same in the presence of at least two witnesses who shall likewise sign authenticity, respondents' allegations and admissions should be weighed against their
thereon, and shall acknowledged to be the free act and deed of the person or favor.
persons executing the same before a notary public or other public officer
authorized by law to take acknowledgment. Where the instrument so acknowledged
In the case of Gloria and Teresita Tan Ocampo v. Land Bank of the Philippines
consists of two or more pages including the page whereon acknowledgment is written,
Urdaneta, Pangasinan Branch and Ex Officio Provincial Sheriff of Pangasinan,[20] the
each page of the copy which is to be registered in the office of the Register of Deeds,
mortgagors sought the nullity of the REM on the ground of forgery. The Court ruled that
or if registration is not contemplated, each page of the copy to be kept by the notary
forgery is present when any writing is counterfeited by the signing of another's name
public, except the page where the signatures already appear at the foot of the
with intent to defraud. However, the Court affirmed the CA in finding no reason to
instrument, shall be signed on the left margin thereof by the person or persons
discuss forgery in light of the admission by the mortgagor that she had affixed her
executing the instrument and their witnesses, and all the pages sealed with the notarial
signature to the subject Deed of REM.[21]
seal, and this fact as well as the number of pages shall be stated in the
Likewise, in this case, it is undisputed that the respondents signed the REM deed. They
acknowledgment. Where the instrument acknowledged relates to a sale, transfer,
merely invoke the nullity of the same on the grounds that it was not signed in the place
mortgage or encumbrance of two or more parcels of land, the number thereof shall
stated therein and that they were made to believe that it will not be notarized. Thus, in
likewise be set forth in said acknowledgment. (Emphasis ours)
their Amended Complaint[22], respondents alleged:
Respondents thus argue that the REM agreement is not a public document because it
That defendants through the machinations and manipulations of defendant Reynaldo
was notarized by a Clerk of Court of the RTC of Ilagan who is not allowed by law to
C. Cipriano as the General Manager, convinced the plaintiffs to give them titles of
notarize private documents not related to their functions as clerk of court.
whatever lands as guaranty for the subsequent deliveries of coca-cola products and
there is nothing to worry because the titles shall be returned any time after their
We find merit in the said argument. accounts are fully settled; as the plaintiffs were in good faith, handed the titles of their
lands described in paragraph 4, of this complaint to defendant Reynaldo C. Cipriano
(why) who assured plaintiffs that is only a formality, and there is nothing to
Jurisprudence is replete with cases declaring that the notarization of documents that
worry; plaintiffs signed the said document in Tuguegarao City and not in Hagan,
have no relation to the performance of official functions of the clerk of courts is now
lsabela and defendant Reynaldo C. Cipriano assured the plaintiffs that the
considered to be beyond the scope of their authority as notaries public ex officio.[15]
document will not be notarized. (Emphasis ours)
Nonetheless, the defective notarization of the REM agreement merely strips it of
its public character and reduces it to a private document.[16] Although Article 1358 Clearly, the respondents did not specifically deny the due execution and genuineness
of the REM deed. The early case of Lamberto Songco, v. George C. Sellner[23] is
of the New Civil Code requires that the form of a contract transmitting or extinguishing
instructive on how to deny the genuineness and due execution of an actionable
real rights over immovable property should be in a public document, the failure to
document, to wit:
observe such required form does not render the transaction invalid. [17] The necessity of
X x x. This means that the defendant must declare under oath that he did not sign the
a public document for the said contracts is only for convenience; it is not essential for
document or that it is otherwise false or fabricated. Neither does the statement of the
its validity or enforceability. Consequently, when there is a defect in the notarization of
answer to the effect that the instrument was procured by fraudulent representation raise
a document, the clear and convincing evidentiary standard originally attached to a duly-
any issue as to its genuineness or due execution. On the contrary such a plea is an
notarized document is dispensed with, and the measure to test the validity of such
admission both of the genuineness and due execution thereof, since it seeks to
document is preponderance of evidence.[18]
avoid the instrument upon a ground not affecting either. x x x (Emphasis ours)
Thus, in order to determine the validity of the REM in this case, the REM agreement
In light of the foregoing, We find merit in petitioner's argument that the due execution
shall be subject to the requirement of proof under Section 20, Rule 132, viz:
Section 20. Proof of private document. - Before any private document offered as and genuineness of the REM deed was impliedly admitted by the respondents when
they admitted signing the same. A perusal of all the pleadings filed by the respondents
authentic is received in evidence its due execution and authenticity must be proved
reveal that their arguments are anchored on the supposed fraud employed by the
either:
petitioner that led to their acts of surrendering the titles and signing the REM deed. the courts a quo, in declaring the REM deed null and void, erred in ruling that
Thus, respondents essentially seeks the annulment of the REM on the ground of fraud. registration and compliance with the prescribed form are essential in the validity of a
REM. In fine, We rule that the REM between the parties herein is valid.
As to the issue on the validity of the foreclosure proceedings, We find no cogent reason
Under Article 1344 of the Civil Code, fraud, as a ground for annulment of a contract,
to nullify the same. Basic is the rule that unless the parties stipulate, personal notice to
should be serious and should not have been employed by both contracting parties.
the mortgagor in extrajudicial foreclosure proceedings is not necessary because
Article 1338 of the same Code further provides that there is fraud when, through
Section 3 of Act No. 3135 only requires the posting of the notice of sale in three public
insidious words or machinations of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would not have agreed to. In PDCP[24], places and the publication of that notice in a newspaper of general
circulation.[26] Moreover, the same was not put into issue in this case. The foreclosure
this Court refused to annul the REMs on the ground of fraud consisting of the
proceedings were nullified by the courts a quo merely as a consequence of the
mortgagee's assurances that the REMs already signed by the mortgagor would not be
nullification of the REM deed. Consequently, We find that the foreclosure proceedings
registered, thus:
are likewise valid.
In the present case, even if FEBTC represented that it will not register one of the REMs,
WHEREFORE, premises considered, the petition is GRANTED. The Decisions of the
PDCP cannot disown the REMs it executed after FEBTC reneged on its alleged
Regional Trial Court dated February 9, 2011 and the Court of Appeals dated June 18,
promise. As earlier stated, with or without the registration of the REMs, as between the
2013 are REVERSED and SET ASIDE. The complaint filed by the respondents
parties thereto, the same is valid and PDCP is already bound thereby. The signature
Spouses Efren and Lolita Soriano is hereby DISMISSED for lack of merit.
of PDCP's President coupled with its act of surrendering the titles to the four
SO ORDERED.
properties to FEBTC is proof that no fraud existed in the execution of the
contract. Arguably at most, FEBTC's act of registering the mortgage only
amounted to dolo incidente which is not the kind of fraud that avoids a
contract. (Emphasis supplied)
The foregoing factual circumstances in PDCP are attendant in the present case. The
respondents herein also signed the REM deed and surrendered the titles of the
properties to the petitioner. Thus, We find that a claim of fraud in favor of the
respondents does not persuade.

Moreover, in the case of Ocampo,[25] the mortgagor maintained that when she signed
the questioned REM deed in blank form, she was led to believe by the mortgagee that
such would only be used to process her loan application. The Court, likewise, was not
persuaded by such claim of fraud, thus:
Unfortunately, Ocampo was unable to establish clearly and precisely how the Land
Bank committed the alleged fraud. She failed to convince Us that she was deceived,
through misrepresentations and/or insidious actions, into signing a blank form for use
as security to her previous loan. Quite the contrary, circumstances indicate the
weakness of her submissions. The Court of Appeals aptly held that:

Granting, for the sake of argument, that appellant bank did not apprise the appellees GOTESCO PROPERTIES v. SOLIDBANK CORPORATION +
of the real nature of the real estate mortgage, such stratagem, deceit or DECISION
misrepresentations employed by defendant bank are facts constitutive of fraud which
is defined in Article 1338 of the Civil Code as that insidious words or machinations of
one of the contracting parties, by which the other is induced to enter into a contract LEONEN, J.:
which without them, he would not have agreed to. When fraud is employed to obtain
the consent of the other party to enter into a contract, the resulting contract is merely a The requirement for publication of a Notice of Sale in an extrajudicial foreclosure is
voidable contract, that is a valid and subsisting contract until annulled or set aside by a complied with when the publication is circulated at least in the city where the property
competent court. x x x is located.

With the foregoing, We find that the preponderance of evidence tilts in favor of the
petitioner. The due execution and genuineness of the REM deed was proven by the
admission of the respondents that they signed the same. This is bolstered by the fact
that the titles were surrendered to the petitioner. Other than bare allegations,
respondents' claim of fraud is not supported by preponderance of evidence. Further,
This is a Petition for Review on Certiorari[1] assailing the May 31, 2013 Decision[2] and
October 7, 2013 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 97748. The
Court of Appeals affirmed the Decision of the Regional Trial Court, which dismissed
the complaint filed by petitioner Gotesco Properties, Inc. (Gotesco) for the annulment
of the foreclosure proceeding. The Court of Appeals also upheld the issuance of a
writ of possession for respondent Solidbank Corporation (Solidbank), now
Metropolitan Bank and Trust Company (Metrobank).
In 1995, Gotesco obtained from Solidbank a term loan of P300 million through its
President, Mr. Jose Go (Mr. Go). This loan was covered by three (3) promissory
notes. To secure the loan, Gotesco was required to execute a Mortgage Trust
Indenture (Indenture) naming Solidbank-Trust Division as Trustee.[4]
The Indenture, dated August 9, 1995, obliged Gotesco to mortgage several parcels of
land in favor of Solidbank.[5] One (1) of the lots mortgaged and used as a collateral
was a property located in San Fernando, Pampanga, which was covered by Transfer
Certificate of Title (TCT) No. 387371-R.[6] A stipulation in the Indenture also
irrevocably appointed Solidbank-Trust Division as Gotesco's attorney-in-fact.[7] Under
the Indenture, Gotesco also agreed to "at all times maintain the Sound Value of the
Collateral."[8]
When the loan was about to mature, Gotesco found it difficult to meet its obligation
because of the 1997 Asian Financial Crisis.[9] On January 24, 2000, Gotesco sent a
letter to Solidbank proposing to restructure the loan obligation. [10] The loan
restructuring agreement proposed to extend the payment period to seven (7) years.
The suggested period included a two (2)-year grace period.[11]
In its February 9, 2000 letter,[12] Solidbank informed Gotesco of a substantial
reduction in the appraised value of its mortgaged properties. Based on an appraisal
report submitted to Solidbank, the sound value of the mortgaged properties at that
time was at P381,245,840.00.[13] Since the necessary collateral to loan ratio was
200%, Solidbank held that there was a deficiency in the collateral, which Gotesco had
to address. Solidbank required Gotesco to replace or add to the mortgaged
properties.[14]
Gotesco construed the February 9, 2000 letter as Solidbank's implied agreement to
the loan restructuring proposal.[15] However, Gotesco found it unnecessary to address
the alleged deficiency in the collateral. It insisted that the aggregate sound value of
the mortgaged properties had not changed and was still at P1,076,905,000.00. [16]
Solidbank sent a demand letter dated June 7, 2000 to Gotesco as the loan became
due.[17] Despite having received this demand letter, Gotesco failed to pay the
outstanding obligation.[18]
Solidbank then filed a Petition for the Extrajudicial Foreclosure of the lot covered by
TCT No. 387371-R through Atty. Wilfrido Mangiliman (Atty. Mangiliman), a notary
public.[19]
In the Notice of Sale[20] dated July 24, 2000, the public auction of the land located in
Pampanga, covered by TCT No. 387371-R, was announced to be held on August 24,
2000 at 10:00 a.m. However, pursuant to paragraph 5 of A.M. No. 99-10-05-0 dated
December 14, 1999,[21] the Notice of Sale indicated that if the minimum requirement
of two (2) bidders was not met, the sale was to be postponed and rescheduled on
August 31, 2000.[22]
The public auction was held on August 31, 2000[23] and Solidbank was declared the
winning bidder.[24]
On February 5, 2001, Gotesco filed a complaint before Branch 42, Regional Trial
Court, San Fernando, Pampanga for Annulment of Foreclosure Proceedings, Specific
Performance, and Damages against Solidbank, Atty. Mangiliman, and the Register of
Deeds of San Fernando, Pampanga.[25]
Gotesco assailed the validity of the foreclosure proceeding claiming that it was
premature and without legal basis.[26] According to Gotesco, the jurisdictional
requirements prescribed under Act No. 3135 were not complied with. First, Solidbank
did not furnish Gotesco copies of the petition for extrajudicial foreclosure, notice of
sale, and certificate of sale. Second, the filing fees were not paid. Lastly, even
assuming the original period for loan payment was not extended, the prerequisites for
the foreclosure proceeding provided in the Indenture were not met.[27]
Section 5.02 of the Indenture provided:
5.02. Foreclosure. If any event of default shall have occurred and be continuing,
the Trustee [Solidbank-Trust Division], on written instruction by the Majority
Creditors [Solidbank], shall within three (3) Banking Days from receipt of such
notice, give written notice to the Company [appellant], copy furnished all
Creditors, declaring all obligations secured by this Indenture due and payable
and foreclosing the Collateral. Upon such declaration, the [appellant] shall pay
to the [Solidbank-Trust Division], within ten (10) days from receipt of such
notice, the amount sufficient to cover costs and expenses of collection, including
compensation for the [Solidbank-Trust Division], its agents and attorneys.
In default of such payment, the [Solidbank-Trust Division] may proceed to
foreclose this Indenture, judicially or extra-judicially under Act No. 3135, as
amended. Thereupon, on demand of the [Solidbank-Trust Division], the appellant
shall immediately turn over possession of the Collateral to any party designated as
the duly authorized representative of the [Solidbank-Trust Division], free of all
charges. (Emphasis supplied.)[28]
In their Answer with Counterclaim, Solidbank alleged that it never entered into a
restructuring agreement with Gotesco. Solidbank claimed that it complied with the
publication and posting requirements laid down by Act No. 3135. It also asserted that
Gotesco's complaint was insufficient because it failed to state a cause of action.[29]
On October 31, 2001, Solidbank filed an Ex-Parte Petition for the Issuance of a Writ
of Possession[30] before Branch 48, Regional Trial Court, San Fernando,
Pampanga.[31]
The two (2) cases were consolidated before Branch 42, Regional Trial Court, San
Fernando, Pampanga.[32] However, the presiding judge of Branch 42 recused himself
after disclosing that he was a depositor in Metrobank, previously Solidbank. The case
was re-raffled to Branch 47.[33]
In its May 4, 2011 Decision,[34] Branch 47, Regional Trial Court, San Fernando,
Pampanga dismissed Gotesco's complaint for the annulment of the foreclosure
proceeding and granted the Writ of Possession in Solidbank's favor:
WHEREFORE, premises considered, the plaintiff's Complaint in Civil Case No. 12212
is hereby DISMISSED for lack of merit.
On the other hand, the Ex-Parte Petition in LRC No. 762 is hereby GRANTED.
Accordingly, let a writ of possession over the property covered by Transfer Certificate
of Title No. 387371-R be issued against Gotesco Properties, Inc., and all persons
claiming rights under it.
SO ORDERED.[35] (Emphasis in the original)
Gotesco filed a Motion for Reconsideration, which was denied on September 6,
2011.[36]
Gotesco appealed the rulings before the Court of Appeals. It argued that contrary to
the trial court's finding, the restructuring agreement was perfected. The foreclosure
was premature because Gotesco was not in default. Solidbank also failed to adhere
to the stipulation which required that in the event of default, a notice shall be given to
Gotesco. Moreover, Mr. Go allegedly was not authorized to appoint Solidbank as an
attorney-in-fact.[37]
In its May 31, 2013 Decision,[38] the Court of Appeals affirmed the decision of the
Regional Trial Court. It ruled that there was no perfected restructuring agreement
between the parties.[39] It cited Article 1319 of the Civil Code,[40] which requires
absolute acceptance of the offer before it can be considered a binding contract. [41] It
found that Gotesco failed to prove that Solidbank clearly and unequivocally accepted
the proposal for loan restructuring.[42]
The Court of Appeals also declared that Gotesco was in default. [43] It quoted Section
4.03 of the Indenture, which provided:
The Company [Gotesco/appellant] shall at all times maintain the Sound Value of the
Collateral at a level equal to that provided for under Sec. 2.01 of this Indenture and,
for such purpose, shall make such substitutions, replacements, and additions for or to
the Collateral.
If at any time, in the opinion of the Trustee [Solidbank-Trust Division] and the Majority
Creditors [Solidbank/appellee], the Sound Value of the Collateral is impaired, or there
is substantial and imminent danger of such impairment, the [appellant] shall, upon
demand of [Solidbank-Trust Division], effect the substitution of the Collateral or part
thereof with another or others and/or execute additional mortgages on other
properties and/or deposit cash with the [Solidbank-Trust Division] satisfactory to the
[Solidbank-Trust Division] and [Solidbank].[44] (Emphasis in the original)
Under the Indenture, Gotesco agreed to provide additional collateral "[i]f at any time,
in the opinion of the Trustee and the Majority Creditors, the Sound Value of the
Collateral is impaired."[45] Gotesco should have provided the additional security
demanded by Solidbank after learning that the value of the properties used as
collateral had been reduced significantly. When Gotesco "chose to rely on its opinion,
over and above and contrary to the opinion of the Trustee and the Creditor," it
defaulted on its obligation.[46] Thus, the Court of Appeals ruled that Gotesco's refusal
to address the inadequacy of the collateral was sufficient reason for Solidbank to
foreclose the property.
The Court of Appeals found that the requisites under Section 3 of Act No. 3135 were
satisfied.[47] The Notice of Sale was physically posted in the Office of the Clerk of
Court, the Registry of Deeds, and the Capitol Grounds.[48] Alongside the posting, the
Notice of Sale was published in Remate in its issues dated July 29, 2000, August 5,
2000, and August 12, 2000.[49] The Court of Appeals rejected Gotesco's allegation
that the publication was invalid for being published in a newspaper not printed in the
city where the property was located. According to the Court of Appeals, the fact
that Remate was published in Metro Manila, not in Pampanga, did not mean that it
was not a newspaper of general circulation.[50] It was still a newspaper of general
circulation; thus, the publication was valid. The Court of Appeals ruled, "[t]he Notice of
Sale, Affidavit of Publication, and Affidavit of Posting sufficiently prove that the
jurisdictional requirements regarding publication of the Notice were complied
with."[51] There was also documentary evidence proving that contrary to Gotesco's
claim, it received a demand letter from Solidbank.[52]
The Court of Appeals also determined that Mr. Go had the authority to agree to the
conditions related to securing the loan.[53] It examined the Secretary's Certificate
which quoted verbatim the Board Resolution authorizing Mr. Go to enter into the loan
agreement:[54]
Resolution No. 95-015
RESOLVED, AS IT HEREBY RESOLVED, that the Corporation [appellant] be as it is
hereby authorized, to enter into a Mortgage Trust Indenture (MTI) arrangement with
Solidbank Corporation-Trust Division.
RESOLVED FURTHER, that the [appellant], be as it is hereby authorized to secure a
loan in the amount of THREE HUNDRED MILLION only (P300,000,000.00) PESOS
from Solidbank Corporation [appellant] under said Mortgage Trust Indenture on such
items, conditions, and stipulations that the [appellant] may think fit for the purpose of
the loan and to mortgage the [appellant]'s assets as security and/or collateral for the
loan and other credit facilities.
RESOLVED FURTHER, that JOSE C. GO, be, as he is hereby authorized, to
negotiate and accept the terms and conditions and to sign, execute and deliver any
and all promissory notes, bonds, mortgages and all other documents necessary in the
execution of the aforesaid resolutions with the said banks, for and in behalf of the
[appellant].[55]
Lastly, since there was no third party with adverse interest that occupied the property,
the issuance of the Writ of Possession was ministerial.[56]
The dispositive portion of the Court of Appeals May 31, 2013 Decision provided:
WHEREFORE, premises considered, the appeal is hereby DISMISSED. The
Decision dated May 4, 2011, and the Order dated September 6, 2011, of the Regional
Trial Court, Branch 47, San Fernando, Pampanga in the consolidated cases docketed
as Civil Case No. 12212 and LRC No. 726, are hereby AFFIRMED. Costs against
appellant Gotesco Properties Incorporated.
SO ORDERED.[57] (Emphasis in the original)
Gotesco filed a Motion for Reconsideration but it was denied in the
Resolution[58] promulgated on October 7, 2013.
Hence, this Petition for Review on Certiorari was filed on November 28,2013. [59]
In this Petition, petitioner Gotesco maintains that the foreclosure proceeding is null
and void. It insists that respondent Solidbank agreed to restructure its loan, granting a
"payment period of seven (7) years with two (2) years grace period." [60] It continues to
argue that respondent impliedly accepted petitioner's proposal when it asked for an
increase in the collateral.[61] Respondent reneged on the restructuring agreement
when it caused the foreclosure of the property prematurely.
Petitioner claims that it was not notified that it was in default. Under the Indenture, the
foreclosure proceeding can only be initiated upon petitioner's failure to pay within 10
days after receipt of the notice of default. Allegedly, respondent did not send any
notice. Respondent's failure to prove that it sent a demand letter means the obligation
is not yet due and demandable.[62]
Petitioner avers that the mortgage is void because the principal obligation it secured
was still inexistent when the Indenture was signed. The mortgage was executed on
August 9, 1995. The promissory notes representing the loans were dated August 14,
1995, August 21, 1995, and August 28, 1995. Since the mortgage was only an
accessory contract, "it cannot stand alone absent a principal obligation to secure." [63]
Petitioner alleges that Mr. Go was not sanctioned by Gotesco's Board of Directors "to
appoint the bank as the attorney-in-fact to conduct an extra-judicial
foreclosure."[64] Thus, the subsequent proceedings are void.
Moreover, petitioner insists that Section 3 of Act No. 3135 was violated. The law
requires that the Notice of Sale be posted for not less than 20 days before the day of
the auction sale. According to the Affidavit of Posting by Janet Torres, Atty.
Mangiliman's law clerk,[65] the Notice of Sale was posted on August 15, 2000.[66] Since
the auction sale was conducted on August 31, 2000, the 20-day period was not
followed.[67]
Petitioner further contends that the publication of the Notice of Sale in Remate was
defective. Petitioner is of the opinion that the Notice of Sale should have been
published in newspapers published, edited and circulated" in the same city or
province where the foreclosed property was located.[68] Since the land being sold was
situated at San Fernando, Pampanga and Remate was printed and published in
Manila, petitioner suggests that the publication requirement was violated.[69]
Consequently, since the foreclosure proceeding was void, there was no basis for the
issuance of the Writ of Possession. Possession of the property must revert back to
petitioner.
Thereafter, respondent filed a Comment[70] and a Supplemental Comment[71] to the
Petition. Respondent denies that it agreed to restructure petitioner's loan. It
emphasized that petitioner has not shown any concrete proof that respondent
accepted the proposal. Moreover, the alleged restructuring agreement was not
offered in evidence and cannot be considered by this Court.[72]
In its Comment, respondent explains that it is of no moment that the mortgage
agreement was executed before the promissory notes. Jurisprudence has recognized
that a mortgage can secure present and future obligations. [73] In any case, since
petitioner is arguing that the obligation was restructured, it is now estopped from
questioning the validity of the Indenture.[74]
Respondent argues that petitioner cannot claim that it was not notified of the default.
Respondent submitted a return card which indicated that the demand letter dated
June 7, 2000 informing Gotesco of its default was received by petitioner. [75] There is
also a provision in the promissory note, which states that failure to pay the amounts
due makes the obligation immediately due, without need for notice or demand. [76]
Respondent took the position that Mr. Go was clearly authorized by the Board of
Directors to sign the Indenture. Since the appointment of Solidbank-Trust Division as
an attorney-in-fact was an integral part of the agreement, petitioner was bound by Mr.
Go's assent. In any case, this contention was not alleged in the Complaint; hence, it is
immaterial.[77]
According to respondent, Section 3 of Act No. 3135 was complied with. Remate is a
newspaper of general circulation. It is among the newspapers accredited by the
Regional Trial Court where a notice of sale can be published. [78] Petitioner also
cannot raise for the first time on appeal the allegation that the Notice of Sale was
defective for being posted less than 20 days before the auction sale. [79]
Respondent holds that the Writ of Possession was validly issued because its
issuance was ministerial.
A Reply[80] was filed by petitioner on May 20, 2014 in compliance with this Court's
March 17, 2014 Resolution.
On August 28, 2015, petitioner filed a Motion for Voluntary Inhibition [81] of the
ponente. Petitioner sought the inhibition of Associate Justice Marvic M.V.F. Leonen,
former Dean of the College of Law of the University of the Philippines, for his ties with
Metrobank Foundation.[82] The ponente allegedly had a working relationship with
respondent.[83] First, he was an awardee of the professorial chair of the Metrobank
Foundation.[84] Second, he was chosen as a speaker in the Metrobank Professorial
Chair and Metrobank's Country's Outstanding Police Officers in
Service.[85] Respondent opposed the Motion for Voluntary Inhibition as "none of the
grounds for mandatory inhibition exist[s] in the present instance."[86]
In this Court's January 25, 2016 Resolution,[87] the Motion for Inhibition was denied for
lack of merit. The Internal Rules of the Supreme Court[88] provide several grounds for
inhibition in addition to those stated under Rule 137, Section 1[89] of the Rules of
Court. There was no need for the ponente to inhibit since none of the enumerated
circumstances was attendant in this case. Justices are not given unfettered discretion
to desist from hearing a case.[90] Mere imputation of bias or partiality is not enough;
there must be a just and valid cause for inhibition to prosper. [91]
On March 20, 2017, respondent filed a Motion for Resolution claiming the case is ripe
for resolution.[92]
There are three (3) issues to be resolved before this Court: First, whether the
foreclosure was premature;
Second, whether the requirements under Section 3 of Act No. 3135 were complied
with; and
Finally, whether the Writ of Possession was properly issued.

I.A
Petitioner defaulted in its obligation. Thus, respondent was within its rights to
foreclose the property.
Section 5 of the Indenture provided:
5.01 Events of Default. Each of the following shall constitute an Event of Default
under this Indenture:
(a) the Company shall fail to pay at stated maturity, by acceleration or
otherwise to any Creditor any amount due and owing under a Secured Principal
Document;
(b) any event of default under the Secured Principal Documents shall occur;
(c) any representation or warranty or statement made or furnished to this Trustee by
or on behalf of the Company in connection with this Indenture shall prove to have
been false in any material respect when made or furnished or deemed made;
(d) the Company shall default in the due performance or observance of any provision
contained herein and such default continues unremedied for thirty (30) days after
notice to the Company by the Trustee; or
(e) the lien created by this Indenture shall be lost or impaired or shall cease to be
a first and preferred lien upon the Collateral.[93] (Emphasis supplied)
Petitioner defaulted in its obligation twice. First, when it failed to pay the loan
according to the terms of the promissory note. Second, when it failed to provide the
additional collateral demanded by respondent.
Petitioner never refuted that it defaulted in its payment of the loan. In its Stipulation of
Facts/Admissions and Proposed Marking of Exhibits, petitioner admitted to proposing
the loan restructuring because of its inability to meet the loan payments. [94] The loan
restructuring agreement would have given Petitioner an additional "payment period of
seven (7) years with two (2) years grace period on principal payment." [95]
However, as the Court of Appeals correctly held, that there was no perfected
restructuring agreement between the parties. The Civil Code requires absolute
acceptance of the offer before it can be considered a binding contract:
Article 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-
offer.
Acceptance made by letter or telegram does not bind the offerer except from the time
it came to his knowledge. The contract, in such a case, is presumed to have been
entered into in the place where the offer was made.
Mendoza v. Court of Appeals[96] tells us that "[o]nly an absolute and unqualified
acceptance of a definite offer manifests the consent necessary to perfect a
contract."[97]
For a proposal to bind a party, there must be proof that it consented to all the terms
on offer.[98] To prove that the original period of payment was extended, petitioner must
show that respondent unequivocally accepted the offer. In this case, petitioner did not
present any shred of evidence which would prove that respondent agreed to
restructure the loan. At best, petitioner only alleged that it sent a letter to respondent
to ask for a debt restructuring. However, sending a proposal is not enough. There
must be proof that respondent expressly accepted the offer. Without an absolute
acceptance, there is no concurrence of minds.[99] Thus, this Court cannot bind
respondent to stipulations it never consented to.
Petitioner points to respondent's February 9, 2000 letter claiming that if respondent
had not agreed to the proposal, it would not have asked for additional collateral. [100]
However, respondent's February 9, 2000 letter showed no indication that it extended
the loan's payment period. It did not even mention any restructuring proposal. The
demand to address the deficiency in the loan's security cannot be interpreted as an
implied agreement to restructure the loan.
Notably, petitioner did not offer the alleged restructuring agreement in evidence. As
respondent points out, the theory that the loan was restructured is hinged on the
January 24, 2000 letter from petitioner.[101] However, this letter which allegedly
proposed the restructuring of petitioner's obligation was not offered in
evidence.[102] Under the rules, this Court cannot consider any evidence not formally
offered.[103] In Spouses Ong v. Court of Appeals,[104] this Court exonerated a common
carrier from liability because the police report finding it liable was not formally offered
in evidence. This Court explained:
A formal offer is necessary, since judges are required to base their findings of fact
and their judgment solely and strictly upon the evidence offered by the parties at the
trial. To allow parties to attach any document to their pleadings and then expect the
court to consider it as evidence, even without formal offer and admission, may draw
unwarranted consequences. Opposing parties will be deprived of their chance to
examine the document and to object to its admissibility. On the other hand, the
appellate court will have difficulty reviewing documents not previously scrutinized by
the court below.[105] (Citation omitted)
Since the loan restructuring which Gotesco proposed was not accepted, there is no
question that petitioner defaulted on the payment of its loan.
Petitioner's failure to provide the additional collateral demanded by respondent
constituted another Event of Default under the Indenture.
Under the Indenture, petitioner agreed to maintain the value of the collateral at a level
at least equal to the required collateral cover. Section 4.03 of the Indenture provided:
The Company [Gotesco/appellant] shall at all times maintain the Sound Value of the
Collateral at a level equal to that provided for under Sec. 2.01 of this Indenture and,
for such purpose, shall make such substitutions, replacements, and additions for or to
the Collateral.
If at any time, in the opinion of the Trustee [Solidbank-Trust Division] and the Majority
Creditors [Solidbank/appeilec], the Sound Value of the Collateral is impaired, or there
is substantial and imminent danger of such impairment, [appellant] shall, upon
demand of [Solidbank-Trust Division], effect the substitution of the Collateral or part
thereof with another or others and/or execute additional mortgages on other
properties and/or deposit cash with the [Solidbank-Trust Division] satisfactory to the
[Solidbank-Trust Division] and [Solidbank].[106] (Emphasis supplied)
On February 9, 2000, respondent wrote to petitioner claiming that the appraised value
of the mortgaged properties decreased.[107] Respondent then asked petitioner to
"address the deficiency in the required collateral." [108] The letter, in part, provided:
At present, the outstanding secured obligations covered by the [Mortgage Trust
Indenture are] P300 Million, which MPC is held solely by Solidbank Corporation. The
reduction in the collateral values of the properties shall therefore impair the required
collateral to loan ratio of 200%.
In this regard, we urge you to address the deficiency in the required collateral cover
soonest and make the necessary substitution, replacements and/or additions on the
mortgaged properties. Section 4.03 of the [Mortgage Trust Indenture] requires that
[Gotesco Properties, Inc.] shall maintain at all times the Sound Value of the
mortgaged property at a level at least equal to the required collateral cover. [109]
Petitioner chose not to heed this demand and insisted that the aggregate sound value
of the mortgaged properties was still at P1,076,905,000.00.[110] It added:
42. And even assuming arguendo that the value of the mortgaged properties has vent
down, the fact remains that being a real estate property, it could not go down more
than 50% of the value thereof. Thus, at best the least valuation of these mortgaged
properties would be no less than P600 million, which is more than enough to cover
the balance of the loan obligations.[111]
The determination of whether the collateral is impaired lies on respondent. As the
Court of Appeals aptly put, petitioner ignored respondent's demand "to its
ruination."[112]
Under the Civil Code,[113] there is default when a party obliged to deliver something
fails to do so. In Social Security System v. Moonwalk Development & Housing
Corp.,[114] this Court enumerated the elements of default:
In order that the debtor may be in default it is necessary that the following requisites
be present: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance
judicially and extrajudicially. Default generally begins from the moment the creditor
demands the performance of the obligation.[115] (Citations omitted)
When respondent asked to have the mortgaged properties replaced, it was requiring
petitioner to comply with its obligation to sustain the loan's security at an appropriate
level. Clearly, petitioner defaulted when it refused to heed respondent's demand for
additional collateral, as expressed in the February 9, 2000 letter. This gave
respondent enough reason to foreclose the property.
I.B
Petitioner argues that the foreclosure should not have been initiated because it was
not notified that an event of default occurred. It claims that under the Indenture, it
should have been notified that it was in default and that the obligation was due and
demandable. After such notice, it should have been given 10 days to settle the debt.
Petitioner avers that the foreclosure proceeding could only be initiated upon failure to
pay after the lapse of the 10-day period.[116]
Petitioner claims it did not receive any demand letter. Gotesco's first witness, Arturo
M. Garcia, testified that Gotesco did not receive any written demand. [117] On the other
hand, respondent avers that it sent a demand letter dated June 7, 2000 to
petitioner.[118] As proof, respondent submitted a return card which indicated that the
letter was accepted by the addressee.
This Court rules for respondent.
Documentary evidence will generally prevail over testimonial evidence.[119] As the
Court of Appeals noted, the return card submitted by respondent proves that the
demand letter was received by petitioner.[120] This Court is inclined to give more
evidentiary weight to documentary evidence as opposed to a testimony which can be
easily fabricated.[121] In any case, the question of whether the letter was received is a
factual matter better left to the lower courts. Since the factual findings of appellate
courts are conclusive and binding upon this Court when supported by substantial
evidence, this Court sees no reason to disturb the findings of the Court of
Appeals.[122]
I.C
The contention that Mr. Go did not have the authority to appoint Solidbank-Trust
Division as an attorney-in-fact for the purpose of selling the mortgaged property is
untenable. As the Court of Appeals correctly pointed out:
Since Mr. Go was authorized to sign the Indenture, and the provision of appointment
of the [respondent] as attorney-in-fact in the event of foreclosure is an integral portion
of the terms and conditions of the Indenture, Mr. Go was, therefore, authorized and
invested with the power to appoint an attorney-in-fact.[123]
In any case, petitioner is not allowed to bring a new issue on appeal. Since the
question regarding Mr. Go's authority was only presented before the Court of
Appeals, it deserves scant consideration.
Canada v. All Commodities Marketing Corporation[124] explained that raising a new
argument on appeal violates due process:
As a rule, no question will be entertained on appeal unless it has been raised in the
court below. Points of law, theories, issues and arguments not brought to the
attention of the lower court ordinarily will not be considered by a reviewing court
because they cannot be raised for the first time at that late stage. Basic
considerations of due process underlie this rule. It would be unfair to the adverse
party who would have no opportunity to present evidence in contra to the new theory,
which it could have done had it been aware of it at the time of the hearing before the
trial court. To permit petitioner at this stage to change his theory would thus be unfair
to respondent, and offend the basic rules of fair play, justice and due
process.[125] (Citations omitted)
II.A

As to the validity of the foreclosure proceeding, this Court rules in the affirmative.
Section 3 of Act No. 3135 provides:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
Section 3 of Act No. 3135 requires that the Notice of Sale be a) physically posted in
three (3) public places and b) be published once a week for at least three (3)
consecutive weeks in a newspaper of general circulation in the city where the
property is situated.
Petitioner claims that since the foreclosed property was located in Pampanga, the
publication of the Notice of Sale in Remate was not valid. Petitioner suggests that the
Notice of Sale could only be published in a newspaper printed in the city where the
property was located. It posits that because Remate was printed and published in
Manila, not in San Fernando, Pampanga, the publication was defective. [126]
Petitioner is mistaken.
Fortune Motors (Phils.), Inc. v. Metropolitan Bank and Trust Co.[127] already
considered this argument and ruled that this interpretation is too restricting:
Were the interpretation of the trial court (sic) to be followed, even the leading dailies
in the country like the 'Manila Bulletin,' the 'Philippine Daily Inquirer,' or 'The Philippine
Star' which all enjoy a wide circulation throughout the country, cannot publish legal
notices that would be honored outside the place of their publication. But this is not the
interpretation given by the courts. For what is important is that a paper should be in
general circulation in the place where the properties to be foreclosed are located in
order that publication may serve the purpose for which it was intended. [128]
If notices are only published in newspapers printed in the city where the property is
located, even newspapers that are circulated nationwide will be disqualified from
announcing auction sales outside their city of publication. [129] This runs contrary to the
spirit of the law which is to attain wide enough publicity so all parties interested in
acquiring the property can be informed of the upcoming sale. [130] This Court ruled:
We take judicial notice of the fact that newspaper publications have more far-reaching
effects than posting on bulletin boards in public places. There is a greater probability
that an announcement or notice published in a newspaper of general circulation,
which is distributed nationwide, shall have a readership of more people than that
posted in a public bulletin board, no matter how strategic its location may be, which
caters only to a limited few. Hence, the publication of the notice of sale in the
newspaper of general circulation alone is more than sufficient compliance with the
notice-posting requirement of the law. By such publication, a reasonably wide
publicity had been effected such that those interested might attend the public sale,
and the purpose of the law had been thereby subserved. [131]
The crucial factor is not where the newspaper is printed but whether the newspaper is
being circulated in the city where the property is located. Markedly, what the law
requires is the publication of the Notice of Sale in a "newspaper of general
circulation," which is defined as:
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide
subscription list of paying subscribers; that it is published at regular intervals" . . . The
newspaper need not have the largest circulation so long as it is of general
circulation.[132]
Verily, there is clear emphasis on the audience reached by the paper; the place of
printing is not even considered.
The Court of Appeals pointed out that Remate is an accredited publication by the
Regional Trial Court of Pampanga.[133] As argued by respondent:
94. It merits judicial notice that the newspaper where the Notice of Sale was
published is chosen by raffle among newspaper publications accredited by the
Regional Trial Court with territorial jurisdiction over the real property to be foreclosed.
It can be safely presumed that the RTC in this regard imposed standards and criteria
for these newspapers to qualify for the raffle, among the criteria being that they [are]
newspapers of general circulation in the locality. More so in this instance, when it
merits judicial notice that the Remate, is one of the most widely circulated tabloids in
the country.[134]
II.B
As to the alleged defect with the posting requirement, petitioner argues that the
Notice of Sale was posted less than the required 20 days. Respondent points out that
this issue was alleged for the first time before this Court and should not be
considered.
This Court rules for respondent.
Records show that petitioner only raised this argument in the Petition for Review
submitted before this Court. The alleged defect was not raised before the lower
courts. Notably, this is not the first time petitioner raised a new issue on appeal. As
previously discussed, it raised Mr. Go's alleged lack of authority for the first time
before the Court of Appeals. This Court reiterates that this practice cannot stand
because raising new issues on appeal violates due process.[135]
In any case, the alleged defect in the posting is superficial. The Notice of Sale was
posted on August 15, 2000,[136] while the auction sale took place on August 31,
2000.[137] The Notice of Sale was posted for 16 days, only four (4) days less than
what the law requires.
The object of a Notice of Sale in an extrajudicial foreclosure proceeding is to inform
the public of the nature and condition of the property to be sold and the time, place,
and terms of the auction sale. Mistakes or omissions that do not impede this objective
will not invalidate the Notice of Sale.[138] Olizon v. Court of Appeals[139] explained:
The object of a notice of sale is to inform the public of the nature and condition of the
property to be sold, and of the time, place and terms of the sale. Notices are given for
the purpose of securing bidders and to prevent a sacrifice of the property. If these
objects are attained, immaterial errors and mistakes will not affect the sufficiency of
the notice; but if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the property, or to
prevent it from bringing a fair price, such mistakes or omissions will be fatal to the
validity of the notice, and also to the sale made pursuant thereto. [140] (Citation
omitted)
III
Generally, the purchaser in a public auction sale of a foreclosed property is entitled to
a writ of possession during the redemption period. Section 7 of Act No. 3135, as
amended by Act No. 4118, provides:
Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property or any
part thereof is situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this Act.
Such petition shall be made under oath and filed in form of an ex parte motion in the
registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under
section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of
deeds in accordance with any existing law, and in each case the clerk of the court
shall, upon the filing of such petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as
amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall,
upon approval of the bond, order that a writ of possession issue, addressed to the
sheriff of the province in which the property is situated, who shall execute said order
immediately.
It is ministerial upon the trial court to issue such writ upon an ex parte petition of the
purchaser.[141] However, this rule admits an exception.[142]
This is in line with this Court's pronouncement in Saavedra v. Siari Valley Estates,
Inc.[143] that:
Where a parcel levied upon on execution is occupied by a party other than a
judgment debtor, the procedure is for the court to order a hearing to determine the
nature of said adverse possession.[144]
This Court in China Banking Corp. v. Spouses Lozada[145] discussed that when the
foreclosed property is in the possession of a third party, the issuance of a writ of
possession in favor of the purchaser ceases to be ministerial and may no longer be
done ex parte.[146] However, for this exception to apply, the property must be held by
the third party adversely to the mortgagor.[147] The Court of Appeals correctly held that
this case does not fall under the exception.[148] Since it is the petitioner, and not a
third party, who is occupying the property, the issuance of the Writ of Possession is
ministerial.
There is also no merit to petitioner's argument that the Writ of Possession should not
be issued while the complaint for the annulment of the foreclosure proceeding is still
pending. Fernandez v. Spouses Espinoza[149] already ruled that a pending case
assailing the validity of the foreclosure proceeding is immaterial:
Any question regarding the validity of the mortgage or its foreclosure cannot be a
legal ground for the refusal to issue a writ of possession. Regardless of whether or
not there is a pending suit for the annulment of the mortgage or the foreclosure itself,
the purchaser is entitled to a writ of possession, without prejudice, of course, to the
eventual outcome of the pending annulment case.[150] (Citation omitted)
As the winning bidder, respondent is entitled to the Writ of Possession.
WHEREFORE, the Petition for Review on Certiorari is hereby DENIED. The assailed
Decision of the Court of Appeals dated May 31, 2013 and Resolution dated October
7, 2013 in CA-G.R. CV No. 97748 are AFFIRMED.

The last sentence of Rule 39, Section 33 of the Rules of Court is instructive: SO ORDERED.

Section 33. Deed and possession to be given at expiration of redemption period; by

whom executed or given. — If no redemption be made within one (1) year from the
date of the registration of the certificate of sale, the purchaser is entitled to a
conveyance and possession of the property; or, if so redeemed whenever sixty (60)
days have elapsed and no other redemption has been made, and notice thereof
given, and the time for redemption has expired, the last redemptioner is entitled to the
conveyance and possession; but in all cases the judgment obligor shall have the
entire period of one (1) year from the date of the registration of the sale to redeem the
property. The deed shall be executed by the officer making the sale or by his
successor in office, and in the latter case shall have the same validity as though the
officer making the sale had continued in office and executed it.

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment
obligor to the property as of the time of the levy. The possession of the property
shall be given to the purchaser or last redemptioner by the same officer unless
a third party is actually holding the property adversely to the judgment
obligor. (Emphasis supplied.)
 METROPOLITAN BANK AND TRUST COMPANY AND BRANCH 223 OF THE
REGIONAL TRIAL COURT OF QUEZON CITY, Respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review assailing the Resolutions dated June 15, 2004 1 and
August 23, 20042 of the Court of Appeals in CA-G.R. SP No. 83895 for annulment of
judgment.

The pertinent facts are undisputed.

Midas Diversified Export Corp. (Midas), thru its president, Mr. Samuel U. Lee, obtained
six (6) loans from private respondent Metropolitan Bank and Trust Company
(Metrobank), amounting to ₱588,870,000 as evidenced by promissory notes. To secure
the payment of an ₱8,000,000 loan, Louisville Realty & Development Corporation
(Louisville), thru its president, Mr. Samuel U. Lee, executed in favor of Metrobank, a
real estate mortgage over three parcels of land situated at No. 40 Timog Ave., Brgy.
Laging Handa, Quezon City, with all the buildings and improvements thereon. The
properties are covered by Transfer Certificates of Title (TCT) Nos. N-163455, N-166349
and N-166350 issued by the Registry of Deeds of Quezon City.

When the debtor-mortgagor failed to pay, Metrobank extra-judicially foreclosed the real
estate mortgage in accordance with Act No. 3135,3 as amended. Thereafter, in a public
auction, Metrobank was the highest bidder. A Certificate of Sale 4 dated December 11,
2000 was duly registered with the Registry of Deeds of Quezon City on December 13,
2000. When Louisville refused to turn over the real properties, on March 17, 2001,
Metrobank filed before the Regional Trial Court (RTC), Branch 223, Quezon City, an ex
parte petition5 for the issuance of a writ of possession docketed as LRC Case No. Q-
13915(01). After presentation of evidence ex parte, the RTC granted the petition in an
Order6 dated July 5, 2001, the dispositive portion of which reads as follows:

WHEREFORE, in consideration of the foregoing premises, the instant petition is hereby

GRANTED. Upon the filing of a bond in the amount of ONE HUNDRED THOUSAND
PESOS ([₱]100,000.00), let a Writ of Possession over the properties covered by
Transfer Certificates of Title Nos. N-163455, N-166349 & N-166350 issue in favor of
the petitioner METROPOLITAN BANK & TRUST COMPANY to be implemented by the
Republic of the Philippines Deputy Sheriff of Branch 223, Regional Trial Court of Quezon City by placing the
SUPREME COURT petitioner in possession over the parcels of land with all its improvements.
Manila
SO ORDERED.7
SECOND DIVISION
On September 24, 2001, Metrobank posted the required bond. Consequently, a writ of
G.R. No. 165142 December 10, 2007 possession was issued on October 9, 2001. This was partially implemented as to TCT
No. N-163455, as evidenced by the Turn-Over Receipt8 dated December 13, 2002. The
EDUARDO L. RAYO, Petitioner, writ over the two remaining properties, under TCT Nos. N-166349 and N-166350, were
vs. subsequently implemented as evidenced by the Turn-Over Receipt9 dated December
3, 2003.
Meanwhile, on April 3, 2002, petitioner Eduardo L. Rayo filed a complaint 10 docketed
as Civil Case No. Q02-46514 against Metrobank for Nullification of Real Estate
Mortgage Contract(s) and Extrajudicial Foreclosure Sale, in the RTC, Branch 99,
Quezon City.
On May 13, 2004, petitioner Rayo filed with the Court of Appeals a Petition 11 for
Annulment of Judgment on the ground of "absolute lack of due process." Petitioner
alleged that his predecessor, Louisville, was not notified of the proceedings and that
Section 712 (ex parte motion or petition for the issuance of a writ of possession) of Act
No. 3135 is unconstitutional.
On June 15, 2004, the Court of Appeals denied the petition for lack of merit. The Court
of Appeals ruled that petitioner is neither the registered owner nor the successor-in-
interest of the registered owner; hence, not a real party-in-interest. It also ruled that
there is no basis to challenge the constitutionality of Section 7 of Act No. 3135, as
amended as it constitutes a collateral attack against said provision. Further, petitioner
availed of the wrong remedy in filing Civil Case No. Q02-46514. Petitioner sought
reconsideration, but was likewise denied.
Petitioner now comes before us raising the following as primary issue:
WHETHER OR NOT SECTION 7 OF ACT NO. 3135 IS CONTRARY TO THE DUE
PROCESS PROVISION OF THE PHILIPPINE CONSTITUTION CONSIDERING
THAT SUCH SECTION 7 OF THE LAW PROVIDES OR ALLOWS, ACCORDING TO
THIS HONORABLE COURT, FOR AN EX-PARTE PROCEEDING WHICH IS A
"JUDICIAL PROCEEDING BROUGHT FOR THE BENEFIT OF ONE PARTY ONLY,
AND WITHOUT NOTICE TO, OR CONSENT BY ANY PERSON ADVERSELY
INTERESTED" "OR A PROCEEDING WHEREIN RELIEF IS GRANTED WITHOUT
AN OPPORTUNITY FOR THE PERSON AGAINST WHOM THE RELIEF IS SOUGHT
TO BE HEARD," AS HELD IN THE CASE OF GOVERNMENT SERVICE
INSURANCE SYSTEM VS. COURT OF APPEALS, 169 SCRA 244 @ 255, JANUARY
20, 1989.13
He also raises the following as secondary issues:
I.
WHETHER OR NOT THE PETITIONER HAS THE LEGAL PERSONALITY
TO SEEK THE ANNULMENT OF JUDGMENT IN [THE] SUBJECT LRC
CASE NO. Q-13915(01).
II.
WHETHER OR NOT PRIVATE RESPONDENT VIOLATED THE RULE
AGAINST FORUM-SHOPPING WHEN IT DID NOT INFORM THE
HONORABLE BRANCH 223 OF THE REGIONAL TRIAL COURT OF
QUEZON CITY REGARDING THE FILING OF CIVIL CASE NO. Q-02-46514
FOR NULLIFICATION OF REAL ESTATE MORTGAGE CONTRACT AND
THE EXTRA-JUDICIAL FORECLOSURE SALE OF THE SAME SUBJECT
REAL PROPERTIES AND THE PENDENCY OF THE SAME BEFORE THE
HONORABLE BRANCH 99 OF THE SAME REGIONAL TRIAL COURT.14
Stated simply, the issues raised are: (1) Does petitioner have the legal personality in
the annulment of judgment proceedings? (2) Is Section 7 of Act No. 3135, as amended,
unconstitutional? (3) Is respondent guilty of forum-shopping?
Petitioner insists that contrary to the ruling of the Court of Appeals, he has the legal
personality to institute the annulment of judgment case against Metrobank, considering
that the March 25, 2002 deed of assignment he entered into with Louisville and Winston
Linwy L. Chua makes him a co-assignee over the subject real properties.
For its part, Metrobank claims that it was not a party to the deed of assignment among
Louisville, Chua and petitioner, hence, it has no privity of contract with petitioner Rayo.
Moreover, Metrobank points out that the real properties had already been extrajudicially
foreclosed when petitioner and his assignors executed the deed of assignment.
Under Section 2,15 Rule 3 of the Rules of Court, every action must be prosecuted or
defended in the name of the real party-in-interest, or one "who stands to be benefited
or injured by the judgment in the suit."16 A real party-in-interest is one with "a present
substantial interest" which means such interest of a party in the subject matter of the
action as will entitle him, under the substantive law, to recover if the evidence is
sufficient, or that he has the legal title to demand.17
Now, is petitioner Rayo a real party-in-interest? Initially, we recognized herein petitioner
as the co-assignee of the subject real properties as shown in the March 25, 2002 deed
of assignment. However, while petitioner would be injured by the judgment in this suit,
we find that petitioner has no present substantial interest to institute the annulment of
judgment proceedings and nullify the order granting the writ of possession.
First, there was no violation of petitioner’s right to constitutional due process. In a long
line of cases,18 we have consistently ruled that the issuance of a writ of possession in
favor of the purchaser in a foreclosure sale of a mortgaged property under Section 7 of
Act No. 3135, as amended is a ministerial duty of the court. The purchaser of the
foreclosed property, upon ex parte application and the posting of the required bond,
has the right to acquire possession of the foreclosed property during the 12-month
redemption period and with more reason, after the expiration of the redemption period.
An ex parte petition for the issuance of a writ of possession under Section 7 of Act No.
3135 is not, strictly speaking, a "judicial process" as contemplated in Article 433 19 of
the Civil Code. It is a judicial proceeding for the enforcement of one’s right of
possession as purchaser in a foreclosure sale. It is not an ordinary suit filed in court, by
which one party "sues another for the enforcement of a wrong or protection of a right,
or the prevention or redress of a wrong." It is a non-litigious proceeding authorized in
an extrajudicial foreclosure of mortgage pursuant to Act No. 3135, as amended, and is
brought for the benefit of one party only, and without notice to, or consent by any person
adversely interested. It is a proceeding where the relief is granted without requiring an
opportunity for the person against whom the relief is sought to be heard. No notice is
needed to be served upon persons interested in the subject property. 20
Second, in the deed of assignment, petitioner also acknowledged that the subject real
properties were already sold at various extrajudicial foreclosure sales and bought by
Metrobank. Clearly, petitioner recognized the prior existing right of Metrobank as the
mortgagee-purchaser over the subject real properties.21 Actual knowledge of a prior
mortgage with Metrobank is equivalent to notice of registration22 in accordance with
Article 212523 of the Civil Code. Conformably with Articles 131224 and 212625 of the
Civil Code, a real right or lien in favor of Metrobank had already been established,
subsisting over the properties until the discharge of the principal obligation, whoever
the possessor(s) of the land might be.26 As petitioner is not a party whose interest is
adverse to that of Louisville, there was no bar to the issuance of a writ of possession
to Metrobank. It does not matter that petitioner was not specifically named in the writ of
possession nor notified of such proceedings.1avvphi1

Third, we also note that petitioner availed of the wrong remedy in filing Civil Case No.
Q02-46514, for nullification of real estate mortgage and extrajudicial foreclosure sale,
more than six (6) months after the issuance of the writ of possession considering the
mandate of Section 827 of Act No. 3135, as amended. Hence, even petitioner’s action
for annulment of judgment cannot prosper as it cannot be a substitute for a lost remedy.

Now, petitioner is challenging the constitutionality of Section 7 of Act No. 3135, as

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

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

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

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

WHEREFORE, the petition is DENIED for lack of merit. The assailed Resolutions dated
June 15, 2004 and August 23, 2004 of the Court of Appeals in CA-G.R. SP No. 83895
are hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice
 Certificate of Title (TCT) No. 52135 to the Register of Deeds of Dagupan City for
cancellation and issuance of a new certificate of title in the name of respondent New
Dagupan Metro Gas Corporation (New Dagupan).

In its Resolution4 dated June 9, 2006, the CA denied PCSO’s motion for
reconsideration.

The Factual Antecedents

Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of land

located at Bonuan Blue Beach Subdivision, Dagupan City under TCT No. 52135. On
March 8, 1989, a real estate mortgage was constituted over such property in favor of
PCSO to secure the payment of the sweepstakes tickets purchased by one of its
provincial distributors, Patricia P. Galang (Galang). The salient provisions of the Deed
of Undertaking with First Real Estate Mortgage,5 where Galang, PCSO and Peralta
were respectively designated as "principal", "mortgagee" and "mortgagor", are as
follows:

WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and unpaid
account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her accountabilities for all
draws;

WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after
each draw with interest at the rate of 14% per annum.

G.R. No. 173171 July 11, 2012 xxxx

PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO), Petitioner, The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
vs. THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that the
NEW DAGUPAN METRO GAS CORPORATION, PURITA E. PERALTA and said balance shall bear interest thereon at the rate of 14% per annum;
PATRICIA P. GALANG, Respondents.
To secure the faithful compliance and as security to the obligation of the PRINCIPAL
DECISION stated in the next preceding paragraph hereof, the MORTGAGOR hereby convey unto
and in favor of the MORTGAGEE, its successor and assigns by way of its first real
REYES, J.: estate mortgage, a parcel/s of land together with all the improvements now or hereafter
existing thereon located at BOQUIG, DAGUPAN CITY, covered by TCT No. 52135, of
the Register of Deeds of DAGUPAN CITY, and more particularly described as follows:
This is a petition for review under Rule 45 of the Rules of Court, assailing the
Decision1 dated September 29, 2005 and Resolution 2 dated June 9, 2006 of the Court
xxxx
of Appeals (CA) in CA-G.R. CV No. 59590.

4. During the lifetime of this mortgage, the MORTGAGOR shall not alienate, sell, or in
In the assailed Decision, the CA Affirmed the Decision3 dated January 28, 1998 of the
any manner dispose of or encumber the above-mentioned property, without the prior
Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil Case No. 94-00200-D,
written consent of the MORTGAGEE;
ordering petitioner Philippine Charity Sweepstakes Office (PCSO) to surrender the
owner’s duplicate of Transfer
xxxx
15. Upon payment of the principal amount together with interest and other expenses
legally incurred by the MORTGAGEE, the above undertaking is considered
terminated.6
On July 31, 1990, Peralta sold, under a conditional sale, the subject property to New
Dagupan, the conveyance to be absolute upon the latter’s full payment of the price of
P800,000.00. New Dagupan obliged to pay Peralta P200,000.00 upon the execution of
the corresponding deed and the balance of P600,000.00 by monthly instalments of
P70,000.00, the first instalment falling due on August 31, 1990. Peralta showed to New
Dagupan a photocopy of TCT No. 52135, which bore no liens and encumbrances, and
undertook to deliver the owner’s duplicate within three (3) months from the execution
of the contract.7
New Dagupan withheld payment of the last instalment, which was intended to cover
the payment of the capital gains tax, in view of Peralta’s failure to deliver the owner’s
duplicate of TCT No. 52135 and to execute a deed of absolute sale in its favor. Further,
New Dagupan, through its President, Julian Ong Cuña (Cuña), executed an affidavit of
adverse claim, which was annotated on TCT No. 52135 on October 1, 1991 as Entry
No. 14826.8
In view of Peralta’s continued failure to deliver a deed of absolute sale and the owner’s
duplicate of the title, New Dagupan filed a complaint for specific performance against
her with the RTC on February 28, 1992. New Dagupan’s complaint was raffled to
Branch 43 and docketed as Civil Case No. D-10160.
On May 20, 1992, during the pendency of New Dagupan’s complaint against Peralta,
PCSO caused the registration of the mortgage.9
On February 10, 1993, PCSO filed an application for the extrajudicial foreclosure sale
of the subject property in view of Galang’s failure to fully pay the sweepstakes she
purchased in 1992.10 A public auction took place on June 15, 1993 where PCSO was
the highest bidder. A certificate of sale was correspondingly issued to PCSO. 11
The certified true copy of TCT No. 52135 that New Dagupan obtained from the Register
of Deeds of Dagupan City for its use in Civil Case No. D-10160 reflected PCSO’s
mortgage lien. New Dagupan, claiming that it is only then that it was informed of the
subject mortgage, sent a letter to PCSO on October 28, 1993, notifying the latter of its
complaint against Peralta and its claim over the subject property and suggesting that
PCSO intervene and participate in the case.
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving the
compromise agreement between Peralta and New Dagupan. Some of the stipulations
made are as follows:
3. For her failure to execute, sign and deliver a Deed of Absolute Sale to
plaintiff by way of transferring TCT No. 52135 in the name of the latter,
defendant hereby waives and quitclaims the remaining balance of the
purchase price in the amount of P60,000.00 in favor of the plaintiff, it being
understood that the said amount shall be treated as a penalty for such failure;
xxxx
6. Upon the signing of this compromise agreement, possession and ownership
of the above described property, together with all the improvements existing
thereon, are hereby vested absolutely upon, and transferred to the plaintiff
whom the defendant hereby declares and acknowledges to be the absolute
owner thereof, now and hereafter;
7. This compromise agreement shall be without prejudice to whatever rights
and remedies, if any, that the Philippine Charity Sweepstakes Office has
against the herein defendant and Patricia P. Galang under the Deed of
Undertaking adverted to under par. 2(f) hereof.12
As the RTC Branch 43 Decision dated January 21, 1994 became final and executory,
New Dagupan once again demanded Peralta’s delivery of the owner’s duplicate of TCT
No. 52135. Also, in a letter dated March 29, 1994, New Dagupan made a similar
demand from PCSO, who in response, stated that it had already foreclosed the
mortgage on the subject property and it has in its name a certificate of sale for being
the highest bidder in the public auction that took place on June 15, 1993.
Thus, on June 1, 1994, New Dagupan filed with the RTC a petition against PCSO for
the annulment of TCT No. 52135 or surrender of the owner’s duplicate thereof.13 The
petition was docketed as Civil Case No. 94-00200-D and raffled to Branch 43.
In an Answer14 dated March 7, 1995, PCSO alleged that: (a) New Dagupan was a buyer
in bad faith; (b) New Dagupan and Peralta colluded to deprive PCSO of its rights under
the subject mortgage; (c) New Dagupan is estopped from questioning the superior right
of PCSO to the subject property when it entered into the compromise agreement
subject of the RTC Branch 43 Decision dated January 21, 1994; and (d) New Dagupan
is bound by the foreclosure proceedings where PCSO obtained title to the subject
property.
In a Motion for Leave to File Third-Party Complaint15 dated April 17, 1995, PCSO
sought the inclusion of Peralta and Galang who are allegedly indispensable parties. In
its Third-Party Complaint,16 PCSO reiterated its allegations in its Answer dated March
7, 1995 and made the further claim that the sale of the subject property to New
Dagupan is void for being expressly prohibited under the Deed of Undertaking with First
Real Estate Mortgage.
In their Answer to Third-Party Complaint with Counterclaims17 dated January 2, 1996,
Peralta and Galang claimed that: (a) the provision in the Deed of Undertaking with First
Real Estate Mortgage prohibiting the sale of the subject property is void under Article
2130 of the Civil Code; (b) PCSO’s failure to intervene in Civil Case No. D-10160
despite notice barred it from questioning the sale of the subject property to New
Dagupan and the compromise agreement approved by the RTC Branch 43; (c) it was
due to PCSO’s very own neglect in registering its mortgage lien that preference is
accorded to New Dagupan’s rights as a buyer of the subject property; and (d) PCSO
no longer has any cause of action against them following its decision to foreclose the
subject mortgage.
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42, after the
presiding judge of Branch 43 inhibited himself.
On January 28, 1998, the RTC Branch 42 rendered a Decision18 in New Dagupan’s
favor, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the
defendant, ordering PCSO to deliver the owner’s duplicate copy of TCT No. 52135 in
its possession to the Registry of Deeds of Dagupan City for the purpose of having the
decision in favor of the petitioner annotated at the back thereof. Should said defendant
fail to deliver the said title within 30 days from the date this decision becomes final and
executory, the said owner’s duplicate certificate of title is hereby cancelled and the
Register of Deeds can issue a new one carrying all the encumbrances of the original
owner’s duplicate subject of this case. Further, the defendant is ordered to pay to
petitioner the sum of Ten Thousand Pesos (P10,000.00) as attorney’s fees. It is also
ordered to pay costs.
SO ORDERED.19
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith, ratiocinating that:
In other words, the evidence of the petitioner would show that although the Deed of
Undertaking with First Real Estate Mortgage was executed on March 8, 1989 its
annotation was made long after the conditional sale in favor of the petitioner was
executed and annotated at the back of the title in question. Because of the said exhibits,
petitioner contended that it was a buyer in good faith and for value.
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged that
Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong Cuña to the
effect that when defendants sold the property to petitioner only the xerox copy of the
title was shown and petitioner should have verified the original as it was a buyer in bad
faith. Defendant also alleged that the decision in Civil Case D-10160 dated January 21,
1994 would show that there was a collusion between the petitioner and the third-party
defendants.
The Court cannot go along with the reasoning of the defendant because what was
shown to Mr. Cuña by the third-party defendants was Exhibit "C" which did not carry
any encumbrance at the back of the subject title and the annotation made on May 20,
1992 in favor of the PCSO. Mr. Cuña verified the title x x x but the encumbrance on the
title was not still there at [that] time. One thing more, there was nothing indicated in the
decision in Civil Case No. D-10160 that petitioner already knew that there was already
a mortgage in favor of the PCSO. Worst, defendant did not even introduce any oral
evidence to show that petitioner was in bad faith except the manifestations of counsel.
Unfortunately, manifestations could not be considered evidence.
xxxx
Defendant should not be allowed to profit from its negligence of not registering the Deed
of Undertaking with First Real Estate Mortgage in its favor. 20
Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject property
is void. Specifically:
Suffice it to say that there is no law prohibiting a mortgagor from encumbering or
alienating the property mortgaged. On the contrary, there is a law prohibiting an
agreement forbidding the owner from alienating a mortgaged property. We are referring
to Article 2130 of the New Civil Code which provides as follows:
"A stipulation forbidding the owner from alienating the immovable mortgage shall be
void."21
Moreover, the RTC Branch 42 ruled that PCSO had no right to foreclose the subject
mortgage as the land in question had already been disencumbered after Galang’s full
payment of all the sweepstakes tickets she purchased in 1989 and 1990.
It should be recalled that Amparo Abrigo, OIC Chief of the Credit Accounts Division of
the PCSO, admitted not only once but twice that Patricia Galang has no more liability
with the PCSO for the years 1989 and 1990 x x x. Another witness, Carlos Castillo who
is the OIC of the Sales Department of the PCSO, joined Amparo Abrigo in saying that
Patricia Galang has already paid her liability with the PCSO for the years 1989 and
1990 x x x. Thus, the undertaking was already discharged. Both of the said witnesses
of the PCSO alleged that the undertaking has been re-used by Patricia Galang for the
years 1991 to 1992 yet there is no proof whatsoever showing that Purita Peralta
consented to the use of the undertaking by Patricia Galang for 1991 to 1992.
Incidentally, it is not far-fetched to say that Purita Peralta might have thought that the
undertaking was already discharged which was the reason she executed the Deed of
Conditional Sale x x x in favor of petitioner in 1990. That being the case, the foreclosure
sale in favor of the PCSO has no legal leg to stand as the Deed of Undertaking with
First Real Estate Mortgage has already been discharged before the foreclosure sale
was conducted.22
According to the RTC Branch 42, the intent to use the subject property as security for
Galang’s purchases for the years after 1989, as PCSO claimed, is not clear from the
Deed of Undertaking with First Real Estate Mortgage:
Was it not provided in the deed that the undertaking would be for "all draws". That might
be true but the terms of the Contract should be understood to mean only to cover the
draws relative to the current liabilities of Patricia Galang at the time of the execution of
the undertaking in 1989. It could have not been agreed upon that it should also cover
her liability for 1991 up to 1992 because if that was the intention of the parties, the
undertaking should have so provided expressly. The term of the undertaking with
respect to the period was ambiguous but any ambiguity in the Contract should be
resolved against PCSO because the form used was a standard form of the defendant
and it appeared that it was its lawyers who prepared it, therefore, it was the latter which
caused the ambiguity.23
PCSO’s appeal from the foregoing adverse decision was dismissed. By way of its
assailed decision, the CA did not agree with PCSO’s claim that the subject mortgage
is in the nature of a continuing guaranty, holding that Peralta’s undertaking to secure
Galang’s liability to PCSO is only for a period of one year and was extinguished when
Peralta completed payment on the sweepstakes tickets she purchased in 1989.
The instant appeal must fail. There is nothing in the Deed of Undertaking with First Real
Estate Mortgage, expressly or impliedly, that would indicate that Peralta agreed to let
her property be burdened as long as the contract of undertaking with real estate
mortgage was not cancelled or revoked. x x x
xxxx
A perusal of the deed of undertaking between the PCSO and Peralta would reveal
nothing but the undertaking of Peralta to guarantee the payment of the pre-existing
obligation of Galang, constituting the unpaid sweepstakes tickets issued to the latter
before the deed of undertaking was executed, with the PCSO in the amount of
P450,000.00. No words were added therein to show the intention of the parties to
regard it as a contract of continuing guaranty. In other jurisdictions, it has been held
that the use of the particular words and expressions such as payment of "any debt",
"any indebtedness", "any deficiency", or "any sum", or the guaranty of "any transaction"
or money to be furnished the principal debtor "at any time", or "on such time" that the
principal debtor may require, have been construed to indicate a continuing guaranty.
Similar phrases or words of the same import or tenor are not extant in the deed of
undertaking. The deed of undertaking states:
"WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her ticket accountabilities
for all draws."
xxxx
Upon full payment of the principal obligation, which from the testimonies of the officers
of the PCSO had been paid as early as 1990, the subsidiary contract of guaranty was
automatically terminated. The parties have not executed another contract of guaranty
to secure the subsequent obligations of Galang for the tickets issued thereafter. It must
be noted that a contract of guaranty is not presumed; it must be express and cannot
extend to more than what is stipulated therein.
xxxx
The arguments of PCSO fail to persuade us. The phrase "for all draws" is limited to the
draws covered by the original transaction. In its pleadings, the PCSO asserted that the
contract of undertaking was renewed and the collateral was re-used by Galang to
obtain again tickets from the PCSO after she had settled her account under the original
contract. From such admission, it is thus clear that the contract is not in the nature of a
continuing guaranty. For a contract of continuing guaranty is not renewed as it is
understood to be of a continuing nature without the necessity of renewing the same
every time a new transaction contemplated under the original contract is entered into.
x x x 24 (Citations omitted)
In this petition, PCSO claims that the CA erred in holding that the subject mortgage had
been extinguished by Galang’s payment of P450,000.00, representing the amount of
the sweepstakes tickets she purchased in 1989. According to PCSO, the said amount
is actually the credit line granted to Galang and the phrase "all draws" refers to her
ticket purchases for subsequent years drawn against such credit line. Consequently,
PCSO posits, the subject mortgage had not been extinguished by Peralta’s payment of
her ticket purchases in 1989 and its coverage extends to her purchases after 1989,
which she made against the credit line that was granted to her. That when Galang failed
to pay her ticket purchases in 1992, PCSO’s right to foreclose the subject mortgage
arose.
PCSO also maintains that its rights over the subject property are superior to those of
New Dagupan. Considering that the contract between New Dagupan is a conditional
sale, there was no conveyance of ownership at the time of the execution thereof on
July 31, 1989. It was only on January 21, 1994, or when the RTC Branch 43 approved
the compromise agreement, that a supposed transfer of title between Peralta and New
Dagupan took place. However, since PCSO had earlier foreclosed the subject
mortgage and obtained title to the subject property as evidenced by the certificate of
sale dated June 15, 1993, Peralta had nothing to cede or assign to New Dagupan.
PCSO likewise attributes bad faith to New Dagupan, claiming that Peralta’s
presentation of a mere photocopy of TCT No. 52135, albeit without any annotation of
a lien or encumbrance, sufficed to raise reasonable suspicions against Peralta’s claim
of a clean title and should have prompted it to conduct an investigation that went
beyond the face of TCT No. 52135.
PCSO even assails the validity of the subject sale for being against the prohibition
contained in the Deed of Undertaking with First Real Estate Mortgage.
New Dagupan, in its Comment,25 avers that it was a purchaser in good faith and it has
a superior right to the subject property, considering that PCSO’s mortgage lien was
annotated only on May 20, 1992 or long after the execution of the conditional sale on
July 31, 1990 and the annotation of New Dagupan’s adverse claim on October 1, 1991.
While the subject mortgage antedated the subject sale, PCSO was already aware of
the latter at the time of its belated registration of its mortgage lien. PCSO’s registration
was therefore in bad faith, rendering its claim over the subject property defeasible by
New Dagupan’s adverse claim.
New Dagupan also claims that the subject property had already been discharged from
the mortgage, hence, PCSO had nothing to foreclose when it filed its application for
extra-judicial foreclosure on February 10, 1993. The subject mortgage was intended to
secure Galang’s ticket purchases that were outstanding at the time of the execution of
the same, the amount of which has been specified to be P450,000.00 and does not
extend to Galang’s future purchases. Thus, upon Galang’s full payment of
P450,000.00, which PCSO admits, the subject mortgage had been automatically
terminated as expressly provided under Section 15 of the Deed of Undertaking with
First Real Estate Mortgage quoted above.
Issue
The rise and fall of this recourse is dependent on the resolution of the issue who
between New Dagupan and PCSO has a better right to the property in question.
Our Ruling
PCSO is undeterred by the denial of its appeal to the CA and now seeks to convince
this Court that it has a superior right over the subject property. However, PCSO’s
resolve fails to move this Court and the ineluctability of the denial of this petition is
owing to the following:
a. At the time of PCSO’s registration of its mortgage lien on May 20, 1992, the
subject mortgage had already been discharged by Galang’s full payment of
P450,000.00, the amount specified in the Deed of Undertaking with First Real
Estate Mortgage;
b. There is nothing in the Deed of Undertaking with First Real Estate Mortgage
that would indicate that it is a continuing security or that there is an intent to
secure Galang’s future debts;
c. Assuming the contrary, New Dagupan is not bound by PCSO’s mortgage
lien and was a purchaser in good faith and for value; and
d. While the subject mortgage predated the sale of the subject property to New
Dagupan, the absence of any evidence that the latter had knowledge of
PCSO’s mortgage lien at the time of the sale and its prior registration of an
adverse claim created a preference in its favor.
I
As a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract. However, the amounts named as consideration in a contract of mortgage do
not limit the amount for which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other indebtedness can be
gathered.26
Alternatively, while a real estate mortgage may exceptionally secure future loans or
advancements, these future debts must be specifically described in the mortgage
contract. An obligation is not secured by a mortgage unless it comes fairly within the
terms of the mortgage contract.27
The stipulation extending the coverage of a mortgage to advances or loans other than
those already obtained or specified in the contract is valid and has been commonly
referred to as a "blanket mortgage" or "dragnet" clause. In Prudential Bank v.
Alviar,28 this Court elucidated on the nature and purpose of such a clause as follows:
A "blanket mortgage clause," also known as a "dragnet clause" in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or future
origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of
this character enable the parties to provide continuous dealings, the nature or extent of
which may not be known or anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new transaction. A "dragnet clause"
operates as a convenience and accommodation to the borrowers as it makes available
additional funds without their having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal services, recording fees, et
cetera. x x x.29 (Citations omitted)
A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty
and constitutes an exception to the rule than an action to foreclose a mortgage must
be limited to the amount mentioned in the mortgage contract. Its validity is anchored on
Article 2053 of the Civil Code and is not limited to a single transaction, but contemplates
a future course of dealing, covering a series of transactions, generally for an indefinite
time or until revoked. It is prospective in its operation and is generally intended to
provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. In other words, a continuing guaranty is one that covers all
transactions, including those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or termination thereof. 30
In this case, PCSO claims the subject mortgage is a continuing guaranty. According to
PCSO, the intent was to secure Galang’s ticket purchases other than those outstanding
at the time of the execution of the Deed of Undertaking with First Real Estate Mortgage
on March 8, 1989 such that it can foreclose the subject mortgage for Galang’s non-
payment of her ticket purchases in 1992. PCSO does not deny and even admits that
Galang had already settled the amount of P450,000.00. However, PCSO refuses to
concede that the subject mortgage had already been discharged, claiming that Galang
had unpaid ticket purchases in 1992 and these are likewise secured as evidenced by
the following clause in the Deed of Undertaking with First Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after
each draw with interest at the rate of 14% per annum;31
This Court has to disagree with PCSO in view of the principles quoted above. A reading
of the other pertinent clauses of the subject mortgage, not only of the provision invoked
by PCSO, does not show that the security provided in the subject mortgage is
continuing in nature. That the subject mortgage shall only secure Galang’s liability in
the amount of P450,000.00 is evident from the following:
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and unpaid
account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her ticket accountabilities
for all draws;
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that the
said balance shall bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the obligation of the PRINCIPAL
stated in the next preceding paragraph hereof, the MORTGAGOR hereby convey unto
and in favor of the MORTGAGEE, its successor and assigns by way of its first real
estate mortgage, a parcel/s of land together with all the improvements now or hereafter
existing thereon, located at BOQUIG, DAGUPAN CITY, covered by TCT No. 52135, of
the Register of Deeds of DAGUPAN CITY, and more particularly described as follows: 32
As the CA correctly observed, the use of the terms "outstanding" and "unpaid" militates
against PCSO’s claim that future ticket purchases are likewise secured. That there is a
seeming ambiguity between the provision relied upon by PCSO containing the phrase
"after each draw" and the other provisions, which mention with particularity the amount
of P450,000.00 as Galang’s unpaid and outstanding account and secured by the
subject mortgage, should be construed against PCSO. The subject mortgage is a
contract of adhesion as it was prepared solely by PCSO and the only participation of
Galang and Peralta was the act of affixing their signatures thereto.
Considering that the debt secured had already been fully paid, the subject mortgage
had already been discharged and there is no necessity for any act or document to be
executed for the purpose. As provided in the Deed of Undertaking with First Real Estate
Mortgage:
15. Upon payment of the principal amount together with interest and other expenses
legally incurred by the MORTGAGEE, the above-undertaking is considered
terminated.33
Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the execution
of an instrument in order for a mortgage to be cancelled or discharged. However, this
rule presupposes that there has been a prior registration of the mortgage lien prior to
its discharge. In this case, the subject mortgage had already been cancelled or
terminated upon Galang’s full payment before PCSO availed of registration in 1992. As
the subject mortgage was not annotated on TCT No. 52135 at the time it was
terminated, there was no need for Peralta to secure a deed of cancellation in order for
such discharge to be fully effective and duly reflected on the face of her title.
Therefore, since the subject mortgage is not in the nature of a continuing guaranty and
given the automatic termination thereof, PCSO cannot claim that Galang’s ticket
purchases in 1992 are also secured. From the time the amount of P450,000.00 was
fully settled, the subject mortgage had already been cancelled such that Galang’s
subsequent ticket purchases are unsecured. Simply put, PCSO had nothing to register,
much less, foreclose.
Consequently, PCSO’s registration of its non-existent mortgage lien and subsequent
foreclosure of a mortgage that was no longer extant cannot defeat New Dagupan’s title
over the subject property.
II
Sections 51 and 53 of P.D. No. 1529 provide:
Section 51. Conveyance and other dealings by registered owner. An owner of
registered land may convey, mortgage, lease, charge or otherwise deal with the same
in accordance with existing laws. He may use such forms of deeds, mortgages, leases
or other voluntary instrument, except a will purporting to convey or affect registered
land, but shall operate only as a contract between the parties and as evidence of
authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as
third persons are concerned, and in all cases under this Decree, the registration shall
be made in the office of the Register of Deeds for the province or city where the land
lies.
Section 52. Constructive notice upon registration. Every conveyance, mortgage, lease,
lien, attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed or entered in the office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the
time of such registering, filing or entering.
On the other hand, Article 2125 of the Civil Code states:
Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument is not recorded, the mortgage
is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to
demand the execution and the recording of the document in which the mortgage is
formalized.
Construing the foregoing conjunctively, as to third persons, a property registered under
the Torrens system is, for all legal purposes, unencumbered or remains to be the
property of the person in whose name it is registered, notwithstanding the execution of
any conveyance, mortgage, lease, lien, order or judgment unless the corresponding
deed is registered.
The law does not require a person dealing with the owner of registered land to go
beyond the certificate of title as he may rely on the notices of the encumbrances on the
property annotated on the certificate of title or absence of any annotation.35 Registration
affords legal protection such that the claim of an innocent purchaser for value is
recognized as valid despite a defect in the title of the vendor.36
In Cruz v. Bancom Finance Corporation,37 the foregoing principle was applied as
follows:
Second, respondent was already aware that there was an adverse claim and notice of
lis pendens annotated on the Certificate of Title when it registered the mortgage on
March 14, 1980. Unless duly registered, a mortgage does not affect third parties like
herein petitioners, as provided under Section 51 of PD NO. 1529, which we reproduce
hereunder:
xxxx
True, registration is not the operative act for a mortgage to be binding between the
parties. But to third persons, it is indispensible. In the present case, the adverse claim
and the notice of lis pendens were annotated on the title on October 30, 1979 and
December 10, 1979, respectively; the real estate mortgage over the subject property
was registered by respondent only on March 14, 1980. Settled in this jurisdiction is the
doctrine that a prior registration of a lien creates a preference. Even a subsequent
registration of the prior mortgage will not diminish this preference, which retroacts to
the date of the annotation of the notice of lis pendens and the adverse claim. Thus,
respondent’s failure to register the real estate mortgage prior to these annotations,
resulted in the mortgage being binding only between it and the mortgagor, Sulit.
Petitioners, being third parties to the mortgage, were not bound by it. Contrary to
respondent’s claim that petitioners were in bad faith because they already had
knowledge of the existence of the mortgage in favor of respondent when they caused
the aforesaid annotations, petitioner Edilberto Cruz said that they only knew of this
mortgage when respondent intervened in the RTC proceedings. 38 (Citations omitted)
It is undisputed that it was only on May 20, 1992 that PCSO registered its mortgage
lien. By that time, New Dagupan had already purchased the subject property, albeit
under a conditional sale. In fact, PCSO’s mortgage lien was yet to be registered at the
time New Dagupan filed its adverse claim on October 1, 1991 and its complaint against
Peralta for the surrender of the owner’s duplicate of TCT No. 52135 on February 28,
1992. It was only during the pendency of Civil Case No. D-10160, or sometime in 1993,
that New Dagupan was informed of PCSO’s mortgage lien. On the other hand, PCSO
was already charged with knowledge of New Dagupan’s adverse claim at the time of
the annotation of the subject mortgage. PCSO’s attempt to conceal these damning
facts is palpable. However, they are patent from the records such that there is no
gainsaying that New Dagupan is a purchaser in good faith and for value and is not
bound by PCSO’s mortgage lien.
A purchaser in good faith and for value is one who buys property of another, without
notice that some other person has a right to, or interest in, such property, and pays a
full and fair price for the same, at the time of such purchase, or before he has notice of
the claim or interest of some other person in the property. 39 Good faith is the opposite
of fraud and of bad faith, and its non-existence must be established by competent
proof.40 Sans such proof, a buyer is deemed to be in good faith and his interest in the
subject property will not be disturbed. A purchaser of a registered property can rely on
the guarantee afforded by pertinent laws on registration that he can take and hold it
free from any and all prior liens and claims except those set forth in or preserved against
the certificate of title.41
This Court cannot give credence to PCSO’s claim to the contrary. PCSO did not present
evidence, showing that New Dagupan had knowledge of the mortgage despite its being
unregistered at the time the subject sale was entered into. Peralta, in the compromise
agreement, even admitted that she did not inform New Dagupan of the subject
mortgage.42 PCSO’s only basis for claiming that New Dagupan was a buyer in bad faith
was the latter’s reliance on a mere photocopy of TCT No. 52135. However, apart from
the fact that the facsimile bore no annotation of a lien or encumbrance, PCSO failed to
refute the testimony of Cuña that his verification of TCT No. 52135 with the Register of
Deeds of Dagupan City confirmed Peralta’s claim of a clean title.
Since PCSO had notice of New Dagupan’s adverse claim prior to the registration of its
mortgage lien, it is bound thereby and thus legally compelled to respect the
proceedings on the validity of such adverse claim. It is therefore of no moment if
PCSO’s foreclosure of the subject mortgage and purchase of the subject property at
the auction sale took place prior to New Dagupan’s acquisition of title as decreed in the
Decision dated January 21, 1994 of RTC Branch 43. The effects of a foreclosure sale
retroact to the date the mortgage was registered. 43 Hence, while PCSO may be
deemed to have acquired title over the subject property on May 20, 1992, such title is
rendered inferior by New Dagupan’s adverse claim, the validity of which was confirmed
per the Decision dated January 21, 1994 of RTC Branch 43.
Otherwise, if PCSO’s mortgage lien is allowed to prevail by the mere expediency of
registration over an adverse claim that was registered ahead of time, the object of an
adverse claim – to apprise third persons that any transaction regarding the disputed
property is subject to the outcome of the dispute – would be rendered naught. A
different conclusion would remove the primary motivation for the public to rely on and
respect the Torrens system of registration. Such would be inconsistent with the well-
settled, even axiomatic, rule that a person dealing with registered property need not go
beyond the title and is not required to explore outside the four (4) corners thereof in
search for any hidden defect or inchoate right that may turn out to be superior.
Worthy of extrapolation is the fact that there is no conflict between the disposition of
this case and Garbin v. CA44 where this Court decided the controversy between a buyer
with an earlier registered adverse claim and a subsequent buyer, who is charged with
notice of such adverse claim at the time of the registration of her title, in favor of the
latter. As to why the adverse claim cannot prevail against the rights of the later buyer
notwithstanding its prior registration was discussed by this Court in this wise:
It is undisputed that the adverse claim of private respondents was registered pursuant
to Sec. 110 of Act No. 496, the same having been accomplished by the filing of a sworn
statement with the Register of Deeds of the province where the property was located.
However, what was registered was merely the adverse claim and not the Deed of Sale,
which supposedly conveyed the northern half portion of the subject property. Therefore,
there is still need to resolve the validity of the adverse claim in separate proceedings,
as there is an absence of registration of the actual conveyance of the portion of land
herein claimed by private respondents.
From the provisions of the law, it is clear that mere registration of an adverse claim
does not make such claim valid, nor is it permanent in character. More importantly,
such registration does not confer instant title of ownership since judicial determination
on the issue of the ownership is still necessary.45 (Citation omitted)
Apart from the foregoing, the more important consideration was the improper resort to
an adverse claim.1âwphi1 In L.P. Leviste & Co. v. Noblejas,46 this Court emphasized
that the availability of the special remedy of an adverse claim is subject to the absence
of any other statutory provision for the registration of the claimant’s alleged right or
interest in the property. That if the claimant’s interest is based on a perfected contract
of sale or any voluntary instrument executed by the registered owner of the land, the
procedure that should be followed is that prescribed under Section 51 in relation to
Section 52 of P.D. No. 1529. Specifically, the owner’s duplicate certificate must be
presented to the Register of Deeds for the inscription of the corresponding
memorandum thereon and in the entry day book. It is only when the owner refuses or
fails to surrender the duplicate certificate for annotation that a statement setting forth
an adverse claim may be filed with the Register of Deeds. Otherwise, the adverse claim
filed will not have the effect of a conveyance of any right or interest on the disputed
property that could prejudice the rights that have been subsequently acquired by third
persons.

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

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

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

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

WHEREFORE, premises considered, the petition is DISMISSED and the Decision

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

SO ORDERED.

G.R. No. L-34857 October 12, 1984

AGAPITO PAREDES and LEONA GASO-PAREDES, petitioners,

vs.
THE COURT OF APPEALS and TEODORO LARIANES, respondents.

Salvador Tobias for petitioners.

Eugenio G. Femarino for private respondent.
MELENCIO-HERRERA, J.:ñé+.£ªwph!1
This is a petition for review of the Decision of the then Court of Appeals in CA-G.R. No.
44276-R, which reversed the Order of the defunct Court of Agrarian Relations in Iloilo
City and directed the issuance of a Writ of Execution based on an amicable settlement
in said case.
Teodoro Larianes, private respondent herein, filed a Complaint for Illegal Ejectment
and Damages in the then Court of Agrarian Relations of Iloilo City against the spouses
Agapito Parades and Leona Gaso-Paredes, petitioners herein (CAR Case No. 1239,
Iloilo — 1962).
Private respondent alleged that he had been a tenant of a rice land with an area of two
(2) hectares, more or less, situated at Cabatuan, Iloilo, by virtue of a verbal contract of
tenancy entered into by him in 1958 with his relatives Emiliana Parades-Tobias (owner
of a 1/2 portion) and Joaquina Magbanwa owner of a 1/4 portion), private respondent
himself being the owner of the remaining 1/4 of the landholding; that in March 1961,
petitioners acquired by purchase from private respondent and Joaquina Magbanwa
their respective portions of the landholding in question thus making them the owners of
a one-half portion, with the other half being owned by Emiliana Parades-Tobias; that
sometime in March 1962, petitioners, without any just cause, threatened to eject him
without the conformity of their daughter Emiliana Paredes-Tobias; that private
respondent's average yearly net produce in the landholding was 50 bultos or 100
cavans of palay, legal measure; that the sharing of the crop was 50-50; and that in view
of the unlawful acts of petitioners, private respondent had to engage the services of
counsel for the sum of P300.00.
On April 3, 1962, petitioners filed a Motion to Dismiss on the ground that they are not
the owners of the landholding in question and that an indispensable party to the case,
Emiliana Parades-Tobias, 1 owner of a 1/2 portion, had not been impleaded. Dismissal
was denied by the Trial Court in an Order, dated January 9, 1963, and petitioners were
directed to file their Answer.
Upon motion by private respondent, the Trial Court declared petitioners in default for
their failure to file said Answer. After receiving the evidence of private respondent ex-
parte, the Trial Court rendered judgment by default against petitioners, as defendants
below, on September 24, 1965, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, judgment is hereby rendered:
1. Ordering the herein defendants to reinstate plaintiff Teodoro
Larianes to the landholding in question with an area of 2 hectares,
more or less, situated at barrio Janipa-an Central, Cabatuan, Iloilo;
2. Ordering the defendants to deliver to plaintiff Teodoro Larianes the
quantity of 25 bultos of palay every agricultural year beginning in the
agricultural year 1962-63 when he was ejected, until the time he is
reinstated to the landholding in question, or its equivalent in money
at the current price per bulto of palay in the locality; and
3. Ordering defendants to pay plaintiff the sum of P300.00 as
attorney's fees.
Alleging finality of the judgment, private respondent filed a Motion for Execution.
However, after moving for postponement of execution, petitioners filed, on December
18, 1965, a petition to set aside the Order of Default and for trial on the merits.
On March 12, 1966, while said petition was pending, the parties submitted the
following: têñ.£îhqwâ£
AMICABLE SETTLEMENT
COME NOW the parties in the above-entitled case, assisted by their
respective counsel, and unto this Honorable Court most respectfully
manifest:
That judgment was rendered on the above-entitled case on
September 24, 1965, and in satisfaction of the same the parties do
hereby agree, to wit:
1. That the plaintiff shall be reinstated as tenant of the landholding
(Lot No. 5056 of the Cadastral Survey of Cabatuan) subject of this
case and shall continue to work thereon as long as he wishes except
for a lawful cause;
2. That the defendants by these presents, are deemed to have given
possession of the said landholding to plaintiff as tenant;
3. That this settlement shall be considered as a complete satisfaction
of the judgment in this case above stated and the parties hereby
release each other from any claim whatsoever by virtue of said
judgment;
4. That by virtue of this agreement, the parties agree that the above-
entitled case be considered closed.
WHEREFORE, premises considered, it is respectfully prayed of this
Honorable Court that the above settlement be approved and that
judgment in the above-entitled case be deemed completely satisfied.
Iloilo City, March 12, 1966.
(SGD.) TEODORO LARIANES AGAPITO PAREDES &
LEONA GASO-PAREDES têñ.£îhqwâ£
 (Spouses)têñ.£îhqw⣠making them the owners of a one-half portion, with the other half being owned by
Emiliana Parades-Tobias; that sometime in March 1962, petitioners, without any just
By: cause, threatened to eject him without the conformity of their daughter Emiliana
Paredes-Tobias; that private respondent's average yearly net produce in the
landholding was 50 bultos or 100 cavans of palay, legal measure; that the sharing of
(SGD.) AGAPITO PAREDES WITH MY CONFORMITY: the crop was 50-50; and that in view of the unlawful acts of petitioners, private
respondent had to engage the services of counsel for the sum of P300.00.
(SGD). EMILIANA PAREDES-TOBIAS
On April 3, 1962, petitioners filed a Motion to Dismiss on the ground that they are not
(SGD.) SALVADOR L. TOBIAS the owners of the landholding in question and that an indispensable party to the case,
Emiliana Parades-Tobias, 1 owner of a 1/2 portion, had not been impleaded.
Counsel for the Defendants, Dismissal was denied by the Trial Court in an Order, dated January 9, 1963, and
petitioners were directed to file their Answer.

Cabatuan, Iloilo
Upon motion by private respondent, the Trial Court declared petitioners in default for
their failure to file said Answer. After receiving the evidence of private respondent ex-
(SGD.) MARIO P. BUENVENIDA parte, the Trial Court rendered judgment by default against petitioners, as defendants
Counsel for the Plaintif.R. No. L-34857 October 12, 1984 below, on September 24, 1965, the dispositive portion of which reads: têñ.£îhqwâ£

AGAPITO PAREDES and LEONA GASO-PAREDES, petitioners, WHEREFORE, judgment is hereby rendered:
vs.
THE COURT OF APPEALS and TEODORO LARIANES, respondents.
1. Ordering the herein defendants to reinstate plaintiff Teodoro
Larianes to the landholding in question with an area of 2 hectares,
Salvador Tobias for petitioners. more or less, situated at barrio Janipa-an Central, Cabatuan, Iloilo;

Eugenio G. Femarino for private respondent. 2. Ordering the defendants to deliver to plaintiff Teodoro Larianes
the quantity of 25 bultos of palay every agricultural year beginning
in the agricultural year 1962-63 when he was ejected, until the time
he is reinstated to the landholding in question, or its equivalent in
money at the current price per bulto of palay in the locality; and
MELENCIO-HERRERA, J.:ñé+.£ªwph!1

3. Ordering defendants to pay plaintiff the sum of P300.00 as

This is a petition for review of the Decision of the then Court of Appeals in CA-G.R.
attorney's fees.
No. 44276-R, which reversed the Order of the defunct Court of Agrarian Relations in
Iloilo City and directed the issuance of a Writ of Execution based on an amicable
settlement in said case. Alleging finality of the judgment, private respondent filed a Motion for Execution.
However, after moving for postponement of execution, petitioners filed, on December
18, 1965, a petition to set aside the Order of Default and for trial on the merits.
Teodoro Larianes, private respondent herein, filed a Complaint for Illegal Ejectment
and Damages in the then Court of Agrarian Relations of Iloilo City against the
spouses Agapito Parades and Leona Gaso-Paredes, petitioners herein (CAR Case On March 12, 1966, while said petition was pending, the parties submitted the
No. 1239, Iloilo — 1962). following: têñ.£îhqwâ£

Private respondent alleged that he had been a tenant of a rice land with an area of AMICABLE SETTLEMENT
two (2) hectares, more or less, situated at Cabatuan, Iloilo, by virtue of a verbal
contract of tenancy entered into by him in 1958 with his relatives Emiliana Parades- COME NOW the parties in the above-entitled case, assisted by
Tobias (owner of a 1/2 portion) and Joaquina Magbanwa owner of a 1/4 portion), their respective counsel, and unto this Honorable Court most
private respondent himself being the owner of the remaining 1/4 of the landholding; respectfully manifest:
that in March 1961, petitioners acquired by purchase from private respondent and
Joaquina Magbanwa their respective portions of the landholding in question thus
 That judgment was rendered on the above-entitled case on
September 24, 1965, and in satisfaction of the same the parties do
hereby agree, to wit:
1. That the plaintiff shall be reinstated as tenant of the landholding
(Lot No. 5056 of the Cadastral Survey of Cabatuan) subject of this
case and shall continue to work thereon as long as he wishes
except for a lawful cause;
2. That the defendants by these presents, are deemed to have
given possession of the said landholding to plaintiff as tenant;
3. That this settlement shall be considered as a complete
satisfaction of the judgment in this case above stated and the
parties hereby release each other from any claim whatsoever by
virtue of said judgment;
4. That by virtue of this agreement, the parties agree that the
above-entitled case be considered closed.
WHEREFORE, premises considered, it is respectfully prayed of this
Honorable Court that the above settlement be approved and that
judgment in the above-entitled case be deemed completely
satisfied.
The Trial Court approved the Amicable Settlement in an Order, dated March 14,
1966, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, there being nothing contrary to law, morals, or
public policy in the terms of said amicable settlement as prayed for,
the same is approved and the parties are enjoined to abide by and
comply with all its terms. The j judgment dated September 24,
1965, is deemed completely satisfied and all other pending
incidents in this case are deemed withdrawn.
In The meantime, on March 30, 1968, a certain Alberto 'Tobias is alleged to have
repurchased the landholding from the petitioners 3 and he became the possessor of
the landholding. He, too, refused to turn over possession to private respondent.
On May 12, 1969, claiming that he was allowed to enter the landholding for the year
1966 only and that thereafter he was already prevented from working the land, even
by Tobias, private respondent filed a Motion for Execution against petitioners-
defendants and their privies or successors-in-interest especially Alberto Tobias, for
the delivery of possession and damages beginning the crop year 1967 and until
possession is delivered.
Alberto 'Tobias opposed execution contending that he was not a party to the case nor
to the Amicable Settlement and is, therefore, not bound by the same Further, that
there was nothing to execute inasmuch as the judgment had been fully satisfied.

Iloilo City, March 12, 1966. Petitioners similarly maintained that no execution would lie because the judgment
was superseded by the Amicable Settlement, which was considered in complete
satisfaction of the judgment.
(SGD.) TEODORO LARIANES AGAPITO PAREDES &
LEONA GASO-PAREDES têñ.£îhqwâ£
On August 1, 1969, the Trial Court denied execution in an Order reading: têñ.£îhqwâ£
(Spouses)têñ.£îhqwâ£
It appearing that decision in this case dated September 24, 1965
has already been satisfied as shown by the Order dated March 14,
By: 1966 approving the amicable settlement submitted by the parties in
satisfaction of the said decision, there remains nothing left in the c
(SGD.) AGAPITO PAREDES case to be executed.
WITH MY CONFORMITY:
(SGD). EMILIANA PAREDES-TOBIAS WHEREFORE, the motion for execution filed by plaintiff, through
counsel, on May 12, 1969, is hereby denied.
(SGD.) SALVADOR L. TOBIAS
Counsel for the Defendants From the foregoing Order, private respondent appealed to respondent Appellate
Cabatuan, Iloilo Court, which found the appeal meritorious and which rendered judgment, the
dispositive portion of which reads: têñ.£îhqwâ£
(SGD.) MARIO P. BUENVENIDA
Counsel for the Plaintiff WHEREFORE, the Order dated August 1, 1969 appealed from is
Saenz Bldg. J.M. Basa St., hereby reversed and judgment is rendered directing the issuance of
Iloilo City 2 a writ of execution to enforce the judgment and amicable settlement
 in CAR Case No. 1239 of the Court of Agrarian Relations at Iloilo
City, with costs against respondents-appellees.
Availing of certiorari before us, petitioners contend that respondent Appellate Court
erred: 1) in not dismissing the appeal for failure of the private respondent to serve
notice of appeal, appeal brief and other appeal pleadings and papers upon the
appellees-petitioners; 2) in not finding that it never acquired jurisdiction over the
persons of the petitioners; 3) in not finding that private respondent had lost his right to
appeal under the rule of res adjudicata 4) in not finding that the lower Court's
decision, dated September 24, 1965, cannot be executed; and 5) in not finding that
enforcement of the lower Court's decision, dated September 24, 1965, would work
injustice to petitioners-appellees. 4 '
Petitioners' submissions are groundless.
1) A Motion to Dismiss Appeal on the same grounds as those alleged in (1)
above 5 was filed before respondent Appellate Court. but the same was
denied. 6 Petitioners' Motion tor Reconsideration was similarly denied. 7 Petitioners-
appellees could have asked for time within which to file their Brief after such denial,
but they did not. It should also be noted that neither did they file their Answer before
the Trial Court for which reason they were declared in default. Consequently, they
cannot now be heard to complain that they were denied their day in Court, a situation
brought about by their own inaction, particularly if, as they claim, they had strong and
valid defenses.
2) Respondent Appellate Court must be held to have acquired jurisdiction over
petitioners' persons since they appeared before said Court when they filed their
Motion to Dismiss Appeal and their Motion for Reconsideration from the Resolution
denying dismissal.
3) The loss of private respondent's right to appeal on the ground of res judicata is
neither meritorious not only because it is raised for the first time in this Petition but
also because the alleged Order of dismissal of CAR Case No. 1841, dated March 1,
1969, much less any other pleading in said case, do not form part of the records
elevated to respondent Court nor to this Tribunal.
4) In so far as the issue of execution is concerned, we agree with respondent
Appellate Court that when the terms of an amicable settlement are violated, as in the
case at bar, the remedy of the aggrieved party is to move for execution. 8
A compromise agreement is part and parcel of the judgment and may, therefore, be
enforced as such by a Writ of Execution. 9 All, pursuant to Article 2041 of the Civil
Code, which provides: têñ.£îhqwâ£
Art. 2041. If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the compromise or
regard it as rescinded and insist upon his original demand.
5) We do not find any injustice caused petitioners-appellees by the enforcement of
the Trial Court's judgment. They were signatories to the Amicable Settlement
submitted to said Court on March 12, 1966. They are bound by the judgment
rendered thereafter approving the same. The allegation that they are only vendees
a retro and that the landholding was repurchased on March 30, 1968 was never
brought out in their Motion to Dismiss Appeal filed before respondent Court on August
25, 1971.
Besides, irrespective of who may be in possession, the judgment of respondent
Appellate Court is explicit in that "the writ of execution shall be against respondents
(should read petitioners-appellees) and their privies". 10 As said Court had explained,
this is so "because a judgment is not confined to what appears on the face of the
decision, but comprehends what is necessarily included therein or necessary thereto
in order to make it effective. 11 As provided as well in the first paragraph of Article
2036 of the Civil Code, " a compromise comprises only those objects which are
definitely stated therein, or which by necessary implication from its terms should be
deemed to have been included in the same."
WHEREFORE, the judgment of respondent Appellate Court appealed from is hereby
affirmed in toto. Costs against petitioners.
SO ORDERED.1äwphï1.ñët
.R. No. L-34857 October 12, 1984
AGAPITO PAREDES and LEONA GASO-PAREDES, petitioners,
vs.
THE COURT OF APPEALS and TEODORO LARIANES, respondents.
Salvador Tobias for petitioners.
Eugenio G. Femarino for private respondent.
MELENCIO-HERRERA, J.:ñé+.£ªwph!1
This is a petition for review of the Decision of the then Court of Appeals in CA-G.R.
No. 44276-R, which reversed the Order of the defunct Court of Agrarian Relations in
Iloilo City and directed the issuance of a Writ of Execution based on an amicable
settlement in said case.
Teodoro Larianes, private respondent herein, filed a Complaint for Illegal Ejectment
and Damages in the then Court of Agrarian Relations of Iloilo City against the
spouses Agapito Parades and Leona Gaso-Paredes, petitioners herein (CAR Case
No. 1239, Iloilo — 1962).
Private respondent alleged that he had been a tenant of a rice land with an area of
two (2) hectares, more or less, situated at Cabatuan, Iloilo, by virtue of a verbal
contract of tenancy entered into by him in 1958 with his relatives Emiliana Parades-
Tobias (owner of a 1/2 portion) and Joaquina Magbanwa owner of a 1/4 portion),
private respondent himself being the owner of the remaining 1/4 of the landholding;
that in March 1961, petitioners acquired by purchase from private respondent and
Joaquina Magbanwa their respective portions of the landholding in question thus
making them the owners of a one-half portion, with the other half being owned by
Emiliana Parades-Tobias; that sometime in March 1962, petitioners, without any just
cause, threatened to eject him without the conformity of their daughter Emiliana
Paredes-Tobias; that private respondent's average yearly net produce in the
landholding was 50 bultos or 100 cavans of palay, legal measure; that the sharing of
the crop was 50-50; and that in view of the unlawful acts of petitioners, private
respondent had to engage the services of counsel for the sum of P300.00.
On April 3, 1962, petitioners filed a Motion to Dismiss on the ground that they are not
the owners of the landholding in question and that an indispensable party to the case,
Emiliana Parades-Tobias, 1 owner of a 1/2 portion, had not been impleaded.
Dismissal was denied by the Trial Court in an Order, dated January 9, 1963, and
petitioners were directed to file their Answer.
Upon motion by private respondent, the Trial Court declared petitioners in default for
their failure to file said Answer. After receiving the evidence of private respondent ex-
parte, the Trial Court rendered judgment by default against petitioners, as defendants
below, on September 24, 1965, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, judgment is hereby rendered:
1. Ordering the herein defendants to reinstate plaintiff Teodoro
Larianes to the landholding in question with an area of 2 hectares,
more or less, situated at barrio Janipa-an Central, Cabatuan, Iloilo;
2. Ordering the defendants to deliver to plaintiff Teodoro Larianes (SGD.) TEODORO LARIANES AGAPITO PAREDES &
the quantity of 25 bultos of palay every agricultural year beginning LEONA GASO-PAREDES têñ.£îhqwâ£
in the agricultural year 1962-63 when he was ejected, until the time
he is reinstated to the landholding in question, or its equivalent in
money at the current price per bulto of palay in the locality; and
By:
3. Ordering defendants to pay plaintiff the sum of P300.00 as
attorney's fees.
Alleging finality of the judgment, private respondent filed a Motion for Execution.
However, after moving for postponement of execution, petitioners filed, on December
18, 1965, a petition to set aside the Order of Default and for trial on the merits.
On March 12, 1966, while said petition was pending, the parties submitted the
following: têñ.£îhqwâ£
AMICABLE SETTLEMENT
COME NOW the parties in the above-entitled case, assisted by
their respective counsel, and unto this Honorable Court most
respectfully manifest:
That judgment was rendered on the above-entitled case on
September 24, 1965, and in satisfaction of the same the parties do
hereby agree, to wit:
1. That the plaintiff shall be reinstated as tenant of the landholding
(Lot No. 5056 of the Cadastral Survey of Cabatuan) subject of this
case and shall continue to work thereon as long as he wishes
except for a lawful cause;
2. That the defendants by these presents, are deemed to have
given possession of the said landholding to plaintiff as tenant;
3. That this settlement shall be considered as a complete
satisfaction of the judgment in this case above stated and the
parties hereby release each other from any claim whatsoever by
virtue of said judgment;
4. That by virtue of this agreement, the parties agree that the
above-entitled case be considered closed.
WHEREFORE, premises considered, it is respectfully prayed of this
Honorable Court that the above settlement be approved and that
judgment in the above-entitled case be deemed completely
satisfied.
Iloilo City, March 12, 1966.
(Spouses)têñ.£îhqwâ£
(SGD.) AGAPITO PAREDES
WITH MY CONFORMITY:
(SGD). EMILIANA PAREDES-TOBIAS
(SGD.) SALVADOR L. TOBIAS
Counsel for the Defendants
Cabatuan, Iloilo
 (SGD.) MARIO P. BUENVENIDA
Counsel for the Plaintiff
Saenz Bldg. J.M. Basa St.,
Iloilo City 2
The Trial Court approved the Amicable Settlement in an Order, dated March 14,
1966, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, there being nothing contrary to law, morals, or
public policy in the terms of said amicable settlement as prayed for,
the same is approved and the parties are enjoined to abide by and
comply with all its terms. The j judgment dated September 24,
1965, is deemed completely satisfied and all other pending
incidents in this case are deemed withdrawn.
In The meantime, on March 30, 1968, a certain Alberto 'Tobias is alleged to have
repurchased the landholding from the petitioners 3 and he became the possessor of
the landholding. He, too, refused to turn over possession to private respondent.
On May 12, 1969, claiming that he was allowed to enter the landholding for the year
1966 only and that thereafter he was already prevented from working the land, even
by Tobias, private respondent filed a Motion for Execution against petitioners-
defendants and their privies or successors-in-interest especially Alberto Tobias, for
the delivery of possession and damages beginning the crop year 1967 and until
possession is delivered.
Alberto 'Tobias opposed execution contending that he was not a party to the case nor
to the Amicable Settlement and is, therefore, not bound by the same Further, that
there was nothing to execute inasmuch as the judgment had been fully satisfied.
Petitioners similarly maintained that no execution would lie because the judgment
was superseded by the Amicable Settlement, which was considered in complete
satisfaction of the judgment.
On August 1, 1969, the Trial Court denied execution in an Order reading: têñ.£îhqwâ£
It appearing that decision in this case dated September 24, 1965
has already been satisfied as shown by the Order dated March 14,
1966 approving the amicable settlement submitted by the parties in
satisfaction of the said decision, there remains nothing left in the c
case to be executed.
WHEREFORE, the motion for execution filed by plaintiff, through
counsel, on May 12, 1969, is hereby denied.
From the foregoing Order, private respondent appealed to respondent Appellate
Court, which found the appeal meritorious and which rendered judgment, the
dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, the Order dated August 1, 1969 appealed from is
hereby reversed and judgment is rendered directing the issuance of
a writ of execution to enforce the judgment and amicable settlement
in CAR Case No. 1239 of the Court of Agrarian Relations at Iloilo
City, with costs against respondents-appellees.
Availing of certiorari before us, petitioners contend that respondent Appellate Court
erred: 1) in not dismissing the appeal for failure of the private respondent to serve
notice of appeal, appeal brief and other appeal pleadings and papers upon the
appellees-petitioners; 2) in not finding that it never acquired jurisdiction over the
persons of the petitioners; 3) in not finding that private respondent had lost his right to
appeal under the rule of res adjudicata 4) in not finding that the lower Court's
decision, dated September 24, 1965, cannot be executed; and 5) in not finding that
enforcement of the lower Court's decision, dated September 24, 1965, would work
injustice to petitioners-appellees. 4 '
Petitioners' submissions are groundless.
1) A Motion to Dismiss Appeal on the same grounds as those alleged in (1)
above 5 was filed before respondent Appellate Court. but the same was
denied. 6 Petitioners' Motion tor Reconsideration was similarly denied. 7 Petitioners-
appellees could have asked for time within which to file their Brief after such denial,
but they did not. It should also be noted that neither did they file their Answer before
the Trial Court for which reason they were declared in default. Consequently, they
cannot now be heard to complain that they were denied their day in Court, a situation
brought about by their own inaction, particularly if, as they claim, they had strong and
valid defenses.
2) Respondent Appellate Court must be held to have acquired jurisdiction over
petitioners' persons since they appeared before said Court when they filed their
Motion to Dismiss Appeal and their Motion for Reconsideration from the Resolution
denying dismissal.
3) The loss of private respondent's right to appeal on the ground of res judicata is
neither meritorious not only because it is raised for the first time in this Petition but
also because the alleged Order of dismissal of CAR Case No. 1841, dated March 1,
1969, much less any other pleading in said case, do not form part of the records
elevated to respondent Court nor to this Tribunal.
4) In so far as the issue of execution is concerned, we agree with respondent
Appellate Court that when the terms of an amicable settlement are violated, as in the
case at bar, the remedy of the aggrieved party is to move for execution. 8
A compromise agreement is part and parcel of the judgment and may, therefore, be
enforced as such by a Writ of Execution. 9 All, pursuant to Article 2041 of the Civil
Code, which provides: têñ.£îhqwâ£
 Art. 2041. If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the compromise or
regard it as rescinded and insist upon his original demand.
5) We do not find any injustice caused petitioners-appellees by the enforcement of
the Trial Court's judgment. They were signatories to the Amicable Settlement
submitted to said Court on March 12, 1966. They are bound by the judgment
rendered thereafter approving the same. The allegation that they are only vendees
a retro and that the landholding was repurchased on March 30, 1968 was never
brought out in their Motion to Dismiss Appeal filed before respondent Court on August
25, 1971.
Besides, irrespective of who may be in possession, the judgment of respondent
Appellate Court is explicit in that "the writ of execution shall be against respondents
(should read petitioners-appellees) and their privies". 10 As said Court had explained,
this is so "because a judgment is not confined to what appears on the face of the
decision, but comprehends what is necessarily included therein or necessary thereto
in order to make it effective. 11 As provided as well in the first paragraph of Article
2036 of the Civil Code, " a compromise comprises only those objects which are
definitely stated therein, or which by necessary implication from its terms should be
deemed to have been included in the same."
WHEREFORE, the judgment of respondent Appellate Court appealed from is hereby
affirmed in toto. Costs against petitioners.
SO ORDERED.1äwphï1.ñët
.R. No. L-34857 October 12, 1984
AGAPITO PAREDES and LEONA GASO-PAREDES, petitioners,
vs.
THE COURT OF APPEALS and TEODORO LARIANES, respondents.
Salvador Tobias for petitioners.
Eugenio G. Femarino for private respondent.
MELENCIO-HERRERA, J.:ñé+.£ªwph!1
This is a petition for review of the Decision of the then Court of Appeals in CA-G.R.
No. 44276-R, which reversed the Order of the defunct Court of Agrarian Relations in
Iloilo City and directed the issuance of a Writ of Execution based on an amicable
settlement in said case.
Teodoro Larianes, private respondent herein, filed a Complaint for Illegal Ejectment
and Damages in the then Court of Agrarian Relations of Iloilo City against the
spouses Agapito Parades and Leona Gaso-Paredes, petitioners herein (CAR Case
No. 1239, Iloilo — 1962).
Private respondent alleged that he had been a tenant of a rice land with an area of
two (2) hectares, more or less, situated at Cabatuan, Iloilo, by virtue of a verbal
contract of tenancy entered into by him in 1958 with his relatives Emiliana Parades-
Tobias (owner of a 1/2 portion) and Joaquina Magbanwa owner of a 1/4 portion),
private respondent himself being the owner of the remaining 1/4 of the landholding;
that in March 1961, petitioners acquired by purchase from private respondent and
Joaquina Magbanwa their respective portions of the landholding in question thus
making them the owners of a one-half portion, with the other half being owned by
Emiliana Parades-Tobias; that sometime in March 1962, petitioners, without any just
cause, threatened to eject him without the conformity of their daughter Emiliana
Paredes-Tobias; that private respondent's average yearly net produce in the
landholding was 50 bultos or 100 cavans of palay, legal measure; that the sharing of
the crop was 50-50; and that in view of the unlawful acts of petitioners, private
respondent had to engage the services of counsel for the sum of P300.00.
On April 3, 1962, petitioners filed a Motion to Dismiss on the ground that they are not
the owners of the landholding in question and that an indispensable party to the case,
Emiliana Parades-Tobias, 1 owner of a 1/2 portion, had not been impleaded.
Dismissal was denied by the Trial Court in an Order, dated January 9, 1963, and
petitioners were directed to file their Answer.
Upon motion by private respondent, the Trial Court declared petitioners in default for
their failure to file said Answer. After receiving the evidence of private respondent ex-
parte, the Trial Court rendered judgment by default against petitioners, as defendants
below, on September 24, 1965, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, judgment is hereby rendered:
1. Ordering the herein defendants to reinstate plaintiff Teodoro
Larianes to the landholding in question with an area of 2 hectares,
more or less, situated at barrio Janipa-an Central, Cabatuan, Iloilo;
2. Ordering the defendants to deliver to plaintiff Teodoro Larianes
the quantity of 25 bultos of palay every agricultural year beginning
in the agricultural year 1962-63 when he was ejected, until the time
he is reinstated to the landholding in question, or its equivalent in
money at the current price per bulto of palay in the locality; and
3. Ordering defendants to pay plaintiff the sum of P300.00 as
attorney's fees.
Alleging finality of the judgment, private respondent filed a Motion for Execution.
However, after moving for postponement of execution, petitioners filed, on December
18, 1965, a petition to set aside the Order of Default and for trial on the merits.
On March 12, 1966, while said petition was pending, the parties submitted the
following: têñ.£îhqwâ£
AMICABLE SETTLEMENT
COME NOW the parties in the above-entitled case, assisted by
their respective counsel, and unto this Honorable Court most
respectfully manifest:
That judgment was rendered on the above-entitled case on
September 24, 1965, and in satisfaction of the same the parties do
hereby agree, to wit:
1. That the plaintiff shall be reinstated as tenant of the landholding
(Lot No. 5056 of the Cadastral Survey of Cabatuan) subject of this
case and shall continue to work thereon as long as he wishes
except for a lawful cause;
2. That the defendants by these presents, are deemed to have
given possession of the said landholding to plaintiff as tenant;
3. That this settlement shall be considered as a complete
satisfaction of the judgment in this case above stated and the
parties hereby release each other from any claim whatsoever by
virtue of said judgment;
4. That by virtue of this agreement, the parties agree that the
above-entitled case be considered closed.
WHEREFORE, premises considered, it is respectfully prayed of this
Honorable Court that the above settlement be approved and that
judgment in the above-entitled case be deemed completely
satisfied.
Iloilo City, March 12, 1966.
(SGD.) TEODORO LARIANES AGAPITO PAREDES &
LEONA GASO-PAREDES têñ.£îhqwâ£
(Spouses)têñ.£îhqwâ£
By:
(SGD.) AGAPITO PAREDES
WITH MY CONFORMITY:
(SGD). EMILIANA PAREDES-TOBIAS
(SGD.) SALVADOR L. TOBIAS
Counsel for the Defendants
Cabatuan, Iloilo
(SGD.) MARIO P. BUENVENIDA
Counsel for the Plaintiff
Saenz Bldg. J.M. Basa St.,
Iloilo City 2
The Trial Court approved the Amicable Settlement in an Order, dated March 14,
1966, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, there being nothing contrary to law, morals, or
public policy in the terms of said amicable settlement as prayed for,
the same is approved and the parties are enjoined to abide by and
comply with all its terms. The j judgment dated September 24,
1965, is deemed completely satisfied and all other pending
incidents in this case are deemed withdrawn.
In The meantime, on March 30, 1968, a certain Alberto 'Tobias is alleged to have
repurchased the landholding from the petitioners 3 and he became the possessor of
the landholding. He, too, refused to turn over possession to private respondent.
On May 12, 1969, claiming that he was allowed to enter the landholding for the year
1966 only and that thereafter he was already prevented from working the land, even
by Tobias, private respondent filed a Motion for Execution against petitioners-
defendants and their privies or successors-in-interest especially Alberto Tobias, for
the delivery of possession and damages beginning the crop year 1967 and until
possession is delivered.
Alberto 'Tobias opposed execution contending that he was not a party to the case nor
to the Amicable Settlement and is, therefore, not bound by the same Further, that
there was nothing to execute inasmuch as the judgment had been fully satisfied.
Petitioners similarly maintained that no execution would lie because the judgment
was superseded by the Amicable Settlement, which was considered in complete
satisfaction of the judgment.
On August 1, 1969, the Trial Court denied execution in an Order reading: têñ.£îhqwâ£
It appearing that decision in this case dated September 24, 1965
has already been satisfied as shown by the Order dated March 14,
1966 approving the amicable settlement submitted by the parties in
satisfaction of the said decision, there remains nothing left in the c
case to be executed.
WHEREFORE, the motion for execution filed by plaintiff, through
counsel, on May 12, 1969, is hereby denied.
From the foregoing Order, private respondent appealed to respondent Appellate
Court, which found the appeal meritorious and which rendered judgment, the
dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, the Order dated August 1, 1969 appealed from is
hereby reversed and judgment is rendered directing the issuance of
a writ of execution to enforce the judgment and amicable settlement
in CAR Case No. 1239 of the Court of Agrarian Relations at Iloilo
City, with costs against respondents-appellees.
Availing of certiorari before us, petitioners contend that respondent Appellate Court
erred: 1) in not dismissing the appeal for failure of the private respondent to serve
notice of appeal, appeal brief and other appeal pleadings and papers upon the
appellees-petitioners; 2) in not finding that it never acquired jurisdiction over the
persons of the petitioners; 3) in not finding that private respondent had lost his right to
appeal under the rule of res adjudicata 4) in not finding that the lower Court's
decision, dated September 24, 1965, cannot be executed; and 5) in not finding that
enforcement of the lower Court's decision, dated September 24, 1965, would work
injustice to petitioners-appellees. 4 '
Petitioners' submissions are groundless.
1) A Motion to Dismiss Appeal on the same grounds as those alleged in (1)
above 5 was filed before respondent Appellate Court. but the same was
denied. 6 Petitioners' Motion tor Reconsideration was similarly denied. 7 Petitioners-
appellees could have asked for time within which to file their Brief after such denial,
but they did not. It should also be noted that neither did they file their Answer before
the Trial Court for which reason they were declared in default. Consequently, they
cannot now be heard to complain that they were denied their day in Court, a situation
brought about by their own inaction, particularly if, as they claim, they had strong and
valid defenses.
2) Respondent Appellate Court must be held to have acquired jurisdiction over
petitioners' persons since they appeared before said Court when they filed their
Motion to Dismiss Appeal and their Motion for Reconsideration from the Resolution
denying dismissal.
3) The loss of private respondent's right to appeal on the ground of res judicata is
neither meritorious not only because it is raised for the first time in this Petition but
also because the alleged Order of dismissal of CAR Case No. 1841, dated March 1,
1969, much less any other pleading in said case, do not form part of the records
elevated to respondent Court nor to this Tribunal.
4) In so far as the issue of execution is concerned, we agree with respondent
Appellate Court that when the terms of an amicable settlement are violated, as in the
case at bar, the remedy of the aggrieved party is to move for execution. 8
A compromise agreement is part and parcel of the judgment and may, therefore, be
enforced as such by a Writ of Execution. 9 All, pursuant to Article 2041 of the Civil
Code, which provides: têñ.£îhqwâ£
Art. 2041. If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the compromise or
regard it as rescinded and insist upon his original demand.
5) We do not find any injustice caused petitioners-appellees by the enforcement of
the Trial Court's judgment. They were signatories to the Amicable Settlement
submitted to said Court on March 12, 1966. They are bound by the judgment
rendered thereafter approving the same. The allegation that they are only vendees
a retro and that the landholding was repurchased on March 30, 1968 was never
brought out in their Motion to Dismiss Appeal filed before respondent Court on August
25, 1971.
Besides, irrespective of who may be in possession, the judgment of respondent
Appellate Court is explicit in that "the writ of execution shall be against respondents
(should read petitioners-appellees) and their privies". 10 As said Court had explained,
this is so "because a judgment is not confined to what appears on the face of the
decision, but comprehends what is necessarily included therein or necessary thereto
in order to make it effective. 11 As provided as well in the first paragraph of Article
2036 of the Civil Code, " a compromise comprises only those objects which are
definitely stated therein, or which by necessary implication from its terms should be
deemed to have been included in the same."
WHEREFORE, the judgment of respondent Appellate Court appealed from is hereby
affirmed in toto. Costs against petitioners.
SO ORDERED.1äwphï1.ñët
Saenz Bldg. J.M. Basa St.,Iloilo City 2
The Trial Court approved the Amicable Settlement in an Order, dated March 14, 1966,
the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, there being nothing contrary to law, morals, or public
policy in the terms of said amicable settlement as prayed for, the
same is approved and the parties are enjoined to abide by and
comply with all its terms. The j judgment dated September 24, 1965,
is deemed completely satisfied and all other pending incidents in this
case are deemed withdrawn.
In The meantime, on March 30, 1968, a certain Alberto 'Tobias is alleged to have
repurchased the landholding from the petitioners 3 and he became the possessor of the
landholding. He, too, refused to turn over possession to private respondent.
On May 12, 1969, claiming that he was allowed to enter the landholding for the year
1966 only and that thereafter he was already prevented from working the land, even by
Tobias, private respondent filed a Motion for Execution against petitioners-defendants
and their privies or successors-in-interest especially Alberto Tobias, for the delivery of
possession and damages beginning the crop year 1967 and until possession is
delivered.
Alberto 'Tobias opposed execution contending that he was not a party to the case nor
to the Amicable Settlement and is, therefore, not bound by the same Further, that there
was nothing to execute inasmuch as the judgment had been fully satisfied.
Petitioners similarly maintained that no execution would lie because the judgment was
superseded by the Amicable Settlement, which was considered in complete satisfaction
of the judgment.
On August 1, 1969, the Trial Court denied execution in an Order reading: têñ.£îhqwâ£
It appearing that decision in this case dated September 24, 1965 has
already been satisfied as shown by the Order dated March 14, 1966
approving the amicable settlement submitted by the parties in
satisfaction of the said decision, there remains nothing left in the c
case to be executed.
WHEREFORE, the motion for execution filed by plaintiff, through
counsel, on May 12, 1969, is hereby denied.
From the foregoing Order, private respondent appealed to respondent Appellate Court,
which found the appeal meritorious and which rendered judgment, the dispositive
portion of which reads: têñ.£îhqwâ£
WHEREFORE, the Order dated August 1, 1969 appealed from is
hereby reversed and judgment is rendered directing the issuance of
a writ of execution to enforce the judgment and amicable settlement
in CAR Case No. 1239 of the Court of Agrarian Relations at Iloilo
City, with costs against respondents-appellees.
Availing of certiorari before us, petitioners contend that respondent Appellate Court
erred: 1) in not dismissing the appeal for failure of the private respondent to serve notice
of appeal, appeal brief and other appeal pleadings and papers upon the appellees-
petitioners; 2) in not finding that it never acquired jurisdiction over the persons of the
petitioners; 3) in not finding that private respondent had lost his right to appeal under
the rule of res adjudicata 4) in not finding that the lower Court's decision, dated
September 24, 1965, cannot be executed; and 5) in not finding that enforcement of the
lower Court's decision, dated September 24, 1965, would work injustice to petitioners-
appellees. 4 '
Petitioners' submissions are groundless.
1) A Motion to Dismiss Appeal on the same grounds as those alleged in (1) above 5 was
filed before respondent Appellate Court. but the same was denied. 6 Petitioners' Motion
tor Reconsideration was similarly denied. 7 Petitioners-appellees could have asked for
time within which to file their Brief after such denial, but they did not. It should also be
noted that neither did they file their Answer before the Trial Court for which reason they
were declared in default. Consequently, they cannot now be heard to complain that
they were denied their day in Court, a situation brought about by their own inaction,
particularly if, as they claim, they had strong and valid defenses.
2) Respondent Appellate Court must be held to have acquired jurisdiction over
petitioners' persons since they appeared before said Court when they filed their Motion
to Dismiss Appeal and their Motion for Reconsideration from the Resolution denying
dismissal.
3) The loss of private respondent's right to appeal on the ground of res judicata is
neither meritorious not only because it is raised for the first time in this Petition but also
because the alleged Order of dismissal of CAR Case No. 1841, dated March 1, 1969,
much less any other pleading in said case, do not form part of the records elevated to
respondent Court nor to this Tribunal.
4) In so far as the issue of execution is concerned, we agree with respondent Appellate
Court that when the terms of an amicable settlement are violated, as in the case at bar,
the remedy of the aggrieved party is to move for execution. 8
A compromise agreement is part and parcel of the judgment and may, therefore, be
enforced as such by a Writ of Execution. 9 All, pursuant to Article 2041 of the Civil Code,
which provides: têñ.£îhqwâ£
Art. 2041. If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the compromise or
regard it as rescinded and insist upon his original demand.
5) We do not find any injustice caused petitioners-appellees by the enforcement of the
Trial Court's judgment. They were signatories to the Amicable Settlement submitted to
said Court on March 12, 1966. They are bound by the judgment rendered thereafter
approving the same. The allegation that they are only vendees a retro and that the
landholding was repurchased on March 30, 1968 was never brought out in their Motion
to Dismiss Appeal filed before respondent Court on August 25, 1971.
Besides, irrespective of who may be in possession, the judgment of respondent
Appellate Court is explicit in that "the writ of execution shall be against respondents
(should read petitioners-appellees) and their privies". 10 As said Court had explained,
this is so "because a judgment is not confined to what appears on the face of the
decision, but comprehends what is necessarily included therein or necessary thereto
in order to make it effective. 11 As provided as well in the first paragraph of Article 2036
of the Civil Code, " a compromise comprises only those objects which are definitely
stated therein, or which by necessary implication from its terms should be deemed to
have been included in the same."
WHEREFORE, the judgment of respondent Appellate Court appealed from is hereby
affirmed in toto. Costs against petitioners.

SO ORDERED.1äwphï1.ñët

G.R. No. 158891 June 27, 2012

PABLO P. GARCIA, Petitioner,

vs.
YOLANDA VALDEZ VILLAR, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari1 of the February 27, 2003 Decision2 and July
2, 2003 Resolution3 of the Court of Appeals in CA-G.R. SP No. 72714, which reversed
the May 27, 2002 Decision4 of the Regional Trial Court (RTC), Branch 92 of Quezon
City in Civil Case No. Q-99-39139.

Lourdes V. Galas (Galas) was the original owner of a piece of property (subject
property) located at Malindang St., Quezon City, covered by Transfer Certificate of Title
(TCT) No. RT-67970(253279).5

On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker,
mortgaged the subject property to Yolanda Valdez Villar (Villar) as security for a loan
in the amount of Two Million Two Hundred Thousand Pesos (₱2,200,000.00).6

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

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

REAL ESTATE MORTGAGE

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

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

Date of Instrument: 7-6-93

Date of Inscription: 7-7-93

SECOND REAL ESTATE MORTGAGE
Entry No. 821/T-RT-67970(253279) MORTGAGE – In favor of Pablo Garcia m/to
Isabela Garcia to guarantee a principal obligation in the sum of ₱1,800,000.00
mortgagee’s consent necessary in case of subsequent encumbrance or alienation of
the property; Other conditions set forth in Doc. No. 08, Book No. VII, Page No. 03 of
the Not. Pub. of Azucena Espejo Lozada
Date of Instrument: 10/10/94
Date of Inscription: 10/11/94
LRC Consulta No. 1698
On November 21, 1996, Galas sold the subject property to Villar for One Million Five
Hundred Thousand Pesos (₱1,500,000.00), and declared in the Deed of Sale 9 that
such property was "free and clear of all liens and encumbrances of any kind
whatsoever."10
On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No.
RT-67970(253279) was cancelled and TCT No. N-16836111 was issued in the name of
Villar. Both Villar’s and Garcia’s mortgages were carried over and annotated at the back
of Villar’s new TCT.12
On October 27, 1999, Garcia filed a Petition for Mandamus with Damages 13 against
Villar before the RTC, Branch 92 of Quezon City. Garcia subsequently amended his
petition to a Complaint for Foreclosure of Real Estate Mortgage with
Damages.14 Garcia alleged that when Villar purchased the subject property, she acted
in bad faith and with malice as she knowingly and willfully disregarded the provisions
on laws on judicial and extrajudicial foreclosure of mortgaged property. Garcia further
claimed that when Villar purchased the subject property, Galas was relieved of her
contractual obligation and the characters of creditor and debtor were merged in the
person of Villar. Therefore, Garcia argued, he, as the second mortgagee, was
subrogated to Villar’s original status as first mortgagee, which is the creditor with the
right to foreclose. Garcia further asserted that he had demanded payment from
Villar,15 whose refusal compelled him to incur expenses in filing an action in court. 16
Villar, in her Answer,17 claimed that the complaint stated no cause of action and that
the second mortgage was done in bad faith as it was without her consent and
knowledge. Villar alleged that she only discovered the second mortgage when she had
the Deed of Sale registered. Villar blamed Garcia for the controversy as he accepted
the second mortgage without prior consent from her. She averred that there could be
no subrogation as the assignment of credit was done with neither her knowledge nor
prior consent. Villar added that Garcia should seek recourse against Galas and Pingol,
with whom he had privity insofar as the second mortgage of property is concerned.
On May 23, 2000, the RTC issued a Pre-Trial Order18 wherein the parties agreed on
the following facts and issue:
STIPULATIONS OF FACTS/ADMISSIONS
The following are admitted:
1. the defendant admits the second mortgage annotated at the back of TCT
No. RT-67970 of Lourdes V. Galas with the qualification that the existence of
said mortgage was discovered only in 1996 after the sale;
2. the defendant admits the existence of the annotation of the second
mortgage at the back of the title despite the transfer of the title in the name of
the defendant;
3. the plaintiff admits that defendant Yolanda Valdez Villar is the first
mortgagee;
4. the plaintiff admits that the first mortgage was annotated at the back of the
title of the mortgagor Lourdes V. Galas; and
5. the plaintiff admits that by virtue of the deed of sale the title of the property
was transferred from the previous owner in favor of defendant Yolanda Valdez
Villar.
xxxx
ISSUE
Whether or not the plaintiff, at this point in time, could judicially foreclose the property
in question.
On June 8, 2000, upon Garcia’s manifestation, in open court, of his intention to file a
Motion for Summary Judgment,19 the RTC issued an Order20 directing the parties to
simultaneously file their respective memoranda within 20 days.
On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of
Merit21 on the grounds that there was no genuine issue as to any of the material facts
of the case and that he was entitled to a judgment as a matter of law.
On June 28, 2000, Garcia filed his Memorandum22 in support of his Motion for Summary
Judgment and in compliance with the RTC’s June 8, 2000 Order. Garcia alleged that
his equity of redemption had not yet been claimed since Villar did not foreclose the
mortgaged property to satisfy her claim.
On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to File
Her Memorandum.23 This, however, was denied24 by the RTC in view of Garcia’s
Opposition.25
On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which reads:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
favor of the plaintiff Pablo P. Garcia and against the defendant Yolanda V. Villar, who
is ordered to pay to the former within a period of not less than ninety (90) days nor more
than one hundred twenty (120) days from entry of judgment, the sum of ₱1,800,000.00
plus legal interest from October 27, 1999 and upon failure of the defendant to pay the
said amount within the prescribed period, the property subject matter of the 2nd Real
Estate Mortgage dated October 10, 1994 shall, upon motion of the plaintiff, be sold at
public auction in the manner and under the provisions of Rules 39 and 68 of the 1997
Revised Rules of Civil Procedure and other regulations governing sale of real estate
under execution in order to satisfy the judgment in this case. The defendant is further
ordered to pay costs.26
The RTC declared that the direct sale of the subject property to Villar, the first
mortgagee, could not operate to deprive Garcia of his right as a second mortgagee.
The RTC said that upon Galas’s failure to pay her obligation, Villar should have
foreclosed the subject property pursuant to Act No. 3135 as amended, to provide junior
mortgagees like Garcia, the opportunity to satisfy their claims from the residue, if any,
of the foreclosure sale proceeds. This, the RTC added, would have resulted in the
extinguishment of the mortgages.27
The RTC held that the second mortgage constituted in Garcia’s favor had not been
discharged, and that Villar, as the new registered owner of the subject property with a
subsisting mortgage, was liable for it.28
Villar appealed29 this Decision to the Court of Appeals based on the arguments that
Garcia had no valid cause of action against her; that he was in bad faith when he
entered into a contract of mortgage with Galas, in light of the restriction imposed by the
first mortgage; and that Garcia, as the one who gave the occasion for the commission
of fraud, should suffer. Villar further asseverated that the second mortgage is a void
and inexistent contract considering that its cause or object is contrary to law, moral,
good customs, and public order or public policy, insofar as she was concerned. 30
Garcia, in his Memorandum,31 reiterated his position that his equity of redemption
remained "unforeclosed" since Villar did not institute foreclosure proceedings. Garcia
added that "the mortgage, until discharged, follows the property to whomever it may be
transferred no matter how many times over it changes hands as long as the annotation
is carried over."32
The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to wit:
WHEREFORE, the decision appealed from is REVERSED and another one entered
DISMISSING the complaint for judicial foreclosure of real estate mortgage with
damages.33
The Court of Appeals declared that Galas was free to mortgage the subject property
even without Villar’s consent as the restriction that the mortgagee’s consent was
necessary in case of a subsequent encumbrance was absent in the Deed of Real
Estate Mortgage. In the same vein, the Court of Appeals said that the sale of the subject
property to Villar was valid as it found nothing in the records that would show that Galas
violated the Deed of Real Estate Mortgage prior to the sale.34
In dismissing the complaint for judicial foreclosure of real estate mortgage with
damages, the Court of Appeals held that Garcia had no cause of action against Villar
"in the absence of evidence showing that the second mortgage executed in his favor
by Lourdes V. Galas [had] been violated and that he [had] made a demand on the latter
for the payment of the obligation secured by said mortgage prior to the institution of his
complaint against Villar."35
On March 20, 2003, Garcia filed a Motion for Reconsideration36 on the ground that the
Court of Appeals failed to resolve the main issue of the case, which was whether or not
Garcia, as the second mortgagee, could still foreclose the mortgage after the subject
property had been sold by Galas, the mortgage debtor, to Villar, the mortgage creditor.
This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003
Resolution.
Garcia is now before this Court, with the same arguments he posited before the lower
courts. In his Memorandum,37 he added that the Deed of Real Estate Mortgage
contained a stipulation, which is violative of the prohibition on pactum commissorium.
Issues
The crux of the controversy before us boils down to the propriety of Garcia’s demand
upon Villar to either pay Galas’s debt of ₱1,800,000.00, or to judicially foreclose the
subject property to satisfy the aforesaid debt. This Court will, however, address the
following issues in seriatim:
1. Whether or not the second mortgage to Garcia was valid;
2. Whether or not the sale of the subject property to Villar was valid;
3. Whether or not the sale of the subject property to Villar was in violation of
the prohibition on pactum commissorium;
4. Whether or not Garcia’s action for foreclosure of mortgage on the subject
property can prosper.
Discussion
Validity of second mortgage to Garcia
and sale of subject property to Villar
At the onset, this Court would like to address the validity of the second mortgage to
Garcia and the sale of the subject property to Villar. We agree with the Court of Appeals
that both are valid under the terms and conditions of the Deed of Real Estate Mortgage
executed by Galas and Villar.
While it is true that the annotation of the first mortgage to Villar on Galas’s TCT
contained a restriction on further encumbrances without the mortgagee’s prior consent,
this restriction was nowhere to be found in the Deed of Real Estate Mortgage. As this
Deed became the basis for the annotation on Galas’s title, its terms and conditions take
precedence over the standard, stamped annotation placed on her title. If it were the
intention of the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.
Neither did this Deed proscribe the sale or alienation of the subject property during the
life of the mortgages. Garcia’s insistence that Villar should have judicially or
extrajudicially foreclosed the mortgage to satisfy Galas’s debt is misplaced. The Deed
of Real Estate Mortgage merely provided for the options Villar may undertake in case
Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed that Galas
could not opt to sell the subject property to Villar, or to any other person. Such
stipulation would have been void anyway, as it is not allowed under Article 2130 of the
Civil Code, to wit:
Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged
shall be void.
Prohibition on pactum commissorium
Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagor’s
attorney-in-fact, to sell the property in case of default in the payment of the loan, is in
violation of the prohibition on pactum commissorium, as stated under Article 2088 of
the Civil Code, viz:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
The power of attorney provision in the Deed of Real Estate Mortgage reads:
5. Power of Attorney of MORTGAGEE. – Effective upon the breach of any condition of
this Mortgage, and in addition to the remedies herein stipulated, the MORTGAGEE is
likewise appointed attorney-in-fact of the MORTGAGOR with full power and authority
to take actual possession of the mortgaged properties, to sell, lease any of the
mortgaged properties, to collect rents, to execute deeds of sale, lease, or agreement
that may be deemed convenient, to make repairs or improvements on the mortgaged
properties and to pay the same, and perform any other act which the MORTGAGEE
may deem convenient for the proper administration of the mortgaged properties. The
payment of any expenses advanced by the MORTGAGEE in connection with the
purpose indicated herein is also secured by this Mortgage. Any amount received from
the sale, disposal or administration abovementioned maybe applied by assessments
and other incidental expenses and obligations and to the payment of original
indebtedness including interest and penalties thereon. The power herein granted shall
not be revoked during the life of this Mortgage and all acts which may be executed by
the MORTGAGEE by virtue of said power are hereby ratified.38
The following are the elements of pactum commissorium:
(1) There should be a property mortgaged by way of security for the payment
of the principal obligation; and
(2) There should be a stipulation for automatic appropriation by the creditor of
the thing mortgaged in case of non-payment of the principal obligation within
the stipulated period.39
Villar’s purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision above did not provide that the
ownership over the subject property would automatically pass to Villar upon Galas’s
failure to pay the loan on time. What it granted was the mere appointment of Villar as
attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and
to apply the proceeds to the payment of the loan. 40 This provision is customary in
mortgage contracts, and is in conformity with Article 2087 of the Civil Code, which
reads:
Art. 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated
for the payment to the creditor.
Galas’s decision to eventually sell the subject property to Villar for an additional
₱1,500,000.00 was well within the scope of her rights as the owner of the subject
property. The subject property was transferred to Villar by virtue of another and
separate contract, which is the Deed of Sale. Garcia never alleged that the transfer of
the subject property to Villar was automatic upon Galas’s failure to discharge her debt,
or that the sale was simulated to cover up such automatic transfer.
Propriety of Garcia’s action
for foreclosure of mortgage
The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit:
Art. 2126. The mortgage directly and immediately subjects the property upon which it
is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted.
Simply put, a mortgage is a real right, which follows the property, even after subsequent
transfers by the mortgagor.1âwphi1 "A registered mortgage lien is considered
inseparable from the property inasmuch as it is a right in rem."41
The sale or transfer of the mortgaged property cannot affect or release the mortgage;
thus the purchaser or transferee is necessarily bound to acknowledge and respect the
encumbrance.42 In fact, under Article 2129 of the Civil Code, the mortgage on the This pronouncement was reiterated in Rodriguez v. Reyes48 wherein this Court, even
property may still be foreclosed despite the transfer, viz: before quoting the same above portion in E.C. McCullough & Co. v. Veloso and Serna,
held:
Art. 2129. The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said third We find the stand of petitioners-appellants to be unmeritorious and untenable. The
person possesses, in terms and with the formalities which the law establishes. maxim "caveat emptor" applies only to execution sales, and this was not one such. The
mere fact that the purchaser of an immovable has notice that the acquired realty is
While we agree with Garcia that since the second mortgage, of which he is the encumbered with a mortgage does not render him liable for the payment of the debt
mortgagee, has not yet been discharged, we find that said mortgage subsists and is guaranteed by the mortgage, in the absence of stipulation or condition that he is to
still enforceable. However, Villar, in buying the subject property with notice that it was assume payment of the mortgage debt. The reason is plain: the mortgage is merely an
mortgaged, only undertook to pay such mortgage or allow the subject property to be encumbrance on the property, entitling the mortgagee to have the property foreclosed,
sold upon failure of the mortgage creditor to obtain payment from the principal debtor i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the
once the debt matures. Villar did not obligate herself to replace the debtor in the proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory
principal obligation, and could not do so in law without the creditor’s consent. 43 Article undertaking for the convenience and security of the mortgage creditor, and exists
1293 of the Civil Code provides: independently of the obligation to pay the debt secured by it. The mortgagee, if he is
so minded, can waive the mortgage security and proceed to collect the principal debt
by personal action against the original mortgagor.49
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the new debtor gives him the In view of the foregoing, Garcia has no cause of action against Villar in the absence of
rights mentioned in articles 1236 and 1237. evidence to show that the second mortgage executed in favor of Garcia has been
violated by his debtors, Galas and Pingol, i.e., specifically that Garcia has made a
demand on said debtors for the payment of the obligation secured by the second
Therefore, the obligation to pay the mortgage indebtedness remains with the original mortgage and they have failed to pay.
debtors Galas and Pingol.44 The case of E.C. McCullough & Co. v. Veloso and
Serna45 is square on this point:
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March
8, 2003 Resolution of the Court of Appeals in CA-G.R. SP No. 72714.
The effects of a transfer of a mortgaged property to a third person are well determined
by the Civil Code.1âwphi1 According to article 187946 of this Code, the creditor may
demand of the third person in possession of the property mortgaged payment of such SO ORDERED.
part of the debt, as is secured by the property in his possession, in the manner and
form established by the law. The Mortgage Law in force at the promulgation of the Civil
Code and referred to in the latter, provided, among other things, that the debtor should
not pay the debt upon its maturity after judicial or notarial demand, for payment has
been made by the creditor upon him. (Art. 135 of the Mortgage Law of the Philippines
of 1889.) According to this, the obligation of the new possessor to pay the debt
originated only from the right of the creditor to demand payment of him, it being
necessary that a demand for payment should have previously been made upon the
debtor and the latter should have failed to pay. And even if these requirements were
complied with, still the third possessor might abandon the property mortgaged, and in
that case it is considered to be in the possession of the debtor. (Art. 136 of the same
law.) This clearly shows that the spirit of the Civil Code is to let the obligation of the
debtor to pay the debt stand although the property mortgaged to secure the payment
of said debt may have been transferred to a third person. While the Mortgage Law of
1893 eliminated these provisions, it contained nothing indicating any change in the
spirit of the law in this respect. Article 129 of this law, which provides the substitution
of the debtor by the third person in possession of the property, for the purposes of the
giving of notice, does not show this change and has reference to a case where the
action is directed only against the property burdened with the mortgage. (Art. 168 of
the Regulation.)47

G.R. No. 174329 October 20, 2010
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
ENVIRONMENTAL AQUATICS, INC., LAND SERVICES AND MANAGEMENT
ENTERPRISES, INC. and MARIO MATUTE Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The
petition challenges the 16 January 2006 Decision 2 and 16 August 2006 Resolution3 of
the Court of Appeals in CA-G.R. CV No. 46207. The Court of Appeals affirmed with
modification the 7 January 1994 Decision4 of the Regional Trial Court (RTC), National
Capital Judicial Region, Branch 84, Quezon City, in Civil Case No. Q-91-10563.
The Facts
On 10 September 1976, respondents Environmental Aquatics, Inc. (EAI) and Land
Services and Management Enterprises, Inc. (LSMEI) loaned ₱1,792,600 from
petitioner Development Bank of the Philippines (DBP). As security for the loan, LSMEI
mortgaged to DBP its 411-square meter parcel of land situated in New Manila, Quezon
City, and covered by Transfer Certificate of Title No. 209937. 5 The mortgage
contract6 stated that:
If at anytime the Mortgagor shall fail or refuse to pay any of the amortization on the
indebtedness, or the interest when due, or whatever other obligation herein secured or
to comply with any of the conditions and stipulations herein agreed, or shall initiate
insolvency proceedings or be declared involuntary insolvent (sic), or uses the proceeds
of the loan for purposes other than those specified herein then all the amortizations and
other obligations of the Mortgagor of any nature, shall become due, payable and
defaulted and the Mortgagee may immediately foreclose this mortgage judicially or
extrajudicially under Act No. 3135 as amended, or under Republic Act No. 85, as
amended and or under Act No. 1508 as amended.7
On 31 August 1981, DBP restructured the loan. In their promissory notes,8 EAI and
LSMEI stated that:
On or before March 14, 1986, for value received, we jointly and severally, promise to
pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its office at Makati, Metro
Manila, Philippines, the sum of * * ONE MILLION NINE HUNDRED SEVENTY THREE
THOUSAND ONE HUNDRED PESOS (₱1,973,100.00), Philippine Currency, with
interest at the rate of sixteen per centum (16%) per annum.9
On or before March 14, 1986, for value received, we jointly and severally, promise to
pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its office at Makati, Metro
Manila, Philippines, the sum of * * ONE HUNDRED NINETY THOUSAND SEVEN
HUNDRED PESOS * * (₱190,700), Philippine Currency, with interest at the rate of
fourteen per centum (14%) per annum.10
On or before March 14, 1982, for value received, I/We, jointly and severally, promise
to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or order at its office at
Makati, Metro Manila, Philippines, the sum of * * SIX HUNDRED EIGHTY FOUR
THOUSAND SEVEN HUNDRED EIGHTY EIGHT PESOS * * (₱684,788.00), Philippine
Currency, with interest at the rate of ________ per centum (___%) per annum. 11
EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan had increased
to ₱16,384,419.90.12 On 25 October 1990, DBP applied for extrajudicial foreclosure of
the real estate mortgage. In its application letter,13 DBP stated that:
[W]e request [the ex-officio sheriff] to take possession of the properties described in the
above-mentioned mortgages as well as those embraced in the after acquired properties
clause thereof, and sell the same at public auction in accordance with the provisions of
Act 3135, as amended by Act 4118, with respect to the real estate and Act 1508 with
respect to the chattels, as amended by Presidential Decree No. 385 aforecited.14
During the 19 December 1990 public auction, the ex-officio sheriff sold the property to
DBP as the highest bidder for ₱1,507,000.15
On 15 May 1991, LSMEI transferred its right to redeem the property to respondent
Mario Matute (Matute). In his 27 July 1991 letter,16 Atty. Julian R. Vitug, Jr. (Atty. Vitug,
Jr.) informed DBP that his client Matute was interested in redeeming the property by
paying the ₱1,507,000 purchase price, plus other costs. In its 29 August 1991
letter,17 DBP informed Atty. Vitug, Jr. that Matute could redeem the property by paying
the remaining balance of EAI and LSMEI's loan. As of 31 August 1991, the loan
amounted to ₱19,279,106.22.18
On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a complaint19 praying
that DBP be ordered "to accept x x x Matute's bonafide offer to redeem the foreclosed
property."20
The RTC's Ruling
In its 7 January 1994 Decision, the RTC allowed Matute to redeem the property at its
₱1,507,000 purchase price. The RTC held that:
The question is whether, as the defendant DBP contends, the redemption should be
made by paying to the Bank the entire amount owed by plaintiffs-corporations "in the
amount of ₱18,301,653.11 as of the date of foreclosure on December 12, 1990",
invoking Sec. 16 of Executive Order No. 81 otherwise known as the 1986 Revised
Charter of DBP. On the other hand, the plaintiffs contend that this redemption may be
made only by reimbursing the defendant Bank what it has paid for at the auction sale
made to it (sic), in the amount of ₱1,507,000.00, pursuant to Section 5 of Act No. 3135
and Sections 26 to 30 of Rule 39 of the Revised Rules of Court.
Plaintiffs are correct. It is to be noted that the mortgage at issue was executed on
September 10, 1976, Exhs. "A" and "2". Republic Act No. 2081 entitled "An Act to
Amend Republic Act Numbered Eighty-Five and Other Pertinent Laws, to Provide
Facilities for Intermediate and Long-Term Credit by Converting the Rehabilitation
Finance Corporation into the Development Bank of the Philippines, Authorizing the said
Bank to Aid in the Establishment of Provincial and City Private Development Banks,
and for Other Purposes" was approved and made effective on June 14, 1958. It was
therefore the law the Charter (sic) of DBP, when in 1976 the mortgage here in issue
was executed. On the other hand, Executive Order No. 81, with its Section 16 thereof
(sic) reading as follows:
"Sec. 16. Right of Redemption. — Any mortgagor of the Bank whose real property has
been extrajudicially sold at public auction shall, within one (1) year counted from the
date of registration of the certificate of sale, have the right to redeem the real property
by paying to the Bank all of the latter's claim against him, as determined by the Bank."
is of recent vintage. Executive Order No. 81, issued by then President Corazon C.
Aquino, was made effective on December 3, 1986. Clearly, the application of Executive
Order No. 81 to the mortgage herein involved would violate the constitutional
proscription against the impairment of contracts. Sec. 16 of Executive Order No. 81,
which governs the right of redemption in extrajudicial foreclosures, is not found in Rep.
Act No. 2081 or even in Rep. Act No. 85. And so, to make the redemption subject to a
subsequent law would be obviously prejudicial to the party exercising the right to
redeem. Any change in the law governing redemption that would make it more difficult
than under the law at the time of the mortgage cannot be given retroactive effect.
Under the terms of the mortgage contract, "Exh. "2", specifically paragraph 4 thereof:
"x x x the Mortgagee may immediately foreclose this mortgage judicially or
extrajudicially under Act No. 3135 as amended, or under Republic Act No. 85, as
amended and or under Act No. 1508 as amended. x x x x."
Going by the literal terms of this quoted provision of the mortgage contract, defendant
DBP stand bound by the same. When defendant DBP foreclosed the mortgage at issue,
it chose Act 3135. That was an option it freely exercised without the least intervention
of plaintiffs. We cannot, therefore, escape the conclusion that what defendant DBP
agreed to in respect to (sic) the possible foreclosure of its mortgage was to subject the
same to the provisions of Act No. 3135, as amended, should the DBP opt to utilize said
law. Section 6 of Act No. 3135 very clearly governs the right of redemption in
extrajudicial foreclosures thus:
"SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor
or judgment creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of the
sale; and such redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure,
in so far as these are not inconsistent with the provisions of this Act."
Sections four hundred sixty-four to four hundred sixty-five, inclusive, of the Code of Civil
Procedure, since the promulgation of the Rules of Court of 1940, became sections 29,
30 and 32 of Rule 39. The same sections were reproduced in the Revised Rules of
Court.
Having thus come to the conclusion that Act 3135 and Sections 29 to 32 of Rule 39 of
the Rules of Court rather than Executive Order No. 81 are the laws applicable to the
right of redemption invoke (sic) by plaintiffs in this case, it would appear that all that
remains for this Court to do is to apply the said legal precepts. Pursuant to Section 30
of Rule 39, "the judgment debtor — or his successor-in-interest per Sec. 29, here
plaintiff Mario Batute — may redeem the property from the purchaser, at any time within
twelve months after the sale, on paying the purchaser the amount of his purchase, with
one per centum per month interest thereon in addition, up to the time of redemption,
together with the amount of any assessments or taxes which the purchaser may have
paid thereon after the purchase, and interest on such last-named amount at the same
rate; x x x".21
DBP appealed to the Court of Appeals.
The Court of Appeals' Ruling
In its 16 January 2006 Decision, the Court of Appeals affirmed with modification the
RTC's 7 January 1994 Decision. The Court of Appeals imposed a 16% annual interest
on the remaining balance of the loan. The Court of Appeals held that:
The dearth of merit in appellant bank's position is, however, evident from the fact that,
as hereinbefore quoted, paragraph 4 of the September 10, 1976 Deed of Real Estate
Mortgage executed in its favor by appellees EAI and LSMEI provided for three options
by which the extrajudicial foreclosure thereof may be effected. Thereunder given the
choice of resorting to "Act No. 3135 as amended, or Republic Act No. 85 as amended,
or Act No. 1508 as amended", appellant bank undoubtedly opted for the first of the
aforesaid laws as may be gleaned from the following prayer it interposed in the
application for foreclosure of mortgage it filed with the Ex-Officio Sheriff of Quezon City
on October 25, 1990, viz:
"WHEREFORE, we request you to take possession of the properties described in the
above-mentioned mortgages xxx xxx xxx and sell the same at public auction in
accordance with the provisions of Act 3135, as amended by Act 4118, with respect to
the real estate xxx xxx xxx"
With appellant bank's categorical election of Act No. 3135 as the controlling law for the
extrajudicial foreclosure of the subject mortgage, it goes without saying that, insofar as
the redemption of the subject realty is concerned, the provisions of said law are deemed
written into the parties' agreement and, as such, should be respected as the law
between them.
Anent the redemption of mortgaged properties extrajudicially foreclosed in accordance
therewith, Section 6 of Act No. 3135 provides as follows:
"Section 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interests (sic) or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of the
sale; and such redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred sixty-six, inclusive, of the Code of Civil Procedure, in so
far as these are not inconsistent with the provisions of this Act."
As appropriately noted by the trial court, Sections 464, 465 and 466 of the Code of
Civil Procedure are now, respectively, Sections 27, 28 and 30 of the 1997 Rules of
Civil Procedure which, under said second provision, prescribes the following
guidelines for redemption, viz:
"Section 28. Time and manner of, and amounts payable on, successive redemptions;
notice to be given and filed. — The judgment obligor, or redemptioner, may redeem the
property from the purchaser, at any time within one (1) year from the date of the
registration of the certificate of sale, by paying the purchaser the amount of his
purchase, with one per centum per month interest thereon in addition, up to the time of
redemption, together with the amount of any assessments or taxes which may have
been paid thereon after purchase, and interest on such last named amount at the same
rate; and if the purchaser be also a creditor having a prior lien to that of the
redemptioner, other than the judgment under which such purchase (sic), the amount of
such other lien, with interest.1avvphil
Written notice of any redemption must be given to the officer who made the sale and a
duplicate filed with the registry of deeds of the place, and if any assessments or taxes
are paid by the redemptioner or if he has or acquires any lien other than that upon
which the redemption was made, notice thereof must in like manner be given to the
officer and filed with the registry of deeds; if such notice be not filed, the property may
be redeemed without paying such assessments, taxes or liens."
In order to effect the redemption of the foreclosed property, the foregoing provision
notably requires the payment to the purchaser of the following sums only: (a) the bid
price; (b) the interest on the bid price, computed at one per centum (1%) per month;
and (c) the assessments or taxes, if any, paid by the purchaser, with the same rate of
interest.
When the statute is clear and explicit, the basic principle in legal hermeneutics is to the
effect that there is no need for an extended court ratiocination on the law — there is no
room for interpretation, vacillation or equivocation, only application. Having been made
in accordance with Act No. 3135, we find that appellee Matute's offer to redeem the
subject property in the amount of ₱1,672,770.00 was, therefore, unjustifiably refused
by appellant bank. Corollarily, the rule is settled that the person effecting redemption is
not mandated to pay the whole debt since, in redemption of properties, the amount
payable is no longer the judgment debt but, rather, the purchase price thereby fetched
at the auction sale.
As for the deficiency x x x, the consistent ruling in a cantena of Supreme Court
decisions is to the effect that the mortgagee has the right to recover the same from the
debtor where, in the extrajudicial foreclosure of mortgage, the proceeds of the sale are
insufficient to pay the debt. x x x
Considering, however, that the amount offered by appellee by way of redemption
consisted merely of the purchase price for the foreclosed property, together with the
interests thereon, we find that appellant bank correctly takes exception to the trial
court's imposition of legal interest on the balance of the mortgage debt. If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment
of the interest agreed upon, and in the absence of stipulation, the legal interest which
is six per cent per annum. In the case at bench, the interest imposable on the balance
of the mortgage debt should, therefore, be the sixteen per cent (16%) per annum
provided under the August 31, 1981 Promissory Note
appellees EAI and LSMEI executed in favor of appellant.22
DBP filed a motion for reconsideration. In its 16 August 2006 Resolution, the Court of
Appeals denied the motion. Hence, the present petition.
Issues
DBP raises as issues that the lower courts erred in finding that the bank chose Act No.
3135 as the governing law for the extrajudicial foreclosure of the property, including the
determination of the redemption price, and in ruling that the redemption price is
equivalent to the ₱1,507,000 purchase price.
The Court's Ruling
The petition is meritorious.
Section 16 of Executive Order (EO) No. 81 states that the redemption price for
properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance
of the loan. Section 16 states that, "Any mortgagor of the Bank whose property has
been extrajudicially sold at public auction shall x x x have the right to redeem the real
property by paying to the Bank all of the latter's claims against him, as determined
by the Bank."
In Development Bank of the Philippines v. West Negros College, Inc.,23 the Court held
that the redemption price for properties mortgaged to and foreclosed by DBP is
equivalent to the remaining balance of the loan, with interest at the agreed rate. The
Court held that:
It has long been settled that where the real property is mortgaged to and foreclosed
judicially or extrajudicially by the Development Bank of the Philippines, the right
of redemption may be exercised only by paying to "the Bank all the amount he
owed the latter on the date of the sale, with interest on the total indebtedness at
the rate agreed upon in the obligation from said date, unless the bidder has taken
material possession of the property or unless this had been delivered to him, in which
case the proceeds of the property shall compensate the interest." x x x
The foregoing rule is embodied consistently in the charters of petitioner DBP and its
predecessor agencies. Section 31 of CA 459 creating the Agricultural and Industrial
Bank explicitly set the redemption price at the total indebtedness plus contractual
interest as of the date of the auction sale. Under RA 85 the powers vested in and the
duties conferred upon the Agricultural and Industrial Bank by CA 459 as well as its
capital, assets, accounts, contracts, and choses in action were transferred to the
Rehabilitation Finance Corporation. It has been held that among the salutary provisions
of CA 459 ceded to the Rehabilitation Finance Corporation by RA 85 was Sec. 31
defining the manner of redeeming properties mortgaged with the corporation.
Subsequently, by virtue of RA 2081 (1958), the powers, assets, liabilities and personnel
of the Rehabilitation Finance Corporation under RA 85 and CA 459, particularly Sec.
31 thereof, were transferred to petitioner DBP. Significantly, Sec. 31 of CA 459 has
been reenacted substantially in Sec. 16 of the present charter of the DBP, i.e., EO 81
(1986) as amended by RA 8523 (1998).
xxxx
The unavoidable conclusion is that in redeeming the foreclosed property
respondent West Negros College as assignee of Bacolod Medical Center should
pay the balance of the amount owed by the latter to petitioner DBP with interest
thereon at the rate agreed upon as of the date of the public auction on 24 August
1989.24 (Emphasis supplied)
In Development Bank of the Philippines v. Mirang,25 the Court held that the redemption
price for properties morgaged to and foreclosed by DBP is equivalent to the remaining
balance of the loan, with interest at the agreed rate. The Court held that, "The
unavoidable conclusion is that the appellant, in redeeming the foreclosed property,
should pay the entire amount he owed to the Bank on the date of the sale, with
interest thereon at the rate agreed upon."26
As early as 1960, the Court has already settled the issue. In Nepomuceno, et al. v.
Rehabilitation Finance Corporation,27 the Court held that the redemption price for
properties morgaged to and foreclosed by DBP is equivalent to the remaining balance
of the loan, with interest at the agreed rate. The Court held that:
The issue posed in this appeal is: considering that the loan of ₱300,000.00 was
obtained from the Rehabilitation Finance Corporation [now DBP] by spouses Jose
Nepomuceno and Isabela Acuña and Jesus Nepomuceno merely acted as
accomodation mortgagor, for what price may the mortgagor redeem his property after
the same has been sold at public auction? Would it be for the price at which the property
was sold, as contended by the mortgagor, or for the balance of the loan obtained by
the borrowers from the banking institution, as contended by appellant?
xxxx
[T]he inescapable conclusion is that the mortgagor herein or his assignees cannot
redeem the property in dispute without paying the balance of the total
indebtedness then outstanding on the date of the sale to the Rehabilitation
Finance Corporation.28 (Emphasis supplied)
The lower courts ruled that the redemption price for the property is equivalent to the
₱1,507,000 purchase price because DBP chose Act No. 3135 as the governing law for
the extrajudicial foreclosure. The RTC and Court of Appeals, respectively, stated that:
When defendant DBP foreclosed the mortgage at issue, it chose Act 3135. That was
an option it freely exercised without the least intervention of plaintiffs. We cannot,
therefore, escape the conclusion that what defendant DBP agreed to in respect to (sic)
the possible foreclosure of its mortgage was to subject the same to the provisions of
Act No. 3135, as amended, should the DBP opt to utilize said law. 29
Thereunder given the choice of resorting to "Act No. 3135 as amended, or Republic Act
No. 85 as amended, or Act No. 1508 as amended", appellant bank undoubtedly opted
for the first of the aforesaid laws as may be gleaned from the following prayer it
interposed in the application for foreclosure of mortgage it filed with the Ex-Officio
Sheriff of Quezon City on October 25, 1990.30
The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not provide a
procedure for extrajudicial foreclosure of real estate mortgage. When DBP stated in its
letter to the ex-officio sheriff that the property be sold "at public auction in accordance
with the provisions of Act 3135," it did so merely to find a proceeding for the sale.
In Development Bank of the Philippines v. Zaragoza,31 Development Bank of the
Philippines v. Mirang,32 and Development Bank of the Philippines v. Jimenez, et
al.,33 the Court held that when the bank resorted to Act No. 3135 in order to sell the
mortgaged property extrajudicially, it did so merely to find a proceeding for the sale.
In its 10 October 2006 petition, DBP claims that when it resorted to Act No. 3135 in
order to sell the mortgaged property extrajudicially, it did so merely to find a proceeding
for the sale. DBP stated that:
[W]hen herein petitioner resorted to Act 3135 in its application for extrajudicial
foreclosure of the subject mortgaged real estate, it did so only to find a proceeding
for the extrajudicial sale. The Court of Appeals should have noted that neither
Republic Act No. 85 (the Charter of the Rehabilitation Finance Corporation) nor Act
1508 (Chattel Mortgage Law) prescribe a procedure for extrajudicial foreclosure of real
estate mortgage as provided under Act 3135. Such action, therefore, cannot be
construed to mean a waiver of petitioner's right to demand the payment of respondents'
entire obligation as the proper redemption price. There is no such waiver on the part
of the petitioner.
xxxx
[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of other laws in
the extrajudicial foreclosure of the subject mortgaged real property. Such a conclusion
is definitely contrary to law and jurisprudence, which settled the rule that Act 3135 is
the general law that governs the procedure and requirements in extra-judicial
foreclosure of real estate mortgage, but in determining the redemption price of the
property mortgaged to the Development Bank of the Philippines, the DBP Charter shall
prevail.
It is of judicial notice that Act 3135 is the only law governing the proceedings in
extrajudicial foreclosure of real estate mortgage. Act No. 1508, on the other hand,
governs the extrajudicial foreclosure of chattel mortgage, and should not be in issue in
the instant case which involves a real estate mortgage.
It should likewise be of judicial notice that Republic Act No. 85 is the charter of the
Rehabilitation Finance Corporation, predecessor of appellant DBP. RA 85 prescribes
the redemption price, not the proceedings and requirements in an extrajudicial
foreclosure of real estate mortgage such as those found in Act 3135.
x x x When appellant DBP cited Act 3135 in its Deed of Real Estate Mortgage or even
in the application for foreclosure of mortgage, it was not a matter of making an exclusive
option or choice because Act 3135 governs the procedure and requirements for an
extrajudicial foreclosure or real estate mortgage. In citing said law, Appellant DBP was
merely finding a proceeding for extra-judicial foreclosure sale x x x. And while the said
Act 3135 provides for redemption, such provision will not apply in the determination of
the redemption price on [sic] mortgages to DBP. In the latter case, the DBP Charter will
prevail.34
Even assuming that DBP chose Act No. 3135 as the governing law for the extrajudicial
foreclosure, the redemption price would still be equvalent to the remaining balance of
the loan. EO No. 81, being a special and subsequent law, amended Act No. 3135
insofar as the as redemption price is concerned.
In Sy v. Court of Appeals,35 the Court held that RA No. 337 amended Act No. 3135
insofar as the redemption price is concerned. The Court held that:
[T]he General Banking Act partakes of the nature of an amendment to Act No.
3135 insofar as the redemption price is concerned, when the mortgagee is a bank
or banking or credit institution, Section 6 of Act No. 3135 being, in this respect,
inconsistent with Section 78 of the General Banking Act. Although foreclosure
and sale of the subject property was done by SIHI pursuant to Act. No. 3135, x x
x Section 78 of the General Banking Act, as amended provides the amount at
which the subject property is redeemable from SIHI, which is, in this case, the
amount due under the mortgage deed, or the outstanding obligation of Carlos
Coquinco, plus interest and expenses.36 (Emphasis supplied)
In Ponce de Leon v. Rehabilitation Finance Corporation,37 the Court held that RA No.
337, being a special and subsequent law, amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that:
Rep. Act No. 337, otherwise known as "The General Banking Act," is entitled "An Act
Regulating Banks and Banking Institutions and for other purposes." Section 78 thereof
limits the amount of the loans that may be given by banks and banking or credit
institutions on the basis of the appraised value of the property given as security, as well
as provides that, in the event of foreclosure of a real estate mortgage to said banks or
institutions, the property sold may be redeemed "by paying the amount fixed by the
court in the order of execution," or the amount judicially adjudicated to the creditor
bank. This provision had the effect of amending Section 6 of Act No. 3135, insofar
as the redemption price is concerned, when the mortgagee is a bank or a banking
or credit institution, said Section 6 of Act No. 3135 being, in this respect,
inconsistent with the above-quoted portion of Section 78 of Rep. Act No. 337. In
short, the Parañaque property was sold pursuant to said Act No. 3135, but the
sum for which it is redeemable shall be governed by Rep. Act No. 337, which
partakes of the nature of an amendment to Act No. 3135, insofar as mortgages to
banks or banking or credit institutions are concerned, to which class the RFC
belongs. At any rate, the conflict between the two (2) laws must be resolved in
favor of Rep. Act No. 337, both as a special and as the subsequent
legislation.38 (Emphasis supplied)
WHEREFORE, the Court GRANTS the petition. The Court PARTIALLY SETS
ASIDE the 16 January 2006 Decision and 16 August 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 46207. The Court gives respondent Mario Matute a grace
period of 60 calendar days from notice of finality of this Decision to redeem the property,
by paying petitioner Development Bank of the Philippines the remaining balance of
respondents Environmental Aquatics, Inc. and Land Services and Management
Enterprises, Inc.'s loan, plus expenses and interest at the agreed rate computed from
the 19 December 1990 public auction. If the bank has taken material possession of the
property, the possession of the property shall compensate for the interest during the
period of possession.
SO ORDERED.
[G.R. No. 161771 : February 15, 2012]
BANK OF THE PHILIPPINE ISLANDS, AS SUCCESSOR-IN-INTEREST OF FAR
EAST BANK AND TRUST COMPANY, PETITIONER, VS. EDUARDO HONG,
DOING BUSINESS UNDER THE NAME AND STYLE “SUPER LINE PRINTING
PRESS” AND THE COURT OF APPEALS, RESPONDENTS.
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari under Rule 45 assails the Decision[1] dated
September 27, 2002 and Resolution[2] dated January 12, 2004 of the Court of
Appeals (CA) in CA-G.R. SP No. 64166.cralaw
On September 16, 1997, the EYCO Group of Companies (“EYCO”) filed a petition for
suspension of payments and rehabilitation before the Securities and Exchange
Commission (SEC), docketed as SEC Case No. 09-97-5764. A stay order was
issued on September 19, 1997 enjoining the disposition in any manner except in the
ordinary course of business and payment outside of legitimate business expenses
during the pendency of the proceedings, and suspending all actions, claims and
proceedings against EYCO until further orders from the SEC.[3] On December 18,
1998, the hearing panel approved the proposed rehabilitation plan prepared by EYCO
despite the recommendation of the management committee for the adoption of the
rehabilitation plan prepared and submitted by the steering committee of the
Consortium of Creditor Banks which appealed the order to the Commission. [4] On
September 14, 1999, the SEC rendered its decision disapproving the petition for
suspension of payments, terminating EYCO’s proposed rehabilitation plan and
ordering the dissolution and liquidation of the petitioning corporation. The case was
remanded to the hearing panel for liquidation proceedings. [5] On appeal by EYCO,
(CA-G.R. SP No. 55208) the CA upheld the SEC ruling. EYCO then filed a petition
for certiorari before this Court, docketed as G.R. No. 145977,which case was
eventually dismissed under Resolution dated May 3, 2005 upon joint manifestation
and motion to dismiss filed by the parties.[6] Said resolution had become final and
executory on June 16, 2005.[7]
Sometime in November 2000 while the case was still pending with the CA, petitioner
Bank of the Philippine Islands (BPI), filed with the Office of the Clerk of Court,
Regional Trial Court of Valenzuela City, a petition for extra-judicial foreclosure of real
properties mortgaged to it by Eyco Properties, Inc. and Blue Star Mahogany,
Inc. Public auction of the mortgaged properties was scheduled on December 19,
2000.[8]
Claiming that the foreclosure proceedings initiated by petitioner was illegal,
respondent Eduardo Hong, an unsecured creditor of Nikon Industrial Corporation, one
of the companies of EYCO, filed an action for injunction and damages against the
petitioner in the same court (RTC of Valenzuela City). On its principal cause of
action, the complaint alleged that:
18. The ex-officio sheriff has no authority to sell the mortgaged properties. Upon his
appointment as liquidator, Edgardo Tarriela was empowered by the SEC to receive
and preserve all assets, and cause their valuation (SEC Rules on Corporate
Recovery, Rule VI, Section 6-4). Therefore, the SEC retains jurisdiction over the
mortgaged properties of EYCO Properties, Inc. To allow the ex-officio sheriff to take
possession of the mortgaged properties and sell the same in a foreclosure sale would
be in derogation of said jurisdiction.
19. All the assets of the EYCO Group should thus be surrendered for collation to the
liquidator and all claims against the EYCO Group should be filed with the liquidator in
the liquidation proceedings with the SEC. The SEC, at which the liquidation is
pending, has jurisdiction over the mortgaged properties to the exclusion of any
other court. Consequently, the ex-officio sheriff has absolutely no jurisdiction to
issue the notice of sheriff’s sale and to sell the mortgaged properties on 19 December
2000.
20. Moreover, the sale of the mortgaged properties on 19 December 2000 would give
undue preference to defendant FEBTC to the detriment of other creditors, particularly
plaintiff. This was specifically proscribed by the Supreme Court stating in the case of
Bank of the Philippine Islands v. Court of Appeals that whenever a distressed
corporation asks SEC for rehabilitation and suspension of payments, preferred
creditors may no longer assert such preference, but shall stand on equal footing with
other creditors. Consequently, foreclosure should be disallowed so as not to
prejudice other creditors or cause discrimination among them.[9] (Emphasis
supplied.)

After hearing, the trial court issued a temporary restraining order (TRO). Petitioner
filed a motion to dismiss[10] arguing that by plaintiff’s own allegations in the complaint,
jurisdiction over the reliefs prayed for belongs to the SEC, and that plaintiff is actually
resorting to forum shopping since he has filed a claim with the SEC and the
designated Liquidator in the ongoing liquidation of the EYCO Group of Companies. In
his Opposition,[11] plaintiff (respondent) asserted that the RTC has jurisdiction on the
issue of propriety and validity of the foreclosure by petitioner, in accordance with
Section 1, Rule 4 of the 1997 Rules of Civil Procedure, as amended, the suit being in
the nature of a real action.
On January 17, 2001, the trial court denied the motion to dismiss. [12] Petitioner’s
motion for reconsideration was likewise denied.[13] Petitioner challenged the validity
of the trial court’s ruling before the CA via a petition for certiorari under Rule 65.
The CA affirmed the trial court’s denial of petitioner’s motion to dismiss. It held that
questions relating to the validity or legality of the foreclosure proceedings, including
an action to enjoin the same, must necessarily be cognizable by the RTC,
notwithstanding that the SEC likewise possesses the power to issue injunction in all
cases in which it has jurisdiction as provided in Sec. 6 (a) of Presidential Decree
(P.D.) No. 902-A. Further, the CA stated that an action for foreclosure of mortgage
and all incidents relative thereto including its validity or invalidity is within the
jurisdiction of the RTC and is not among those cases over which the SEC exercises
exclusive and original jurisdiction under Sec. 5 of P.D. No. 902-A. Consequently, no
grave abuse of discretion was committed by the trial court in issuing the assailed
orders.
With the CA’s denial of its motion for reconsideration, petitioner is now before this
Court raising the sole issue of whether the RTC can take cognizance of the injunction
suit despite the pendency of SEC Case No. 09-97-5764.
The petition has no merit.
Jurisdiction is defined as the power and authority of a court to hear and decide a
case.[14] A court’s jurisdiction over the subject matter of the action is conferred only
by the Constitution or by statute.[15] The nature of an action and the subject matter
thereof, as well as which court or agency of the government has jurisdiction over the
same, are determined by the material allegations of the complaint in relation to the
law involved and the character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs.[16] And jurisdiction being a
matter of substantive law, the established rule is that the statute in force at the time of
the commencement of the action determines the jurisdiction of the court. [17]
Perusal of the complaint reveals that respondent does not ask the trial court to rule on
its interest or claim -- as an unsecured creditor of two companies under EYCO -
- against the latter’s properties mortgaged to petitioner. The complaint principally
seeks to enjoin the foreclosure proceedings initiated by petitioner over those
properties on the ground that such properties are held in trust and placed under the
jurisdiction of the appointed Liquidator in SEC Case No. 09-97-5764. Thus, Civil
Case No. 349-V-00 is one for injunction with prayer for damages.
An action for injunction is a suit which has for its purpose the enjoinment of the
defendant, perpetually or for a particular time, from the commission or continuance of
a specific act, or his compulsion to continue performance of a particular act. It has an
independent existence, and is distinct from the ancillary remedy of preliminary
injunction which cannot exist except only as a part or an incident of an independent
action or proceeding. In an action for injunction, the auxiliary remedy of preliminary
injunction, prohibitory or mandatory, may issue.[18]
As a rule, actions for injunction and damages lie within the jurisdiction of the RTC
pursuant to Section 19 of Batas Pambansa Blg. 129, otherwise known as the
“Judiciary Reorganization Act of 1980,” as amended by Republic Act (R.A.) No. 7691.
Sec. 19. Jurisdiction in civil cases. — Regional Trial Courts shall exercise exclusive
original jurisdiction:
(1) In all civil actions in which the subject of the litigations is incapable of pecuniary
estimation;
xxxx
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or
body exercising x x x judicial or quasi-judicial functions;
xxxx
(8) In all other cases in which the demand, exclusive of interest, damages of whatever
kind, attorney’s fees, litigation expenses, and costs or the value of the property in
controversy exceeds Three hundred thousand pesos (P300,000.00) or, in such other
cases in Metro Manila, where the demand exclusive of the above-mentioned items
exceeds Four hundred thousand pesos (P400,000.00). (Italics supplied.)
On the other hand, Sec. 6 (a) of P.D. No. 902-A empowered the SEC to “issue
preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in
which it has jurisdiction.” Such cases in which the SEC exercises original and
exclusive jurisdiction are the following:
(a) Devices or schemes employed by or any acts, of the board of directors, business
associates, its officers or partnership, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public and/or of the stockholder,
partners, members of associations or organizations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such
entity; and
(c) Controversies in the election or appointments of directors, trustees, officers or
managers of such corporations, partnerships or associations.[19]
Previously, under the Rules of Procedure on Corporate Recovery, the SEC upon
termination of cases involving petitions for suspension of payments or rehabilitation
may, motu proprio, or on motion by any interested party, or on the basis of the
findings and recommendation of the Management Committee that the continuance in
business of the debtor is no longer feasible or profitable, or no longer works to the
best interest of the stockholders, parties-litigants, creditors, or the general public,
order the dissolution of the debtor and the liquidation of its remaining assets
appointing a Liquidator for the purpose.[20] The debtor’s properties are then deemed
to have been conveyed to the Liquidator in trust for the benefit of creditors,
stockholders and other persons in interest. This notwithstanding, any lien or
preference to any property shall be recognized by the Liquidator in favor of the
security or lienholder, to the extent allowed by law, in the implementation of the
liquidation plan.[21]
However, R.A. No. 8799, which took effect on August 8, 2000, transferred to the
appropriate regional trial courts the SEC’s jurisdiction over those cases enumerated
in Sec. 5 of P.D. No. 902-A. Section 5.2 of R.A. No. 8799 provides:
SEC. 5.2 The Commission’s jurisdiction over all cases enumerated under Section 5
of Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that
shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution
which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
(Emphasis supplied.)
Upon the effectivity of R.A. No. 8799, SEC Case No. 09-97-5764 was no longer
pending. The SEC finally disposed of said case when it rendered on September 14,
1999 the decision disapproving the petition for suspension of payments, terminating
the proposed rehabilitation plan, and ordering the dissolution and liquidation of the
petitioning corporation. With the enactment of the new law, jurisdiction over the
liquidation proceedings ordered in SEC Case No. 09-97-5764 was transferred to the
RTC branch designated by the Supreme Court to exercise jurisdiction over cases
formerly cognizable by the SEC. As this Court held in Consuelo Metal Corporation v.
Planters Development Bank[22]:
The SEC assumed jurisdiction over CMC’s petition for suspension of payment and
issued a suspension order on 2 April 1996 after it found CMC’s petition to be
sufficient in form and substance. While CMC’s petition was still pending with the SEC
as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC
issued its Omnibus Order directing the dissolution of CMC and the transfer of the
liquidation proceedings before the appropriate trial court. The SEC finally disposed
of CMC’s petition for suspension of payment when it determined that CMC
could no longer be successfully rehabilitated.
However, the SEC’s jurisdiction does not extend to the liquidation of a
corporation. While the SEC has jurisdiction to order the dissolution of a
corporation, jurisdiction over the liquidation of the corporation now pertains to
the appropriate regional trial courts. This is the reason why the SEC, in its 29
November 2000 Omnibus Order, directed that “the proceedings on and
implementation of the order of liquidation be commenced at the Regional Trial Court
to which this case shall be transferred.” This is the correct procedure because the
liquidation of a corporation requires the settlement of claims for and against the
corporation, which clearly falls under the jurisdiction of the regular courts. The trial
court is in the best position to convene all the creditors of the corporation, ascertain
their claims, and determine their preferences.[23] (Emphasis supplied.)
There is no showing in the records that SEC Case No. 09-97-5764 had been
transferred to the appropriate RTC designated as Special Commercial Court at the
time of the commencement of the injunction suit on December 18, 2000. Given the
urgency of the situation and the proximity of the scheduled public auction of the
mortgaged properties as per the Notice of Sheriff’s Sale, respondent was constrained
to seek relief from the same court having jurisdiction over the foreclosure proceedings
– RTC of Valenzuela City. Respondent thus filed Civil Case No. 349-V-00 in the RTC
of Valenzuela City on December 18, 2000 questioning the validity of and enjoining the
extrajudicial foreclosure initiated by petitioner. Pursuant to its original jurisdiction over
suits for injunction and damages, the RTC of Valenzuela City, Branch 75 properly
took cognizance of the injunction case filed by the respondent. No reversible error
was therefore committed by the CA when it ruled that the RTC of Valenzuela City,
Branch 75 had jurisdiction to hear and decide respondent’s complaint for injunction
and damages.
Lastly, it may be mentioned that while the Consortium of Creditor Banks had agreed
to end their opposition to the liquidation proceedings upon the execution of the
Agreement[24] dated February 10, 2003, on the basis of which the parties moved for
the dismissal of G.R. No. 145977, it is to be noted that petitioner is not a party to the
said agreement. Thus, even assuming that the SEC retained jurisdiction over SEC
Case No. 09-97-5764, petitioner was not bound by the terms and conditions of the
Agreement relative to the foreclosure of those mortgaged properties belonging to
EYCO and/or other accommodation mortgagors.cralaw
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
September 27, 2002 and Resolution dated January 12, 2004 of the Court of Appeals
in CA-G.R. SP No. 64166 are AFFIRMED.
With costs against the petitioner.
SO ORDERED.

G.R. No. 170241 : April 19, 2010
PHILIPPINE SAVINGS BANK, Petitioner, v. SPOUSES DIONISIO GERONIMO and
CARIDAD GERONIMO, Respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1cЃa assails the 30 August 2005 Decision2cЃa and 3 November
2005 Resolution3cЃa of the Court of Appeals in CA-G.R. CV No. 66672. The Court of
Appeals reversed the decision of Branch 121 of the Regional Trial Court of Caloocan
City, National Capital Region (trial court) by declaring void the questioned extrajudicial
foreclosure of real estate mortgage for non-compliance with the statutory requirement
of publication of the notice of sale.
The Facts
On 9 February 1995, respondents Spouses Dionisio and Caridad Geronimo
(respondents) obtained a loan from petitioner Philippine Savings Bank (petitioner) in
the amount of P3,082,000, secured by a mortgage on respondents' land situated in
Barrio Talipapa, Caloocan City and covered by Transfer Certificate of Title No. C-
50575.4cЃa Respondents defaulted on their loan, prompting petitioner to initiate the
extra-judicial foreclosure of the real estate mortgage. At the auction sale conducted on
29 March 1996, the mortgaged property was sold to petitioner, 5cЃa being the highest
bidder, for P3,000,000. Consequently, a Certificate of Sale was issued in favor of
petitioner.6cräläwvirtualibräry
Claiming that the extrajudicial foreclosure was void for non-compliance with the law,
particularly the publication requirement, respondents filed with the trial court a
complaint for the annulment of the extrajudicial foreclosure. 7cЃa
The trial court sustained the validity of the extrajudicial foreclosure, and disposed of the
case as follows:
WHEREFORE, premises considered, the instant Complaint for Annulment of
Foreclosure of Mortgage and Damages is hereby DISMISSED for lack of merit.
SO ORDERED.8
On appeal, the Court of Appeals held:
WHEREFORE, the assailed decision dated 26 November 1999 of the Regional Trial
Court of Caloocan City is REVERSED and SET ASIDE. The Extrajudicial Foreclosure
of Mortgage conducted on 29 March 1996 is declared NULL and VOID.
SO ORDERED.9
The Court of Appeals denied petitioner's motion for reconsideration.
Hence, this petition.
The Ruling of the Trial Court
The trial court held that "personal notice on the mortgagor is not required under Act No.
3135." All that is required is "the posting of the notices of sale for not less than 20 days
in at least three public places in the municipality or city where the property is situated,
and publication once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city, if the property is worth more than four
hundred pesos."
The trial court further ruled there was compliance with the statutory publication
requirement. Since the affidavit of publication was excluded as petitioner's evidence,
the trial court relied instead on the positive testimony of Deputy Sheriff Alberto Castillo,
that he caused the publication of the Notice of Sale, in holding there was publication of
the notice of sale in a newspaper of general circulation. In relation to this, the trial court
cited the presumption of regularity in the performance of official duty. The trial court
found that respondents, as plaintiffs, failed to discharge their burden of proving
petitioner's alleged non-compliance with the requisite publication. The trial court stated
that the testimony of respondents' witness, a newsstand owner, "that he has never
sold Ang Pinoy newspaper can never lead to the conclusion that such publication does
not exist."
The Ruling of the Court of Appeals
The Court of Appeals reversed the ruling of the trial court.
The Court of Appeals found no sufficient evidence to prove that Ang Pinoy is a
newspaper of general circulation in Caloocan City. In a Resolution dated 2 February
2005, the Court of Appeals required the then Executive Judge of the Regional Trial
Court of Caloocan City to inform the appellate court of the following facts:
1. If Ang Pinoy newspaper is a newspaper of general circulation particularly for the
years 1995 and 1996; and
2. If there was compliance with Sec. 2 of P.D. No. 1079 which provides:
"The executive judge of the court of first instance shall designate a regular working day
and a definite time each week during which the said judicial notices or advertisements
shall be distributed personally by him for publication to qualified newspapers or
periodicals x x x, which distribution shall be done by raffle." 10
Executive Judge Victoria Isabel A. Paredes (Executive Judge Paredes) complied with
the directive by stating that:
a) Ang Pinoy newspaper is not an accredited periodical in Caloocan City. Hence, we
are unable to categorically state whether it is a newspaper of general circulation at
present or for the years 1995 and 1996 (Certification marked as Annex "A")
b) Sec. 2, P.D. No. 1079 is being observed and complied with in that the raffle of judicial
notices for publication, is a permanent agenda item in the regular raffle with the RTC,
Caloocan City, holds every Monday at 2 o'clock in the afternoon at the courtroom of
RTC, Branch 124 (Certification marked as Annex "B"); and
c) We have no knowledge on whether Ang Pinoy was included in the raffles conducted
in 1995 and 1996, as we do not have the case record where the information may be
verified.11
The Court of Appeals concluded that, based on the compliance of Executive Judge
Paredes, Ang Pinoy is not a newspaper of general circulation in Caloocan City.
Therefore, the extrajudicial foreclosure is void for non-compliance with the requirement
of the publication of the notice of sale in a newspaper of general circulation.
The Issue
Basically, the issue in this case is whether the extra-judicial foreclosure is void for non-
compliance with the publication requirement under Act No. 3135.
The Ruling of the Court
The petition lacks merit.
Section 3 of Act No. 313512cЃa reads:
SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice shall
also be published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city. (Emphasis supplied)
Petitioner claims that it complied with the above provision in foreclosing extrajudicially
the subject real estate mortgage. To buttress its claim, petitioner presented the
testimony of Deputy Sheriff Alberto Castillo of the trial court, the pertinent portion of
which states:
ATTY. DAVIS:
Do you remember having come across a certain property owned by spouses Geronimo
covered by TCT No. 50576 of the Register of Deeds of Caloocan City?
xxx
A. Yes, sir.
ATTY. DAVIS:
Q. In what connection?
A. In connection with the extra judicial foreclosure filed by the PS Bank, sir.
xxx
Q. When this was assigned to you what action did you take thereon?
A. I prepared the notice of sale having published in the newspaper which the executive
judge awarded it. Sent notice to the said parties and posted it to the three conspicuous
places of Caloocan City, sir.
Q. You mentioned about your issuance of Notice of Sale I am referring you now to the
document previously marked as Exhibit "6." What relation is this if any to the one you
have mentioned?
A. This is the Notice of Sale I have prepared, sir.
Q. Now you also mentioned that you have caused the publication of this Notice of
Sheriff's Sale to a newspaper of general circulation, do you remember what newspaper
it was?
A. Ang Pinoy, sir.
Q. How come that this newspaper was selected for purposes of publication?
A. It was the executive judge who awarded that publication, sir.
Q. How do you know particularly that this notice was published in the newspaper?
A. That during the auction sale the mortgagee bank presented affidavit of publication,
sir.13cräläwvirtualibräry
On the other hand, respondents dispute the existence of the publication of the notice
of sale. Assuming that the notice of sale was published, respondents contend that Ang
Pinoy, where it was published, is not a newspaper of general circulation. To bolster
their claim of non-publication, respondents offered the testimony of Danilo Magistrado,
a newsstand owner, which pertinently states:
ATTY. SAYA:
Do you know by chance the Pinoy Newspaper?
ATTY. DAVIS:
No basis.
COURT:
Objection overruled. Witness may answer.
A. None, sir. I do not sell Pinoy Newspaper, sir.
ATTY. SAYA:
Why do you say that you do not know Pinoy Newspaper?
A. From the time I sold newspapers, sir, I have not seen Pinoy Newspaper.
ATTY. SAYA:
That would be all, your Honor.
Before resolving the principal issue, we must point out the requirement of accreditation
was imposed by the Court only in 2001, through A.M. No. 01-1-07-SC or the Guidelines
in the Accreditation of Newspapers and Periodicals Seeking to Publish Judicial and
Legal Notices and Other Similar Announcements and in the Raffle Thereof. 14cЃa The
present case involves an extrajudicial foreclosure conducted in 1996; thus, there were
no such guidelines in effect during the questioned foreclosure. At any rate, the
accreditation by the Executive Judge is not decisive of whether a newspaper is of
general circulation.15cräläwvirtualibräry
It is settled that for the purpose of extrajudicial foreclosure of mortgage, the party
alleging non-compliance with the requisite publication has the burden of proving the
same.16cЃa In this case, respondents presented the testimony of a newsstand owner
to prove that Ang Pinoy is not a newspaper of general circulation. However, this
particular evidence is unreliable, as the same witness testified that he sells newspapers
in Quezon City, not in Caloocan City, and that he is unaware of Ang Pinoy newspaper
simply because he is not selling the same and he had not heard of it. His testimony
states:
Q. Where is this place that you traditionally or usually sell newspaper?
A. Corner of A. Bonifacio and 6th Avenue.
Q. This is in Quezon City?
A. Yes, sir.
Q. Not in Caloocan?
A. In Quezon City, sir.
xxx
COURT: Clarificatory question.
Q. You said that there is no Pinoy magazine simply because you are not selling Pinoy
magazine?
A. Yes, your Honor.
Q. But you are not certain that there is really no Pinoy magazine?
COURT:
But have you heard about Pinoy magazine or Pinoy newspaper?
A. I have not heard, your Honor.17
Notwithstanding, petitioner could have easily produced the affidavit of publication and
other competent evidence (such as the published notices) to refute respondents' claim
of lack of publication of the notice of sale. In Spouses Pulido v. Court of
Appeals,18cЃa the Court held:
While it may be true that the party alleging non-compliance with the requisite publication
has the burden of proof, still negative allegations need not be proved even if essential
to one's cause of action or defense if they constitute a denial of the existence of a
document the custody of which belongs to the other party.
In relation to the evidentiary weight of the affidavit of publication, the Court ruled
in China Banking Corporation v. Spouses Martir19cЃa that the affidavit of publication
executed by the account executive of the newspaper is prima facie proof that the
newspaper is generally circulated in the place where the properties are located. 20cЃa
In the present case, the Affidavit of Publication or Exhibit "8," although formally offered
by petitioner, was excluded by the trial court for being hearsay. 21cЃa Petitioner never
challenged the exclusion of the affidavit of publication. Instead, petitioner relies solely
on the testimony of Deputy Sheriff Alberto Castillo to prove compliance with the
publication requirement under Section 3 of Act No. 3135. However, there is nothing in
such testimony to clearly and convincingly prove that petitioner complied with the
mandatory requirement of publication. When Sheriff Castillo was asked how he knew
that the notice of sale was published, he simply replied that "during the auction sale the
mortgagee bank presented the affidavit of publication." 22cЃa Evidently, such an answer
does not suffice to establish petitioner's claim of compliance with the statutory
requirement of publication. On the contrary, Sheriff Castillo's testimony reveals that he
had no personal knowledge of the actual publication of the notice of sale, much less
the extent of the circulation of Ang Pinoy.
Moreover, the Court notes that Ang Pinoy is a newspaper of general circulation printed
and published in Manila, not in Caloocan City where the mortgaged property is located,
as indicated in the excluded Affidavit of Publication. This is contrary to the requirement
under Section 3 of Act No. 3135 pertaining to the publication of the notice of sale in a
newspaper of general circulation in the city where the property is situated. Hence, even
if the Affidavit of Publication was admitted as part of petitioner's evidence, it would not
support petitioner's case as it does not clearly prove petitioner's compliance with the
publication requirement.
the purpose of securing bidders and to prevent a sacrifice [sale] of the property. The
goal of the notice requirement is to achieve a "reasonably wide publicity" of the auction
sale. This is why publication in a newspaper of general circulation is required. The Court
has previously taken judicial notice of the "far-reaching effects" of publishing the notice
of sale in a newspaper of general circulation.
In addition, the Court reminds mortgagees of their duty to comply faithfully with the
statutory requirements of foreclosure. In Metropolitan Bank v. Wong,26cЃa the Court
declared:
While the law recognizes the right of a bank to foreclose a mortgage upon the
mortgagor's failure to pay his obligation, it is imperative that such right be exercised
according to its clear mandate. Each and every requirement of the law must be
complied with, lest, the valid exercise of the right would end. It must be remembered
that the exercise of a right ends when the right disappears, and it disappears when it is
abused especially to the prejudice of others.
In sum, petitioner failed to establish its compliance with the publication requirement
under Section 3 of Act No. 3135. Consequently, the questioned extrajudicial foreclosure
of real estate mortgage and sale are void.27cЃa
WHEREFORE, we DENY the petition. We AFFIRM the 30 August 2005 Decision and
3 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 66672.
SO ORDERED.

Petitioner's invocation of the presumption of regularity in the performance of official

duty on the part of Sheriff Castillo is misplaced. While posting the notice of sale is part
of a sheriff's official functions,23cЃa the actual publication of the notice of sale cannot
be considered as such, since this concerns the publisher's business. Simply put, the
sheriff is incompetent to prove that the notice of sale was actually published in a
newspaper of general circulation.

The Court further notes that the Notice of Extra-Judicial Sale,24cЃa prepared and
posted by Sheriff Castillo, does not indicate the newspaper where such notice would
be published. The space provided where the name of the newspaper should be was
left blank, with only the dates of publication clearly written. This omission raises serious
doubts as to whether there was indeed publication of the notice of sale.

Once again, the Court stresses the importance of the notice requirement, as enunciated
in Metropolitan Bank and Trust Company, Inc. v. Peñafiel, 25cЃa thus:

The object of a notice of sale is to inform the public of the nature and condition of the
property to be sold, and of the time, place and terms of the sale. Notices are given for
G.R. No. 192877 March 23, 2011
SPOUSES HERMES P. OCHOA and ARACELI D. OCHOA, Petitioners,
vs.
CHINA BANKING CORPORATION, Respondent.
RESOLUTION
NACHURA, J.:
For resolution is petitioners’ motion for reconsideration1 of our January 17, 2011
Resolution2 denying their petition for review on certiorari3 for failing to sufficiently show
any reversible error in the assailed judgment4 of the Court of Appeals (CA).
Petitioners insist that it was error for the CA to rule that the stipulated exclusive venue
of Makati City is binding only on petitioners’ complaint for Annulment of Foreclosure,
Sale, and Damages filed before the Regional Trial Court of Parañaque City, but not on
respondent bank’s Petition for Extrajudicial Foreclosure of Mortgage, which was filed
with the same court.
We disagree.
The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No.
3135, as amended by Act No. 4118, otherwise known as "An Act to Regulate the Sale
of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages."
Sections 1 and 2 thereof clearly state:
Section 1. When a sale is made under a special power inserted in or attached to any
real-estate mortgage hereafter made as security for the payment of money or the
fulfillment of any other obligation, the provisions of the following sections shall govern
as to the manner in which the sale and redemption shall be effected, whether or not
provision for the same is made in the power.
Sec. 2. Said sale cannot be made legally outside of the province in which the property
sold is situated; and in case the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof is situated. 5
The case at bar involves petitioners’ mortgaged real property located in Parañaque City
over which respondent bank was granted a special power to foreclose extra-judicially.
Thus, by express provision of Section 2, the sale can only be made in Parañaque City.
The exclusive venue of Makati City, as stipulated by the parties 6 and sanctioned by
Section 4, Rule 4 of the Rules of Court,7 cannot be made to apply to the Petition for
Extrajudicial Foreclosure filed by respondent bank because the provisions of Rule 4
pertain to venue of actions, which an extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa: 8
Section 1, Rule 2 [of the Rules of Court] defines an action in this wise:
"Action means an ordinary suit in a court of justice, by which one party prosecutes
another for the enforcement or protection of a right, or the prevention or redress of a
wrong."
Hagans v. Wislizenus does not depart from this definition when it states that "[A]n action
is a formal demand of one's legal rights in a court of justice in the manner prescribed
by the court or by the law. x x x." It is clear that the determinative or operative fact which
converts a claim into an "action or suit" is the filing of the same with a "court of justice."
Filed elsewhere, as with some other body or office not a court of justice, the claim may
not be categorized under either term. Unlike an action, an extrajudicial foreclosure of
real estate mortgage is initiated by filing a petition not with any court of justice but with
the office of the sheriff of the province where the sale is to be made.1avvphi1 By no
stretch of the imagination can the office of the sheriff come under the category of a
court of justice. And as aptly observed by the complainant, if ever the executive judge
comes into the picture, it is only because he exercises administrative supervision over
the sheriff. But this administrative supervision, however, does not change the fact that
extrajudicial foreclosures are not judicial proceedings, actions or suits. 9
These pronouncements were confirmed on August 7, 2001 through A.M. No. 99-10-05-
0, entitled "Procedure in Extra-Judicial Foreclosure of Mortgage," the significant
portions of which provide:
In line with the responsibility of an Executive Judge under Administrative Order No. 6,
date[d] June 30, 1975, for the management of courts within his administrative area,
included in which is the task of supervising directly the work of the Clerk of Court, who
is also the Ex-Office Sheriff, and his staff, and the issuance of commissions to notaries
public and enforcement of their duties under the law, the following procedures are
hereby prescribed in extra-judicial foreclosure of mortgages:
1. All applications for extrajudicial foreclosure of mortgage whether under the direction
of the sheriff or a notary public, pursuant to Act 3135, as amended by Act 4118, and
Act 1508, as amended, shall be filed with the Executive Judge, through the Clerk of
Court who is also the Ex-Officio Sheriff.
Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No. 3135,
as amended, applies, it being a special law dealing particularly with extrajudicial
foreclosure sales of real estate mortgages, and not the general provisions of the Rules
of Court on Venue of Actions.
Consequently, the stipulated exclusive venue of Makati City is relevant only to actions
arising from or related to the mortgage, such as petitioners’ complaint for Annulment of
Foreclosure, Sale, and Damages.
The other arguments raised in the motion are a mere reiteration of those already raised
in the petition for review. As declared in this Court’s Resolution on January 17, 2011,
the same failed to show any sufficient ground to warrant the exercise of our appellate
jurisdiction.

WHEREFORE, premises considered, the motion for reconsideration is hereby

DENIED.

SO ORDERED.

G.R. No. 183658 April 10, 2013

ROYAL SAVINGS BANK, formerly Comsavings Bank, now GSIS FAMILY

BANK, Petitioner,
vs.
FERNANDO ASIA, MIKE LATAG, CORNELIA MARANAN, JIMMY ONG,
CONRADO MACARALAYA, ROLANDO SABA, TOMAS GALLEGA, LILIA
FEDELIMO, MILAGROS HAGUTAY and NORMA GABATIC (Collectively referred
to as respondents Asia, et al.) represented by their counsel on record, ATTY.
ROGELIO U. CONCEPCION., Respondent.
DECISION
SERENO, CJ.:
This is a Petition for Review1 filed by Royal Savings Bank (petitioner), praying for the
reversal of the Orders dated 4 October 20072 and 25 June 2008,3 which were rendered
by Branch 222 of the RegionTrial Court of Quezon City (RTC) in LRC No. Q-22780
(07). These Orders granted respondents' Urgent Motion to Quash the Writ of
Possession and Writ of Execution4 issued by the then presiding judge of the RTC in
petitioner's favor.
Sometime in January 1974, Paciencia Salita (Salita) and her nephew, Franco
Valenderia (Valenderia), borrowed the amount of ₱25,000 from petitioner. The latter
loaned to them an additional ₱20,000 in May 1975. To secure the payment of the
aforementioned amounts loaned, Salita executed a Real Estate Mortgage over her
property, which was covered by Transfer Certificate of Title (TCT) No. 103538.
Notwithstanding demands, neither Salita nor Valenderia were able to pay off their
debts.
As a result of their failure to settle their loans, petitioner instituted an extra-judicial
foreclosure proceeding against the Real Estate Mortgage. Pursuant to Act No. 3135,
the mortgaged property was sold at a public auction held on 16 October 1979, at which
petitioner was the highest bidder. On 23 April 1983, the redemption period expired.
Both Salita and Valenderia failed to redeem the foreclosed property. Thus, TCT No.
103538 was cancelled and a new title covering the same property, TCT No. 299440,
was issued in petitioner’s name.
Thereafter, on 13 August 1984, Salita filed with the RTC a case for Reconveyance,
Annulment of Title and Damages against petitioner. She prayed for the nullification of
foreclosure proceedings and the reconveyance of the property now covered by TCT
No. 299440. The RTC granted her prayer.
Petitioner appealed to the Court of Appeals (CA), which reversed the Decision of the
RTC. Since Salita did not appeal the CA ruling, it became final and executory.
Accordingly, the Entry of Judgment was issued on 4 June 2002.
Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte Petition for
the Issuance of a Writ of Possession.5 The Court, through its Order dated 14 February
2007, required petitioner to present its evidence. Petitioner then submitted a
Memorandum of Jurisprudence (In Lieu of Oral Testimony). 6
In a Decision dated 28 May 2007,7 the RTC ruled in favor of petitioner and ordered the
issuance of the Writ of Possession in the latter’s favor.
Respondents Fernando Asia, Mika Latag, Cornelia Maranan, Jimmy Ong, Conrado
Macaralaya, Rolando Saba, Tomas Gallega, Lilia Fedelimo, Milagros Hagutay and
Norma Gabatic claimed to have been in open, continuous, exclusive and notorious
possession in the concept of owners
of the land in question for 40 years.8 Allegedly, they had no knowledge and notice of
all proceedings involving the property until they were served a Notice to Vacate 9 by
RTC Sheriff IV Neri Loy, on 20 July 2007.10 They further claimed that, prior to the
service of the Notice to Vacate, they had no knowledge or notice of the lower court’s
proceedings or the foreclosure suit of petitioner.11
The Notice to Vacate gave respondents three days or until 25 July 2007 to voluntarily
vacate the property. In order to prevent the execution of the notice, they filed an Urgent
Motion to Quash Writ of Possession and Writ of Execution 12 on even date.
Petitioner filed their Comment13 on respondents’ Motion to Quash on 14 August 2007.
In an Order dated 4 October 2007,14 the RTC granted the Motion to Quash. Petitioner
filed a Motion for Reconsideration (MR),15 to which an Opposition was filed by
respondents.16 Petitioner claimed that, six months after the filing of the Opposition,
there was still no action taken by the RTC on the MR. Thus, it filed a Motion for Early
Resolution17 on 16 June 2008. Through an Order dated 25 June 2008, 18 the RTC
denied petitioner’s MR.
Claiming that it raises no factual issues, petitioner came straight to this Court through
a Petition for Review under Rule 45 of the Rules on Civil Procedure.
Petitioner insists that because it is a government-owned financial institution, the general
rules on real estate mortgage found in Act 3135 do not apply to it. It prays that this
Court rule that Presidential Decree (P.D.) No. 38519—the law intended specifically to
govern mortgage foreclosures initiated by government-owned financial institutions—
should be applied to this case.
According to petitioner, when the RTC quashed the Writ of Possession, 20 the latter
violated Section 2 of P.D. 385, which reads:
Section 2. No restraining order, temporary or permanent injunction shall be issued by
the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1 hereof,
whether such restraining order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties, except after due hearing in which it is
established by the borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding arrearages has been paid after
the filing of foreclosure proceedings.
Thus, petitioner is now saying that, as a government financial institution (GFI), it cannot
be enjoined from foreclosing on its delinquent accounts in observance of the mandate
of P.D. 385.
We are not persuaded.
Assuming that petitioner is, as it claims, a GFI protected under P.D. 385, this Court is
still of the opinion and thus rules that the RTC committed no error in granting
respondents’ Urgent Motion to Quash Writ of Possession.
Indeed, while this Court had already declared in Philippine National Bank v. Adil 21 that
once the property of a debtor is foreclosed and sold to a GFI, it would be mandatory for
the court to place the GFI in the possession and control of the property—pursuant to
Section 4 of P.D. No. 385—this rule should not be construed as absolute or without
exception.
The evident purpose underlying P.D. 385 is sufficiently served by allowing foreclosure
proceedings initiated by GFIs to continue until a judgment therein becomes final and
executory, without a restraining order, temporary or permanent injunction against it
being issued. But if a parcel of land is occupied by a party other than the judgment
debtor, the proper procedure is for the court to order a hearing to determine the nature
of said adverse possession before it issues a writ of possession. 22
This is because a third party, who is not privy to the debtor, is protected by the law.
Such third party may be ejected from the premises only after he has been given an
opportunity to be heard, to comply with the time-honored principle of due process.23
In the same vein, under Section 33 of Rule 39 of the Rules on Civil Procedure, the
possession of a mortgaged property may be awarded to a purchaser in the extrajudicial
foreclosure, unless a third party is actually holding the property adversely vis-à-vis the
judgment debtor.24
Respondents insist that they are actual possessors in the concept of owners and that
they have been occupying the land in the concept of owners for 40 years
already.25 Furthermore, respondents made it clear in the Motion to Quash that they
were not "claiming rights as attorney-in-fact, nor lessee, nor anything from Mortgagor
PACENCIA SALITA."26 Thus, whatever rights Salita had over the property that were
acquired by petitioner when the latter purchased it, cannot be used against
respondents, as their claim is adverse to that of Salita.
In the eyes of this Court, the RTC did not err in issuing the herein assailed Orders on
the basis of its initial finding that respondents are third parties who are actually holding
the property adversely vis-à-vis the judgment debtor. The RTC did not err in applying
the doctrine laid down in Barican v. Intermediate Appellate Court, 27 in which we ruled
that the obligation of a court to issue a writ of possession in favor of the purchaser in
an extrajudicial foreclosure sale ceases to be ministerial, once it appears that there is
a third party who is in possession of the property and is claiming a right adverse to that
of the debtor/mortgagor.
We explained in Philippine National Bank v. Austria 28 that the foregoing doctrinal
pronouncements are not without support in substantive law, to wit:
x x x. Notably, the Civil Code protects the actual possessor of a property, to wit:
Art. 433.Actual possession under claim of ownership raises a disputable presumption
of ownership. The true owner must resort to judicial process for the recovery of the
property.
Under the aforequoted provision, one who claims to be the owner of a property
possessed by another must bring the appropriate judicial action for its physical
recovery. The term "judicial process" could mean no less than an ejectment suit or
reivindicatory action, in which the ownership claims of the contending parties may be
properly heard and adjudicated.
We find that it was only proper for the RTC to quash the Writ of Possession until a
determination is made as to who, between petitioner and respondents, has the better
right to possess the property.
Lastly, petitioner alleges that the pairing judge violated the hierarchy of courts when
she quashed the writ of possession validly issued by the then presiding Judge of the
RTC Quezon City, a co-equal body.29
No court has the power to interfere by injunction in the issuance or enforcement of a
writ of possession issued by another court of concurrent jurisdiction having the power
to issue that writ.30 However, as correctly pointed out by respondents in their Comment,
it was the same trial court and "not another court or co-equal court body that quashed
the subject writ of possession."31 The pairing judge, who issued the Order quashing the
Writ of Possession, issued it in her capacity as the judge of Branch 222 of Quezon City-
the same branch, albeit then under a different judge, that issued the Writ of
Possession.1âwphi1
With respect to all the arguments raised by the parties to prove their supposed rightful
possession or ownership of the property, suffice it to say that these matters should be
threshed out m an appropriate action filed specifically for their resolution.
WIHEREFORE, the instant Petition is DENIED. The 4 October 2007 and 25 June 2008
Orders issued by Branch 222 of Regional Trial Court of Quezon City in LRC No. Q-
22780 (07) arc AFFIRMED.
SO ORDERED.
 SECOND DIVISION

[G.R. No. 180974 : June 13, 2012]

METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. CENTRO

DEVELOPMENT CORPORATION, CHONGKING KEHYENG, MANUEL CO
KEHYENG AND QUIRINO KEHYENG, RESPONDENTS.

DECISION

SERENO, J.:

The present Petition for Review[1] assails the Court of Appeals (CA)
Decision[2] promulgated on 30 August 2007 and Resolution[3] dated 26 November
2007 in CA-G.R. CV No. 80778. The antecedent facts follow.cralaw

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

Centro Development Corporation (Centro), its president Go Eng Uy was authorized to
mortgage its properties and assets to secure the medium-term loan of P84 million of
Lucky Two Corporation and Lucky Two Repacking. The properties and assets
consisted of a parcel of land with a building and improvements located at Salcedo St.,
Legaspi Village, Makati City, and covered by Transfer Certificate of Title (TCT) Nos.
139880 and 139881. This authorization was subsequently approved on the same day
by the stockholders.[4] Maria Jacinta V. Go, the corporate secretary, issued a
Secretary’s Certificate stating:
I, MARIA JACINTA V. GO, Filipino citizen, of legal age, married and with office
address at Second Floor, CENTRO building, 180 Salcedo Street, Legaspi Village,
Makati, Metro Manila, after being first duly sworn, depose and say:
xxx xxx xxx
million, bringing the total obligation to P144 million. [9]
Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner
Metropolitan Bank and Trust Company (Metrobank) sometime in 1994 and proposed
that the latter assume the role of successor-trustee of the existing MTI. After
petitioner Metrobank agreed to the proposal, the board of directors of respondent
Centro allegedly resolved on 12 August 1994 to constitute petitioner as successor-
trustee of BPI.[10]

2) That at a special meeting of the Board of Directors of the aforesaid corporation Thereafter, on 27 September 1994,[11] petitioner and respondent Centro executed the
duly called and held on March 20, 1990 and wherein a quorum was present, the assailed MTI,[12] amending the previous agreements by appointing the former as the
following resolution was unanimously approved pursuant to the Minutes of the Special successor-trustee of BPI. It is worth noting that this MTI did not amend the amount of
Meeting of the Stockholders of Centro Development Corporation dated March 16, the total obligations covered by the previous MTIs.
1990;
It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel
Co Kehyeng and Quirino Kehyeng, allegedly discovered that the properties of
RESOLUTION:
respondent Centro had been mortgaged, and that the MTI that had been executed
appointing petitioner as trustee. Notably, respondent Chongking Kehyeng had been a
“RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of Centro
member of the board of directors of Centro since 1989, while the two other
Development Corporation, be as he is hereby authorized to mortgage and use as
respondents, Manuel Co Kehyeng and Quirino Keyheng, had been stockholders
collateral the real estate property of the Corporation identified as a parcel of land with
since 1987. Respondents Kehyeng were minority stockholders who owned thirty
building and improvements located at Salcedo St., Legaspi Village, Makati, Metro
percent (30%) of the outstanding capital stock of respondent Centro.
Manila covered by Transfer Certificate of Title Nos. 139880 and 139881 to secure the
medium-term loan of LUCKY TWO CORPORATION, a corporation duly organized
On different dates, 4 September 1998, 9 September 1998 and 2 October 1998, the
and existing under the Philippine laws, and LUCKY TWO REPACKING, a single
Kehyengs allegedly questioned the mortgage of the properties through letters
proprietorship with principal office at Concepcion, Tarlac, with the Bank of the
addressed to Go Eng Uy and Jacinta Go.[13] They alleged that they were not aware of
Philippine Islands for EIGHTY FOUR (84) MILLION PESOS, Philippine Currency
any board or stockholders’ meeting held on 12 August 1994, when petitioner was
(P84,000,000.00);
appointed as successor-trustee of BPI in the MTI. Respondents demanded a copy of
the minutes of the meeting held on that date, but received no response.
“RESOLVED FURTHER, that said GO ENG UY, be as he is hereby authorized to
sign all papers and documents needed and necessary to carry into effect the
Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs allegedly
aforesaid purpose or undertaking for the benefit and to the credit of Lucky Two
wrote to petitioner, informing it that they were not aware of the 12 August 1994
Corporation and Lucky Two Repacking.”
board of directors meeting. Petitioner did not respond to the letters. [14]
Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy, executed a
Meanwhile, during the period April 1998 to December 1998, San Carlos obtained
Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands
loans in the total principal amount of ?812,793,513.23 from petitioner Metrobank. [15]
(BPI).[5] Under the MTI, respondent Centro, together with its affiliates Lucky Two
Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to obtain
San Carlos failed to pay these outstanding obligations despite demand. Thus,
from time to time loans and other credit accommodations from certain creditors for
petitioner, as trustee of the MTI, enforced the conditions thereof and initiated
corporate and other business purposes.[6] To secure these obligations from different
foreclosure proceedings, denominated as Foreclosure No. S-04-11, on the mortgaged
creditors, respondent Centro constituted a continuing mortgage on all or substantially
properties. On 22 June 2000, petitioner Metrobank filed a Petition for Extrajudicial
all of its properties and assets enumerated above unto and in favor of BPI, the
Foreclosure of Mortgage with the executive judge of the Regional Trial Court (RTC) of
trustee. Should respondent Centro or any of its affiliates fail to pay their obligations
Makati City. Petitioner alleged that the total amount of the Promissory Notes that San
when due, the trustee shall cause the foreclosure of the mortgaged property.
Carlos executed in favor of the former amounted to P812,793,513.23. As of 30 April
2000, the total outstanding obligation, inclusive of interests and penalties, was
Thereafter, the mortgage was duly recorded with the Registry of Deeds of Makati
P1,178,961,181.45.[16]
City.[7]
We note that there are no documents in the records evidencing the amendment of the
On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan
MTI to accommodate these additional obligations. As of 27 September 1994, the date
of P36 million and to include San Carlos Milling Company, Inc. (San Carlos) as a
of the last amendment as borne out by the records, the total outstanding obligation
borrower in addition to Centro, Lucky Two Corp. and Lucky Two Repacking.[8] Then,
reflected in the MTI amounted to only P144 million. The latest MTI merely referred to
on 28 July 1994, Centro and BPI again amended the MTI for another loan of P24
the amendments made on 31 March 1993 and 28 July 1994.

Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed a
Complaint for the annulment of the 27 September 1994 MTI with a prayer for a
temporary restraining order (TRO) and preliminary injunction at Branch 138 of the
RTC of Makati City. Docketed as Civil Case No. 00-942, the Complaint was against
petitioner, Go Eng Uy, Alexander V. Go, Ramon V. Go, Maria Jacinta Go and
Enriqueto Magpantay.
The bone of contention in Civil Case No. 00-942 was that since the mortgaged
properties constituted all or substantially all of the corporate assets, the amendment
of the MTI failed to meet the requirements of Section 40 of the Corporation Code on
notice and voting requirements. Under this provision, in order for a corporation to
mortgage all or substantially all of its properties and assets, it should be authorized by
the vote of its stockholders representing at least 2/3 of the outstanding capital stock in
a meeting held for that purpose. Furthermore, there must be a written notice of the
proposed action and of the time and place of the meeting. Thus, respondents alleged,
the representation of Go Eng Uy that he was authorized by the board of directors
and/or stockholders of Centro was false.
On 15 December 2003, after trial on the merits, the RTC dismissed the
Complaint.[17] It held that the evidence presented by respondents was insufficient to
support their claim that there were no meetings held authorizing the mortgage of
Centro’s properties. It noted that the stocks of respondents Kehyeng constituted only
30% of the outstanding capital stock, while the Go family owned the majority 70%,
which represented more than the 2/3 vote required by Section 40 of the Corporation
Code. The trial court ruled that respondents Kehyeng, particularly Chongking
Kehyeng, who sat in the board of directors, should have done periodic inquiries and
verifications of documents pertaining to corporate properties. The RTC also held that
laches had attached, considering that eight (8) years had lapsed before respondents
questioned the mortgage executed in 1990.
The trial court also noted the absence of evidence showing the steps respondents
had taken to seek redress for the alleged misrepresentations of Go Eng Uy and Maria
Jacinta Go. On the other hand, the court found that no neglect could be imputed to
petitioner for relying on the Secretary’s Certificate, which apparently established Go
Eng Uy’s authority to mortgage Centro’s properties and assets.
Respondents subsequently filed an appeal with the CA docketed as CA-G.R. CV No.
80778. On 26 February 2004, they filed an Urgent Motion for the Issuance of a
Temporary Restraining Order and Writ of Preliminary Injunction seeking to restrain
petitioner, the clerk of court, the ex-officio sheriff of the RTC, and their agents from
foreclosing and selling at public auction on 4 and 22 March 2004 the mortgaged
properties subject of Civil Case No. 00-942. On 3 March 2004, a TRO was issued by
the CA effective for a period of sixty (60) days, unless earlier set aside by a
resolution.[18]
On 19 May 2004, the CA issued a Resolution[19] in CA-G.R. CV No. 80778 denying
the application for the issuance of a writ of preliminary injunction.
Not giving up, on 27 May 2004, respondents Centro and San Carlos filed a Complaint
docketed as Civil Case No. 04-612 at Branch 56 of the RTC of Makati City. They
prayed for the nullification of the foreclosure proceedings and prayed for the issuance
of a TRO/injunction. Centro and San Carlos alleged that the total obligation due was
only P657,000,000 and not P812,793,513.23; that the sale of the San Carlos
properties found in Negros Occidental fully satisfied their outstanding obligations; and
that the action to foreclose the Makati properties was illegal and void. [20]
While Civil Case No. 04-612 was pending, the clerk of court and the ex-officio sheriff
of the RTC of Makati City held an auction sale of the disputed property, during which
petitioner was adjudged as the highest bidder for P344,700,000. A Certificate of Sale
was accordingly issued on 3 June 2004, which states:[21]
On June 2, 2004, a public auction sale was conducted and METROPOLITAN BANK
& TRUST CO. submitted a bid for the sale to him/it of the mortgaged property in the
amount of P344,700,000 xxx, which was the highest bid hence declared as the
winning bidder and being the creditor he/it did not delivery or pay cash/monies to the
Clerk of Court and Ex-Officio Sheriff the bid price of P344,700,000 xxx and the selling
price was credited as partial/full satisfaction of indebtedness secured by the
mortgage.
In consideration thereof, the Certificate of Sale was issued in favor of
METROPOLITAN BANK& TRUST CO. of Metrobank Plaza, Sen. Gil Puyat Ave.,
Makati.
This sale is subject to redemption in the manner provided by law.
Because of this development, the Complaint in Civil Case No. 04-612 was amended,
and Centro and San Carlos prayed for the issuance of a writ of injunction to prevent
the registration of the Certificate of Sale and the subsequent transfer to petitioner of
the title to the properties. However, Branch 56 of the RTC of Makati City subsequently
denied the application.
Respondent Centro thereafter filed before the CA a Petition for Certiorari docketed as
CA-G.R. SP No. 84447. The Petition assailed the Order of the RTC in Civil Case No.
04-612.
During this time, CA-G.R. CV No. 80778, which involved the legality of the MTI, was
still pending.
On 30 August 2007, the CA promulgated the assailed Decision in CA-G.R. CV No.
80778. The appellate court first determined whether the requirements of Section 40 of
the Corporation Code on the sale of all or substantially all of the corporation’s
property were complied with. Based on the 18 August 1994 Secretary’s Certificate,
the CA found that only a quorum was present during the stockholders’ meeting on 12
August 1994. The appellate court thus held that the 2/3 vote required by Section 40
was not met. It ruled that the minority stockholders were deprived of their right to
dissent from or to approve the proposed mortgage, considering that they had not
been notified in writing of the meeting in which the corporate action was to be
discussed.
The CA also considered the testimony of Perla Saballe, an officer of petitioner
Metrobank, who opined that the term “quorum” meant only the majority of the
stockholders.
Furthermore, the appellate court held that petitioner was duty-bound to ensure that
respondent Centro submitted proof that the proposed corporate action had been duly
approved by a vote of the stockholders representing 2/3 of the outstanding capital
stock.
Regarding the issue of whether laches had already attached, the CA ruled that the
MTI could not be ratified, considering that the requirements of the Corporation Code
were not complied with.
Thus, the dispositive portion of the CA Decision in CA-G.R. CV No. 80778 reads:[22]
WHEREFORE, the Appeal is PARTIALLY GRANTED. The Judgment dated 15
December 2003 of the Regional Trial Court of Makati City, Branch 138,
is REVERSED and SET ASIDE insofar as the dismissal of the Complaint for
Annulment of Trust Indenture Agreement is concerned. The Trust Indenture executed
on 27 September 1994 is hereby declared NULL and VOID. Accordingly, the
foreclosure of the mortgage and the sale at public auction involving the subject
properties are declared of no force and effect. The certificates of title issued in the
name of Metropolitan Bank and Trust Company are CANCELLED.
Conformably with the foregoing discussion, the appellants’ prayer for damages is
hereby DENIED.
SO ORDERED.
On 14 September 2007, a different Division of the CA rendered a Decision [23] denying
the Petition in CA-G.R. SP No. 84447. That Petition had questioned the Decision of
Branch 56 of the RTC of Makati City denying a Petition to enjoin the foreclosure of the
mortgaged properties on the ground that respondents Centro and San Carlos had
failed to show any clear right of the RTC to issue an injunctive writ. The CA further
ruled that the foreclosure of the property became a matter of right on the part of
petitioner because of respondents’ failure to pay the loans due.
On 26 November 2007, the CA in CA-G.R. CV No. 80778 rendered the assailed
Resolution denying petitioner’s Motion for Reconsideration.
Hence, this Petition.
Petitioner contends that the stockholders’ Resolution No. 005, s. 1994 did not
constitute a new mortgage in favor of petitioner. Instead, the stockholders merely
amended the existing MTI by appointing petitioner as the new trustee for the MTI,
which was already existing and held by BPI. Thus, there was no need to secure a 2/3
vote from the stockholders. Petitioner posits that the authority to mortgage the
properties was granted in 1990, upon the execution of the first MTI between
respondent Centro and BPI.
Further, petitioner alleges that respondents do not deny or question the previous MTI
and its subsequent amendments. It further alleges that the constituted mortgage
under the MTI was duly annotated with the Registry of Deeds of Makati City.
Petitioner also maintains that the CA erred in interpreting the phrase “at which
meeting a quorum was present” contained in the Secretary’s Certificate dated 18
August 1994. The bank points out that the phrase indicates that at least a quorum
was present, rather than that only a quorum was present. Thus, the Secretary’s
Certificate did not in any way limit the number of those actually present.
Additionally, petitioner argues that Perla Saballe, whose testimony was considered by
the CA, was not a competent witness to interpret the directors’ Resolution. Allegedly,
she was never present during the meetings of Centro regarding the present issue,
and she was not in a position to answer the questions propounded to her in relation to
the requirements of Section 40 of the Corporation Code.
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which upheld
the validity of the foreclosure of the mortgage. It also challenges the CA ruling that the
former failed to exercise due diligence in transacting with respondent Centro. Finally,
petitioner insists that laches attached when respondents failed to question the MTI
and the stockholders’ Resolution at the earliest possible time.
On the other hand, respondents contend that, based on the Pre-Trial Brief and the
Amended Pre-Trial Order, petitioner admitted that the subject properties were
mortgaged under the MTI of 27 September 1994, and not under that of 21 March
1990.
Second, on the issue of whether the 2/3 voting requirement was met, respondents
claim that petitioner cannot impugn the testimony of its own officer and witness, Perla
Saballe, on the interpretation of the term “quorum” as referred to in the Secretary’s
Certificate dated 18 August 1994.
Respondents also allege that petitioner failed to controvert the testimony of
Chongking Kehyeng, a member and vice-chairperson of the board of directors, that
he was unaware of any stockholders’ meeting ever being held, and that he and the
other Kehyengs were not informed of that meeting. Respondents further insist that
petitioner was negligent when it merely relied on the Secretary’s Certificate, instead of
exercising due diligence to ensure that all legal requirements had been complied with
under the MTI. On the issue of laches, respondents contend that it was not raised
before the trial court, and is thus improperly invoked in the present Petition.
Nevertheless, they allegedly undertook a number of measures to question the
transactions between petitioner and CENTRO. Moreover, they argue that the MTI,
being null and void, cannot be given effect through laches.
The Court’s Ruling
In summary, this Court is tasked to resolve the following issues:
1. Whether the requirements of Section 40 of the Corporation Code was
complied with in the execution of the MTI;
2. Whether petitioner was negligent or failed to exercise due diligence;
3. Whether laches has already attached, such that respondents can no longer
question the MTI.

We shall first discuss the issue of laches.
Laches is defined as the failure or neglect for an unreasonable and unexplained
length of time to do that which, by exercising due diligence, could or should have
been done earlier; it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.[24]
In the case at bar, the RTC in Civil Case No. 00-942 held that laches attached when
respondents allowed eight (8) years to pass before questioning the mortgage, which
was constituted in 1990. Thus, the trial court said:
As it appears now, the mortgage on the land and building of Centro was first
constituted in 1990 in favor of [the] Bank of the Philippine Islands. Individual plaintiffs
stated that discovery of the mortgage was “sometime in 1998”, (par. 6, Affidavit of
Chongking Kehyeng). He was in the Board of Directors of Centro and he holds office
at the fourth floor of the building on the mortgaged property. There is evidence that
the holding of meetings of the Board of Directors was irregular and purely
“reportorial”.
Considering that as shown by planitiffs’ evidence, conduct of business in Centro was
informal, vigilance over its property was required from all individual plaintiffs,
particularly plaintiff Chongking Kehyeng who sits in the Board of Directors. Periodic
inquiries and verification of documents pertaining to corporate properties should have
been done and the existence of the mortgage was verifiable. A simple inquiry about
the status of the title, information on the title number and actual verification with the
Register of Deeds – a task which can be accomplished in an hour or two –will provide
information about the existence of the mortgage. None of the individual plaintiffs did
this.
The inaction of the plaintiffs for which no explanation was submitted resulted in the
acquisition of rights by the defendant Bank adverse to them. Such neglect, taken in
conjunction with the lapse of time of about eight (8) years operates as a bar. [25]
A perusal of the TCTs[26] of the subject properties would reveal that only the values of
the mortgage securing the loans totalling ?144 million were annotated, based on the
MTIs executed on 21 March 1990, 31 March 1993 and 28 July 1994. As for the last
annotation, it only stated that petitioner was the successor-trustee to all obligations
due to the creditors. Respondents, in their Complaint, did not question these
mortgages constituted by the MTIs executed on 21 March 1990, 31 March 1993 and
28 July 1994, respectively. What they questioned was the additional loans granted to
San Carlos after the execution of the 27 September 1994 MTI and the foreclosure of
the mortgage resulting from the nonpayment of San Carlos’ obligations. Thus,
contrary to the finding of the trial court, only four years had lapsed from the execution
of the 27 September 1994 MTI when respondents questioned the mortgage allegedly
constituted to cover these loans.
Furthermore, as mentioned earlier, the TCTs were not accordingly annotated to cover
these additional loans. Also, the mortgage of the property securing all the loans were
not disclosed in Centro’s financial statements for the years 1991 to 1998. [27] Thus,
absent any proof that the individual respondents were notified of the stockholders’
meeting on 12 August 1994 or that they were present during the meeting, these
respondents could not have been informed of the alleged additional loans and the
corresponding mortgage constituted over the properties.
It cannot therefore be said that laches had attached and that respondents were
already barred from assailing the MTI in 1998. We now proceed to discuss the validity
of the challenged MTI.
The 18 August 1994 Secretary’s Certificate issued by Maria Jacinta V. Go reads as
follows:[28]
I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT
CORPORATION, a corporation duly organized and existing under our laws with
principal office located at the 2nd Floor Centro Buidling, 180 Salcedo St., Legaspi
Village, Makati, Metro Manila, do hereby certify that during a special meeting of the
board of Directors of the Corporation held at its main office in Makati, Metro Manila on
August 12, 1994, at 3:00 p.m., at which meeting a quorum was present, the following
resolution was approved and adopted:
“Resolution No. 005, s. 1994
APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW TRUSTEE
FOR THE EXISTING MTI OF CDC REAL ESTATE PROPERTY
RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the existing
Mortgage Trust Indenture of real estate property covered by Transfer Certificate of
Title Nos. 139880 and 139881 situated at 180 Salcedo St., Legaspi Village, Makati,
Metro Manila, with an area of 1,608 square meters more or less, the Corporation be
[sic], as it is hereby authorized, to appoint Metrobank Trust Banking Group
(“Metrobank”) as the new trustee for the existing mortgage trust indenture presently
held by the Bank of the Philippines Islands;
RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is hereby,
authorized and empowered to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in behalf of the Company which
are necessary and pertinent thereto;
RESOLVED FINALLY, that any resolution or resolutions heretofore adopted by this
Board, inconsistent with the provisions hereof be, as they hereby are amended and/or
revoked accordingly.”
That at the meeting of the Stockholders of said corporation held on August 12, 1994
at 4:00 p.m., at which meeting a quorum was present and acting throughout, the
following resolution was unanimously approved:
STOCKHOLDERS’ RESOLUTION
RESOLVED, that the stockholders approve, ratify and confirm, as they have hereby
approved, ratified and confirmed, the board resolution dated August 12, 1994
appointing Metrobank Trust Banking Group as the new trustee, presently held by the ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a
Bank of the Philippine Islands, for the existing MTI of real estate property covered by Mortgage Participation Certificate in the form of Schedule II hereof, the
Transfer Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St., issuance of which by the TRUSTEE to the participating CREDITOR/S shall be in
Legaspi Village, Makati, Metro Manila with an area of 1,608 square meters, and that accordance with Section 7 of this INDENTURE, provided the aggregate LOAN
the President, Mr. Go Eng Uy[,] to sign the Real Estate Mortgage and all documents/ VALUES of the COLLATERAL, based on the latest appraisal thereof, are not
instruments with the said bank, for and in behalf of the Company which are necessary exceeded. (Emphasis supplied.)
and pertinent thereto; xxx.
Section 1.11 of the MTI defines a Mortgage Participation Certificate (MPC) as a
Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the certificate issued by the trustee to a creditor pursuant to the MTI, representing an
directors’ Resolution was to appoint petitioner as the new trustee of the previously aliquot interest in the mortgage created by the MTI. The face amount of the MPC is
executed and amended MTI. Going through the original and the revised MTI, we find the value in money of its holder’s participation or interest in the mortgaged property.
no substantial amendments to the provisions of the contract. We agree with petitioner
that the act of appointing a new trustee of the MTI was a regular business transaction. To address the gaps in the facts as presented by the parties and by the lower courts,
The appointment necessitated only a decision of at least a majority of the directors we issued a Resolution[31] on 5 September 2011. We required petitioner to submit,
present at the meeting in which there was a quorum, pursuant to Section 25 of the among others, all amendments to the MTI and all the MPCs issued. Petitioner failed
Corporation Code. to comply with this directive. For one reason or another, instead of submitting MPCs
evidencing its interest in the MTI, it submitted to this Court documents referring to
The second paragraph of the directors’ Resolution No. 005, s. 1994, which different instruments altogether.[32] Petitioner should have been more careful in
empowered Go Eng Uy “to sign the Real Estate Mortgage and all complying with this Court’s Orders.
documents/instruments with the said bank, for and in behalf of the Company which
are necessary and pertinent thereto,” must be construed to mean that such power More glaring is the fact that the assailed MTI is not even referred to in the Promissory
was limited by the conditions of the existing mortgage, and not that a new mortgage Notes executed by petitioner in favor of San Carlos, evidencing the loans extended by
was thereby constituted. the latter to the former. This omission violated Section 1.13 of the MTI, which requires
that a promissory note must be covered by an outstanding MPC and secured by the
Moreover, it is worthy to note that respondents do not assail the previous MTI lien of the MTI. The Promissory Notes reveal the following: [33]
executed with BPI. They do not question the validity of the mortgage constituted over
all or substantially all of respondent Centro’s assets pursuant to the 21 March 1994 Promissory Note No. Date Amount Collateral
MTI in the amount of P84 million. Nor do they question the additional loans increasing
111333.69288.00.999 20 April 1998 P328,000,000 “Others” – Not
the value of the mortgage to P144 million; or the use of Centro’s properties as
specified
collateral for the loans of San Carlos, Lucky Two Corporation, and Lucky Two
Repacking. 111333.70316.00.999 19 October 1998 P97,859,472.03 Unsecured
111333.70359.00.999 30 October 1998 P82,849,981.44 “Others” – Not
Thus, Section 40[29] of the Corporation Code finds no application in the present case, specified
as there was no new mortgage to speak of under the assailed directors’ Resolution. 111333.70464.000.99 17 November 1998 P98,114,959.13 “Others” – Not
specified
Nevertheless, while we uphold the validity of the stockholders’ Resolution appointing 111333.70502.000.99 25 November 1998 P40,150,059.85 “Others” – Not
Metrobank as successor-trustee, this is not to say that we uphold the validity of the specified
extrajudicial foreclosure of the mortgage. 111333.70618.000.99 9 December 1998 P39,673,569.58 “Others” – Not
specified
After a careful review of the records of this case, we find that petitioner failed to 111333.70642.000.99 17 December 1998 P126,145,471.20 “Others” – Not
establish its right to be entitled to the proceeds of the MTI. specified
There is no evidence that petitioner, as creditor or as trustee, had a cause of action to
Petitioner thus miserably failed to prove that it was entitled to the benefits of the MTI.
move for the extrajudicial foreclosure of the subject properties mortgaged under the
MTI.
Even if we assume that petitioner was indeed a creditor protected by the MTI, we find
[30] that, as trustee and as creditor, it failed to comply with the MTI’s conditions for
The conditions of the MTI are very clear. Section 3.3 of the MTI provides:
granting additional loans to San Carlos – additions that brought the total loan amount
to P1,178,961,181.45 – when it did not amend the MTI to accommodate the
It is the intent of the COMPANY that the BORROWERS will obtain additional loans or additional loans in excess of P144 million.
credit accommodations from certain other banking or financial institutions in
accordance with arrangements made by the BORROWERS with the CREDITORS.
In its application for an extrajudicial foreclosure of Centro’s properties, petitioner encumbrancers or there be a balance or residue after payment to them, then to the
states:[34] mortgagor or his duly authorized agent, or to the person entitled to it.

We have the honor to request your good Office to conduct/undertake extrajudicial
foreclosure sale proceedings under Act No. 3135, as amended, and other applicable
laws, on the properties covered by the Mortgage Trust Indenture, dated March 21,
1990, as amended on March 31, 1993 and further amended on July 28, 1994
executed by the Mortgagor, CENTRO DEVELOPMENT CORPORATION, in favor of
the Former Trustee, BANK OF THE PHILIPPINE ISLANDS and Trust Indenture,
dated September 27, 1994, also executed by the Mortgagor, CENTRO
DEVELOPMENT CORPORATION, in favor of the
Mortgagee/Trustee, METROPOLITAN BANK AND TRUST COMPANY-TRUST
BANKING GROUP, to secure among others, several obligations of SAN CARLOS
MILLING CO., INC. under various Promissory Notes, with a total principal amount
of EIGHT HUNDRED TWELVE MILLION SEVEN HUNDRED NINETY-THREE
THOUSAND FIVE HUNDRED THIRTEEN PESOS AND TWENTY-THREE
CENTAVOS (P812,793,513.23), for breach of the terms and conditions of the said
Trust Indenture. (Emphasis in the original.)
However, Section 9.4 of the 27 September 1994 MTI clearly states: [35]
The written consent of the COMPANY, the TRUSTEE and all the CREDITORS shall
be required for any amendment of the terms and conditions of this
INDENTURE. Additional loans which will be covered by the INDENTURE shall
require the written consent of the MAJORITY CREDITORS and shall be within
the loan value stipulated in Section 1.8[36] of this INDENTURE. (Emphasis
supplied.)
The fact that the foreclosure of the mortgaged property was undertaken pursuant to
the 27 September 1994 MTI is an indication that the parties had failed to amend it
accordingly.
Because the 27 September 1994 MTI was not amended to secure the loan granted to
the debtors, petitioner could not have applied for an extrajudicial foreclosure on the
basis of all the Promissory Notes granted to San Carlos. Instead, petitioner could
have only applied for the foreclosure of the property corresponding to P144 million,
which was the maximum amount embodied in the 27 September 1994 MTI. In other
words, as an accommodation debtor, Centro’s properties may not be liable for San
Carlos’ debts beyond this maximum amount, pursuant to the MTI executed with
petitioner. In Caltex Philippines v. Intermediate Appellate Court,[37] we likewise held
that the value of the mortgage should be limited only to the amount provided by the
contract between the parties.
While it is true that some of the documents required by this Court to be submitted by
the parties were not presented at the trial stage, when the legal issues raised begs
the reception of that evidence – especially considering that a case, like the present
one has been pending for more than a decade – then the Court may require the
parties to submit such evidence in the interest of justice. This is clearly provided
under Rule 45, Section 7 of the Rules of Court.[38]
On a final note, Republic Act No. 8971, or the General Banking Law of 2000,
recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking;
thus, the law requires banks to have high standards of integrity and performance. The
fiduciary nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family.[39] In the case at bar, petitioner itself was
negligent in the conduct of its business when it extended unsecured loans to the
debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was
not able to protect the interests of the parties and was even instrumental in violating
the terms of the MTI, to the detriment of the parties thereto. Thus, petitioner has only
itself to blame for being left with insufficient recourse against petitioner under the
assailed MTI.cralaw
WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY GRANTED.
The Mortgage Trust Indenture is declared VALID. Nonetheless, for reasons stated
herein, the Decision of the Court of Appeals in CA-G.R. CV No. 80778, declaring the
foreclosure proceedings in Foreclosure No. S-04-011 over TCT Nos. 139880 and
139881 of no force and effect, is AFFIRMED. Likewise, the cancellation of the
Certificates of Title in the name of petitioner Metropolitan Bank and Trust Company
and the denial of the payment of damages are also AFFIRMED.
SO ORDERED.

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

Disposition of proceeds of sale - The amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs of the sale, be paid to the person
foreclosing the mortgage, and when there shall be any balance or residue, after
paying off the mortgage debt due, the same shall be paid to junior encumbrancers in
the order of their priority, to be ascertained by the court, or if there be no such
 RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari 1 is the January 31, 2012 Decision2 of
the Cebu City Court of Appeals (CA) in CA-G.R. CV No. 78398 which set aside the
October 8, 2002 Decision of the Regional Trial Court of Barotac Viejo, Iloilo City, Branch
-66 (RTC} in Cadastral Case No. 98-0693 and denied the issuance of a writ of
possession for Cadastral Lot Nos. 964, 958 and 959 of the Ajuy, ·Iloilo Cadastre
(subject lots) in

petitioner's favor.

The Facts

Spouses Gregorio and Rosario Centeno (Sps. Centeno) were the previous owners of
the subject lots. During that time, they mortgaged the foregoing properties in favor of
petitioner Rural Bank of Sta. Barbara (Iloilo), Inc. as security for a ₱1,753.65 loan. Sps.
Centeno, however, defaulted on the loan, prompting petitioner to cause the extrajudicial
foreclosure of the said mortgage. Consequently, the subject lots were sold to petitioner
being the highest bidder at the auction sale. On October 10, 1969, it obtained a
Certificate of Sale at Public Auction4 which was later registered with the Register of
Deeds of Iloilo City on December 13, 1971.5

Sps. Centeno failed to redeem the subject lots within the one (1) year redemption period
pursuant to Section 66 of Act No. 3135.7 Nonetheless, they still continued with the
possession and cultivation of the aforesaid properties. Sometime in 1983, respondent
Gerry Centeno, son of Sps. Centeno, took over the cultivation of the same. On March
14, 1988, he purchased the said lots from his parents. Accordingly, Rosario Centeno
paid the capital gains taxes on the sale transaction and tax declarations were eventually
issued in the name of respondent.8 While the latter was in possession of the subject
lots, petitioner secured on November 25, 1997 a Final Deed of Sale thereof and in
1998, was able to obtain the corresponding tax declarations in its name. 9

On March 19, 1998, petitioner filed a petition for the issuance of a writ of possession
before the RTC, claiming entitlement to the said writ by virtue of the Final Deed of Sale
covering the subject lots.10 Respondent opposed the petition, asserting that he
purchased and has, in fact, been in actual, open and exclusive possession of the same
properties for at least fifteen (15) years.11 He further averred that the foreclosure sale
was null and void owing to the forged signatures in the real estate mortgage. Moreover,
he claims that petitioner’s rights over the subject lots had already prescribed. 12

Ruling of the RTC

G.R. No. 200667 March 11, 2013
On October 8, 2002, the RTC rendered its Decision13 in Cadastral Case No. 98-069,
RURAL BANK OF STA. BARBARA (ILOILO), INC., Petitioner, finding petitioner to be the lawful owner of the subject lots whose rights became
vs. absolute due to respondent’s failure to redeem the same. Consequently, it found the
GERRY CENTENO, Respondent. issuance of a writ of possession ministerial on its part. 14 Dissatisfied, respondent
appealed to the CA.
Ruling of the CA
The CA, through its January 31, 2012 Decision,15 reversed the RTC and ruled against
the issuance of a writ of possession. It considered respondent as a third party who is
actually holding the property adverse to the judgment obligor and as such, has the right
to ventilate his claims in a proper judicial proceeding i.e., an ejectment suit or
reinvindicatory action.16
In this case, respondent acquired the subject lots from his parents, Sps. Centeno, on
March 14, 1988 after they were purchased by petitioner and its Certificate of Sale at
Public Auction was registered with the Register of Deeds of Iloilo City in 1971. It cannot
therefore be disputed that respondent is a mere successor-in-interest of Sps. Centeno.
Consequently, he cannot be deemed as a "third party who is actually holding the
property adversely to the judgment obligor" under legal contemplation. Hence, the RTC
had the ministerial duty to issue – as it did issue – the said writ in petitioner’s favor.

Aggrieved, petitioner filed the instant petition. On the issue regarding the identity of the lots as raised by respondent in his
Comment,22 records show that the RTC had already passed upon petitioner’s title over
the subject lots during the course of the proceedings. Accordingly, the identity of the
Issue Before The Court said lots had already been established for the purpose of issuing a writ of possession.
It is hornbook principle that absent any clear showing of abuse, arbitrariness or
The sole issue in this case is whether or not petitioner is entitled to a writ of possession capriciousness committed by the lower court, its findings of facts are binding and
over the subject lots. conclusive upon the Court,23 as in this case.1âwphi1

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

It is well-established that after consolidation of title in the purchaser’s name for failure
of the mortgagor to redeem the property, the purchaser’s right to possession ripens into
the absolute right of a confirmed owner. At that point, the issuance of a writ of
possession, upon proper application and proof of title, to a purchaser in an extrajudicial
foreclosure sale becomes merely a ministerial function, 17 unless it appears that the
property is in possession of a third party claiming a right adverse to that of the
mortgagor.18 The foregoing rule is contained in Section 33, Rule 39 of the Rules of
Court which partly provides:
WHEREFORE, the petition is GRANTED. The January 31, 2012 Decision of the Cebu
City Court of Appeals in CA-G.R. CV No. 78398 is REVERSED and SET ASIDE.
Accordingly, the October 8, 2002 Decision of the Regional Trial Court of Barotac Viejo,
Iloilo City, Branch 66 in Cadastral Case No. 98-069 is hereby REINSTATED.
SO ORDERED.

Sec. 33. Deed and possession to be given at expiration of redemption period; by whom
executed or given. —

xxxx

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor
to the property as of the time of the levy. The possession of the property shall be given
to the purchaser or last redemptioner by the same officer unless a third party is actually
holding the property adversely to the judgment obligor. (Emphasis and underscoring
supplied)

In China Banking Corporation v. Lozada,19 the Court held that the phrase "a third party
who is actually holding the property adversely to the judgment obligor" contemplates a
situation in which a third party holds the property by adverse title or right, such as that
of a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and
usufructuary possess the property in their own right, and they are not merely the
successor or transferee of the right of possession of another co-owner or the owner of
the property.20 Notably, the property should not only be possessed by a third party, but
also held by the third party adversely to the judgment obligor.21
 according to its clear mandate. Each and every requirement of the law must be
complied with, lest, the valid exercise of the right would end."1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the
February 22, 2007 Decision3 of the Court of Appeals (CA) in CA-G.R. CV No. 59275.

Factual Antecedents

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed Lim,
obtained a loan of ₱40,000.00 (Lim Account) from respondent Development Bank of
the Philippines (DBP) to finance their cattle raising business. 4 On the same day, they
executed a Promissory Note5 undertaking to pay the annual amortization with an
interest rate of 9% per annum and penalty charge of 11% per annum.

On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Edmundo, all
surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez, Juan S. Chua, 6 and
Trinidad D. Chua7 obtained another loan from DBP8 in the amount of ₱960,000.00
(Diamond L Ranch Account).9 They also executed a Promissory Note,10 promising to
pay the loan annually from August 22, 1973 until August 22, 1982 with an interest rate
of 12% per annum and a penalty charge of 1/3% per month on the overdue
amortization.

To secure the loans, petitioners executed a Mortgage 11 in favor of DBP over real
properties covered by the following titles registered in the Registry of Deeds for the
Province of South Cotabato:

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

(b) TCT No. T-6182 x x x in the name of Carlos Lim;

(c) TCT No. T-7013 x x x in the name of Carlos Lim;

(d) TCT No. T-7012 x x x in the name of Carlos Lim;

G.R. No. 177050 July 01, 2013 (e) TCT No. T-7014 x x x in the name of Edmundo Lim;

CARLOS LIM, CONSOLACION LIM, EDMUNDO LIM,* CARLITO LIM, SHIRLEY (f) TCT No. T-7016 x x x in the name of Carlito Lim;
LEODADIA DIZON,** AND ARLEEN LIM FERNANDEZ, PETITIONERS,
vs. (g) TCT No. T-28922 x x x in the name of Consolacion Lim;
DEVELOPMENT BANK OF THE PHILIPPINES, RESPONDENT.
(h) TCT No. T-29480 x x x in the name of Shirley Leodadia Dizon;
DECISION
(i) TCT No. T-24654 x x x in the name of Trinidad D. Chua; and
DEL CASTILLO, J.:
(j) TCT No. T-25018 x x x in the name of Trinidad D. Chua’s deceased
"While the law recognizes the right of a bank to foreclose a mortgage upon the husband Juan Chua.12
mortgagor’s failure to pay his obligation, it is imperative that such right be exercised
Due to violent confrontations between government troops and Muslim rebels in
Mindanao from 1972 to 1977, petitioners were forced to abandon their cattle
ranch.13 As a result, their business collapsed and they failed to pay the loan
amortizations.14
In 1978, petitioners made a partial payment in the amount of ₱902,800.00, 15 leaving an
outstanding loan balance of ₱610,498.30, inclusive of charges and unpaid interest, as
of September 30, 1978.16
In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP
Statements of Account for the "Lim Account" and the "Diamond L Ranch
Account."17 Quoted below are the computations in the Statements of Account, as of
January 31, 1989 which were stamped with the words "Errors & Omissions
Excepted/Subject to Audit:"
Claiming to have already paid ₱902,800.00, Edmundo requested for an amended
statement of account.20
On May 4, 1990, Edmundo made a follow-up on the request for recomputation of the
two accounts.21 On May 17, 1990, DBP’s General Santos Branch informed Edmundo
that the Diamond L Ranch Account amounted to ₱2,542,285.60 as of May 31,
199022 and that the mortgaged properties located at San Isidro, Lagao, General Santos
City, had been subjected to Operation Land Transfer under the Comprehensive
Agrarian Reform Program (CARP) of the government.23 Edmundo was also advised to
discuss with the Department of Agrarian Reform (DAR) and the Main Office of
DBP24 the matter of the expropriated properties.
Edmundo asked DBP how the mortgaged properties were ceded by DAR to other
persons without their knowledge.25 No reply was made.26

1âwphi1 On April 30, 1991, Edmundo again signified petitioners’ intention to settle the Diamond
L Ranch Account.27 Again, no reply was made.28
Diamond L Ranch Account:

Matured [Obligation]: On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the
following day.29 To stop the foreclosure, he was advised by the bank’s Chief Legal
Counsel to pay an interest covering a 60-days period or the amount of ₱60,000.00 to
Principal P 939,973.33
postpone the foreclosure for 60 days.30 He was also advised to submit a written
proposal for the settlement of the loan accounts.31
Regular Interest 561,037.14

Advances 34,589.45 In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the accounts
through dacion en pago, with the balance to be paid in equal quarterly payments over
five years.
Additional Interest 2,590,786.26

Penalty Charges 1,068,147.19 In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and informed
Edmundo that unless the accounts are fully settled as soon as possible, the bank will
Total claims as of January 31, 1989 P 5,194,533.37 18 pursue foreclosure proceedings.

Lim Account: DBP then sent Edmundo the Statements of Account34 as of June 15, 1992 which were
stamped with the words "Errors & Omissions Excepted/Subject to Audit" indicating the
Matured [Obligation]: following amounts: (1) Diamond L Ranch: ₱7,210,990.27 and (2) Lim Account:
₱187,494.40.
Principal P 40,000.00
On June 11, 1992, Edmundo proposed to pay the principal and the regular interest of
Regular Interest 5,046.97 the loans in 36 equal monthly installments.35

Additional Interest 92,113.56 On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio
Tamayo, Jr. (Tamayo).36 Tamayo promised to review the accounts.37
Penalty Charges 39,915.46

Total claims as of January 31, 1989
19
On September 21, 1992, Edmundo received another Notice from the Sheriff that the
P 177,075.99 mortgaged properties would be auctioned on November 22, 1992.38 Edmundo again
paid ₱30,000.00 as additional interest to postpone the auction. 39 But despite payment
of ₱30,000.00, the mortgaged properties were still auctioned with DBP emerging as the
highest bidder in the amount of ₱1,086,867.26. 40 The auction sale, however, was later
withdrawn by DBP for lack of jurisdiction.41
Thereafter, Tamayo informed Edmundo of the bank’s new guidelines for the settlement
of outstanding loan accounts under Board Resolution No. 0290-92.42 Based on these
guidelines, petitioners’ outstanding loan obligation was computed at ₱3,500,000.00
plus.43 Tamayo then proposed that petitioners pay 10% downpayment and the
remaining balance in 36 monthly installments.44 He also informed Edmundo that the
bank would immediately prepare the Restructuring Agreement upon receipt of the
downpayment and that the conditions for the settlement have been "pre-cleared" with
the bank’s Regional Credit Committee.45 Thus, Edmundo wrote a letter46 on October
30, 1992 manifesting petitioners’ assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo that the proposal was accepted
with some minor adjustments and that an initial payment should be made by November
27, 1992.47
On December 15, 1992, Edmundo paid the downpayment of ₱362,271.7548 and was
asked to wait for the draft Restructuring Agreement.49
However, on March 16, 1993, Edmundo received a letter 50 from Tamayo informing him
that the Regional Credit Committee rejected the proposed Restructuring Agreement;
that it required downpayment of 50% of the total obligation; that the remaining balance
should be paid within one year; that the interest rate should be non prime or 18.5%,
whichever is higher; and that the proposal is effective only for 90 days from March 5,
1993 to June 2, 1993.51
Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their previous
agreement.53 On June 5, 1993, the bank replied,54 viz:
This has reference to your letter dated May 28, 1993, which has connection to your
desire to restructure the Diamond L Ranch/Carlos Lim Accounts.
We wish to clarify that what have been agreed between you and the Branch are not
final until [the] same has been approved by higher authorities of the Bank. We did [tell]
you during our discussion that we will be recommending the restructuring of your
accounts with the terms and conditions as agreed. Unfortunately, our Regional Credit
Committee did not agree to the terms and conditions as recommended, hence, the
subject of our letter to you on March 15, 1993.
Please be informed further, that the Branch cannot do otherwise but to comply with the
conditions imposed by the Regional Credit Committee. More so, the time frame given
had already lapsed on June 2, 1993.
Unless we will receive a favorable action on your part soonest, the Branch will be
constrained to do appropriate action to protect the interest of the Bank." 55
On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit
Committee.
In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the previous
Restructuring Agreement was reconsidered and approved by the Regional Credit
Committee subject to the following additional conditions, to wit:
1) Submission of Board Resolution and Secretary’s Certificate designating
you as authorized representative in behalf of Diamond L Ranch;
2) Payment of March 15 and June 15, 1993 amortizations within 30 days from
date hereof; and
3) Submission of SEC registration.
In this connection, please call immediately x x x our Legal Division to guide you for the
early documentation of your approved restructuring.
Likewise, please be reminded that upon failure on your part to sign and perfect the
documents and comply [with] other conditions within (30) days from date of receipt,
your approved recommendation shall be deemed CANCELLED and your deposit of
₱362,271.75 shall be applied to your account.
No compliance was made by Edmundo.58
On September 21, 1993, Edmundo received Notice that the mortgaged properties were
scheduled to be auctioned on that day.59 To stop the auction sale, Edmundo asked for
an extension until November 15, 199360 which was approved subject to additional
conditions:
Your request for extension is hereby granted with the conditions that:
1) This will be the last and final extension to be granted your accounts; and
2) That all amortizations due from March 1993 to November 1993 shall be
paid including the additional interest computed at straight 18.5% from date of
your receipt of notice of approval, viz:
xxxx
Failure on your part to comply with these conditions, the Bank will undertake
appropriate legal measures to protect its interest.
Please give this matter your preferential attention.61
On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:
Acknowledge receipt of your Sept. 27 letter. I would like to finalize documentation of
restructuring Diamond L Ranch and Carlos Lim Accounts. However, we would need
clarification on amortizations due on NTFI means [sic]. I will call x x x your Legal
Department at DBP Head Office by Nov. 11. Pls. advise who[m] I should contact. Thank
you.62
Receiving no response, Edmundo scheduled a meeting with Tamayo in
Manila.63 During their meeting, Tamayo told Edmundo that he would send the draft of
the Restructuring Agreement by courier on November 15, 1993 to the Main Office of
DBP in Makati, and that Diamond L Ranch need not submit the Board Resolution, the
Secretary’s Certificate, and the SEC Registration since it is a single proprietorship. 64
On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to Tamayo
asking for the draft of the Restructuring Agreement.65
On November 29, 1993, the documents were forwarded to the Legal Services
Department of DBP in Makati for the parties’ signatures. At the same time, Edmundo
was required to pay the amount of ₱1,300,672.75, plus a daily interest of ₱632.15
starting November 16, 1993 up to the date of actual payment of the said amount.66
On December 19, 1993, Edmundo received the draft of the Restructuring Agreement.67
In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank cancelled
the Restructuring Agreement due to his failure to comply with the conditions within a
reasonable time.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay
the outstanding amount of ₱6,404,412.92, as of November 16, 1993, exclusive of
interest and penalty charges.69
Edmundo, in a letter70 dated January 18, 1994, explained that his lawyer was not able
to review the agreement due to the Christmas holidays. He also said that his lawyer
was requesting clarification on the following points:
Can the existing obligations of the Mortgagors, if any, be specified in the Restructuring
Agreement already?
Is there a statement showing all the accrued interest and advances that shall first be
paid before the restructuring shall be implemented?
Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to sign as
Mortgagors considering that Mr. Chua is deceased and the pasture lease which he
used to hold has already expired?71
Edmundo also indicated that he was prepared to pay the first quarterly amortization on
March 15, 1994 based on the total obligations of ₱3,260,445.71, as of December 15,
1992, plus interest.72
On January 28, 1994, Edmundo received from the bank a telegram73 which reads:
We refer to your cattle ranch loan carried at our DBP General Santos City Branch.
Please coordinate immediately with our Branch Head not later than 29 January 1994,
to forestall the impending foreclosure action on your account.
Please give the matter your utmost attention.
The bank also answered Edmundo’s queries, viz:
In view of the extended leave of absence of AVP Bonifacio A. Tamayo, Jr. due to the
untimely demise of his father, we regret [that] he cannot personally respond to your
letter of January 18, 1994. However, he gave us the instruction to answer your letter
on direct to the point basis as follows:
- Yes to Items No. 1 and 2,
- No longer needed on Item No. 3
AVP Tamayo would like us also to convey to you to hurry up with your move to settle
the obligation, while the foreclosure action is still pending with the legal division. He is
afraid you might miss your last chance to settle the account of your parents. 74
Edmundo then asked about the status of the Restructuring Agreement as well as the
computation of the accrued interest and advances 75 but the bank could not provide any
definite answer.76
On June 8, 1994, the Office of the Clerk of Court and Ex-Officio Provincial Sheriff of the
RTC of General Santos City issued a Notice77 resetting the public auction sale of the
mortgaged properties on July 11, 1994. Said Notice was published for three
consecutive weeks in a newspaper of general circulation in General Santos City. 78
On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of the
mortgaged properties for the satisfaction of petitioners’ total obligations in the amount
of ₱5,902,476.34. DBP was the highest bidder in the amount of ₱3,310,176.55. 79
On July 13, 1994, the Ex-Officio Sheriff issued the Sheriff’s Certificate of Extra-Judicial
Sale in favor of DBP covering 11 parcels of land.80
In a letter81 dated September 16, 1994, DBP informed Edmundo that their right of
redemption over the foreclosed properties would expire on July 28, 1995, to wit:
This is to inform you that your right of redemption over your former property/ies acquired
by the Bank on July 13, 1994, thru Extra-Judicial Foreclosure under Act 3135 will lapse
on July 28, 1995.
In view thereof, to entitle you of the maximum condonable amount (Penal Clause, AI of sale issued by the foreclosing Sheriff by reason of the foreclosure NULL
on Interest, PC/Default Charges) allowed by the Bank, we are urging you to exercise and VOID;
your right within six (6) months from the date of auction sale on or before January 12,
1995. (3) Ordering the return of the [properties] to [petitioners] free from mortgage
liens;
Further, failure on your part to exercise your redemption right by July 28, 1995 will
constrain us to offer your former property/ies in a public bidding. (4) Ordering [respondent] bank to pay [petitioners], actual and compensatory
damages of ₱170,325.80;
Please give this matter your preferential attention. Thank you. 82
(5) Temperate damages of ₱50,000.00;
On July 28, 1995, petitioners filed before the RTC of General Santos City, a
Complaint83 against DBP for Annulment of Foreclosure and Damages with Prayer for (c) Moral damages of ₱500,000.00;
Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order.
Petitioners alleged that DBP’s acts and omissions prevented them from fulfilling their
obligation; thus, they prayed that they be discharged from their obligation and that the (d) Exemplary damages of ₱500,000.00;
foreclosure of the mortgaged properties be declared void. They likewise prayed for
actual damages for loss of business opportunities, moral and exemplary damages, (e) Attorney’s fees in the amount of ₱100,000.00; and
attorney’s fees, and expenses of litigation.84
(f) Expenses of litigation in the amount of ₱20,000.00.
On same date, the RTC issued a Temporary Restraining Order 85 directing DBP to
cease and desist from consolidating the titles over petitioners’ foreclosed properties [Respondent] Bank’s counterclaims are hereby DISMISSED.
and from disposing the same.

[Respondent] Bank is likewise ordered to pay the costs of suit.

In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary Injunction
and directed petitioners to post a bond in the amount of ₱3,000,000.00.
SO ORDERED.96
DBP filed its Answer,87 arguing that petitioners have no cause of action;88 that
petitioners failed to pay their loan obligation;89 that as mandated by Presidential Decree Ruling of the Court of Appeals
No. 385, initial foreclosure proceedings were undertaken in 1977 but were aborted
because petitioners were able to obtain a restraining order;90 that on December 18, On appeal, the CA reversed and set aside the RTC Decision. Thus:
1990, DBP revived its application for foreclosure but it was again held in abeyance
upon petitioners’ request;91 that DBP gave petitioners written and verbal demands as
WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED. The
well as sufficient time to settle their obligations;92 and that under Act 3135,93 DBP has
assailed Decision dated 10 December 1996 is hereby REVERSED and SET ASIDE. A
the right to foreclose the properties.94
new judgment is hereby rendered. It shall now read as follows:

Ruling of the Regional Trial Court

WHEREFORE, premises considered, judgment is hereby rendered:

On December 10, 1996, the RTC rendered a Decision, 95 the dispositive portion of which
Ordering the dismissal of the Complaint in Civil Case No. 5608;
reads:

Declaring the extrajudicial foreclosure of [petitioners’] mortgaged properties as valid;

WHEREFORE, in light of the foregoing, judgment is hereby rendered:

Ordering [petitioners] to pay the [respondent] the amount of Two Million Five Hundred
(1) Declaring that the [petitioners] have fully extinguished and discharged their
Ninety Two Thousand Two Hundred Ninety Nine [Pesos] and Seventy-Nine Centavos
obligation to the [respondent] Bank;
(₱2,592,299.79) plus interest and penalties as stipulated in the Promissory Note
computed from 11 July 1994 until full payment; and
(2) Declaring the foreclosure of [petitioners’] mortgaged properties, the sale of
the properties under the foreclosure proceedings and the resultant certificate
Ordering [petitioners] to pay the costs.
SO ORDERED.
SO ORDERED.97
Issues
Hence, the instant recourse by petitioners raising the following issues:
1. Whether x x x respondent’s own wanton, reckless and oppressive acts and
omissions in discharging its reciprocal obligations to petitioners effectively
prevented the petitioners from paying their loan obligations in a proper and
suitable manner;
2. Whether x x x as a result of respondent’s said acts and omissions,
petitioners’ obligations should be deemed fully complied with and
extinguished in accordance with the principle of constructive fulfillment;
3. Whether x x x the return by the trial Court of the mortgaged properties to
petitioners free from mortgage liens constitutes unjust enrichment;
4. Whether x x x the low bid price made by the respondent for petitioners’
mortgaged properties during the foreclosure sale is so gross, shocking to the
conscience and inherently iniquitous as to constitute sufficient ground for
setting aside the foreclosure sale;
5. Whether x x x the restructuring agreement reached and perfected between
the petitioners and the respondent novated and extinguished petitioners’ loan
obligations to respondent under the Promissory Notes sued upon; and
6. Whether x x x the respondent should be held liable to pay petitioners actual
and compensatory damages, temperate damages, moral damages,
exemplary damages, attorney’s fees and expenses of litigation.98
Petitioners’ Arguments
Petitioners seek the reinstatement of the RTC Decision which declared their obligation
fully extinguished and the foreclosure proceedings of their mortgaged properties void.
Relying on the Principle of Constructive Fulfillment, petitioners insist that their obligation
should be deemed fulfilled since DBP prevented them from performing their obligation
by charging excessive interest and penalties not stipulated in the Promissory Notes, by
failing to promptly provide them with the correct Statements of Account, and by
cancelling the Restructuring Agreement even if they already paid ₱362,271.75 as
downpayment.99 They likewise deny any fault or delay on their part in finalizing the
Restructuring Agreement.100
In addition, petitioners insist that the foreclosure sale is void for lack of personal
notice101 and the inadequacy of the bid price.102 They contend that at the time of the
foreclosure, petitioners’ obligation was not yet due and demandable, 103 and that the
restructuring agreement novated and extinguished petitioners’ loan obligation. 104
Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless, or
oppressive manner; hence, they are entitled to actual, temperate, moral and exemplary
damages, attorney’s fees, and expenses of litigation. 105
Respondent’s Arguments
DBP, on the other hand, denies acting in bad faith or in a wanton, reckless, or
oppressive manner106 and in charging excessive interest and penalties. 107 According
to it, the amounts in the Statements of Account vary because the computations were
based on different cut-off dates and different incentive schemes.108
DBP further argues that the foreclosure sale is valid because gross inadequacy of the
bid price as a ground for the annulment of the sale applies only to judicial
foreclosure.109 It likewise maintains that the Promissory Notes and the Mortgage were
not novated by the proposed Restructuring Agreement.110
As to petitioners’ claim for damages, DBP contends it is without basis because it did
not act in bad faith or in a wanton, reckless, or oppressive manner. 111
Our Ruling
The Petition is partly meritorious.
The obligation was not extinguished
or discharged.
The Promissory Notes subject of the instant case became due and demandable as
early as 1972 and 1976. The only reason the mortgaged properties were not foreclosed
in 1977 was because of the restraining order from the court. In 1978, petitioners made
a partial payment of ₱902,800.00. No subsequent payments were made. It was only in
1989 that petitioners tried to negotiate the settlement of their loan obligations. And
although DBP could have foreclosed the mortgaged properties, it instead agreed to
restructure the loan. In fact, from 1989 to 1994, DBP gave several extensions for
petitioners to settle their loans, but they never did, thus, prompting DBP to cancel the
Restructuring Agreement.
Petitioners, however, insist that DBP’s cancellation of the Restructuring Agreement
justifies the extinguishment of their loan obligation under the Principle of Constructive
Fulfillment found in Article 1186 of the Civil Code.
We do not agree.
As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that "the
condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment,"
does not apply in this case,112 viz:
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions,
which applies when the following three (3) requisites concur, viz: (1) The condition is
suspensive; (2) The obligor actually prevents the fulfillment of the condition; and (3) He
acts voluntarily. Suspensive condition is one the happening of which gives rise to the
obligation. It will be irrational for any Bank to provide a suspensive condition in the
Promissory Note or the Restructuring Agreement that will allow the debtor-promissor
to be freed from the duty to pay the loan without paying it. 113
Besides, petitioners have no one to blame but themselves for the cancellation of the
Restructuring Agreement. It is significant to point out that when the Regional Credit
Committee reconsidered petitioners’ proposal to restructure the loan, it imposed
additional conditions. In fact, when DBP’s General Santos Branch forwarded the
Restructuring Agreement to the Legal Services Department of DBP in Makati,
petitioners were required to pay the amount of ₱1,300,672.75, plus a daily interest of
₱632.15 starting November 16, 1993 up to the date of actual payment of the said
amount.114 This, petitioners failed to do. DBP therefore had reason to cancel the
Restructuring Agreement.
Moreover, since the Restructuring Agreement was cancelled, it could not have novated
or extinguished petitioners’ loan obligation. And in the absence of a perfected
Restructuring Agreement, there was no impediment for DBP to exercise its right to
foreclose the mortgaged properties.115
The foreclosure sale is not valid.
But while DBP had a right to foreclose the mortgage, we are constrained to nullify the
foreclosure sale due to the bank’s failure to send a notice of foreclosure to petitioners.
We have consistently held that unless the parties stipulate, "personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary" 116 because
Section 3117 of Act 3135 only requires the posting of the notice of sale in three public
places and the publication of that notice in a newspaper of general circulation.
In this case, the parties stipulated in paragraph 11 of the Mortgage that:
11. All correspondence relative to this mortgage, including demand letters, summons,
subpoenas, or notification of any judicial or extra-judicial action shall be sent to the
Mortgagor at xxx or at the address that may hereafter be given in writing by the
Mortgagor or the Mortgagee;118
However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about
the foreclosure sale scheduled on July 11, 1994. The letters dated January 28, 1994
and March 11, 1994 advising petitioners to immediately pay their obligation to avoid the
impending foreclosure of their mortgaged properties are not the notices required in
paragraph 11 of the Mortgage. The failure of DBP to comply with their contractual
agreement with petitioners, i.e., to send notice, is a breach sufficient to invalidate the
foreclosure sale.
In Metropolitan Bank and Trust Company v. Wong,119 we explained that:
x x x a contract is the law between the parties and, that absent any showing that its
provisions are wholly or in part contrary to law, morals, good customs, public order, or
public policy, it shall be enforced to the letter by the courts. Section 3, Act No. 3135
reads:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days
in at least three public places of the municipality or city where the property is situated,
and if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality and city.
The Act only requires (1) the posting of notices of sale in three public places, and (2)
the publication of the same in a newspaper of general circulation. Personal notice to
the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are
not precluded from exacting additional requirements. In this case, petitioner and
respondent in entering into a contract of real estate mortgage, agreed inter alia:
all correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extra-judicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the address that may hereafter
be given in writing by the MORTGAGOR to the MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action
which petitioner might take on the subject property, thus according him the opportunity
to safeguard his rights. When petitioner failed to send the notice of foreclosure sale to
respondent, he committed a contractual breach sufficient to render the foreclosure sale
on November 23, 1981 null and void.120 (Emphasis supplied)
In view of foregoing, the CA erred in finding the foreclosure sale valid.
Penalties and interest rates should
be expressly stipulated in writing.
As to the imposition of additional interest and penalties not stipulated in the Promissory
Notes, this should not be allowed. Article 1956 of the Civil Code specifically states that
"no interest shall be due unless it has been expressly stipulated in writing." Thus, the
payment of interest and penalties in loans is allowed only if the parties agreed to it and
reduced their agreement in writing.121
In this case, petitioners never agreed to pay additional interest and penalties. Hence,
we agree with the RTC that these are illegal, and thus, void. Quoted below are the
findings of the RTC on the matter, to wit:
Moreover, in its various statements of account, [respondent] Bank charged [petitioners]
for additional interests and penalties which were not stipulated in the promissory notes.
In the Promissory Note, Exhibit "A," for the principal amount of ₱960,000.00, only the
following interest and penalty charges were stipulated:
(1) interest at the rate of twelve percent (12%) per annum;
(2) penalty charge of one-third percent (1/3%) per month on overdue
amortization;
(3) attorney’s fees equivalent to ten percent (10%) of the total indebtedness
then unpaid; and
(4) advances and interest thereon at one percent (1%) per month.
[Respondent] bank, however, charged [petitioners] the following items as shown in its
Statement of Account for the period as of 31 January 1989, Exhibit "D:"
(1) regular interest in the amount of ₱561,037.14;
(2) advances in the amount of ₱34,589.45;
(3) additional interest in the amount of ₱2,590,786.26; and
(4) penalty charges in the amount of ₱1,068,147.19.
The Court finds no basis under the Promissory Note, Exhibit "A," for charging the
additional interest in the amount of ₱2,590,786.26. Moreover, it is incomprehensible
how the penalty charge of 1/3% per month on the overdue amortization could amount
to ₱1,086,147.19 while the regular interest, which was stipulated at the higher rate of
12% per annum, amounted to only ₱561,037.14 or about half of the amount allegedly
due as penalties.
In Exhibit "N," which is the statement of account x x x as of 15 June 1992, [respondent]
bank charged plaintiffs the following items:
(1) regular interest in the amount of ₱561,037.14;
(2) advances in the amount of ₱106,893.93;
(3) additional interest on principal in the amount of ₱1,233,893.79;
(4) additional interest on regular interest in the amount of ₱859,966.83;
(5) additional interest on advances in the amount of ₱27,206.45;
(6) penalty charges on principal in the amount of ₱1,639,331.15;
(7) penalty charges on regular interest in the amount of ₱1,146,622.55;
(8) penalty charges on advances in the amount of ₱40,520.53.
Again, the Court finds no basis in the Promissory Note, Exhibit "A," for the imposition
of additional interest on principal in the amount of ₱1,233,893.79, additional interest on
regular interest in the amount of ₱859,966.83, penalty charges on regular interest in
the amount of ₱1,146,622.55 and penalty charges on advances in the amount of
₱40,520.53.
In the Promissory Note, Exhibit "C," for the principal amount of ₱40,000.00, only the
following charges were stipulated:
(1) interest at the rate of nine percent (9%) per annum;
(2) all unpaid amortization[s] shall bear interest at the rate of eleven percent
(11%) per annum; and,
(3) attorney’s fees equivalent to ten percent (10%) of the total indebtedness
then unpaid.
In its statement of account x x x as of 31 January 1989, Exhibit "E," [respondent] bank
charged [petitioners] with the following items:
(1) regular interest in the amount of ₱5,046.97
(2) additional interest in the amount of ₱92,113.56; and
(3) penalty charges in the amount of ₱39,915.46.
There was nothing in the Promissory Note, Exhibit "C," which authorized the imposition
of additional interest. Again, this Court notes that the additional interest in the amount
of ₱92,113.56 is even larger than the regular interest in the amount of ₱5,046.97.
Moreover, based on the Promissory Note, Exhibit "C," if the 11% interest on unpaid
amortization is considered an "additional interest," then there is no basis for
[respondent] bank to add penalty charges as there is no other provision providing for
this charge. If, on the other hand, the 11% interest on unpaid amortization is considered
the penalty charge, then there is no basis to separately charge plaintiffs additional
interest. The same provision cannot be used to charge plaintiffs both interest and
penalties.
In Exhibit "O," which is the statement of account x x x as of 15 June 1992, [respondent]
charged [petitioners] with the following:
(1) regular interest in the amount of ₱4,621.25;
 (2) additional interest on principal in the amount of ₱65,303.33; A:

(3) additional interest on regular interest in the amount of ₱7,544.58; All unpaid amortization shall bear interest at the rate of 11% per annum.

(4) penalty charges on principal in the amount of ₱47,493.33; Q:

(5) penalty charges on regular interest in the amount of ₱5,486.97;
(6) penalty charges on advances in the amount of ₱40,520.53.
[Respondent] bank failed to show the basis for charging additional interest on principal,
additional interest on regular interest and penalty charges on principal and penalty
charges on regular interest under items (2), (3), (4) and (5) above.
Moreover, [respondent] bank charged [petitioners] twice under the same provisions in
the promissory notes. It categorically admitted that the additional interests and penalty
charges separately being charged [petitioners] referred to the same provision of the
Promissory Notes, Exhibits "A" and "C." Thus, for the Lim Account in the amount of
₱40,000.00, [respondent’s] Mr. Ancheta stated:
Q:
The additional interest is based on 11% per annum and the penalty is likewise based
on the same rate?
A:
Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)
With respect to the Diamond L. Ranch account in the amount of ₱960,000.00, Mr.
Ancheta testified as follows:
Q:
Going back to Exhibit 14 Statement of Accounts. Out of the principal of ₱939,973.33
you imposed an additional interest of ₱1,233,893.79 plus ₱859,966.83 plus
₱27,206.45. Can you tell us what is the basis of the imposition?

In Exhibit 14, it is stated that for a principal amount of ₱40,000.00 you imposed an A:
additional interest in the amount of ₱65,303.33 in addition to the regular interest of
₱7,544.58, can you tell us looking [at] the mortgage contract and promissory note what
is your basis for charging that additional interest? As earlier stated, it is only the Promissory Note as well as the Mortgage Contract.

A: Q:

The same as that when I answered Exhibit No. 3, which shall cover amortization on the Please point to us where in the Promissory Note is the specific portion?
principal and interest at the above-mentioned rate. All unpaid amortization[s] shall bear
interest at the rate of eleven per centum (11%) per annum. A:

Q: In Exhibit 1: "in case of failure to pay in full any amortization when due, a penalty charge
of 1/3% per month on the overdue amortization shall be paid."
You also imposed penalty which is on the principal in the amount of ₱40,000.00 in the
amount of ₱47,493.33 in addition to regular interest of ₱5,486.96. Can you point what Q:
portion of Exhibit 3 gives DBP the right to impose such penalty?
What is the rate?
A:
A:
The same paragraph as stated.
1/3% per month.
Q:
Q:
Can you please read the portion referring to penalty?
So, the imposition of the additional interest and the penalty charge is based on the
same provision?
A:
Yes (TSN, 28 May 1996, pp. 41-42.)
A perusal of the promissory notes, however, failed to justify [respondent] bank’s
computation of both interest and penalty under the same provision in each of the
promissory notes.
[Respondent] bank also admitted that the additional interests and penalties being
charged [petitioners] were not based on the stipulations in the Promissory Notes but
were imposed unilaterally as a matter of its internal banking policies. (TSN, 19 March
1996, pp. 23-24.) This banking policy, however, has been declared null and void in
Philippine National Bank vs. CA, 196 SCRA 536 (1991). The act of [respondent] bank
in unilaterally changing the stipulated interest rate is violative of the principle of
mutuality of contracts under 1308 of the Civil Code and contravenes 1956 of the Civil
Code. [Respondent] bank completely ignored [petitioners’] "right to assent to an
important modification in their agreement and (negated) the element of mutuality in
contracts." (Philippine National Bank vs. CA, G.R. No. 109563, 9 July 1996; Philippine
National Bank vs. CA, 238 SCRA 20 1994). As in the PNB cases, [petitioners] herein
never agreed in writing to pay the additional interest, or the penalties, as fixed by
[respondent] bank; hence [respondent] bank’s imposition of additional interest and
penalties is null and void.122 (Emphasis supplied)
Consequently, this case should be remanded to the RTC for the proper determination
of petitioners’ total loan obligation based on the interest and penalties stipulated in the
Promissory Notes.
DBP did not act in bad faith or in
wanton, reckless, or oppressive manner.
Finally, as to petitioners’ claim for damages, we find the same devoid of merit.
DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in cancelling
the Restructuring Agreement. As we have said, DBP had reason to cancel the
Restructuring Agreement because petitioners failed to pay the amount required by it
when it reconsidered petitioners’ request to restructure the loan.
Likewise, DBP’s failure to send a notice of the foreclosure sale to petitioners and its
imposition of additional interest and penalties do not constitute bad faith. There is no
showing that these contractual breaches were done in bad faith or in a wanton,
reckless, or oppressive manner.1âwphi1
In Philippine National Bank v. Spouses Rocamora,123 we said that:
Moral damages are not recoverable simply because a contract has been breached.
They are recoverable only if the defendant acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations. The breach must be wanton, reckless,
malicious or in bad faith, and oppressive or abusive. Likewise, a breach of contract may
give rise to exemplary damages only if the guilty party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.
We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in wanton
disregard of its contractual obligations, simply because it increased the interest rates
and delayed the foreclosure of the mortgages. Bad faith cannot be imputed simply
because the defendant acted with bad judgment or with attendant negligence. Bad faith
is more than these; it pertains to a dishonest purpose, to some moral obliquity, or to the
conscious doing of a wrong, a breach of a known duty attributable to a motive, interest
or ill will that partakes of the nature of fraud. Proof of actions of this character is
undisputably lacking in this case. Consequently, we do not find the spouses Rocamora
entitled to an award of moral and exemplary damages. Under these circumstances,
neither should they recover attorney’s fees and litigation expense. These awards are
accordingly deleted.124 (Emphasis supplied)
WHEREFORE, the Petition is PARTLY GRANTED. The assailed February 22, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 59275 is hereby MODIFIED in
accordance with this Decision. The case is hereby REMANDED to the Regional Trial
Court of General Santos City, Branch 22, for the proper determination of petitioners’
total loan obligations based on the interest and penalties stipulated in the Promissory
Notes dated November 24, 1969 and December 30, 1970. The foreclosure sale of the
mortgaged properties held on July 11, 1994 is DECLARED void ab initio for failure to
comply with paragraph 11 of the Mortgage, without prejudice to the conduct of another
foreclosure sale based on the recomputed amount of the loan obligations, if necessary.
SO ORDERED.
a

G.R. No. 174581 February 4, 2015
ATTY. LEO N. CAUBANG, Petitioner,
vs.
JESUS G. CRISOLOGO and NANETTE B. CRISOLOGO, Respondents.
DECISION
PERALTA, J.:
For the Court's resolution is a Petition for Review under Rule 45 of the Rules of Court
which petitioner Atty. Leo N. Caubang filed, questioning the Decision 1 of the Court of
Appeals (CA), dated May 22, 2006, and its Resolution 2 dated August 16, 2006 in CA-
G.R. CV. No. 68365. The CA affirmed the Decision3 of the Regional Trial Court (RTC)
of Davao City, Branch 12, dated August 1, 2000, with modifications, in Civil Case No.
27168-99.
The facts, as gathered from the records, are as follows:
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo (the
Spouses Crisologo) obtained an Express Loan in the amount of ₱200,000.00 from
PDCP Development Bank Inc. (PDCP Bank). On January 26, 1994, the Spouses
Crisologo acquired another loan from the same bank, this time a Term Loan of
₱1,500,000.00 covered by a Loan Agreement. As security for both loans,the spouses
mortgaged their property covered by Transfer Certificate of Title (TCT) No. T-181103.
Upon release of the Term Loan, they were given two (2) promissory notes, for the
amount of ₱500,000.00 on February 9, 1994 and ₱1,000,000.00 on February 21, 1994.
Under the promissory notes, the Spouses Crisologo agreed to pay the principal amount
of the loan over a periodof three (3) years in twelve (12) equal quarterly amortizations.
Although they were able to pay the Express Loan, starting August 22, 1994, however,
or after payment of the first few installments on the other loans, the spouses defaulted
in the amortizations. Despite several demands made by the bank,the spouses still failed
to pay.
On May 31, 1996, the spouses received a detailed breakdown of their outstanding
obligation. Finding the charges to be excessive, they wrote a letter to the bank
proposing to pay their loan in full with a request that the interest and penalty charges
be waived. The manager of PDCP Bank, Davao Branch, advised them to deposit their
₱1,500,000.00 obligation as manifestation of their intent to pay the loan. As a counter-
offer, the spouses agreed to deposit the amount but on the condition that the bank
should first return to them the title over the mortgaged property. The bank did not reply
until July 7, 1997, where they senta letter denying the spouses’ counteroffer and
demanding payment of the loan already amounting to ₱2,822,469.90. By October 20,
1997, the debt had ballooned to ₱3,041,287.00. For failure to settle the account, the
Davao branch of the bank recommended the foreclosure of the mortgage to its head
office. On March 20, 1998, PDCP Bank filed a Petition for the Extrajudicial Foreclosure
of the Mortgage.
On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the Notices of
Sale, announcing the foreclosure of the real estate mortgage and the sale of the
mortgaged property at public auction on July 15, 1998. He caused the posting of said
notices in three (3) public places: the Barangay Hall of Matina, City Hall of Davao,and
Bangkerohan Public Market. Publication was, likewise, made in the Oriental Daily
Examiner, one of the local newspapers in Davao City.
On July 15, 1998, Caubang conducted the auction sale of the mortgaged property, with
the bank as the only bidder.1âwphi1 The bank bidded for ₱1,331,460.00, leaving a
deficiencyof ₱2,207,349.97. Thereafter, a Certificate of Sale in favor of the bank was
issued.
Later, the Spouses Crisologo were surprised to learn that their mortgaged property had
already been soldto the bank. Thus, they filed a Complaint for Nullity of Extrajudicial
Foreclosure and Auction Sale and Damages against PDCP Bank and Caubang.
On August 1, 2000, the Davao RTC rendered a Decision nullifying the extrajudicial
foreclosure of the real estate mortgage for failure to comply with the publication
requirement, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property, covered
by TCT No. T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No.
113255 on TCT No. T-181103, the entry relative to the Certificate of Sale
executed by Atty. Leo Caubang on August 5, 1998, and if a new title has been
issued to defendant PDCP, to cancel the same, and to reinstate TCT No. T-
181103 in the name of Nannette B. Crisologo, of legal age, Filipino, married
to Jesus Crisologo, and a resident of Davao City, Philippines.
All the other claims of the parties are disallowed.
No pronouncement as to costs.
SO ORDERED.4
The Spouses Crisologo appealed before the CA, seeking a partial modification of the
RTC Decision, insofar as their claims for moral and exemplary damages, attorney’s
fees, and costs of suit were concerned. On May 22, 2006, the appellate court modified
the decretal portion to read: WHEREFORE, judgment is hereby rendered:
 1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property, covered
by TCT # T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. T-
181103, the entry relative to the Certificate of Sale executed by Atty. Leo
Caubang on August 5, 1998, and if a new title has been issued to defendant
PDCP, to cancel the same, and to reinstate TCT No. T-181103 in the name
of Nannette B. Crisologo, of legal age, Filipino, married to Jesus Crisologo,
and a resident of Davao City, Philippines; and
3. Atty. Caubang is ordered to pay appellants the sum of ₱41,500.00 as
attorney’s fees and ₱30,248.50 as litigation expenses.
All other claims of the parties are disallowed.
SO ORDERED.5
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he filed
the present petition.
Caubang mainly assails the CA’s ruling on the publication of the notices in the Oriental
Daily Examiner. He firmly contends that the CA’s finding was based on assumptions
and speculations.
The petition lacks merit.
Under Section 3 of Act No. 3135:6
Section 3. Notice of sale; posting; when publication required.– Notice shall be given by
posting notices ofthe sale for not less than twenty days in at least three public places
ofthe municipality or city where the property is situated, and if such property is worth
more than four hundred pesos, such notices shall also be published once a week for at
least three consecutive weeksin a newspaper of general circulation in the municipality
or city.7
Caubang never made an effort toinquire as to whether the Oriental Daily Examinerwas
indeed a newspaper of general circulation, as required by law. It was shown that the
Oriental Daily Examineris not even on the list of newspapers accredited to publish legal
notices, as recorded in the Davao RTC’s Office of the Clerk of Court. It also has no
paying subscribers and it would only publish whenever there are customers. Since
there was no proper publication of the notice of sale, the Spouses Crisologo, as well
as the rest of the general public, were never informed thatthe mortgaged property was
about to be foreclosed and auctioned. As a result,PDCP Bank became the sole bidder.
This allowed the bank to bid for a very low price (₱1,331,460.00) and go after the
spouses for a bigger amount as deficiency.1âwphi1
The principal object of a notice of sale in a foreclosure of mortgage is not so much to
notify the mortgagor as to inform the public generally of the nature and condition of the
property to be sold, and of the time, place, and terms of the sale. Notices are given to
secure bidders and prevent a sacrifice of the property. Therefore, statutory provisions
governing publication of notice of mortgage foreclosure sales must be strictly complied
with and slight deviations therefrom will invalidate the notice and render the sale, at the
very least, voidable. Certainly, the statutory requirements of posting and publication are
mandated and imbued with public policy considerations. Failure to advertise a
mortgage foreclosure sale in compliance with the statutory requirements constitutes a
jurisdictional defect, and any substantial error in a notice of sale will render the notice
insufficient and will consequently vitiate the sale.8
Since it was Caubang who caused the improper publication of the notices which, in
turn, compelled the Spouses Crisologo to litigate and incur expenses involving the
declaration of nullity of the auction sale for the protection of their interest on the
property, the CA aptly held that Caubang shall be the one liable for the spouses' claim
for litigation expenses and attorney's fees.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated
May 22, 2006, and its Resolution dated August 16, 2006, in CA-G.R. CV. No. 68365,
are hereby AFFIRMED.
G.R. No. 171169 August 24, 2009
GC DALTON INDUSTRIES, INC., Petitioner,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
CORONA, J.:
In 1999, respondent Equitable PCI Bank extended a ₱30-million credit line to Camden
Industries, Inc. (CII) allowing the latter to avail of several loans (covered by promissory
notes) and to purchase trust receipts. To facilitate collection, CII executed a "hold-out"
agreement in favor of respondent authorizing it to deduct from its savings account any
amounts due. To guarantee payment, petitioner GC Dalton Industries, Inc. executed a
third-party mortgage of its real properties in Quezon City1 and Malolos, Bulacan2 as
security for CII’s loans.3
CII did not pay its obligations despite respondent’s demands. By 2003, its outstanding
consolidated promissory notes and unpaid trust receipts had reached a staggering
₱68,149,132.40.4
Consequently, respondent filed a petition for extrajudicial foreclosure of petitioner’s
Bulacan properties in the Regional Trial Court (RTC) of Bulacan on May 7, 2004. 5 On
August 3, 2004, the mortgaged properties were sold at a public auction where
respondent was declared the highest bidder. Consequently, a certificate of sale 6 was
issued in respondent’s favor on August 3, 2004.
On September 13, 2004, respondent filed the certificate of sale and an affidavit of
consolidation of ownership7 in the Register of Deeds of Bulacan pursuant to Section 47
of the General Banking Law.8 Hence, petitioner’s TCTs covering the Bulacan properties
were cancelled and new ones were issued in the name of respondent. 9
In view of the foregoing, respondent filed an ex parte motion for the issuance of a writ
of possession10 in the RTC Bulacan, Branch 10 on January 10, 2005.11
Previously, however, on August 4, 2004, CII had filed an action for specific performance
and damages12 in the RTC of Pasig, Branch 71 (Pasig RTC), asserting that it had
allegedly paid its obligation in full to respondent.13 CII sought to compel respondent to
render an accounting in order to prove that the bank fraudulently foreclosed on
petitioner’s mortgaged properties.
Because respondent allegedly failed to appear during the trial, the Pasig RTC rendered
a decision on March 30, 200514 based on the evidence presented by CII. It found that,
while CII’s past due obligation amounted only to ₱14,426,485.66 as of November 30,
2002, respondent had deducted a total of ₱108,563,388.06 from CII’s savings account.
Thus, the Pasig RTC ordered respondent: (1) to return to CII the "overpayment" with
legal interest of 12% per annum amounting to ₱94,136,902.40; (2) to compensate it for
lost profits amounting to ₱2,000,000 per month starting August 2004 with legal interest
of 12% per annum until full payment and (3) to return the TCTs covering the mortgaged
properties to petitioner. It likewise awarded CII ₱2,000,000 and ₱300,000, respectively,
as moral and exemplary damages and ₱500,000 as attorney’s fees.
Respondent filed a notice of appeal. CII, on the other hand, moved for the immediate
entry and execution of the abovementioned decision.
In an order dated December 7, 2005,15 the Pasig RTC dismissed respondent’s notice
of appeal due to its failure to pay the appellate docket fees. It likewise found respondent
guilty of forum-shopping for filing the petition for the issuance of a writ of possession in
the Bulacan RTC. Thus, the Pasig RTC ordered the immediate entry of its March 30,
2005 decision.16
Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed
respondent’s ex parte motion for the issuance of a writ of possession in the Bulacan
RTC. It claimed that respondent was guilty of fraud and forum-shopping, and that it was
not informed of the foreclosure. Furthermore, respondent fraudulently foreclosed on the
properties since the Pasig RTC had not yet determined whether CII indeed failed to
pay its obligations.
In an order dated December 10, 2005, the Bulacan RTC granted the motion and a writ
of possession was issued in respondent’s favor on December 19, 2005.
Petitioner immediately assailed the December 10, 2005 order of the Bulacan RTC via
a petition for certiorari in the Court of Appeals (CA). It claimed that the order violated
Section 14, Article VIII of the Constitution17 which requires that every decision must
clearly and distinctly state its factual and legal bases. In a resolution dated January 13,
2006,18 the CA dismissed the petition for lack of merit on the ground that an order
involving the issuance of a writ of possession is not a judgment on the merits, hence,
not covered by the requirement of Section 14, Article VIII of the Constitution.
Petitioner elevated the matter to this Court, assailing the January 13, 2006 resolution
of the CA. It insists that the December 10, 2005 order of the Bulacan RTC was void as
it was bereft of factual and legal bases.1avvphi1
Petitioner likewise cites the conflict between the December 10, 2005 order of the
Bulacan RTC and the December 7, 2005 order of the Pasig RTC. Petitioner claims that,
since the Pasig RTC already ordered the entry of its March 30, 2005 decision (in turn
ordering respondent to return TCT No. 351231 and all such other owner’s documents
of title as may have been placed in its possession by virtue of the subject trust receipt
and loan transactions), the same was already final and executory. Thus, inasmuch as
CII had supposedly paid respondent in full, it was erroneous for the Bulacan RTC to
order the issuance of a writ of possession to respondent.
Respondent, on the other hand, asserts that petitioner is raising a question of fact as it
essentially assails the propriety of the issuance of the writ of possession. It likewise
points out that petitioner did not truthfully disclose the status of the March 30, 2005
decision of the Pasig RTC because, in an order dated April 4, 2006, the Pasig RTC
partially reconsidered its December 7, 2005 order and gave due course to respondent’s
notice of appeal. (The propriety of the said April 4, 2006 order is still pending review in
the CA.)
We deny the petition.
The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is
summary and ministerial in nature as such proceeding is merely an incident in the
transfer of title.19 The trial court does not exercise discretion in the issuance
thereof.20 For this reason, an order for the issuance of a writ of possession is not the
judgment on the merits contemplated by Section 14, Article VIII of the Constitution.
Hence, the CA correctly upheld the December 10, 2005 order of the Bulacan RTC.
Furthermore, the mortgagor loses all legal interest over the foreclosed property after
the expiration of the redemption period.21 Under Section 47 of the General Banking
Law,22 if the mortgagor is a juridical person, it can exercise the right to redeem the
foreclosed property until, but not after, the registration of the certificate of foreclosure
sale within three months after foreclosure, whichever is earlier. Thereafter, such
mortgagor loses its right of redemption.
Respondent filed the certificate of sale and affidavit of consolidation with the Register
of Deeds of Bulacan on September 13, 2004. This terminated the redemption period
granted by Section 47 of the General Banking Law. Because consolidation of title
becomes a right upon the expiration of the redemption period,23 respondent became
the owner of the foreclosed properties.24 Therefore, when petitioner opposed the ex
parte motion for the issuance of the writ of possession on January 10, 2005 in the
Bulacan RTC, it no longer had any legal interest in the Bulacan properties.
Nevertheless, even if the ownership of the Bulacan properties had already been
consolidated in the name of respondent, petitioner still had, and could have availed of,
the remedy provided in Section 8 of Act 3135. 25 It could have filed a petition to annul
the August 3, 2004 auction sale and to cancel the December 19, 2005 writ of
possession,26 within 30 days after respondent was given possession.27 But it did not.
Thus, inasmuch as the 30-day period to avail of the said remedy had already lapsed,
petitioner could no longer assail the validity of the August 3, 2004 sale.

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal
ground for the refusal to issue a writ of possession. Regardless of whether or not there
is a pending suit for the annulment of the mortgage or the foreclosure itself, the
purchaser is entitled to a writ of possession, without prejudice, of course, to the eventual
outcome of the pending annulment case.28

Needless to say, petitioner committed a misstep by completely relying and pinning all
its hopes for relief on its complaint for specific performance and damages in the Pasig
RTC,29 instead of resorting to the remedy of annulment (of the auction sale and writ of
possession) under Section 8 of Act 3135 in the Bulacan RTC.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

G.R. No. 176212 : October 20, 2010

 CENTURY SAVINGS BANK, Petitioner, v. SPOUSES DANILO T. SAMONTE and
ROSALINDA M. SAMONTE, Respondents.cralaw
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari of the Decision1cra1aw dated July 7, 2006
and the Resolution2cra1aw dated January 10, 2007 of the Court of Appeals in CA-
G.R. CV No. 85730. The Court of Appeals reversed and set aside the
Decision3cra1aw dated May 30, 2005 of the Regional Trial Court, National Capital
Judicial Region, City of Makati, Branch 58 (Makati RTC-Branch 58), in Civil Case No.
01-1564, which dismissed for lack of merit the Complaint 4cra1aw for the annulment of
an extrajudicial foreclosure filed by herein respondent spouses Danilo T. Samonte
and Rosalinda M. Samonte against herein petitioner Century Savings Bank.
The present controversy stemmed from the two loans, in the aggregate amount of
Three Million Five Hundred Thousand Pesos (P3,500,000.00), extended by petitioner
to respondents. Each loan was secured by a promissory note 5cra1aw and deed of
real estate mortgage6cra1aw executed by respondents in favor of petitioner. The real
estate mortgages were constituted on parcels of land, covered by Transfer Certificate
of Title (TCT) Nos. 201334 and 205596, in respondents names. When respondents
defaulted in the payment of their loans by the latter part of 1999, petitioner initiated
before the notary public extrajudicial foreclosure proceedings over the mortgaged
properties, pursuant to Act No. 3135, also known as "An Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages," as
amended.
Section 3 of Act No. 3135 provides for the following pre-requisites for an extrajudicial
sale:chanroblesvirtualawlibrary
SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
Hence, petitioner caused the publication of a Notice of Sale7cra1aw dated November
12, 1999, prepared by Notary Public Enriqueto I. Magpantay (Magpantay), in the
Challenger News a weekly newspaper of general circulation on November 15, 22,
and 29, 1999.8cra1aw The published Notice of Sale stated:chanroblesvirtualawlibrary
NOTICE OF SALE
Upon extrajudicial petition for sale under Act 3135, as amended by Act 4118, filed by
CENTURY SAVINGS BANK, mortgagee, against SPOUSES DANILO T. SAMONTE
AND ROSALINDA N. SAMONTE, mortgagors, with residence and postal address at
No. 7142 M. Ocampo St., Pio del Pilar, Makati City, to satisfy the mortgaged
indebtedness, which, as [of] October 15, 1999, amounts to FOUR MILLION FIVE
HUNDRED EIGHTY THOUSAND FIVE HUNDRED NINETY FOUR PESOS AND
62/100 (P4,580,594.62) excluding penalties, interest, and charges accruing from
October 15, 1999 and attorneys fees, legal fees and expenses for the foreclosure and
sale, the undersigned Notary Public for Makati City will sell at PUBLIC AUCTION to
the highest bidder FOR CASH and in Philippine Currency, on December 9, 1999 at
10:00 oclock in the morning, or soon thereafter, at the main entrance of the City Hall
of Makati, the following described real estate properties, together with all the
improvement existing thereon to wit:chanroblesvirtualawlibrary
TRANSFER CERTIFICATE OF TITLE
NO. 201334
REGISTRY OF DEEDS FOR
CITY OF MAKATI
xxxx
TRANSFER CERTIFICATE OF TITLE
NO. 205596
REGISTRY OF DEEDS FOR
CITY OF MAKATI9chanroblesvirtuallawlibrary
Notary Public Magpantay also attested in a Certificate of Posting10cra1aw dated
December 9, 1999, as follows:chanroblesvirtualawlibrary
CERTIFICATE OF POSTING
I HEREBY CERTIFY, that on the 15st day of November 1999, I have caused the posting
of three (3) copies of Notice of Sale over the real estate properties covered by Transfer
Certificates of Title Nos. 201334 and 205596 of the Registry of Deeds for the City of
Makati in three (3) conspicuous places in Makati City, as required by law.
Makati City, December 9, 1999.11chanroblesvirtuallawlibrary
The public auction sale took place as scheduled on December 9, 1999, with petitioner
as the winning and highest bidder. Notary Public Magpantay subsequently issued on
January 6, 2000 a Certificate of Sale,12cra1aw covering the subject properties, in favor
of petitioner. This Certificate of Sale mentioned, among other things, that the
extrajudicial foreclosure sale of the mortgaged properties was only a partial satisfaction
of respondents total outstanding financial obligations to petitioner. Consequently, on
March 15, 2000, petitioner filed a complaint against respondents for the collection of
the deficiency of their loans, which was docketed as Civil Case No. 67842 before the
RTC-Branch 263 of the City of Pasig.13chanroblesvirtuallawlibrary
Sometime in 2001, the parties executed a Contract of Lease 14cra1aw whereby
petitioner leased one of the foreclosed properties to respondents for a period of one
year, from January 16, 2001 to January 16, 2002. It was acknowledged in said contract
that petitioner acquired the real property subject of the lease as the highest and winning
bidder in an extrajudicial foreclosure sale, conducted pursuant to Act No. 3135, as
amended; that petitioner was in the process of consolidating its title over the said real
property as the redemption period expired without respondents having exercised their
right of redemption; and that respondents had recognized the valid and legal right of
petitioner as the absolute owner of the leased real property. Petitioner eventually
consolidated its titles to the foreclosed properties. As a result, new certificates of title,
TCT Nos. 21780 and 21781,15cra1aw were issued in the name of petitioner.
A few months later, respondents filed a Complaint dated October 22, 2001, seeking the
annulment of the extrajudicial foreclosure sale of their real properties. The Complaint
was docketed as Civil Case No. 01-1564 and raffled to the Makati RTC-Branch 58.
Among respondents contentions was that the extrajudicial foreclosure proceedings
initiated by petitioner failed to comply with the posting requirements under Section 3 of
Act No. 3135, as amended. On the other hand, petitioner insisted that the extrajudicial
foreclosure sale was duly conducted in accordance with law.
The Makati RTC-Branch 58, after trial, rendered a Decision on May 30, 2005 dismissing
respondents Complaint in Civil Case No. 01-1564. The trial court found that "the Notice
of Sale appears to have been posted for twenty days before the scheduled public
auction, as stated in the Notary Publics Certificate of Posting";16cra1aw and that even
if the posting requirement was not complied with, the publication of the Notice of Sale
in a newspaper of general circulation already satisfied the notice requirement under Act
No. 3135, as amended. The trial court added that under the equitable principle of
estoppel, respondents were precluded from impugning the validity of the extrajudicial
foreclosure proceedings as they already acknowledged the same in their 2001 Contract
of Lease with petitioner. The Makati RTC-Branch 58 decreed in the end,
"WHEREFORE, premises considered, judgment is hereby rendered dismissing [herein
respondents] Complaint for lack of merit."17chanroblesvirtuallawlibrary
Respondents appeal before the Court of Appeals of the aforementioned judgment of
the Makati RTC-Branch 58 was docketed as CA-G.R. CV No. 85730. In its Decision
dated July 7, 2006, the Court of Appeals adjudged that the extrajudicial foreclosure
proceedings were fatally defective because the "Certificate of Posting failed to state
that the Notice of Sale was posted for twenty (20) days before the sale in at least three
(3) public places of the city where the properties sought to be foreclosed [were]
situated";18cra1aw and that petitioner failed to satisfactorily refute respondents
contention that there was no faithful compliance with the mandate of the law on the
posting of the Notice of Sale. The appellate court also held that the presumption of
regularity in the performance of the notary publics duties did not apply because
petitioner did not present Notary Public Magpantay to testify on the circumstances
involving the posting of the Notice of Sale. The appellate court lastly ruled that the
principle of estoppel could not validate an act prohibited by law, and so the Contract of
Lease between petitioner and respondents did not ratify a null and void extrajudicial
foreclosure sale. The Court of Appeals disposed thus:chanroblesvirtualawlibrary
WHEREFORE, the instant appeal is GRANTED. The assailed Decision dated May 30,
2005 is SET ASIDE and a new one is entered annulling the extra-judicial foreclosure
sale of [herein respondents] properties covered by Transfer Certificates of Title (TCT)
Nos. 201334 and 205596 of the Registry of Deeds of Makati
City.19chanroblesvirtuallawlibrary
Petitioner comes before this Court via the present Petition for Review on Certiorari
asserting that notices of the extrajudicial foreclosure sale of respondents mortgaged
properties were duly posted, in compliance with Section 3 of Act No. 3135, as amended.
Although Notary Public Magpantays Certificate of Posting did not exactly state that the
notices of sale were "posted for not less than twenty days" and in "at least three public
places where the properties sought to be foreclosed were situated[,]" the said
certificate, nonetheless, affirmed that copies of the Notice of Sale were posted on
November 15, 1999 "in three (3) conspicuous places in Makati City." Since the public
auction of the mortgaged properties was held on December 9, 1999, the copies of the
Notice of Sale had been posted in three public places for 24 days, even more than the
20 days required by law. The Certificate of Posting prima facie proved compliance with
the required posting of the notices of sale, thus, the testimony of the notary public who
issued the certificate was not necessary in the absence of proof that irregularities
attended the performance of his duties.
Petitioner argues in the alternative that the publication of the notice of sale already
constitutes sufficient compliance with the notice requirements of Act No. 3135, as
amended. The absence of actual posting of the notice of sale, or the lack of or defect
in the certificate of posting, should not invalidate a public auction when the same notice
of sale had been published. In this case, it is undisputed that the Notice of Sale was
duly published in the Challenger News.
Petitioner also posits that the facts of the case are undisputed. There is no question
that Notary Public Magpantay conducted the foreclosure proceedings involving
respondents properties, and that the extrajudicial foreclosure sale took place. Such
proceedings enjoy the presumption of regularity. The chief issue involved in the case
at bar is a question of law arising from the foregoing undisputed facts, specifically,
"[s]hould the extrajudicial foreclosure sale be declared invalid because the Certificate
of Posting merely states that the Notice of Sale was posted on 15 November 1999 in
three conspicuous places in Makati City." Petitioner submits that since it was
respondents who instituted the action for annulment of foreclosure, the burden of proof
is upon them to prove the invalidity of the foreclosure proceedings for non-compliance
with the law.
Respondents conclude that the extrajudicial foreclosure proceeding was correctly
nullified by the appellate court. Respondents counter that per Notary Public
Magpantays Certificate of Posting, the Notice of Sale was posted for only one day as
said certificate failed to state the duration of the posting prior to the public auction. Also,
the Notice of Sale referred to "conspicuous places," which are not the same as the
"public places" required by law. Respondents maintain that the law requires both
posting and publication of the notice of sale, and that the question of whether there had
been actual compliance with the legal requirements for a valid foreclosure sale is a
question of fact not proper for determination at this stage of the case.
The Court finds the instant Petition meritorious.
In Microsoft Corporation v. Maxicorp, Inc., 20cra1aw the Court elucidated on the
distinction between questions of law and fact:chanroblesvirtualawlibrary
The distinction between questions of law and questions of fact is settled. A question of
law exists when the doubt or difference centers on what the law is on a certain state of
facts. A question of fact exists if the doubt centers on the truth or falsity of the alleged
facts. Though this delineation seems simple, determining the true nature and extent of
the distinction is sometimes problematic. For example, it is incorrect to presume
that all cases where the facts are not in dispute automatically involve purely questions
of law.
There is a question of law if the issue raised is capable of being resolved without need
of reviewing the probative value of the evidence. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances. Once it is clear that
the issue invites a review of the evidence presented, the question posed is one of fact.
If the query requires a re-evaluation of the credibility of witnesses, or the existence or
relevance of surrounding circumstances and their relation to each other, the issue in
that query is factual. Our ruling in Paterno v. Paterno [G.R. No. 63680, 23 March 1990,
183 SCRA 630] is illustrative on this point:chanroblesvirtualawlibrary
Such questions as whether certain items of evidence should be accorded probative
value or weight, or rejected as feeble or spurious, or whether or not the proofs on one
side or the other are clear and convincing and adequate to establish a proposition in
issue, are without doubt questions of fact. Whether or not the body of proofs presented
by a party, weighed and analyzed in relation to contrary evidence submitted by adverse
party, may be said to be strong, clear and convincing; whether or not certain documents
presented by one side should be accorded full faith and credit in the face of protests as
to their spurious character by the other side; whether or not inconsistencies in the body
of proofs of a party are of such gravity as to justify refusing to give said proofs weight
all these are issues of fact.
It is true that Maxicorp did not contest the facts alleged by petitioners. But this situation
does not automatically transform all issues raised in the petition into questions of law.
The issues must meet the tests outlined in Paterno.21chanroblesvirtuallawlibrary
The main issue in the case at bar is whether the extrajudicial foreclosure sale of
respondents mortgaged properties was valid. The resolution of said issue, however, is
dependent on the answer to the question of whether the legal requirements on the
notice of sale were complied with. Necessarily, the Court must review the evidence on
record, most especially, Notary Public Magpantays Certificate of Posting, to determine
the weight and probative value to accord the same. Non-compliance with the
requirements of notice and publication in an extrajudicial foreclosure sale is a factual
issue. The resolution thereof by the lower courts is binding and conclusive upon this
Court. However, this rule is subject to exceptions, as when the findings of the trial court
and the Court of Appeals are in conflict. Also, it must be noted that non-compliance
with the statutory requisites could constitute a jurisdictional defect that would invalidate
the sale.22chanroblesvirtuallawlibrary
After a review of the evidence on record, the Court declares that the extrajudicial
foreclosure sale of respondents properties is valid, having complied with the legal
requirements for the same.
It is an elementary rule that the "burden of proof is the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the
amount of evidence required by law."23cra1aw In Cristobal v. Court of
Appeals,24cra1aw the Court explicitly ruled that foreclosure proceedings enjoy the
presumption of regularity and that the mortgagor who alleges absence of a requisite
has the burden of proving such fact, to wit:chanroblesvirtualawlibrary
Further, as respondent bank asserts, a mortgagor who alleges absence of a requisite
has the burden of establishing that fact. Petitioners failed in this regard. Foreclosure
proceedings have in their favor the presumption of regularity and the burden of
evidence to rebut the same is on the petitioners. As well said by the respondent
appellate court:chanroblesvirtualawlibrary
". . . Under the circumstances, there is a basis for presuming that official duty has been
regularly performed by the sheriff. Being a disputable presumption, the same is valid
unless controverted by evidence. The presumption has not been rebutted by any
convincing and substantial evidence by the appellee who has the onus to present
evidence that appellant has not complied with the posting requirement of the law. In the
absence therefore of any proof to the contrary, the presumption that official duty has
been regularly performed stays."25cra1aw (Emphases supplied.)
In this case, it was respondents who instituted Civil Case No. 01-1564 seeking the
annulment of the extrajudicial foreclosure of their mortgaged properties on the ground
of non-compliance with the requirements of the law on the posting of the notices of
sale. Thus, the burden falls upon respondents to prove the fact of non-compliance; but
respondents miserably failed in this regard. Respondents did not present any evidence
at all to establish that the notices of sale were not posted as required under Section 3
of Act No. 3135, as amended. Instead, respondents merely focused on how Notary
Public Magpantays Certificate of Posting was worded, and emphasized on
technicalities and semantics.
Respondents insist that the phrase "on the 15st day of November 1999, I have caused
the posting of three (3) copies of Notice of Sale" in the Certificate of Posting meant that
Notary Public Magpantay posted the notices for only one day, i.e., on November 15,
1999. This is a rather specious interpretation of the aforequoted phrase. It is more
logical and reasonable to understand the same phrase as to mean that the notices
were posted beginning November 15, 1999 until the issuance of the certificate on
December 9, 1999. There is also no basis to require the notary publics certificate to
exactly state that the notices of sale were posted at "public places." Notary Public
Magpantays use of the words "conspicuous places" in his certificate already
satisfactorily complies with the legal requirement for posting. The adjective "public" may
refer to that which is "exposed to general view," and "conspicuous" is a synonym
thereof.26chanroblesvirtuallawlibrary
Moreover, it bears to stress that the Certificate of Posting is actually evidence
presented by the petitioner to establish that copies of the Notice of Sale were indeed
posted as required by Act No. 3135, as amended. Without presenting their own
evidence of the alleged lack of posting, respondents contented themselves with
challenging the contents of said certificate. As plaintiffs in Civil Case No. 01-1564,
respondents must rely on the strength of their own evidence and not upon the
weakness of the petitioners.27chanroblesvirtuallawlibrary
In addition, despite any defect in the posting of the Notice of Sale, the Court reiterates
its ruling in previous jurisprudence that the publication of the same notice in a
newspaper of general circulation is already sufficient compliance with the requirement
of the law.
In Olizon v. Court of Appeals,28cra1aw the Court expounded on the purpose for giving
notice of the foreclosure sale; and if such purpose could be attained by publication
alone, then the absence of actual posting should not nullify the sale.
Thus:chanroblesvirtualawlibrary
We take judicial notice of the fact that newspaper publications have more far-reaching
effects than posting on bulletin boards in public places. There is a greater probability
that an announcement or notice published in a newspaper of general circulation, which
is distributed nationwide, shall have a readership of more people than that posted in a
public bulletin board, no matter how strategic its location may be, which caters only to
a limited few. Hence, the publication of the notice of sale in the newspaper of general
circulation alone is more than sufficient compliance with the notice-posting requirement
of the law. By such publication, a reasonably wide publicity had been effected such that
those interested might attend the public sale, and the purpose of the law had been
thereby subserved.
The object of a notice of sale is to inform the public of the nature and condition of the
property to be sold, and of the time, place and terms of the sale. Notices are given for
the purpose of securing bidders and to prevent a sacrifice of the property. If these
objects are attained, immaterial errors and mistakes will not affect the sufficiency of the
notice; but if mistakes or omissions occur in the notices of sale, which are calculated to
deter or mislead bidders, to depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice,
and also to the sale made pursuant thereto.
In the instant case, the aforesaid objective was attained since there was sufficient
publicity of the sale through the newspaper publication. There is completely no showing
that the property was sold for a price far below its value as to insinuate any bad faith,
nor was there any showing or even an intimation of collusion between the sheriff who
conducted the sale and respondent bank. This being so, the alleged non-compliance
with the posting requirement, even if true, will not justify the setting aside of the
sale.29cra1aw (Emphases supplied.)
Olizon squarely applies in this case. It is not disputed that the Notice of Sale was duly
published in a newspaper of general circulation once a week for three consecutive
weeks. Respondents did not allege, much less prove, any mistake or omission in the
published Notice of Sale calculated to deter or mislead bidders, depreciate the value of
the property, or to prevent it from bringing a fair price; or sale of the mortgaged
properties for a price far below their value as to insinuate bad faith; or collusion between
Notary Public Magpantay, who conducted the sale, and petitioner. Hence, the alleged
non-compliance with the posting requirement, even if true, shall not justify the setting
aside of the foreclosure sale.
Finally, the Court agrees with the RTC that respondents are already estopped from
challenging the validity of the foreclosure sale, after entering into a Contract of Lease
with petitioner over one of the foreclosed properties. The title of the landlord is a
conclusive presumption as against the tenant or lessee. According to Section 2(b), Rule
131 of the Rules of Court, "[t]he tenant is not permitted to deny the title of his landlord
at the time of the commencement of the relation of landlord and tenant between them."
The juridical relationship between petitioner as lessor and respondents as lessees
carries with it a recognition of the lessors title. As lessees, then respondents are
estopped to deny their landlord's title, or to assert a better title not only in themselves,
but also in some third person while they remain in possession of the leased premises
and until they surrender possession to the landlord. This estoppel applies even though
the lessor had no title at the time the relation of lessor and lessee was created, and
may be asserted not only by the original lessor, but also by those who succeed to his
title.30chanroblesvirtuallawlibrary
The Court quotes with approval the following findings of the
RTC:chanroblesvirtualawlibrary
Further, this Court upholds the validity of the extrajudicial foreclosure proceeding under
the equitable principle of estoppel. [Herein respondents] admitted execution of the
Contract of Lease alone establishes that they do not have any cause of action or are
estopped from impugning the validity of the subject extrajudicial foreclosure
proceedings. In the Contract of Lease, [respondents] clearly acknowledge that the
subject extrajudicial foreclosure sale was conducted in accordance with Act No. 3135,
as amended; that they failed to redeem the foreclosed properties within the redemption
period; and that [petitioner] has valid and legal right and title as absolute owner of the
foreclosed properties. [Respondents] failed to mention or question the validity of the
Contract of Lease in their Complaint. There being no evidence presented that
[respondents] executed the Contract of Lease by mistake or through violence,
intimidation, undue influence, or fraud, [respondents] are bound by the stipulations
therein and to the consequences thereof.31chanroblesvirtuallawlibrary
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED. The
Decision dated July 7, 2006 and the Resolution dated January 10, 2007 of the Court of
Appeals in CA-G.R. CV No. 85730 are SET ASIDE and the Decision dated May 30,
2005 of the Regional Trial Court, National Capital Judicial Region, City of Makati,
Branch 58, in Civil Case No. 01-1564, is REINSTATED. No costs.
SO ORDERED.