5/14/2017 G.R. No.

173349

RepublicofthePhilippines
SUPREMECOURT
Manila

FIRSTDIVISION


SAMUELU.LEEandPAULINE G.R.No.173349
LEEandASIATRUST
DEVELOPMENTBANK,INC., Present:
Petitioners,
CORONA,C.J.,Chairperson,
versus VELASCO,JR.,
LEONARDODECASTRO,
DELCASTILLO,
PEREZ,JJ.
BANGKOKBANKPUBLIC
COMPANY,LIMITED, Promulgated:
Respondent. February9,2011
xx

DECISION

VELASCO,JR.,J.:

TheCase

InthisPetitionforReviewonCertiorariunderRule45,petitionersassailtheMarch15,2006
[1]
Decision oftheCourtofAppeals(CA)inCAG.R.CVNo.79362,whichreversedandsetaside
[2]
theApril21,2003Decision oftheRegionalTrialCourt(RTC),Branch73inAntipoloCity,in
CivilCaseNo.995388,entitledBangkokBankPublicCompanyLimitedv.SpousesSamuelU.Lee
and Pauline Lee and Asiatrust Development Bank for the Rescission of Real Estate Mortgage
(REM),Annulment of Foreclosure Sale, Cancellation of Titles and Damages. They assail also the
June29,2006CAResolutiondenyingtheirmotionforreconsideration.

TheFacts

MidasDiversifiedExportCorporation(MDEC)andManilaHomeTextile,Inc.(MHI)entered
intotwoseparateCreditLineAgreements(CLAs)withRespondentBangkokBankPublicCompany,

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[3]
Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996, respectively. MDEC and
MHIareownedandcontrolledbytheLeefamily:ThelmaU.Lee,MaybelleL.Lim,DanielU.Lee
[4]
andSamuelU.Lee(Samuel). Bothcorporationshaveinterlockingdirectorsandmanagementled
by the Lee family and engaged in the manufacturing and export of garments, ladies bags and
apparel.

BangkokBankrequiredguaranteesfromtheLeefamilyforthetwoCLAs.Consequently,the
Lee family executed guarantees in favor of Bangkok Bank on December 1, 1995 for the CLA for
MDEC and on April 17, 1996 for the CLA of MHI. Under the guarantees, the Lee family
irrevocably and unconditionally guaranteed, as principal debtors, the payment of any and all
[5]
indebtedness of MDEC and MHI with Bangkok Bank. Prior to the granting of the CLAs,
BangkokBankconductedapropertycheckontheLeefamilyandrequiredSamueltosubmitalistof
his properties. Bangkok Bank, however, did not require the setting aside, as collateral, of any
[6]
particular property to answer for any future unpaid obligation. Subsequently, MDEC and MHI
madeseveralavailmentsfromtheCLAs.Intime,theadvances,whichMDECandMHIhadtaken
[7]
outfromtheCLAs,amountedtothreemilliondollars(USD3,000,000).

On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development
[8]
Bank, Inc. (Asiatrust). This facility had an available credit line of forty million pesos (PhP
40,000,000)forlettersofcredit,advancesonbillsandexportpackingandaseparatecreditlineof
[9]
twomilliondollars(USD2,000,000)forbillspurchase.

Inthemeantime,inMay1997,SamuelboughtseveralparcelsoflandinCupang,Antipolo,
and later entered into a joint venture with Louisville Realty and Development Corporation to
[10]
develop the properties into a residential subdivision, called Louisville Subdivision. These
properties in Cupang, Antipolo are the subject properties in the instant case (Antipolo properties)
and are covered by Transfer Certificate of Title (TCT) Nos. 329663 to 329511 of the Registry of
[11]
DeedsofRizalinMarikinaCity(RD).

Throughout 1997, MDEC availed itself of the omnibus credit line granted by Asiatrust on
three occasions: ten million pesos (PhP 10,000,000) to mature on July 15, 1997 eleven million

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pesos (PhP 11,000,000) to mature on February 6, 1998 and another ten million pesos (PhP
10,000,000)tomatureonFebruary20,1998.In the same year, particularly in August 1997, when
MDEC had defaulted in the payment of its loan that matured on July 15, 1997, Asiatrust initiated
negotiations with MDEC and required the Lee family to provide additional collateral that would
secure the loan. In December 1997, the negotiation was concluded when Asiatrust had agreed to
SamuelspropositionthathewouldmortgagethesubjectAntipolopropertiestosecuretheloan,and
[12]
therefore execute a REM over the properties. While the titles of the Antipolo properties had
been delivered by Samuel to Asiatrust and the REM had been executed in January 1998, spouses
SamuelandPaulineLee(spousesLee)wererequestedtosignanewdeedofmortgageonFebruary
23,1998,and,thus,itwasonlyonthatdatethatthesaidmortgagewasactuallynotarized,registered,
[13]
andannotatedatthebackofthetitles.

Similarly,MDECandMHIinitiallyhadmadepaymentswiththeirCLAsuntiltheydefaulted
andincurredaggregateobligationstoBangkokBankintheamountofUSD1,998,554.60forMDEC
[14]
andUSD800,000forMHI. Similarly, the Lee corporations defaulted in their obligations with
othercreditors.Forexample,SecurityBankCorporation(SBC)filedacaseagainsttheLeefamily
for a sum of money resulting from the nonpayment of obligations before the RTC, Branch 132 in
Makati City, entitled Security Bank Corporation v. Duty Free Superstore, Inc., Daniel U. Lee,
SamuelU.LeeandJacquelineM.Lee,docketedasCivilCaseNo.98196.OnJanuary30,1998,the
RTCinCivilCaseNo.98196issuedaWritofPreliminaryAttachmentinfavorofSBC,granting
[15]
attachment of the defendants real and personal properties. The writ, however, was neither
registerednorannotatedonthetitlesofthesubjectAntipolopropertiesattheRD.

OnFebruary16,1998,MDEC,MHI,andthreeothercorporationsownedbytheLeefamily
filed before the Securities and Exchange Commission (SEC) a Consolidated Petition for the
Declaration of a State of Suspension of Payments and for Appointment of a Management
[16]
Committee/Rehabilitation Receiver. Said petition acknowledged, among others, MDEC and
MHIsindebtednesswithBangkokBank,andadmittedthatmaturedandmaturingobligationscould
not be met due to liquidity problems. The petition likewise had a list of creditors to whom the
[17]
corporationsremainindebted,whichincludedAsiatrust. ThepetitionstatedthattheLeefamily
and their corporations had more than sufficient properties to cover all liabilities to their creditors
andpresentedalistofalltheirpropertiesincludingthesubjectpropertieslocatedinAntipolo,Rizal.
Notably,thelistofpropertiesattachedtothepetitionindicatedthatthesubjectAntipolopropertiesof

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thespousesLeehadalreadybeenearmarked,orthattheyhadalreadyservedassecurity,forMDECs
[18]
unpaidobligationwithAsiatrust.

On February 20, 1998, the SEC issued a Suspension Order enjoining the Lee corporations
fromdisposingoftheirpropertyinanymannerexceptintheordinarycourseofbusiness,andfrom
makinganypaymentsoutsidethelegitimateexpensesoftheirbusinessduringthependencyofthe
[19]
petition.

OnMarch12,1998,BangkokBankinstitutedanactionbeforetheRTC,Branch141inMakati
CitytorecovertheloansextendedtoMDECandMHIundertheguarantees,docketedasCivilCase
[20]
No.98628. BangkokBanksapplicationfortheissuanceofawritofpreliminaryattachmentwas
grantedthroughtheOrdersdatedMarch17and18,1998,coveringthepropertiesoftheLeefamily
[21]
inAntipolo,Cavite,QuezonCity,andBaguio,amongothers.

While enforcing the writs of preliminary attachment, Bangkok Bank discovered that the
spousesLeehadexecutedaREMoverthesubjectAntipolopropertiesinfavorofAsiatrustandthat
[22]
theREMhadpreviouslybeenannotatedonthetitles. Thus,thewritsofpreliminaryattachment
were also inscribed at the back of the TCTs covering the subject Antipolo properties, next to the
annotationoftheREM.

With MDEC still unable to make payments on its defaulting loans with Asiatrust, the latter
foreclosed the subject mortgaged Antipolo properties. On April 15, 1998, Asiatrust won as the
[23]
highestbidderattheauctionsale,purchasingthesaidpropertiesforPhP20,864,735. Thereafter,
AsiatruststillfiledanactionagainstMDECandthespousesLeetocollectthedeficiencyamounting
toatleastPhP14,800,000.UpuntilthefilingofthememorandabythepartiesbeforethisCourt,the
[24]
saidactionremainedpendingbeforetheCA.

[25]
Subsequently, the sale was registered on April 21, 1998. Believing the REM and the
foreclosuresaletobefraudulent,BangkokBankdidnotredeemthesubjectproperties.Astherehad
beennoefforttoredeemtheproperties,consequently,theTCTscoveringthesubjectpropertieswere
consolidatedinthenameofAsiatrustonApril30,1999,and120newtitleswereissuedinthename

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of Asiatrust without the annotation of the writs of preliminary attachment, which were deemed
[26]
canceled.

Amongthe120titlesforeclosedbyAsiatrustinLouisvilleSubdivisioninAntipolo,only12
properties were sold for a maximum price of PhP 250,000 for a house and lot, and 108 titles
remained.Asiatrustwasstillunabletosellthemandconvertthemintocash.Fromthenon,Asiatrust
maintainedsecurityservicesandpaidtherealestatetaxesofthesubjectAntipoloproperties,among
others.

OnJuly20,1999,BangkokBankfiledtheinstantcasebeforetheRTC,Branch73inAntipolo
City,docketedasCivilCaseNo.995388fortherescissionoftheREMoverthesubjectproperties,
annulmentoftheApril15,1998foreclosuresale,cancellationofthenewTCTsissuedinfavorof
Asiatrust, and damages amounting to PhP 600,000. In its action, Bangkok Bank alleged, among
others,thatthepresumptionoffraudunderArticle1387oftheCivilCodeapplies,consideringthata
writofpreliminaryattachmentwasissuedinJanuary1998infavorofSBCagainstSamuel.Italso
claimedthatcollusionandfraudtranspiredbetweenthespousesLeeandAsiatrustintheexecution
oftheREM.OnAugust5,1999,BangkokBankamendeditscomplainttoimpleadtheRD.

Meanwhile,onMarch23,2000,theRTC,Branch141inMakatiCityinCivilCaseNo.98
628renderedaPartialDecisioninfavorofBangkokBank,orderingtheLeefamily,pursuanttothe
guarantees, to pay USD 1,998,554.60 for the CLA of MDEC and USD 800,000 for the CLA of
MHI,withthecorresponding12%interestperannumfromthedateofthefilingofthecomplaint,
i.e.,onMarch12,1998,untilfullypaid.

But Bangkok Bank had only levied on the execution of the partial decision, some old
equipment, office fixtures and furniture, garments, textiles, and other small production equipment
[27]
withanapproximateaggregatevalueofPhP600,000. ConsideringthetotalliabilitiesoftheLee
family to Bangkok Bank, the levied properties were insufficient to satisfy the partial judgment in
CivilCaseNo.98628.

TheRulingoftheRTC

After due hearing with the parties presenting their evidence, on April 21, 2003, the RTC
renderedaDecisiondismissingthecase,thefalloreading:

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WHEREFORE,premisesconsidered,theinstantcaseisherebyDISMISSEDforlackofmerit.

Nofindingsastothecounterclaimofthedefendantsforinsufficiencyofevidencetosupport
theclaim.

[28]
SOORDERED.

In dismissing the instant case, the trial court found no concrete proof of the alleged fraud
committedbytheLeefamilyandAsiatrust,moreso,thatofacollusionorconspiracybetweenthem.
Consequently, it ruled that Art. 1381(3) of the Civil Code does not apply. Moreover, it noted that
BangkokBankhasnotprovedthatitcannotinanymannercollectitsclaimsfromtheLeefamily.
For one, it held that Bangkok Bank chose not to exercise its right of redemption over the subject
properties for another, the subject properties were not the only properties of the Lee family as
admittedbyBangkokBankssolewitness,SusanCapalaran.

TheRTCexplainedthatamortgagecontractisanonerousundertakingtosecurepaymentof
anobligationandcannotbeconsideredasagratuitousalienationthus,Art.1387oftheCivilCode
[29]
doesnotapply. Finally,itheldthatneitherfraudnoraviolationoftheSECsuspensionordercan
result from the execution of the REM and the foreclosure of the subject properties, because
accordingtothetestimonyofBangkokBankssolewitness,thesubjectpropertiesarenotcoveredby
theSECSuspensionOrderforwhichreasonBangkokBankfiledanactiontoattachthem. As the
subjectpropertiesarenotcoveredbytheSECSuspensionOrder,theRTCheldthatthereisnothing
[30]
thatprecludesthespousesLeefrommortgagingthemtoAsiatrust.

TheRulingoftheCA

Aggrieved,BangkokBankappealedthetrialcourtsdecisionbeforetheCAandonMarch15,
2006,theappellatecourtrenderedtheassaileddecision,whichgrantedtheappeal,andreversedand
setasidetheRTCdecision.Thedecretalportionreads:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The assailed
DecisiondatedApril21,2003ofthetrialcourtisREVERSEDandSETASIDE.Anewjudgmentis
renderedorderingthe:

1.RescissionoftheRealEstateMortgageoverAppelleesspousesLeesAntipolopropertiesinfavor
ofappelleeAsiatrust

2.AnnulmentoftheForeclosureSaleconductedonApril15,1998

3.CancellationoftheTransferCertificateofTitlesinthenameofAsiatrustand

4.ReversionofthetitlesinfavorofappelleesspousesLee.
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Nocosts.

[31]
SOORDERED.

InreversingandsettingasidetheRTCdecision,theCAheldascrucialtheLetterdatedApril
4,1998sentbythecounseloftheMidasGroupofCompaniestotheOfficeoftheClerkofCourtand
ExOfficioSheriffofthetrialcourtrelativetotheextrajudicialforeclosureoftheREMscheduledon
April15,1998.Theletterassailedsaidproceedingasbereftoflegalandfactualbasesinthelightof
[32]
the February 20, 1998 Suspension Order of the SEC. It held that the present counsel of
petitionerspouses Lee cannot take a 360degree turn as regards their predecessors position, for
BangkokBankmerelyadoptedpetitionersearlierstance.Thus,theCAruledthatpetitionerspouses
Leeareinestoppelinpais,underArt.1431oftheCivilCodeandSection2(a)ofRule131ofthe
RevisedRulesonEvidence.

TheCAfoundthatthesubjectAntipoloproperties,thoughpersonalassetsofthespousesLee,
arecoveredbytheFebruary20,1998SuspensionOrderoftheSEC,sincetheyareincludedinthe
list submitted to SEC by the Lee family and that Samuel is a guarantor of the loans incurred by
MDEC and MHI from Bangkok Bank. It ruled that Samuel, being a guarantor, is jointly and
severallyliabletoBangkokBankforthecorporatedebtsofMDECandMHI,ashedivestedhimself
fromtheprotectionofthelimitedliabilitydoctrine,which,theCAheld,wasshown(1)throughthe
inclusionofthesaidsubjectAntipolopropertiesinthelistsubmittedtotheSECand(2)bySamuel,
throughtheguaranteesthatheexecuted,thusvoluntarilybindinghimselftothepaymentoftheloans
incurredfromBangkokBank.

TheCAalsorejectedpetitionersclaimthatthesubjectpropertieswereallottedtoAsiatrust.It
reasonedthatifthesubjectpropertieswereindeedallottedtoAsiatrust,thenthesewouldnothave
been included in the list of properties submitted to the SEC. It added that the absence of any
encumbranceannotatedontheTCTsoranydocumentappurtenanttoitpriortotheJanuary30,1998
writ of preliminary attachment issued in Civil Case No. 98196 and the February 20, 1998
SuspensionOrderfurtherbeliespetitionersclaim.TheCAheldthatfraudwasperpetratedthrough
theREMexecutedandregisteredonFebruary23,1998pursuanttothepresumptioninthesecond
paragraphofArt.1387oftheCivilCode,whichprovidesthatalienationsbyoneroustitlearealso
presumedfraudulentwhenmadebypersonsagainstwhomxxxsomewritofattachmenthasbeen
issued.Consequently,thespousesLeefiledtheinstantpetition.

TheIssues

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I.

Whether or not Bangkok Bank can maintain an action to rescind the REM on the subject Antipolo
propertiesdespiteitsfailuretoexhaustalllegalremediestosatisfyitsclaim.

II.

Whether or not properties owned by private individuals should be covered by a suspension order
issuedbytheSECinanactionforsuspensionofpayments.

III.

WhetherornotasuretyorguarantorisguiltyofdefraudingcreditorsforexecutingaREMinfavorof
[33]
onecreditorpriortothefilingofaPetitionforSuspensionofPayments.

TheCourtsRuling

The core issue is whether the February 23, 1998 REM executed over the subject Antipolo
properties and the April 15, 1998 foreclosure sale were committed in fraud of petitioners other
creditors, and, as a consequence of such fraud, the questioned mortgage could, therefore, be
rescinded.Petitionersallegethatnofraudexists.

Thepetitionismeritorious.
PrevailingandapplicableSEClaws

Attheoutset,itmustbenotedthatatthetimetheConsolidatedPetitionfortheDeclarationof
aStateofSuspensionofPaymentsandforAppointmentofaManagementCommittee/Rehabilitation
Receiver was filed before the SEC on February 16, 1998 by MDEC, MHI, and three other
corporationsownedbytheLeefamily,BatasPambansaBlg.(BP)178orthethenRevisedSecurities
Act was the primary governing law along with Presidential Decree No. (PD) 902A, as amended,
andtheCorporationCodeofthePhilippines.Pertinently,amongothers,theSECwasalsocovered
bytheInvestmentHouseLaw(PD129),theFinancingCompanyActunderRepublicAct.No.(RA)
2626, the Foreign Investments Act (RA 7042), and the Liberalized Foreign Investments Act (RA
8179).Andsubsequenttothefilingoftheinstantcase,theSecuritizationActof2004(RA9267)and
theLendingCompanyRegularizationActof2007(RA9474)werealsoenacted.

[34]
PD902A, however,wasfurtheramendedbyRA8799ortheSecuritiesRegulationCode,
[35] [36]
approved on July 19, 2000 by President Joseph Estrada. Under Sec. 5.2 of RA 8799, the
[37]
SECs original and exclusive jurisdiction over all cases enumerated under Sec. 5 of PD 902A

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was transferred to the appropriate RTC. RA 8799, Sec. 5.2, however, expressly stated as an
exception, that the [t]he Commission shall retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until finally disposed. Accordingly, the
ConsolidatedPetitionfortheDeclarationofaStateofSuspensionofPaymentsandforAppointment
of a Management Committee/Rehabilitation Receiver filed on February 16, 1998 by MDEC, MHI
andthreeothercorporationsownedbytheLeefamily,remainedunderthejurisdictionoftheSEC
untilfinallydisposedofpursuanttothelastsentenceofSec.5.2ofRA8799.

ThesubjectpropertiesarenotunderthepurviewoftheSECSuspensionOrder

Pivotal to the resolution of the instant case is whether the subject properties owned by the
spousesLeeweresubjecttotheFebruary20,1998SECSuspensionOrder.Ontheonehand,theCA
held and found these to be subject to the Suspension Order. The RTC, on the other hand, found
contrariwiseinthattheassailedREMandforeclosuresaledidnotviolatetheSECSuspensionOrder.

A review of the applicable laws and existing jurisprudence would show that the subject
properties owned by the spouses Lee were not subject to the February 20, 1998 SEC Suspension
Order.

PD902AvestedtheSECwithjurisdictiononpetitionsforsuspensionofpaymentsonly
oncorporations,partnershipsandassociationsnotonindividualpersons

TheSECsjurisdictionisevidentfromthestatutorilyvestedpowerofjurisdiction,supervision
and control by the SEC over all corporations, partnerships or associations, which are grantees of
primaryfranchise,licenseorpermitissuedbythegovernmenttooperateinthePhilippines,andits
then original and exclusive jurisdiction over petitions for suspension of payments of said entities.
Secs.3and5ofPD902Apertinentlyprovides,thus:
Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all
corporations, partnerships or associations, who are the grantees of primary franchise and/or a
license or permit issued by the government to operate in the Philippines and in the exercise of its
authority,itshallhavethepowertoenlisttheaidandsupportofanyandallenforcementagenciesof
thegovernment,civilormilitary.

Sec.5.InadditiontotheregulatoryandadjudicativefunctionsoftheSecuritiesandExchange
Commission over corporations, partnerships and other forms of associations registered with it as
expresslygrantedunderexistinglawsanddecrees,itshallhaveoriginalandexclusivejurisdiction
tohearanddecidecasesinvolving:
xxxx

(d)Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association possesses
sufficientpropertytocoverallitsdebtsbutforeseestheimpossibilityofmeetingthemwhenthey
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respectivelyfalldue or in cases where the corporation, partnership or association has no sufficient

assetstocoveritsliabilities,butisunderthemanagementofaRehabilitationReceiverorManagement
CommitteecreatedpursuanttothisDecree.(EmphasisOurs.)

It can be clearly gleaned from the above provisions that in cases of petitions for the
suspensionofpayments,theSEChasjurisdictionovercorporations,partnershipsandassociations,
whicharegranteesofprimaryfranchiseorlicenseorpermitissuedbythegovernmenttooperatein
thePhilippines,andtheirproperties.AnditisindubitablyclearfromtheaforequotedSec.5(d)that
only corporations, partnerships and associationsNOT private individualscan file with the SEC,
petitionsfordeclarationinastateofsuspensionofpayments.Thus,itlogicallyfollowsthattheSEC
does not have jurisdiction to entertain petitions for suspension of payments filed by parties other
thancorporations,partnershipsorassociations.Indeed,settledistherulethatitisaxiomaticthat
jurisdictionistheauthoritytohearanddetermineacause,whichisconferredbylawandnotbythe
[38]
policyofanycourtoragency.


Privateindividualsandtheirprivatelyownedpropertiescannotbeplacedunderthe
jurisdictionoftheSECinapetitionforsuspensionofpayments

[39]
InChungKaBiov.IntermediateAppellateCourt, thisCourtresolvedinthenegativethe
issue of whether private individuals can file with the SEC petitions for declaration in a state of
suspension of payments. We held that Sec. 5(d) of PD 902A clearly does not allow a mere
individualtofilethepetition,whichislimitedtocorporations,partnershipsorassociations.Besides,
WepointedoutthattheSEC,beingamereadministrativeagency,isatribunaloflimitedjurisdiction
and, as such, can only exercise those powers, which are specifically granted to them by their
enabling statutes. We, thus, concluded that where no authority is granted to hear petitions of
individuals for suspension of payments, such petitions are beyond the competence of the SEC. In
short,theSEChasnojurisdictionoverprivateindividualsrelativetoanypetitionforsuspensionof
payments, whether the private individual is a petitioner or a copetitioner. We have said time and
again that the SECs jurisdiction is limited only to corporations and corporate assets it has no
jurisdiction over the properties of private individuals or natural persons, even if they are the
[40]
corporationsofficersorsureties. Wehave,thus,consistentlyappliedthisrulingtothesubsequent
[41]
Ong v. Philippine Commercial International Bank, Modern Paper Products, Inc. v. Court of
[42] [43]
Appeals, andUnionBankofthePhilippinesv.CourtofAppeals.

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Here,itisundisputedthatthepetitionforsuspensionofpaymentswascollectivelyfiledbythe
five corporations owned by the Lee family. It is likewise undisputed that together with the
consolidatedpetitionisalistofproperties,whichincludedthesubjectAntipolopropertiesownedby
Samuel and Pauline Lee. The fact, however, that the subject properties were included in the list
submittedtotheSECdoesnotconferjurisdictionontheSECoversuchproperties.Itisapparentthat
evenifthemembersoftheLeefamilyarejoinedascopetitionerswiththefivecorporations,still,
thiscouldnotconferjurisdictionontheSECovertheLeefamilymembersasprivateindividualsnor
couldthisaffecttheirprivatelyownedproperties.

Further,thefactthatthedebtsofMDECandMHItoBangkokBankaresecuredbytheLee
family through the guarantees will not likewise put the Lee family and their privately owned
properties under the jurisdiction of the SEC through the consolidated petition for suspension of
payments.

Therefore,theFebruary20,1998SuspensionOrderissuedbytheSECdidnotandcouldnot
haveincludedthesubjectproperties.TheRTCcorrectlygraspedthispointthatthedispositionofthe
subjectpropertiesdidnotviolatethesuspensionorder.

BangkokBankcannottakebothopposingstances

Certainly,BangkokBankcannottakeoppositepositionsatthesametime.Ontheonehand,it
instituted Civil Case No. 98628 before the RTC, Branch 141 in Makati City on March 12,
1998almostamonthafterthefilingoftheconsolidatedpetitionbeforetheSECandtheissuanceof
theFebruary20,1998SuspensionOrderinordertorecovertheloansextendedtoMDECandMHI
under the guarantees. In it, Bangkok Bank contended that the subject lots were not part of the
propertiesunderthejurisdictionoftheSECinthecaseforsuspensionofpayments.But,ontheother
hand,BangkokBankclaimsthattheAntipolopropertiesaresubjecttotheFebruary20,1998SEC
SuspensionOrder,and,therefore,cannotbemortgagedbythespousesLeetoAsiatrust. By saying
that the subject Antipolo properties are not under the jurisdiction of the SEC that is hearing the
consolidated petition for suspension of payments, it necessarily follows that the same properties
couldnotbesubjecttotheSECSuspensionOrder.Thisadmissionisalsoveryclearinthestatement
[44]
madebyBangkokBankssolewitness,SusanCapalaran:

Q:Inotherwords,byyourfilingofanactioninMakationMarch12,1998,youareineffectsaying
that the properties owned by the individual stockholders are not covered by the Suspension
OrderoftheSecuritiesandExchangeCommission?

SusanCapalaran:Yes.
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Theallegationsoffraudintheinstantpetition

At the heart of the present controversy is the allegation of fraud by Bangkok Bank against the
spousesLeeandAsiatrust.Itisinthisregardthattheissueoffraudshallbeexaminedhereindetail.
Preliminarymatters,suchastheapplicablelawsandtheirinterpretation,shallfirstbeexplained.And
subsequently, in order to fully appreciate the allegations of fraud by Bangkok Bank, they shall be
discussedinthreeparts:(1)theexistenceoffraudonthepartofthespousesLee(2)theexistenceof
fraudonthepartofAsiatrustandseparately,(3)theexistenceofcollusiononthepartofthespouses
LeeandAsiatrust.Itisimperativetoexpoundonthesepointsseparatelyinordertoillustratethatthe
mereexistenceoffraudonthepartofoneparty,i.e.,thespousesLee(againstwhomsomejudgment
[45]
or some writ of attachment has been issued), does not necessarily result in the rescission of a
supposedalienation,ifthereisany.

ThepresumptionoffraudunderArt.1387oftheCivilCodedoesnotapplyinthe
presentcase

UnderArt.1381(3)oftheCivilCode,contracts,whichwereundertakeninfraudofcreditors
whenthelattercannotinanyothermannercollecttheclaimsduethem,arerescissible.Art.1387of
theCodestateswhenanactispresumedtobefraudulent,thus:

Art.1387.Allcontractsbyvirtueofwhichthedebtoralienatespropertybygratuitoustitleare
presumedtohavebeenenteredinfraudofcreditors,whenthedonordidnotreservesufficientproperty
topayalldebtscontractedbeforethedonation.

Alienationsbyoneroustitlearealsopresumedfraudulentwhenmadebypersonsagainstwhom
some judgment has been rendered in any instance or some writ of attachment has been issued. The
decisionorattachmentneednotrefertothepropertyalienated,andneednothavebeenobtainedbythe
partyseekingtherescission.

Inadditiontothesepresumptions,thedesigntodefraudcreditorsmaybeprovedinanyother
mannerrecognizedbythelawofevidence.

ItiswithregardtotheforegoingprovisionsthattheCAanchoreditsrulingoftheexistenceof
apresumptionoffraudintheinstantcase.Thispresumption, however, finds no application to this
case.

ThepresumptionoffraudestablishedunderArt.1387doesnotapplytoregisteredlandsIFthe
[46] [47]
judgmentorattachmentmadeisnotalsoregistered. InAbayav.Enriquez, Abayawasable
to obtain a judgment against Enriquez for a sum of money, and the judgment was partially
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unsatisfiedafterEnriquezmadeapartialpayment.Thejudgmentandthewritofexecution,however,
[48]
was never annotated on the titles of the registered lands owned by Enriquez. Subsequently,
Enriquezsoldthesaidlands.InanactionforrescissioninstitutedbyAbaya,theCourtruledthatthe
presumption of fraud does not apply as the judgment and the attachment have not been registered
[49]
andannotatedonthetitle. TheCourtheld:

Wherethejudgmentrenderedagainstthedefendantxxxhasnotbeenenteredintherecordsof
theregisterofdeeds,relativetoanimmovablebelongingtothejudgmentdebtor,thesubsequentsale
ofsaidpropertybythelatter,shallnotberescindeduponthegroundoffraud,unlessthecomplicityof
thebuyerinthefraudimputedtosaidvendorisestablishedbyothermeansthanthepresumptionof
[50]
fraudxxx.


In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to
successfullyacquireawritofpreliminaryattachmentinitsfavoragainstthespousesLeeonJanuary
30,1998inacaseforasumofmoneyfornonpaymentofitsobligation.BangkokBankallegesthat
because of this, the presumption of fraud under Art. 1387 of the Civil Code applies. But while a
judgmentwasmadeagainstthe spouses Lee in favor of SBC on January 30, 1998, this, however,
was not annotated on the titles of the subject properties. In fact, there is no showing that the
judgmenthaseverbeenannotatedonthetitlesofthesubjectproperties.Asestablishedinthefacts,
therewereonlytwoannotationsatthebackofthetitlesoftheAntipoloproperties:first,theREM
executedinfavorofAsiatrustonFebruary23,1998andsecond,thewritofpreliminaryattachment
in favor of Bangkok Bank on March 18, 1998. Considering that the earlier SBC judgment or
attachmentwasnot,andinfactneverwas,annotatedonthetitlesofthesubjectAntipoloproperties,
prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly
cannotapply.

EvenassumingthatArt.1387oftheCodeapplies,theexecutionofamortgageisnot
contemplatedwithinthemeaningofalienationbyoneroustitleunderthesaidprovision

Under Art. 1387 of the Code, fraud is presumed only in alienations by onerous title of a
personagainstwhomajudgmentorattachmenthasbeenissued.Theterm,alienation,connotesthe
transfer of the property and possession of lands, tenements, or other things, from one person to
[51]
another. This term is particularly applied to absolute conveyances of real property and must
[52]
involve a complete transfer from one person to another. A mortgage does not contemplate a
[53]
transferoranabsoluteconveyanceofarealproperty. Itisaninterestinlandcreatedbyawritten

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[54]
instrumentprovidingsecurityfortheperformanceofadutyorthepaymentofadebt. Whena
debtormortgageshisproperty,hemerelysubjectsittoalienbutownershipthereofisnotparted
[55] [56]
with. Itismerelyalienthatneithercreatesatitlenoranestate. Itis,therefore,certainlynot
thealienationbyoneroustitlethatiscontemplatedinArt.1387wherefraudistobepresumed.

In this very action, Bangkok Bank claims that when the spouses Lee executed the REM in
favor of Asiatrust, the presumption of fraud under Art. 1387 became applicable. We hold in the
negative.As We have plainly discussed, a mortgage is not that which is contemplated in the term
alienationthatwouldmakethepresumptionoffraudunderArt.1387apply.It requires a full and
absoluteconveyanceortransferofpropertyfromonepersontoanother,suchasthatintheformofa
sale.As elucidated earlier, a mortgage merely creates a lien on the property that would afford the
mortgagee/creditorgreatersecurityintheobligationofthemortgagor/debtor.Thisbeingso,asthe
REMisnotthealienationcontemplatedinArt.1387oftheCode,thepresumptionoffraud cannot
apply.

Inanycase,theapplicationofthepresumptionoffraudunderArt.1387,ifapplicable,
couldonlybemadetoapplytothespousesLeeasthepersonagainstwhomajudgment
orwritofattachmenthasbeenissuednottoAsiatrust


AcarefulreadingofArt.1387oftheCodevisvisitsArt.1385wouldplainlyshowthatthe
presumption of fraud in case of alienations by onerous title only applies to the person who made
suchalienation,andagainstwhomsomejudgmenthasbeenrenderedinanyinstanceorsomewritof
attachmenthasbeenissued.Athirdpersonisnotandshouldnotbeautomaticallypresumedtobein
fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by
oneroustitle,thethirdpersonwhoreceivedthepropertyconveyedshouldlikewisebeapartytothe
[57]
fraud. AsclarifiedbyArt.1385(2)oftheCode,solongasthepersonwhoisinlegalpossession
ofthepropertydidnotactinbadfaith,rescissioncannottakeplace.Thus,inallinstances,astothe
thirdpersoninlegalpossessionofthequestionedproperty,goodfaithispresumed.Accordingly,itis
[58]
uponthepersonwhoallegesbadfaithorfraudthatreststheburdenofproof.

Asiatrust, being a third person in good faith, should not be automatically presumed to have
acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there
beingnoevidenceoffraudorbadfaith.Regrettably, in ratiocinating that fraud was committed by

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both the spouses Lee and Asiatrust, the CA merely anchored its holding on the presumption
[59]
espousedunderArt.1387oftheCode, nothingmore.

TheallegedfraudonthepartofthespousesLeewasnotprovedandsubstantiated

It appears that the argument of Bangkok Bank on the existence of fraud on the part of the
[60]
spousesLee revolvesaroundtheapplicationofthepresumptionoffraudunderArt.1387ofthe
[61]
Code. Bangkok Bank failed to substantiate its allegations by presenting clear and convincing
proofthatthespousesLeeindeedcommittedfraudinmortgagingthesubjectpropertiestoAsiatrust,
andinsteadanchoreditsexistenceofthepresumptionunderArt.1387.Thiscannotstandbeforethis
Court.

Onthecontrary,thespousesLeeprovedtheabsenceoffraudontheirpart.During trial, the
spouses Lee and Asiatrust were able to substantially establish that, indeed, a loan agreement has
beenexistingbetweenthemsince1996andthatMDECmadeuseofitonseveraloccasionsin1997.
Ithaslikewisebeenestablishedthat,asMDECdefaultedinitspaymentoftheloanthatmaturedin
1997,thepartiesbegannegotiationsastohowMDECcouldsecuretheloans.It was concluded in
December1997uponSamuelsproposalthathisAntipolopropertiesbeusedtosecureMDECsloans
by means of a mortgage. This settlement has been agreed upon even before any action was filed
against the Lee corporations in 1998. These facts have been established during trial without any
controversy.

NodeceptioncouldhavebeenusedbythespousesLeeinincludinginthelistofproperties,
whichtheysubmittedtotheSEC,thesubjectAntipoloproperties.First,itisundisputedthatthelist
of properties submitted by the Lee corporations to the SEC clearly indicated that the subject
Antipolopropertieshavealreadybeenearmarked,orhavealreadybeenservingassecurity,forits
loanobligationswithAsiatrust.Second,MDEC,throughitscounsel,trulybelievedingoodfaiththat
the inclusion of the spouses Lees private properties in the list submitted to the SEC is valid and
regular. As can be seen in the letter sent by the counsel of the Midas Group of Companies to the
OfficeoftheClerkofCourtandExOfficioSheriffoftheAntipoloRTConApril4,1998,atthetime
when the subject Antipolo properties were being foreclosed by Asiatrust, its counsel vigorously
countered the actions of Asiatrust and stated that the subject Antipolo properties cannot be
[62]
foreclosedpursuanttotheSECSuspensionOrder. Andasdiscussedinfra,theallegedcollusion
betweenthespousesLeeandAsiatrustappearstobeamerefigmentofimagination.

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Inanycase,thefactsshownopresenceoffraudonthepartofAsiatrusttherefore,the
REMwasnotasham

Even pushing further to say that the REM was executed by the spouses Lee to defraud
creditors, the REM cannot be rescinded and shall, therefore, stand, as Asiatrustthe third party, in
favor of which the REM was executed, and which subsequently foreclosed the subject
propertiesactedingoodfaithandwithoutanybadgeoffraud.Asageneralrule,whethertheperson,
againstwhomajudgmentwasmadeorsomewritofattachmentwasissued,actedwithorwithout
fraud,solongasthethirdpersonwhoisinlegalpossessionofthepropertyinquestiondidnotact
with fraud and in bad faith, an action for rescission cannot prosper. Art. 1385 of the Civil Code
explicitlystatesthis,thus:

Art.1385.Rescission creates the obligation to return the things which were the object of the
contract,togetherwiththeirfruits,andthepricewithitsinterestconsequently,itcanbecarriedout
onlywhenhewhodemandsrescissioncanreturnwhateverhemaybeobligedtorestore.

Neithershallrescissiontakeplacewhenthethingswhicharetheobjectofthecontractare
legallyinthepossessionofthirdpersonswhodidnotactinbadfaith.(EmphasisOurs.)


Astowhoorwhichentityisinlegalpossessionofaproperty,theregistrationintheRegistry
ofDeedsofthesubjectpropertyunderthenameofathirdpersonindicatesthelegalpossessionof
[63]
thatperson. Inthiscase,AsiatrustisinthelegalpossessionofthesubjectAntipoloproperties
afterthetitlesunderthenameofSpousesLeehavebeencanceled,andnewTCTshavebeenissued
on April 20, 1999, under the name of Asiatrust.What is more, 12 title out of the 120 titles in the
Antipolo properties in question have already been sold to different persons, which make them in
legal possession of the properties. It is, thus, established that Asiatrust and the 12 other unnamed
personsareinlegalpossessionofthesubjectAntipolopropertiesanditisimperativetoprovethat
theylegallytookpossessionofthemingoodfaithandwithoutanybadgeoffraud.

Now, as to whether Asiatrust acted with fraud or bad faith, Bangkok Bank failed to present
anyclearandconvincingevidencethatwouldascertainitsexistence.

Contractsinfraudofcreditorsarethoseexecutedwiththeintentiontoprejudicetherightsof
creditors.Theyshouldnotbeconfusedwiththoseenteredintowithoutsuchmalintent,evenif,asa
directconsequence,acreditormaysuffersomedamage.Moresoitis,whentheallegationinvolves
notonlyfraudonthepartofthedebtor,butalsothatofanothercreditor.Indeterminingwhetheror
notacertainconveyingcontractisfraudulent,whatcomestomindfirstisthequestionofwhether
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[64]
theconveyancewasabonafidetransactionoratrickandcontrivancetodefeatcreditors. Haste
aloneintheforeclosureofthemortgagedoesnotconstitutetheexistenceoffraud.Consideringthat
the totality of circumstances clearly manifests the want of fraud and bad faith on the part of the
partiestotheREMinquestion,consequently,theREMcannotberescinded.

Inthiscase,itisclearlyestablishedthattherewasabonafidetransactionbetweenthespouses
Lee and Asiatrust that necessitated the negotiations resulting from the formers default in the
paymentofitsobligationsandwhichbroughtabouttheexecutionoftheREMtosecuretheirpre
existing obligations. Particularly on the part ofAsiatrust, the testimonies of Shirley Benedicto, its
VicePresident,whowaspartofthebanksaccountmanagementgrouptaskedtoensuretheproper
managementofloansfromitsinceptionuptoitscollection,andofAtty.NerizaSanJuan,thebanks
formerVicePresident,andHeadofitsCreditSupportServicesandLegalServicesGroups,amply
proved the existence of good faith and dismissed the allegation of fraud. Asiatrust was able to
establish(1)theexistenceofaloanagreementthroughaloanfacility/creditlinebetweenAsiatrust
andMDECsinceJuly25,1996,whichwasguaranteedbytheLeefamily,includingSamuel(2)the
advances made by MDEC throughout 1997, which amounted to an aggregate sum of PhP
31,000,000 (3) the default in payment of MDEC on its maturing loans and (4) the negotiations,
whichtookplacebetweenAsiatrustandSamuelonbehalfofMDECthatled,inDecember1997,to
theagreementforSamueltomortgagethesubjectAntipolopropertiestosecurethedefaultingloan
[65]
andtheloans,whichwereyettomature. AndasthelastadvancesmadebyMDECmaturedon
February20,1998,itwasjusttimelyandappropriateforAsiatrusttoforeclosethesubjectproperties
onApril15,1998inordertoensurethatitispaidoftheobligations,whichMDECowedtoit.Inthis
case, Asiatrust was left with only one clear and practicable means by which it could be paid of
MDECs obligations, i.e., by foreclosing the mortgaged properties. After all, [t]he only right of a
mortgagee in case of nonpayment of a debt secured by mortgage would be to foreclose the
[66]
mortgageandhavetheencumberedpropertysoldtosatisfytheoutstandingindebtedness.

Conversely, Asiatrust did not sleep on its rights as a mortgage creditor of MDEC by
foreclosing the mortgage on the spouses Lees Antipolo properties. On the contrary, it is odd but
worthnotingthatBangkokBankneveractedonitsrightsascreditoratthesoonestpossibletime.It
could have asserted it rights as creditor at the time when the Lee familys corporations started to
[67]
default in their payments of the loans as early as October 1997. When Bangkok Bank finally
institutedanactionagainsttheLeefamilyonMarch12,1998tocollecttheoutstandingobligations
of MDEC and MHI, a writ of preliminary attachment was issued by the Makati RTC in the same
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month covering the properties of the Lee family, including the subject Antipolo properties. And
while enforcing the said writ, Bangkok Bank discovered the existing REM that had already been
annotated on the titles of the subject Antipolo properties. But Bangkok Bank did nothing upon its
knowledgeanddiscovery.Worse,evenatthetimeoftheforeclosureandtheredemptionperiod,or
untilApril30,1999,BangkokBanklikewisedidnotactontheallegedfraudulentexecutionofthe
REMnordiditredeemthesubjectproperties.Rather,itwasonlyonJuly20,1999thatBangkok
BankseemstohavebelatedlyrealizedthatthesubjectAntipolopropertiescouldproperlybeanother
means by which it could be paid of the defaulting obligations of MDEC and MHI. Interestingly,
evenontheelevationofthiscasetoUs,BangkokBankscounselhadtomoveforfourextensions,
totalingto52dayswithinwhichtofileacommentontheinstantpetition,andhasbeenwarnedfor
[68]
it. Asiatrustcannotbefaultedforactingwithprudence,ingoodfaith,andwithoutanybadgeof
fraudinthecreationoftheREMandintheforeclosureofthemortgagetoensurethesatisfactionof
thedebtsowedtoitbyMDEC.BangkokBankshouldhavelikewisedonesoattheearliestpossible
opportunity.

Furthermore,Asiatrust,ingoodfaith,conductedthenecessarydiligenceandmeticulousness
expected of it. During crossexamination, Atty. San Juan established that when the spouses Lee
offeredthesubjectAntipolopropertiesascollateral,Asiatrusthadthemappraisedandrequiredthe
spouses Lee to submit a photocopy of the titles, location map, and the relevant tax declarations,
which was forwarded to its Appraisal Team. She further explained that credit investigation is a
continuing annual process since the bank considers the market information in connection with the
[69]
accountoftheborrower. Indeed:

Themortgageehasarighttorelyingoodfaithonwhatappearsonthecertificateoftitleofthe
mortgagortothepropertygivenassecurityandintheabsenceofanythingtoexcitesuspicion,heis
undernoobligationtolookbeyondthecertificateandinvestigatethetitleofthemortgagorappearing
onthefactofthecertificate.Accordingly,therightorlienofaninnocentmortgageeforvalueuponthe
mortgagedpropertymustberespectedandprotected,evenifthemortgagorobtainedhistitlethrough
fraud.Theremedyofthepersonsprejudicedistobringanactionfordamagesagainstthepersonwho
[70]
causedthefraudxxx.


TherewasnocollusionbetweenthespousesLeeandAsiatrust


Besidesthefactthatindividually,fraudwasnotsufficientlyandconvincinglyestablishedon
thepartofthespousesLeeandAsiatrust,BangkokBanksallegationofcollusionbetweenthemwas
likewiseunsubstantiatedandthereforeuntenable.
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First,evenafterthesubjectAntipolopropertieswereforeclosedbyAsiatrust,Asiatrustsought
the recovery of the deficiency amounting to at least PhP 14,800,000. And until the filing of the
[71]
memorandabythepartiesbeforethisCourt,thesaidactionremainspendingbeforetheCA.

[72]
Second,AsiatrustfiledacriminalcaseagainstSamuelforviolationofBP22. Atthetime
ofthefilingofthepetitionforreview,thecasewasstillpendingbeforetheMetropolitanTrialCourt
[73]
of Quezon City. Later, at the time of the filing of the spouses Lees Memorandum, it was
indicatedthatithasalreadybeendismissed.

[74]
Third, contrary to the CAs appreciation of the facts, the letter sent by Atty. Macam,
counseloftheMidasGroupofCompanies,actuallystrengthenstheproofthatnocollusionexisted
betweentheparties.ActingontheinterestofMDEC,Atty.MacamsentalettertotheClerkofCourt
andtheExOfficioSheriffoftheAntipoloRTC,arguingthatthesubjectAntipolopropertiescannot
[75]
beforeclosedastheyarethesubjectofanexistingSECSuspensionOrder. Infact,counselfor
[76]
MDEC alleged that the foreclosure sale was illegal. On the other hand, when the ExOfficio
Sheriff presented a copy of the letter to Asiatrust and asked the latter to comment, Asiatrust
categoricallystatedthatthesubjectpropertiescouldnotbemadeasubjectoftheSECSuspension
Order,theybeingpropertiesofthespousesLee,naturalpersonsoutsidethejurisdictionoftheSEC.
[77]
In fact, it was Bangkok Banks sole witness, Capalaran, who firmly agreed that, indeed, the
subjectpropertiesarenotcoveredbytheSuspensionOrderthatiswhyBangkokBank,too,filedan
actionagainstthespousesLeeonMarch12,1998andsoughttheattachmentofthesaidproperties.
[78]
Withalltheforegoingfactsstronglyestablished,Weconfirmtheabsenceoffraud,badfaith,
andcollusionbetweenthespousesLeeandAsiatrust.

Therequisite(1)goodfaithonthepartofthethirdpersonand(2)fraud,necessaryfor
anactiontorescindunderArt.1381oftheCivilCode,werenotcompliedwith


[79]
In Siguan v. Lim, this Court held that in an action to rescind under Art. 1381, the
followingrequisitesmustexist:

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The action to rescind contracts in fraud of creditors is known as accion pauliana. For this
actiontoprosper,thefollowingrequisitesmustbepresent:(1)theplaintiffaskingforrescissionhasa
creditpriortothealienation,althoughdemandablelater(2)thedebtorhasmadeasubsequentcontract
conveyingapatrimonialbenefittoathirdperson(3)thecreditorhasnootherlegalremedytosatisfy
his claim (4) the act being impugned is fraudulent (5) the third person who received the
propertyconveyed,ifitisbyoneroustitle,hasbeenanaccompliceinthefraud.(EmphasisOurs
citationsomitted.)

Consideringthediscussionspreviouslyexpounded,theextantrecordsshowthatthefourthand
fifthrequisitesenumeratedaboveareabsent.

AsbetweenAsiatrustandBangkokBank,theformerhasabetterrightoverthesubject
Antipoloproperties,itbeingthefirsttoannotateitslienonthetitlesoftheproperties

It is evidently a wellsettled and elementary principle that the rights of the first mortgage
creditorormortgageeoverthemortgagedpropertiesaresuperiortothoseofasubsequentattaching
[80]
creditorandotherjuniormortgagees.

In this case, it is a fact that the REM was annotated on the titles of the subject Antipolo
propertiesaheadofthewritsofpreliminaryattachmentissuedinfavorofBangkokBank.Infact,it
was admitted by Bangkok Bank that it only knew of the existing mortgage that has already been
annotatedatthebackofthesubjecttitleswhenitsoughttheannotationofthewritsofpreliminary
[81]
attachment. Therefore, as between Asiatrust as mortgage creditor and Bangkok Bank as
attachingcreditor,itisapparentthattheformerhasasuperiorrightoverthelatter.

Besides,asbetweentwopersonswhobothstandtosufferloss,thepossessoroftheproperty
[82]
shouldbepreferredinthatpossession,theownershiphavingbeentransferredbydelivery. Inthis
case,Asiatrust,beingtheentitywithlegalpossessionofthesubjectAntipoloproperties,shouldbe
preferred in that possession. In addition, 12 of the titles in question have already been sold to 12
different persons, whose identities have not been introduced in the instant case and who have not
beenimpleadedasparties.Asthesepersonshavebeeninlegalpossessionofthesaidpropertiesand
areingoodfaith,theirownershipandpossession,shouldnotbedisturbed.

Theredemptionperiodhasalreadylapsed

Sec. 27, Rule 39 of the Rules of Court states the persons who may redeem a real property
sold,thus:

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Sec.27.Whomayredeemrealpropertysosold.

Realpropertysoldasprovidedinthelastprecedingsection,oranypartthereofsoldseparately,maybe
redeemedinthemannerhereinafterprovided,bythefollowingpersons:

(a)Thejudgmentobligor,orhissuccessorininterestinthewholeoranypartoftheproperty

(b)Acreditorhavingalienbyvirtueofanattachment,judgmentormortgageonthepropertysold,
or on some part thereof, subsequent to the lien under which the property was sold. Such redeeming
creditoristermedaredemptioner.(EmphasisOurs.)

Fromtheforegoingrule,itisclearthatBangkokBank,asanattachingcreditor,hastheright
[83]
toredeemthesubjectAntipolopropertiesthatwereforeclosedbyAsiatrust.

In determining the period within which to redeem the foreclosed Antipolo properties in the
[84]
present case, RA 337 or the General Banking Act finds application. Pertinently, its Sec. 78
states:

Sec.78.xxxIntheeventofforeclosure,whetherjudiciallyorextrajudicially,ofanymortgageonreal
estatewhichissecurityforanyloangrantedbeforethepassageofthisActorundertheprovisionsof
this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any bank, banking, or credit
institution,withinthepurviewofthisAct,shallhavetheright,withinoneyearafterthesaleofthe
realestateasaresultoftheforeclosureoftherespectivemortgage,toredeemthepropertybypaying
theamountfixedbythecourtintheorderofexecution,withinterestthereonattheratespecifiedinthe
mortgage,andallthecostsandotherjudicialexpensesincurredbythebankorinstitutionconcernedby
reasonoftheexecutionandsaleandasaresultofthecustodyofsaidpropertylesstheincomereceived
fromtheproperty.However,thepurchaserattheauctionsaleconcernedshallhavetherighttoenter
upon and take possession of such property immediately after the date of the confirmation of the
auctionsaleandadministerthesameinaccordancewithlaw.(EmphasisOurs.)

Inthiscase,theauctionsaletookplaceonApril15,1998andwasregisteredwiththeRDon
April21,1998.Subsequently,onApril30,1999,adatealreadyandcertainlybeyondtheoneyear
[85]
redemption period provided by law, new titles were issued in favor of Asiatrust. Apparently,
BangkokBankchosenottoexerciseitsrightofredemptionoverthesubjectAntipoloproperties.

Evenasageneralrule,[t]heperiodofredemptionisnottolledbythefilingofacomplaintor
petition for annulment of the mortgage and the foreclosure sale conducted pursuant to the said
[86]
mortgage, BangkokBank,however,fileditsactionforrescissionwaybeyondtheexpirationof
thesaidredemptionperiodonJuly20,1999.Aftertheexpirationoftheredemptionperiod,Asiatrust
as purchaser, therefore, became the absolute owner of the subject properties, and whose rights
[87]
necessarilyincludetherighttobeinthelegalpossessionoftheproperties.
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Asafinalnote,inrulingforBangkokBank,theCAstrangelydidnotevendelveuponany
fact that could have ascertained the allegation of fraud from which Bangkok Bank based its
arguments.Quitetheopposite,theRTCdiscussedindetailthefactsandtestimoniespresentedbythe
parties, upon which its finding of the absence of fraud was based. Indeed, factual findings by the
trialcourtareaffordedgreatweightbythisCourtespeciallywhensupportedbysubstantialevidence
[88]
onrecord.

WhileprejudicetoBangkokBankultimatelyresultedintheseriesofinopportuneeventsthat
ledtothepresentcase,itcannotbedeniedthatnoclear,satisfactoryandconvincingevidencewas
presentedtoshowfraudonthepartofboththespousesLeeandAsiatrust.Norwasbadfaithonthe
part of Asiatrust and the 12 other subsequent purchasers established. Accordingly, the REM
annotatedonthetitlesofthesubjectAntipolopropertiesandthesubsequentforeclosureofthesame
propertiescannotandshouldnotberescinded.



WHEREFORE, premises considered, the petition is hereby GRANTED. Accordingly, the CAs
March15,2006DecisionandJune29,2006ResolutioninCAG.R.CVNo.79362areREVERSED
and SET ASIDE. The RTCs April 21, 2003 Decision in Civil Case No. 995388 is hereby
REINSTATED.

Nopronouncementastocosts.

SOORDERED.



PRESBITEROJ.VELASCO,JR.
AssociateJustice

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 5/14/2017 G.R. No. 173349

WECONCUR:




RENATOC.CORONA
ChiefJustice
Chairperson




TERESITAJ.LEONARDODECASTROMARIANOC.DELCASTILLO
AssociateJusticeAssociateJustice





JOSEPORTUGALPEREZ
AssociateJustice



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CERTIFICATION


PursuanttoSection13,ArticleVIIIoftheConstitution,Icertifythattheconclusionsintheabove
Decisionhadbeenreachedinconsultationbeforethecasewasassignedtothewriteroftheopinion
oftheCourtsDivision.



RENATOC.CORONA
ChiefJustice

[1]
Rollo,pp.7990.PennedbyAssociateJusticeEliezerR.DeLosSantosandconcurredinbyAssociateJusticesJoseC.Reyes,Jr.and
ArturoG.Tayag.
[2]
Id.at91101.PennedbyJudgeMauricioM.Rivera.
[3]
Id.at10,33.
[4]
Id.at91.
[5]
Id.at34.
[6]
Id.at96.
[7]
Id.at10,3334.
[8]
Id.at9798.
[9]
Id.at97.
[10]
Id.at94.
[11]
Id.at93.
[12]
Id.at97.
[13]
Id.at9293.
[14]
Id.at95.
[15]
Id.at80.
[16]
Id.at95.
[17]
Id.at81.
[18]
Id.at15,94.
[19]
Id.at92.
[20]
Id.at3637,92.
[21]
Id.at37,92,96.
[22]
Id.at37,92.
[23]
Id.at93.
[24]
InAsiatrustBankv.MidasDiversifiedExportCorporation,SamuelU.Lee,etal.,CAG.R.CVNo.80862,MemorandumforSpouses
Lee,p.11.
[25]
Rollo,p.93.

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5/14/2017 G.R. No. 173349
[26]
Id.at93,96.
[27]
Id.at83.
[28]
Id.at101.
[29]
Id.at100.
[30]
Id.at101.
[31]
Id.at8990.
[32]
Id.at84.
[33]
Id.at1213.
[34]
Reorganization of the Securities and Exchange Commission with Additional Power and Placing the Said Agency under the
AdministrativeSupervisionoftheOfficeofthePresident(March11,1976).
[35]
ItbecameeffectiveonAugust8,2000,15daysafteritspublicationonJuly24,2000inanewspaperofgeneralcirculation.
[36]
Sec. 5.2. The Commissions jurisdiction over all cases enumerated under section 5 of Presidential Decree No. 902A is hereby
transferredtotheCourtsofgeneraljurisdictionortheappropriateRegionalTrialCourt:Provided,ThattheSupremeCourtintheexerciseof
itsauthoritymaydesignatetheRegionalTrialCourtbranchesthatshallexercisejurisdiction over the cases. The Commission shall retain
jurisdictionoverpendingcasesinvolvingintracorporatedisputessubmittedforfinalresolutionwhichshouldberesolvedwithinone(1)year
fromtheenactmentofthisCode.TheCommissionshallretainjurisdictionoverpendingsuspensionofpayment/rehabilitationcasesfiledas
of30June2000untilfinallydisposed.
[37]
Section 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,
partnershipsandotherformsofassociationsregisteredwithitasexpresslygrantedunderexistinglawsanddecrees,itshallhaveoriginaland
exclusivejurisdictiontohearanddecidecasesinvolving:
a)Devicesorschemesemployedbyoranyacts,oftheboardofdirectors,businessassociates,itsofficersorpartnership,amountingtofraud
andmisrepresentationwhichmaybedetrimentaltotheinterestofthepublicand/orofthestockholders,partners,membersofassociationsor
organizationsregisteredwiththeCommission.
b)Controversiesarisingoutofintracorporateorpartnershiprelations,betweenandamongstockholders,members, or associates between
anyorallofthemandthecorporation,partnershiporassociationofwhichtheyarestockholders,membersorassociates,respectivelyand
betweensuchcorporation,partnershiporassociationandthestateinsofarasitconcernstheirindividualfranchiseorrighttoexistassuch
entity
c)Controversiesintheelectionorappointmentsofdirectors,trustees,officersormanagersofsuchcorporations,partnershipsorassociations.
[38]
Cayabyabv.DeAquino,G.R.No.159974,September5,2007,532SCRA353HeirsofFlorencioAdolfov.Cabral,G.R.No.164934,
August14,2007,530SCRA111.
[39]
No.L71837,July26,1988,163SCRA534.
[40]
Ongv.PhilippineCommercialInternationalBank,G.R.No.160466,January17,2005,448SCRA705,710.
[41]
Id.
[42]
G.R.No.127166,March2,1998,286SCRA749.
[43]
G.R.No.131729,May19,1998,290SCRA198.
[44]
Rollo,p.16TSN,November27,2000,p.21.
[45]
SeeCIVILCODE,Art.1387(2).
[46]
4E.L.Paras,CIVILCODEOFTHEPHILIPPINESANNOTATED740(4thed.,2000).
[47]
101Phil.1210(1957).
[48]
4E.L.Paras,supranote46,at74041citingAbayav.Enriquez,supranote47.
[49]
Id.SeealsoOrsalv.Alisbo,106Phil.655,660(1959).
[50]
Abayav.Enriquez,supranote47.
[51]
BLACKSLAWDICTIONARY72(6thcentennialed.).
[52]
Id.(EmphasisOurs.)
[53]
H.S.DeLeon,COMMENTSANDCASESONCREDITTRANSACTIONS413414(2002).

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[54]
BLACKSLAWDICTIONARY,supranote51,at1009.
[55]
H.S.DeLeon,supranote53,at415.(EmphasisOurs.)
[56]
BLACKSLAWDICTIONARY,supranote51,at10091010.
[57]
4A.M.Tolentino,COMMENTARIESANDJURISPRUDENCEONTHECIVILCODEOFTHEPHILIPPINES576&589(2002).
[58]
Balbuenav.Sabay,G.R.No.154720,September4,2009,598SCRA215,227CoastalPacificTrading,Inc.v.SouthernRollingMills,
Co.,Inc.,G.R.No.118692,July28,2006,497SCRA11,39.
[59]
Rollo,pp.1011.
[60]
AspersonsagainstwhomsomejudgmenthasbeenrenderedinanyinstanceorsomewritofattachmenthasbeenissuedunderArt.1387,
paragraph2oftheCivilCode.
[61]
Rollo,pp.1921.
[62]
Id.at69,98.
[63]
4E.L.Paras,supranote46,at731.
[64]
4A.M.Tolentino,supranote57,at575576.
[65]
Rollo,pp.9799.
[66]
H.S.DeLeon,supranote53,at414citingGuanzonv.Argel,No.L27706,June16,1970,33SCRA474.
[67]
Rollo,p.95.
[68]
Id.at134.
[69]
Id.at99.
[70]
H.S. De Leon, supra note 53, at 411412 citing Cebu International Finance Corporation v. Court of Appeals, G.R. No. 107554,
February13,1997,268SCRA178andPhilippineNationalBankv.CourtofAppeals,G.R.No.43972,July24,1990,187SCRA735.
[71]
Rollo,p.17inAsiatrustBankv.MidasDiversifiedExportCorporation,SamuelU.Lee,etal.,CAG.R.CVNo.80862,Memorandum
forSpousesLee,p.11.
[72]
PeopleofthePhilippinesv.SamuelU.Lee,CriminalCaseNos.5183335,MemorandumforSpousesLee,p.11.
[73]
Rollo,p.18.
[74]
Id.at8487.
[75]
Id.at8486.
[76]
Id.at86.
[77]
Id.at9899.
[78]
Id.at16TSN,November27,2000,p.21.
[79]
G.R.No.134685,November19,1999,318SCRA725,735.
[80]
G Holdings, Inc. v. National Mines andAllied Workers Union Local 103, G.R. No. 160236, October 16, 2009, 604 SCRA, 73, 104
Cabralv.Evangelista,139Phil.300,306307(1969)H.S.DeLeon,supranote53,at414citingRizalCommercialBankingCorporationv.
CourtofAppeals,G.R.Nos.12883334,April20,1998,289SCRA292Marcaidav.Pigtain,101Phil.1110,11151116(1957)Benedicto
v.F.M.YapTico&Co.,46Phil.753,757(1923).
[81]
Rollo,p.92.
[82]
4A.M.Tolentino,supranote57,at589.
[83]
Caytonv.ZeonnixTradingCorporation,G.R.No.169541,October9,2009,603SCRA141,151.
[84]
AnActRegulatingBanksandBankingInstitutionsandforOtherPurposes(1948)citedinSpousesBenedictandMaricelDyTecklov.
RuralBankofPamplona,Inc.,G.R.No.171201,June18,2010.
[85]
Rollo,p.93.
[86]
HeirsofEstelitaBurgosLipatv.HeirsofEugenioD.Trinidad,G.R.No.185644,March2,2010,614SCRA94,9799citingLandrito,
Jr.v.CourtofAppeals,G.R.No.133079,August9,2005,466SCRA107,118.

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[87]
SpousesSalvadorF.DeVeraandFelizaV.DeVerav.Agloro, G.R. No. 155673, January 14, 2005, 448 SCRA 203, 21314 3O.M.
Herrera,REMEDIALLAW373(1999)citingBancoFilipinoSavingsandMortgageBankv.IntermediateAppellateCourt,No.L68878,April
8,1986,142SCRA44,48.
[88]
AlliedBankingCorporationv.SouthPacificSugarCorporation,G.R.No.163692,February4,2008,543SCRA585,595Valgosons
Reality,Inc.v.CourtofAppeals,G.R.No.126233,September11,1998,295SCRA449,461citingTanChunSuyv.CA,G.R.No.93640,
January7,1994,229SCRA151.

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