G.R. No. 167098 March 28, 2008
23944. Per entry of judgment, the case attained
PHILIPPINE VETERANS BANK, Petitioner,
vs.
BENJAMIN MONILLAS, Respondent.
DECISION
NACHURA, J.:
Challenged in this petition for review on certiorari
under Rule 45 of the Rules of Court is the
November 3, 2004 Decision1 of the Regional Trial
Court (RTC) of Santiago City, Branch 35 in Civil
Case No. 35-3123. Also assailed is the February
10, 2005 Order2 denying the motion for the
reconsideration of the challenged decision.
The antecedent facts and proceedings follow.
Respondent Benjamin Monillas and his brother,
Ireneo, inherited from their father a parcel of land
covered by TCT No. T-53038. On May 21, 1973,
respondent executed a deed of sale of his share
over the property to Ireneo under the latters
representation that he would use the deed to
facilitate the procurement of a loan (with the
Development Bank of the Philippines) for a planned
housing project on the land. Ireneo then caused the
transfer of the title in his name, the propertys
subdivision into 308 lots, and the issuance of
individual titles for the subdivided lots.3
In 1978, Ireneo mortgaged twenty-two (22) lots
covered by TCT Nos. T-75517 to 75539, to
petitioner Philippine Veterans Bank (PVB). Three
years thereafter or in 1981, respondent instituted
Civil Case No. 24-0047 before the RTC of
Echague, Isabela, for the nullification of the 1973
deed of sale, the recovery of the property, and the
payment of damages.4
While the case remained pending, PVB foreclosed
the mortgage on June 2, 1984.5 In the foreclosure
sale, petitioner was the highest bidder.
Later, on March 21, 1985, respondent caused the
annotation of notices of lis pendens relating to the
said civil case on the titles of the subdivided lots.
On September 29, 1988, the RTC of Echague
rendered its decision in the said civil case declaring
the 1973 deed as null and void, cancelling the
subsequent titles issued, and ordering the payment
of damages. This ruling was affirmed by the Court
of Appeals on October 31, 1991 in CA-G.R. CV No.
finality on November 29, 1991.6
On January 27, 1999, the Sheriffs Certificate of
Sale and the Affidavit of Consolidation of
Ownership were annotated on TCT Nos. T-75517 to
T-75539. The said titles were then cancelled and
new titles, TCT Nos. T-323794 to 323816, were
issued in PVBs name on June 24, 2002.7
On April 10, 2003, respondent sued petitioner and
the Register of Deeds of Isabela before the RTC of
Santiago City, Branch 35, for the cancellation of the
mortgage, the invalidation of the foreclosure, and
the declaration of the nullity of the titles issued in
petitioners name.8 The case was docketed as Civil
Case No. 35-3123.
After trial on the merits, the court rendered the
assailed November 3, 2004 Decision9 ruling that
petitioner was bound by the outcome of Civil Case
No. 24-0047 because notices of lis pendens were
annotated in the properties titles. The RTC
rationalized that while the annotation of the notices
succeeded the registration of the mortgage, still the
effect of the notices was that PVB acquired
knowledge of an impediment against its interest,
and as a matter of fact, petitioner ignored the
notices and slept on its rights, as it did not
intervene in the said civil case.10 The trial court
proceeded to dispose of the case as follows:
WHEREFORE, in view of all the foregoing
considerations, judgment is hereby rendered in
favor of the plaintiff and against the defendant as
follows:
1) DECLARING as null and void the mortgage
contract between Ireneo Monillas, Jr. and
defendant Philippine Veterans Bank (PVB) over
TCT Nos. T-75517 to T-75539, inclusive;
2) DECLARING as null and void the foreclosure
of the mortgage contract mentioned in the
preceding paragraph over the same properties;
3) DECLARING as null and void TCT Nos. T-
323794 to T-323816, inclusive, in the name of
defendant Philippine Veterans Bank (PVB); and
4) ORDERING defendant Register of Deeds of
Isabela (Ilagan and Santiago City Office) to
cancel TCT Nos. T-323794 to T-323816,
 inclusive, all in the name of defendant PVB, and
issue corresponding certificates of title thereto
in the name of plaintiff Benjamin Monillas, upon
payment of required fees.
No other pronouncements.
SO ORDERED.11
Petitioners Motion for Reconsideration12 was later
denied by the trial court in the likewise challenged
February 10, 2005 Order.13
Frustrated at these developments, petitioner filed
before the Court the instant petition for review on
certiorari on the following grounds:
THE LOWER COURT DECIDED A QUESTION OF
SUBSTANCE IN A WAY NOT IN ACCORD WITH
LAW AND WITH THE APPLICABLE DECISIONS
OF THE SUPREME COURT.
I. It denied Philippine Veterans Bank the status of
the mortgagee in good faith despite the undisputed
fact that defendant did not know of any infirmity
whatsoever in the titles when they were
mortgaged.1avvphi1
II. It in effect gave a notice of lis pendens a
retroactive effect contrary to the provision of the
Rules of Court that lis pendens only effects (sic)
subsequent dealings.
III. It in effect made petitioner bound by a decision it
was not a party (sic).14
Whether the prior registered mortgage and the
already concluded foreclosure proceedings should
prevail over the subsequent annotation of the
notices of lis pendens on the lot titles, is the central
question to be addressed by the Court in this case.
The petition is meritorious.
On the procedural issue raised, we declare that the
instant petition, contrary to respondents contention,
is the correct remedy to question the challenged
issuances. Under the Rules of Court, a party may
directly appeal to this Court from a decision of the
trial court only on pure questions of law.15 A
question of law lies, on one hand, when the doubt
or difference arises as to what the law is on a
certain set of facts; on the other hand, a question of
fact exists when the doubt or difference arises as to
the truth or falsehood of the alleged facts.16 Here,
the facts are not disputed; the controversy merely
relates to the correct application of the law or
jurisprudence to the undisputed facts.
On the merits of the petition, the Court rules that
the prior registered mortgage of PVB and the
foreclosure proceedings already conducted prevail
over respondents subsequent annotation of the
notices of lis pendens on the titles to the property.
Settled in this jurisdiction is the doctrine that a prior
registration of a lien creates a preference; 17 hence,
the subsequent annotation of an adverse claim
cannot defeat the rights of the mortgagee, or the
purchaser at the auction sale whose rights were
derived from a prior mortgage validly registered. A
contrary rule will make a prior registration of a
mortgage or any lien nugatory or meaningless. 18 It
may not be amiss to point out, at this juncture, that
the doctrine applies with greater force in this case
considering that the annotation of the notice of lis
pendens was made not only after the registration of
the mortgage, but also, and much later, after the
conclusion of the foreclosure sale. Furthermore, the
mortgagee itself, PVB, is the purchaser of the
subject properties in the foreclosure sale.
The Court also notes that PVB is an innocent
mortgagee for value. When the lots were
mortgaged to it by Ireneo, the titles thereto were in
the latters name, and they showed neither vice nor
infirmity.19 In accepting the mortgage, petitioner was
not required to make any further investigation of the
titles to the properties being given as security,20and
could rely entirely on what is stated in the aforesaid
titles.21 The public interest in upholding the
indefeasibility of a certificate of title, as evidence of
the lawful ownership of the land or of any
encumbrance thereon, protects a buyer or
mortgagee who, in good faith, relied upon what
appears on the face of the certificate of title.22
PVB cannot even be considered to have slept on its
rights when it only registered the Sheriffs certificate
of sale after the lapse of almost 15 years, because,
as already discussed, it registered its prior
mortgage and had already foreclosed on the same.
Petitioner, therefore, had every reason to expect
that its rights were amply protected. And the
mortgagor was even benefited by this late
registration of the Sheriffs Sale, because then, he
would still have a chance to redeem the property.
Laches, being a doctrine in equity, cannot be
invoked to resist the enforcement of a legal
right.23 Furthermore, oft-repeated is the rule that the
foreclosure sale retroacts to the date of the
registration of the mortgage.24 Thus, it no longer
matters that the annotation of the sheriffs
certificate of sale and the affidavit of consolidation
of ownership was made subsequent to the
annotation of the notice of lis pendens.

WHEREFORE, premises considered, the petition

for review on certiorari is GRANTED. The
November 3, 2004 Decision and the February 10,
2005 Order of the RTC of Santiago City, Branch 35,
in Civil Case No. 35-3123, are hereby REVERSED
AND SET ASIDE, and another judgment is hereby
rendered DISMISSING the complaint for lack of
merit.

SO ORDERED.
 [G.R. No. L-19468. October 30, 1964.]
SALVADOR PIANSAY and CLAUDlA V. VDA. DE
UY KIM, Plaintiffs-Appellants, v. CONRADO S.
DAVID and MARCOS MANGUBAT, Defendants-
Appellees.
SYLLABUS
1. JUDGMENTS; RES JUDICATA; FINAL RULING
IN ONE CASE OVER SAME ISSUE IS
CONCLUSIVE IN ANOTHER CASE BETWEEN
SAME PARTIES. Where the chattel mortgage
and sale in favor of a party had been annulled in
the decision in one case, which order became final
and executory, it is held that said party is now
barred from asserting against the same adverse
party in another case that the said chattel mortgage
and scale are valid.
2. MORTGAGES; CHATTEL MORTGAGE ON A
HOUSE CANNOT BIND THIRD PERSONS NOT
PARTIES TO SAID CONTRACT. A contract
constituting a chattel mortgage on a house cannot
bind third persons not parties to said contract or
their privies.
DECISION
CONCEPCION, J.:
This is an appeal from an order of the Court of First
Instance of Manila in Civil Case No. 47664 thereof.
The pertinent facts are set forth in said order from
which we quote:
"It appears from the complaint that on December
11, 1943, defendant herein Conrado S. David
received a loan of P3,000 with interest at 12% per
annum from Claudia B. Vda. de Uy Kim, one of the
plaintiffs, and to secure the payment of the same,
Conrado S. David executed a chattel mortgage on
a house situated at 1259 Sande Street, Tondo,
Manila; that the chattel mortgage was registered
with the Register of Deeds of Manila on December
19, 1948; that on February 10, 1953, the
mortgaged house was sold at public auction to
satisfy the indebtedness to Claudia B. Vda. de Uy
Kim, and the house was sold to Claudia B. Vda. de
Uy Kim in the said foreclosure proceedings; that on
March 22, 1954, Claudia B. Vda. de Uy Kim sold
the same house to her co- plaintiff, Salvador
Piansay for the sum of P5,000.00; that on
November 22, 1949, defendant Conrado S. David
mortgaged the said house to Marcos Mangubat,
and on March 1, 1956, Marcos Mangubat filed a
complaint against Conrado S. David, Civil Case No.
29078, in the Court of First Instance of Manila, for
the collection of the loan of P2,000; that on March
24, 1956, the complaint was amended to include
the plaintiffs herein Salvador Piansay and Claudia
B. Vda. de Uy Kim as party defendants and praying
that auction sale executed by the Sheriff on
February 10, 1953, and the deed of absolute sale
executed by Claudia B. Vda. de Uy Kim in favor of
Salvador Piansay be annulled; that decision was
rendered in Civil Case No. 29078 ordering Conrado
S. David to pay the plaintiff the sum of P2,000,
damages and attorneys fees, and dismissing the
complaint with respect to Claudia B. Vda. de Uy
Kim, Leonardo Uy Kim and Salvador Piansay; that
upon appeal, the Court of Appeals affirmed the
decision but setting aside the award of damages in
favor of Claudia B. Vda. de Uy Kim; that in the
execution of Civil Case No. 29078 which was
affirmed by the Court of Appeals in CA-G.R. No.
21797-R, the house which had been bought by Uy
Kim at the foreclosure proceedings and sold by her
to Salvador Piansay was levied upon at the
instance of the defendant Marcos Mangubat; that to
prevent the sale at public auction of the house here
in question, the plaintiffs herein filed a petition
for certiorari and mandamus with preliminary
injunction in the Court of Appeals, CA-G.R. No.
28974-R, entitled Claudia B. Vda. de Uy Kim and
Salvador Piansay versus Hon. Judge Jesus Y.
Perez, Et. Al.; that acting upon the said petition, the
Court of Appeals in its order of April 28, 1961,
denied the petition to lift or discharge the writ of
execution."
Thereupon, or on July 31, 1961, Piansay and Mrs.
Uy Kim, hereinafter referred to as the plaintiffs,
instituted the present action, which was docketed
as Civil Case No. 47664 of the Court of First
Instance of Manila, against David and Mangubat,
hereinafter referred to as the defendants. In their
complaint plaintiffs, after averring the foregoing
facts, allege that, in the proceedings for the
execution of the decision in Civil Case No. 29078,
David demanded from Piansay the payment of
rentals for the use and occupation of the house
aforementioned, which, Piansay claims, is his
property, and that the defendants are threatening to
cause said house to be levied upon and sold at
public auction in violation of the alleged rights of the
plaintiffs. Accordingly, plaintiffs prayed that a writ of
preliminary injunction to restrain said levy and sale
at public auction be issued and that, after
appropriate proceedings, judgment be rendered
declaring that Piansay is the true and lawful owner
of said house, sentencing the defendants to pay
damages and making the preliminary injunction
permanent.
Mangubat moved to dismiss said complaint, upon
the theory that the same is barred by the principle
of res judicata and that plaintiffs have no
personality to bring this action or to question the
levy upon the house in question, because they
have no interest therein. After due hearing the
lower court issued the order appealed from granting
said motion and dismissing the complaint, with
costs against the plaintiffs. A reconsideration of said
order having been denied, plaintiffs interposed the
present appeal directly to this Court, only questions
of law being raised in the appeal, namely: (1)
applicability of the principle of res judicata; and (2)
validity of the chattel mortgage constituted in favor
of Mrs. Uy Kim.
With reference to the first question, it should be
noted that in case CA-G.R. No. 21797-R, the Court
of Appeals affirmed the decision in Case No. 29078
of the Court of First Instance of Manila, stating:
"In the case of Ladera, Et. Al. v. Hodges, Et. Al.
(CA-G.R. No. 8027-R, promulgated Sept. 23, 1952)
this Court, thru Justice J. B. L. Reyes, said, among
others:
Since it is a rule in our law that buildings and
constructions are regarded as mere accessories to
the land (following the Roman maxim omne quod
solo inaedificatur solo credit) it is logical that said
accessories should partake of the nature of the
principal thing, which is the land, forming, as they
do, but a single object (res) with it in contemplation
of law.
. . . While it is true that said document was
correspondingly registered in the Chattel Mortgage
Register of Rizal, this Act produced no effect
whatsoever for where the interest conveyed is in
the nature of real property, the registration of the
document in the registry of chattels is merely a
futile act. Thus the registration of the chattel
mortgage of a building of strong materials produced
no effect as far as the building is concerned (Leung
Yee v. Strong Machinery Co., 37 Phil. 644). Nor can
we give any consideration to that contention of the
surety that it has acquired ownership over the
property in question by reason of the sale
conducted by the Provincial Sheriff of Rizal for as
this court has aptly pronounced:
A mortgage creditor who purchases real properties
at an extra- judicial foreclosure sale thereof by
virtue of a chattel mortgage constituted in his favor,
which mortgage has been declared null and void
with respect to said real properties, acquires no
right thereto by virtue of said sale. (De la Riva v. Ah
Kee, 60 Phil. 899).
"Thus Mrs. Uy Kim had no right to foreclose the
alleged chattel mortgage constituted in her favor,,
because it was in reality a mere contract of an
unsecured loan. It follows that the Sheriff was not
authorized to sell the house as a result of the
foreclosure of such chattel mortgage. And as Mrs.
Uy Kim could not have acquired the house when
the Sheriff sold it at public auction, she could not, in
the same token, have sold it validly to Salvador
Piansay. Conceding that the contract of sale
between Mrs. Uy Kim and Salvador Piansay was of
no effect, we cannot nevertheless set it aside upon
instance of Mangubat because, as the court below
opined, he is not a party thereto nor has he any
interest in the subject matter therein, as it was
never sold or mortgaged to him" (Italics supplied);
that, thereafter, the records of the case was
remanded to the Court of First Instance of Manila,
which caused the corresponding writ of execution
to be issued; that upon the request of Mangubat,
the house in question was levied upon; that
Piansay filed with the trial court, presided over by
Hon. Jesus Y. Perez, Judge, a motion to set aside
said levy; that this motion was denied by said court,
in an order dated February 4, 1961, upon the
following ground:
"Considering that the decision rendered by the
Court of Appeals in this case when the same was
elevated to said Court recognizes that defendant
Claudia B. de Uy Lim did not acquire the house of
defendant Conrado S. David and can therefore be
executed by the plaintiff to satisfy the judgment
rendered against said defendant David in favor of
the plaintiff. The mere fact that the dispositive part
of the decision states that the complaint is
dismissed with respect to defendants Claudia B. de
Uy Kim, Leonardo Uy Kim and Salvador Piansay is
of no moment because the chattel mortgage
executed by David in favor of Claudia B. de Uy Kim
might not be annulled but it did not transmit any
right from defendant David to Claudia B. de Uy
Kim. The house in question can therefore be levied
upon because it had remained the property of
defendant David" (Italics supplied);
that a reconsideration of this order of February 4,
1961 having been denied by Judge Perez, on
February 25, 1961, plaintiffs instituted case CA-
G.R. No. 28974-R of the Court of Appeals, for a writ hereby affirmed, with costs against plaintiffs
of certiorari and mandamus to annul said orders of Salvador Piansay and Claudia B. Vda. de Uy Kim.
Judge Perez and to compel him to release said It is so ordered.
house from the aforementioned levy; and that on
March 3, 1961, the Court of Appeals denied said
petition for certiorari and mandamus "insofar as it
prays that the order of respondent Judge denying
the lifting and discharge of the writ of execution be
set aside and revoked."

In other words, in Civil Case No. 29078 of the Court

of First Instance of Manila, Piansay assailed the
right of Mangubat to levy execution upon the house
in question alleging that the same belongs to him,
he having bought it from Mrs. Uy Kim, who had
acquired it at the auction sale held in connection
with the extrajudicial foreclosure of the chattel
mortgage constituted in her favor by David. This
pretense was, however, overruled by Judge Perez,
who presided said court, in its order of February 4,
1961, upon the theory that the chattel mortgage
and sale in favor of Mrs. Uy Kim had been annulled
in the original decision in said case, as affirmed by
the Court of Appeals in CA-G.R. No. 21797-R.
Regardless of whether this theory is accurate or
not, the fact is that said order became final and
executory upon the denial of the petition
for certiorari and mandamus, to annul the same, in
CA-G.R. No. 28974-R of the Court of Appeals.
Hence, plaintiffs are not barred from asserting that
the aforementioned chattel mortgage and sale are
valid.

At any rate, regardless of the validity of a contract

constituting a chattel mortgage on a house, as
between the parties to said contract (Standard Oil
Co. of N.Y. v. Jaramillo, 44 Phil. 632- 633), the
same cannot and does not bind third persons, who
are not parties to the aforementioned contract or
their privies (Leung Yes v. Strong Machinery Co.,
37 Phil. 644; Evangelista v. Alto Surety, G.R. No. L-
11139, April 23, 1958; Navarro v. Pineda, G.R. No.
L-18456, November 30, 1963). As a consequence,
the sale of the house in question in the proceedings
for the extra-judicial foreclosure of said chattel
mortgage, is null and void insofar as defendant
Mangubat is concerned, and did not confer upon
Mrs. Uy Kim, as buyer in said sale, any dominical
right in and to said house (De la Riva v. Ah Yee, 60
Phil. 800), so that she could not have transmitted to
her assignee, plaintiff Piansay, any such right as
against defendant Mangubat. In short, plaintiffs
have no cause of action against the defendants
herein.

WHEREFORE, the orders appealed from are

 G.R. No. 201417
ORIX METRO LEASING AND FINANCE
CORPORATION, Petitioner,
vs.
CARDLINE INC., MARY C. CALUBAD, SONY N.
CALUBAD, and NG BENG SHENG, Respondents.
DECISION
BRION, J.:
We resolve the petition for review
on certiorari challenging the January 6,
2012 decision1 and April 16, 2012 resolution2 of the
Court of Appeals (CA) in CA-GR SP No. 118226.
The CA annulled the Regional Trial
Court's (RTC) order to execute the judgment
against the respondents. The CA ruled that
Cardline Inc. (Cardline) had fully satisfied its
outstanding obligation by returning the leased
properties to Orix Metro Leasing and Finance
Corporation (Orix).
THE ANTECEDENTS
Cardline leased four machines (machines) from
Orix as evidenced by three similarly-worded lease
agreements. Cardlines principal stockholders and
officers - Mary C. Calubad, Sony N. Calubad, and
Ng Beng Sheng (individual respondents) signed
the suretyship agreements in their personal
capacities to guarantee Cardlines obligations
under each lease agreement.
Cardline defaulted in paying the rent: the unpaid
obligations amounted to P9,369,657.00 as of July
12, 2007. Orix formally demanded payment from
Cardline but the latter refused to pay.
Orix filed a complaint for replevin, sum of money,
and damages with an application for a writ of
seizure against Cardline and the individual
respondents (collectively, the respondents) before
the RTC. The case was docketed as Civil Case No.
07-855.
The RTC issued a writ of seizure allowing Orix to
recover the machines from Cardline.
Thereafter, the RTC declared the respondents in
default for failing to file an answer, and allowed Orix
to present evidence ex parte. The respondents filed
a motion to set aside the order of default, but the
RTC denied their motion. On May 6, 2008, the RTC
rendered judgment in Orixs favor and ordered the
respondents to pay Orix, as follows:
1. The sum of P9,369,657.00 or whatever
may be the balance of defendants
outstanding obligation still owing the
plaintiff after the recovery or sale of the
[machines] as and by way of actual damages
(Section 9, Rule 60), in either case, with interest
and penalty charges as stipulated, from 12 July
2007 until fully paid;
2. As stipulated in the Continuing Surety, thirty
(30%) percent of the total amount due as
Attorneys fees;
3. As stipulated in the Continuing Surety,
twenty-five (25%) percent of the total amount
due as liquidated damages; and
4. Expenses incurred in securing the leased
properties through manual delivery. (emphasis
supplied)
On appeal, the respondents argued that the RTC
erred in declaring them in default. The CA, 3 and
subsequently this Court,4 denied the respondents
appeal. Our denial in G.R. No. 189877 became
final and executory.
Ng Beng Sheng filed a petition for annulment of
judgment.5 He argued that the RTC had no
jurisdiction over his person since the summons was
not properly served on him. The CA denied the
petition on the grounds of forum shopping and res
judicata. The CA explained that this issue had been
addressed by the RTC in the order denying the
motion to set aside the order of default, and by the
CA and the Supreme Court on appeal.
In the main case, Orix filed a motion for the
issuance of a writ of execution which the RTC
granted in its December 1, 2010 order. Thereafter,
the RTC clerk of court issued a writ of execution
commanding the sheriff to enforce the May 8, 2009
judgment. The respondents filed a motion for
a status quo ante order but the RTC denied the
motion.
Thereafter, the respondents filed a petition for
prohibition6 under Rule 65 of the Rules of Court
before the CA.7They assailed the issuance of the
December 1, 2010 order, arguing that their rental
obligations were offset by the market value of the
returned machines and by the guaranty deposit.
 THE CA RULING
The CA granted the petition, annulled the RTCs
order dated December 1, 2010, and prohibited the
sheriff from executing the judgment dated May 6,
2008.
The CA based its decision on Sections 19.2(d) 8 in
relation with Section 19.39 of the lease agreements.
The CA ruled that the respondents debt amounting
to P9,369,657.00 had been satisfied when Orix
recovered the machines valued at P14,481,500.00
and received the security deposit amounting to
P1,635,638.89. Considering that the judgment had
been satisfied in full, the RTCs issuance of a writ of
execution was no longer necessary.
The CA denied Orixs motion for reconsideration;
hence, this petition.
THE PARTIES ARGUMENTS
In its petition, Orix argues that: (1) the market value
of the returned machines and the guaranty deposit
do not offset the outstanding obligations; (2) the
individual respondents are solidarily liable to Orix
and are not entitled to the benefit of excussion; and
(3) the respondents and their counsel engaged in
willful and deliberate forum shopping.
After the petition was filed, Atty. Efren C. Lizardo
withdrew his appearance and Atty. David A.
Domingo entered his appearance as the
respondents counsel.
In their comment, the respondents argue that: (1)
the RTCs judgment should be interpreted as
follows: if Orix recovers the properties, their market
values should be deducted from the respondents
outstanding obligations; (2) the individual
respondents merely acted as guarantors, not as
sureties; and (3) the respondents committed no
forum shopping because no cases were pending
before the courts when they filed the petition for
prohibition.
OUR RULING
We find the petition partly meritorious.
We note at the outset that the RTCs May 6, 2008
judgment has attained finality and can no longer be
altered. Once a judgment becomes final and
executory, all that remains is the execution of the
decision. Thus, the RTC issued the December 1,
2010 order of execution. An order of execution is
not appealable;10 otherwise, a case would never
end.11
As a rule, parties are not allowed to object to the
execution of a final judgment.12 One exception is
when the terms of the judgment are not clear
enough and there remains room for its
interpretation.13 If the exception applies, the
respondents may seek the stay of execution or the
quashal of the writ of execution.14 Although an
order of execution is not appealable, an aggrieved
party may challenge the order of execution via an
appropriate special civil action under Rule 65 of the
Rules of Court.15 The special civil action of
prohibition is an available remedy against a tribunal
exercising judicial, quasi-judicial or ministerial
powers if it acted without or in excess of its
jurisdiction and there is no other plain, speedy, and
adequate remedy in the ordinary course of law.16
In the present case, the respondents effectively
argued that the terms of the RTCs May 6, 2008
judgment are not clear enough such that the
parties agreement must be examined to arrive at
the proper interpretation. The respondents,
however, did not give the RTC an opportunity to
clarify its judgment. The respondents filed a special
civil action for prohibition before the CA without first
filing a motion to stay or quash the writ of execution
before the RTC. Hence, the petition for prohibition
obviously lacked the requirement that no "other
plain, speedy, and adequate remedy" is available.
Thus, the petition should have been dismissed.
However, the CA gave due course to the petition. In
granting the petition, the CA ruled that the judgment
had been satisfied; thus, there was no more
judgment to execute. To stress, the CA erred in
granting the petition despite the availability of a
"plain, speedy, and adequate remedy."
Orix comes before us for a review of the CAs
decision. The issues for resolution are: (1) whether
the CA correctly prohibited the RTC from enforcing
the writ of execution; (2) whether the individual
respondents can invoke the benefit of excussion;
and (3) whether the respondents committed forum
shopping.
I. Propriety of the CAs decision
The core issue presented in this case is whether
the CA correctly prohibited the RTC from
enforcing the writ of execution. To resolve this
issue, we must determine whether the CA correctly
interpreted this portion of the RTCs May 6, 2008
judgment:
The sum of P9,369,657.00 or whatever may be
the balance of defendants outstanding
obligation still owing the plaintiff after the
recovery or sale of the [machines] as and by way
of actual damages xxx. (emphasis supplied)
The CA cited Sections 19.2(d) and 19.3 of the lease
agreements in interpreting the above-quoted
judgment. The CA ruled that the balance of
Cardlines debt was P9,369,657.00, less the
machines market value and the guaranty deposit.
After applying this formula, the CA concluded that
Cardline no longer owed Orix any indebtedness so
that no judgment needed to be executed.
We disagree with the CAs conclusion.
A review of these agreements shows that the CA
erroneously relied on Sections 19.2(d) and 19.3 of
the lease agreements. The CA also erred in
deducting the guaranty deposit from the
outstanding debt, contrary to the provisions of the
lease agreements.
We review the lease agreements on two
points: first, on whether the market values of the
returned machines were intended to reduce
Cardlines debt; and second, on whether the
parties intended to deduct the guaranty deposit
from the unpaid obligation.
On the first point, the machines market values
were not intended to reduce, much less offset,
Cardlines debt.
The lease agreements default provisions are
instructive. Section 1917 of the agreements provides
that if Cardline fails to pay rent, Orix may cancel the
agreements and may avail of the following
remedies under Section 19.2:
a) LESSOR may require LESSEE to surrender
possession of the property x x x;
xxx
d) Subject to the provisions of Section 19.3,
after repossessing the property, the
LESSOR may re-lease or sell the
PROPERTY to any third person, in such
manner and upon such terms as the LESSOR
may solely deem proper;
e) Recovery of all accrued and unpaid
rental, including rentals up to the time the
PROPERTY is actually returned to the
LESSOR xxx;" (emphasis supplied)
Should Orix choose to re-lease or sell the machines
after repossessing them pursuant to Section
19.2(d), Section 19.3 shall apply, to wit:
19.3 The proceeds derived from the sale or re-
leasing of the PROPERTY, shall x xx be applied
first to the expenses incurred by the LESSOR in
connection with the repossession, sale, or re-
leasing of the PROPERTY, a reasonable
compensation for undertaking such sale or re-
lease, all legal costs and fees, OTHER AMOUNTS,
and the balance, if any, to the RENTAL due from
the LESSEE. x x x. (emphasis supplied)
Applying these provisions, when Cardline defaulted
in paying rent, Orix was authorized to: (a) re-
possess the machines; and (b) recover all unpaid
rent. Considering that Orix neither re-leased nor
sold the machines, Sections 19.2(d) and 19.3 are
not applicable. Thus, the CA erred in applying these
provisions to the present case.
Even assuming that these provisions apply, Section
19.3 states that the net "proceeds" derived from the
sale, not the machines market values, shall be
applied to the unpaid rent. Therefore, these
contractual provisions do not support the CAs
stance that the machines market values must
be reduced from Cardlines unpaid rent.
As Orix correctly argued, the CAs decision leads to
an absurd situation where Cardline pays for its
liabilities to Orix using Orixs own properties. The
Court cannot affirm this unreasonable and
inequitable interpretation.
On the second point, Sections 6.1 and 19.2(b) of
the lease agreements discuss the use of the
guaranty deposit, to wit:
6.1 The LESSEE shall pay to the LESSOR
simultaneously with the execution of this
Agreement, an amount by way of deposit (the
"GUARANTY DEPOSIT") as specified in the Lease
Schedule, which deposit shall be held as security
for the faithful and timely performance by the
LESSEE of its obligations hereunder, as well as its
compliance with all the provisions of this
Agreement, or of any extension or renewals
thereof. Should the PROPERTY be returned to
the LESSOR for any reason whatsoever
including LESSEEs default under Section 19
hereof before the expiration of this
Agreement, then the GUARANTY DEPOSIT shall
be forfeited automatically in favor of the
LESSOR as additional penalty over and
above those stipulated in Section 3.5 [on interest
and penalty], without prejudice to the right of the
LESSOR to recover any unpaid RENTAL as well
as the OTHER AMOUNTS for which the LESSEE
may be liable under this agreement. (emphasis
supplied)
19.2(b) The LESSOR may retain all amounts
including any advance rental paid to it hereunder as
compensation for rent, use and depreciation of the
PROPERTY. Furthermore, the LESSOR may apply
the GUARANTY DEPOSIT towards the payment of
liquidated damages.18
These provisions are relevant to determine the
parties intent with respect to the guaranty deposit.
These provisions show that the parties did not
intend to deduct the guaranty deposit from
Cardlines unpaid rent. On the contrary, the
guaranty deposit was intended to be automatically
forfeited to serve as penalty for Cardlines default.
In any case, Orix retained the right to recover the
unpaid rent but it had the option to consider the
guaranty deposit as liquidated damages. Notably,
Orix did not exercise this option. Thus, the CA erred
when it deducted the guaranty deposit from
Cardlines unpaid rent.
After examining the RTCs judgment under the
lease agreements lenses, we rule that the return or
recovery of the machines does not reduce
Cardlines outstanding obligation unless the
returned machines are sold. No sale transpired
pursuant to the lease agreements. Moreover, the
guaranty deposit was not meant to reduce
Cardlines unpaid obligation. Thus, Cardlines
actual damages remain at P9,369,657.00.
In sum, we rule that the CA erroneously interpreted
the RTCs May 6, 2008 judgment. Consequently,
the CA erred in preventing the RTC from enforcing
the writ of execution.
II. The Benefit of Excussion
The second issue before us is whether the
individual respondents are entitled to the
benefit of excussion. We note that this issue had
already been raised before the CA in G.R. 189877.
The CA, as affirmed by the Court, ruled that the
issue cannot be raised for the first time on appeal.
For clarity, we briefly discuss this issue and rule in
favor of Orix.
The terms of a contract govern the parties rights
and obligations. When a party undertakes to
be "jointly and severally" liable, it means that the
obligation is solidary.19 Furthermore, even
assuming that a party is liable only as a guarantor,
he can be held immediately liable without the
benefit of excussion if the guarantor agreed that his
liability is direct and immediate.20 In effect, the
guarantor waived the benefit of excussion pursuant
to Article 2059(1) of the Civil Code.
In the present case, the records show that the
individual respondents bound themselves solidarily
with Cardline. Section 31.121 of the lease
agreements states that the persons who sign
separate instruments to secure Cardlines
obligations to Orix shall be jointly and
severally liable with Cardline.
Even assuming arguendo that the individual
respondents signed the continuing surety
agreements merely as guarantors, they still cannot
invoke the benefit of excussion. The surety
agreements provide that the individual respondents
liability is "solidary, direct, and immediate and not
contingent upon"22 Orixs remedies against
Cardline. The continuing suretyship agreements
also provide that the individual respondents
"individually and collectively waive(s) in advance
the benefit of excussion xxx under Articles 2058
and 2065 of the Civil Code."23
Without any doubt, the individual respondents can
no longer avail of the benefit of excussion.
III. Forum-Shopping
We now turn to whether the respondents committed
forum shopping when they filed the petition for
prohibition before the CA.
Orix asserts that the respondents committed forum
shopping by instituting several actions essentially
seeking to nullify the RTCs decision.
First, the respondents appealed before the CA to
reverse the RTCs judgment which held them liable
for the unpaid rent. The CA, and subsequently this
Court via a petition for review
on certiorari,24 affirmed the RTCs judgment. The
decision became final and executory.
Second, Ng Beng Sheng filed a petition for
annulment of judgment,25 dated September 4,
2010, which the CA dismissed on the grounds of
forum shopping and res judicata.1wphi1
Third, the respondents filed the petition for
prohibition,26 dated February 21, 2011, to prevent
the execution of the RTCs judgment.
We disagree with Orixs assertions.
Section 5 Rule 7 of the Rules prohibits forum
shopping. The rule against forum shopping seeks
to address the great evil of two competent tribunals
rendering two separate and contradictory
decisions.27 Forum shopping exists when a party
initiates two or more actions, other than appeal
or certiorari, grounded on the same cause to obtain
a more favorable decision from any tribunal.28
The elements of forum shopping are: (i) identity of
parties, or at least such parties representing the
same interest; (ii) identity of rights asserted and
relief prayed for, the latter founded on the same
facts; (iii) any judgment rendered in one action will
amount to res judicata in the other action.29
30
In Reyes v. Alsons, the petitioner filed a petition
for annulment of judgment raising the issue of the
RTCs lack of jurisdiction to enforce the lower
courts judgment. This Court held that this
jurisdictional issue has been resolved in the
previous cases filed by the petitioner. Thus, the
petition for annulment of judgment was barred
by res judicata and the policy against forum
shopping.31
In the present case, the CA correctly denied Ng
Beng Shengs petition for annulment of judgment.
As in Reyes, the CA correctly reasoned out that the
issue on jurisdiction had been resolved with finality
in the review on certiorari. Thus, the issue could no
longer be re-litigated.
After the denial of the petition for annulment of
judgment, Ng Beng Shen joined the other
respondents in filing a petition for prohibition. We
are now called upon to ascertain whether the
recourse to the petition for prohibition amounted to
forum shopping.
We rule in the negative.
The two cases filed collectively by the respondents
are similar only in that they involve the same
parties. The cases, however, involve different
causes of actions. The petition for review
on certiorari was filed to review the merits of the
RTC's judgment. On the other hand, the petition for
prohibition respects the finality of the RTC's
judgment on the merits but interprets the dispositive
portion in a way that would render the execution
unnecessary. Thus, the elements of forum
shopping are not present in the two cases.
Moreover, the resort to a remedy under Rule 65 is
expressly allowed by the Rules of Court. Section 1,
Rule 41 of the Rules of Court provides that an
aggrieved party may file the appropriate civil action
under Rule 65 to challenge an order of execution.
Accordingly, the respondents filed their petition for
prohibition under Rule 65 of the Rules of Court.
With respect to Ng Beng Sheng's petition for
annulment of judgment, the CA has already ruled
that the filing of the petition constituted forum
shopping, specifically due to the jurisdictional issue
raised. The petition for prohibition, however,
involves a different cause of action. Thus, there is
no forum shopping.
To recap, first, the CA erred in preventing the
execution of the RTC's judgment. Nothing in the
lease agreements' provisions supports the CA's
ruling that the market value of the returned
machines and the guaranty deposit shall be
deducted from Cardline' s unpaid rent. Second, the
individual respondents are solidarily liable for
Cardline's obligations and are not entitled to the
benefit of excussion. Finally, the respondents did
not commit forum shopping by filing the petition for
prohibition.
With these matters clarified, Orix should no longer
be denied the fruits of its victory. The RTC is hereby
ordered to execute its long-final judgment.
WHEREFORE, we hereby GRANT the petition.
The January 6, 2012 decision and April 16, 2012
resolution of the Court of Appeals in CA-GR SP No.
118226 are hereby REVERSED and SET
ASIDE. Costs against the respondents.
SO ORDERED.
 G.R. No. 210542 February 24, 2016
ROSALINA CARODAN, Petitioner,
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari1 seeking
to set aside the Decision2 dated 9 July 2013 and
the Resolution3 dated 29 November 2013 rendered
by the Court of Appeals (CA), Ninth Division,
Manila, in CA-G.R. CV No. 95835. The CA denied
petitioner's appeal assailing the Decision4 dated 23
June 2010 issued by the Regional Trial Court
(RTC) of Tuguegarao City, Branch 2, in Civil Case
No. 5692.
THE ANTECEDENT FACTS
The records reveal that on 6 June 2000, China
Banking Corporation (China Bank) instituted a
Complaint5 for a sum of money against Barbara
Perez (Barbara), Rebecca Perez-Viloria (Rebecca),
Rosalina Carodan (Rosalina) and Madeline
Carodan (Madeline). China Bank claimed that on
15 January 1998, Barbara and Rebecca, for value
received, executed and delivered Promissory Note
No. TLS-98/0076 to respondent bank under which
they promised therein to jointly and severally pay
the amount of P2.8 million.7 China Bank further
claimed that as security for the payment of the loan,
Barbara, Rebecca and Rosalina also executed a
Real Estate Mortgage8 over a property registered in
the name of Rosalina and covered by Transfer
Certificate Title (TCT) No. T-10216.9Respondent
alleged that a Surety Agreement10 in favor of China
Bank as creditor was also executed by Barbara and
Rebecca as principals and Rosalina and her niece
Madeline as sureties. Through that agreement, the
principals and sureties warranted the payment of
the loan obligation amounting to P2.8 million
including interests, penalties, costs, expenses, and
attorney's fees. 11
Barbara and Rebecca failed to pay their loan
obligation despite repeated demands from China
Bank. Their failure to pay prompted the bank
institute extrajudicial foreclosure proceedings on
the mortgaged property on 26 November
1999. 12 From the extrajudicial sale, it realized only
Pl.5 million as evidenced by a Certificate of
Sale.13This amount, when applied to the total
outstanding loan obligation of Pl,865,345.77, would
still leave a deficiency of P365,345.77. For that
reason, the bank prayed that the court order the
payment of the deficiency amount with interest at
12% per annum computed from 13 January 2000;
attorney's fees equal to 10% of the deficiency
amount; and litigation expenses and costs of suit. 14
Barbara and Rebecca filed their Answer. They
interposed the defense that although they both
stood as principal borrowers, they had entered into
an oral agreement with Madeline and Rosalina.
Under that agreement which was witnessed by
China Bank's loan officer and branch manager,
they would equally split both the proceeds of the
loan and the corresponding obligation and interest
pertaining thereto, and they would secure the loan
with the properties belonging to them. 15 Barbara
and Rebecca used as security their real properties
covered by TCT Nos. T-93177, T-93176, T-93174,
T-93167, T-93169, T-93170, T-93171 and T-93172;
while Rosalina and Madeline used for the same
purpose the former's property covered by TCTNo.
T-10216. 16
Barbara and Rebecca further alleged that while
Rosalina and Madeline obtained their share of Pl.4
million of the loan amount, the latter two never
complied with their obligation to pay interest. It was
only Rebecca's account with China Bank that was
automatically debited in the total amount of
Pl,002,735.54. 17 Barbara and Rebecca asked
China Bank for the computation of their total
obligation, for which they paid Pl.5 million aside
from the interest payments, and respondent bank
thereafter released the Real Estate Mortgage over
their properties.18
By way of crossclaim, Barbara and Rebecca asked
Rosalina and Madeline to pay half of Pl,002,735.54
as interest payments, as well as the deficiency
amount plus 12% interest per annum and attorney's
fees, the total amount of which pertained to the
loan obligation of the latter two. 19 By way of
counterclaim, Barbara and Rebecca also asked
China Bank to pay Plmillion as moral damages,
P500,000 as exemplary damages, plus attorney's
fees and costs of suit.20
China Bank filed its Reply and Answer to
Counterclaim clarifying that it was suing Barbara
and Rebecca as debtors under the Promissory
Note and as principals in the Surety Agreement, as
well as Rosalina and Madeline as sureties in the
Surety Agreement.21 It claimed that equal sharing of
the proceeds of the loan was "a bat at
misrepresentation" and "a self-serving
prevarication," because what was clearly written on
the note was that Rebecca and Barbara were the
principal debtors.22 It reiterated that the two were
liable for the full payment of the principal amount
plus the agreed interest, charges, penalties and
attorney's fees, with recourse to reimbursement
from Rosalina and Madeline.23
China Bank also disputed the claim of Rebecca and
Barbara that upon their payment to the bank of Pl.5
million, the Real Estate Mortgage over their
properties was cancelled. Their claim was disputed
because, even after their payment of Pl.5 million,
Rebecca and Barbara were still indebted in the
amount of P1.3 million exclusive of interest,
charges, penalties and other legitimate
fees.24 Furthermore, respondent stated that if there
was a cancellation of mortgage, it referred to other
mortgages securing other separate loan obligations
of Barbara and Rebecca; more particularly, that of
Barbara.25
Rosalina filed her Answer with Counterclaim and
Crossclaim.26 She alleged that on 2 July 1997, she
and Barbara executed (1) a Real Estate Mortgage
covering Rosalina's lot and ancestral house, as well
as Barbara's eight residential apartments,
annotated as an encumbrance at the back of the
TCTs corresponding to the properties as evidenced
by the Annexes to the Answer; and (2) a Surety
Agreement to secure the credit facility granted by
the bank to Barbara and Rebecca up to the
principal amount of P2.8 million.27 Rosalina further
stated that the execution of the contracts was
"made in consideration of the long-time friendship"
between Barbara and Rebecca, and Madeline, and
that "no monetary or material consideration
whatsoever passed between [Barbara and
Rebecca], on the one hand, and [Rosalina], on the
other hand."28
Rosalina acknowledged that on 15 January 1998,
Barbara and Rebecca executed a Promissory Note
for the purpose of evidencing a loan charged
against the loan facility secured by the
mortgage.29 She averred, though, that when
Barbara and Rebecca paid half of the loan under
the Promissory Note, the properties of Barbara
covered by the mortgage were released by the
bank from liability. The cancellation of the mortgage
lien was effected by an instrument dated 27 May
1999 and reflected on the TCTs evidenced by the
Annexes to the Answer. 30
This cancellation, according to Rosalina, illegally
and unjustly caused her property to absorb the
singular risk of foreclosure. 31 The result, according
to her, was the extinguishment of the indivisible
obligation contained in the mortgage pursuant to
Article 121632 of the Civil Code.33
Rosalina further averred that when the bank
instituted the foreclosure proceedings, it
misrepresented that her property was the only one
that was covered by the mortgage; omitted from the
schedule of mortgaged properties those of Barbara;
and misrepresented that "the terms and condition
of the aforesaid mortgage have never been
changed or modified whether tacitly or expressly,
by any agreement made after the execution
thereof."34
Finally, Rosalina stated that she had made
demands on Barbara and Rebecca to cause the
rectification of the illegal and unjust deprivation of
her property in payment of the indemnity. Allegedly,
Barbara and Rebecca simply ignored her demands,
so, she prayed that the two be held solidarily liable
for the total amount of damages and for the
deficiency judgment sought in this Complaint.35
China Bank filed its Reply and Answer to
Counterclaim.36 It alleged that the issue of whether
Rosalina obtained material benefit from the loan
was not material, since she had voluntarily and
willingly encumbered her property;37that the
indivisibility of mortgage does not apply to the case
at bar, since Article 208938 of the Civil Code
presupposes several heirs, a condition that is not
present in this case;39 that nothing short of payment
of the debt or an express release would operate to
discharge a mortgage; 40 and that, as surety,
Rosalina was equally liable as principal debtor to
pay the deficiency obligation in the sum of
P365,345.77 41 The bank also filed its
Comment/Opposition42 to the Entry of Appearance
of Atty. Edwin V. Pascua as counsel for Rosalina. It
said that Atty. Pascua had once been its retained
lawyer pursuant to a Retainer Agreement dated 5
September 1997.43Because of its Opposition,
Rosalina was subsequently represented by Atty.
Reynaldo A. Deray.
All the parties submitted their Pre-Trial Briefs with
the exception of Madeline, whose case had been
archived by the RTC upon motion of China Bank for
the court's failure to acquire jurisdiction over her
person. The issues of the case were thereafter
limited to the following: (1) whether the defendants
were jointly and severally liable to pay the
deficiency claim; (2) whether the surety was still
liable to the bank despite the release of the
mortgage of the principal borrower; (3) whether
there was a previous agreement among the
defendants that Barbara and Rebecca would
receive half and Rosalina and Madeline, the other
half; and (4) whether respondent bank still had a
cause of action against the surety after the
mortgage of the principal borrower had been
released by the bank.44
THE RULING OF THE RTC
The RTC ruled that although no sufficient proof was
adduced to show that Rosalina had obtained any
pecuniary benefit from the loan agreement between
Rebecca and Barbara and China Bank, the
mortgage between Rosalina and China Bank was
still valid.45 The trial court declared that respondent
bank had therefore lawfully foreclosed the
mortgage over the property of Rosalina, even if she
was a mere accommodation mortgagor.46
The RTC also declared Rosalina's claim to be
without merit and without basis in law and
jurisprudence. She claimed that because the Real
Estate Mortgage covering her property was a single
and indivisible contract, China Bank's act of
releasing the principal debtors' properties resulted
in the extinguishment of the obligation.47 The trial
court held that the creditor had the right to proceed
against any one of the solidary debtors, or some or
all of them simultaneously; and that a creditor's
right to proceed against the surety exists
independently of the creditor's right to proceed
against the principal.48
Finally, the RTC ordered Rebecca, Barbara and
Rosalina to be jointly and severally liable to China
Bank for the deficiency between the acquisition
cost of the foreclosed real estate property and the
outstanding loan obligation of Barbara and
Rebecca at the time of the foreclosure sale. Interest
was set at the rate of 12% per annum from 13
January 2000 until full payment. Rebecca and
Barbara were also ordered to reimburse Rosalina
for the amount of the deficiency payment charged
against her including interests thereon.49
THE RULING OF THE CA
Rosalina filed a timely Notice of Appeal and
imputed error to the trial court in finding her,
together with Rebecca and Barbara, jointly and
severally liable to pay the deficiency claim; in
finding that she was still liable as surety even if the
bank had already released the collateral of the
principal borrower; and in not annulling the
foreclosure sale of the property, not reconveying
the property to her, and not awarding her damages
as prayed for in her counterclaim. She said that
these were done by the court despite the fact that
China Bank had deliberately and maliciously
released the properties of the principal borrowers,
thereby exposing her property to risk.50
The CA found the appeal bereft of merit. 51 It
qualified Rosalina as a surety who had assumed or
undertaken a principal debtor's responsibility or
obligation. As such, she was supposed to be
principally liable for the payment of the debt in case
the principal debtors did not pay, regardless of their
financial capacity to do so.52 As for the deficiency,
the CA cited BPI Family Savings Bank v.
Avenido. 53 The Supreme Court had ruled therein
that the creditor was not precluded from recovering
any unpaid balance on the principal obligation if the
extrajudicial foreclosure sale of the property,
subject of the real estate mortgage, would result in
a deficiency. 54 The CA ultimately affirmed the RTC
Decision in toto55 and denied the Motion for
Reconsideration. 56 Hence, this Petition.
Before this Court, petitioner Rosalina now imputes
error to the CA' s affirmance of the RTC Decision.
She says that the CA Decision was not in accord
with law and jurisprudence in holding that petitioner,
jointly and severally with Barbara and Rebecca,
was liable to pay China Bank's deficiency claim
after the bank's release of the collateral of the
principal debtors. Respondent bank's alleged act of
exposing Rosalina's property to the risk of
foreclosure despite the indivisible character of the
Real Estate Mortgage supposedly violated Article
2089 of the New Civil Code. 57
China Bank filed its Comment58 claiming that all
the grounds cited by petitioner were "mere
reiterations, repetitions, or rehashed grounds and
arguments raised in the Appellant's Brief x x x
which were exhaustively passed upon and
considered by the CA in its Decision"; 59 and that the
petition "is wanting of any new, substantial and
meritorious grounds that would justify the reversal
of the CA Decision affirming the RTC decision."60
THE ISSUE
The sole issue to be resolved by this Court is
whether petitioner Rosalina is liable jointly and
severally with Barbara and Rebecca for the
payment of respondent China Bank's claims.
THE RULING OF THIS COURT
Loan transactions in banking institutions usually
entail the execution of loan documents, typically a
promissory note, covered by a real estate mortgage
and/or a surety agreement.61 In the instant case,
petitioner Rosalina admitted that she was a party to
these loan documents although she vehemently
insisted that she had received nothing from the
proceeds of the loan. 62 Meanwhile, respondent
bank offered in evidence the Promissory. Note, the
Real Estate Mortgage and the Surety Agreement
signed by the parties.
We find that Rosalina is liable as an
accommodation mortgagor.
In Belo v. PNB,63 we had the occasion to declare:
An accommodation mortgage is not necessarily
void simply because the accommodation mortgagor
did not benefit from the same. The validity of an
accommodation mo1igage is allowed under Article
2085 of the New Civil Code which provides that
(t)hird persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property. An accommodation
mortgagor, ordinarily, is not himself a recipient of
the loan, otherwise that would be contrary to his
designation as such. 64
Apart from being an accommodation mortgagor,
Rosalina is also a surety, defined under Article
2047 of the Civil Code in this wise:
Art. 2047. By guaranty a person, called a guarantor,
binds himself to the creditor to fulfill the obligation
of the principal debtor in case the latter should fail
to do so.
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title
I of this Book shall be observed. In such case the
contract is called a suretyship.
A contract of suretyship (second paragraph of
Article 2047) has been juxtaposed against a
contract of guaranty (first paragraph of Article 2047)
as follows:
A surety is an insurer of the debt, whereas a
guarantor is an insurer of the solvency of the
debtor. A suretyship is an undertaking that the debt
shall be paid; a guaranty, an undertaking that the
debtor shall pay. Stated differently, a surety
promises to pay the principal's debt if the principal
will not pay, while a guarantor agrees that the
creditor, after proceeding against the principal, may
proceed against the guarantor if the principal is
unable to pay. A surety binds himself to perform if
the principal does not, without regard to his ability
to do so. A guarantor, on the other hand, does not
contract that the principal will pay, but simply that
he is able to do so. In other words, a surety
undertakes directly for the payment and is so
responsible at once if the principal debtor makes
default, while a guarantor contracts to pay if, by the
use of due diligence, the debt cannot be made out
of the principal debtor.65Citations omitted)
In Inciong, Jr. v. CA, 66 we elucidated further in this
wise:
While a guarantor may bind himself solidarily with
the principal debtor, the liability of a guarantor is
different from that of a solidary debtor. Thus,
Tolentino explains:
A guarantor who binds himself in solidum with the
principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to
all intents and purposes. There is a difference
between a solidary co-debtor, and a fiador in
solidum (surety). The latter, outside of the liability
he assumes to pay the debt before the property of
the principal debtor has been exhausted, retains all
the other rights, actions and benefits which pertain
to him by reason of the fiansa; while a solidary co-
debtor has no other rights than those bestowed
upon him in Section 4, Chapter 3, title I, Book IV of
the Civil Code.
Section 4, Chapter 3, Title I, Book IV of the Civil
Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there
are two or more debtors in one and the same
obligation, the presumption is that the obligation is
joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidarity
liability only when the obligation expressly so
states, when the law so provides or when the
nature of the obligation so requires.67 (Citations
omitted)
Further discussion on the same legal concept
proceeded thusly:
A contract of surety is an accessory promise by
which a person binds himself for another already
bound, and agrees with the creditor to satisfy the
obligation if the debtor does not. A contract of
guaranty, on the other hand, is a collateral
undertaking to pay the debt of another in case the
latter does not pay the debt.
Strictly speaking, guaranty and surety are nearly
related, and many of the principles are common to
both. However, under our civil law, they may be
distinguished thus: A surety is usually bound with
his principal by the same instrument, executed at
the same time, and on the same consideration. He
is an original promissor and debtor from the
beginning, and is held, ordinarily, to know every
default of his principal. Usually, he will not be
discharged, either by the mere indulgence of the
creditor to the principal, or by want of notice of the
default of the principal, no matter how much he
may be injured thereby. On the other hand, the
contract of guaranty is the guarantor's own
separate undertaking, in which the principal does
not join. It is usually entered into before or after that
of the principal, and is often supported on a
separate consideration from that supporting the
contract of the principal. The original contract of his
principal is not his contract, and he is not bound to
take notice of its non-performance. He is often
discharged by the mere indulgence of the creditor
to the principal, and is usually not liable unless
notified of the default of the principal.
Simply put, a surety is distinguished from a
guaranty in that a guarantor is the insurer of the
solvency of the debtor and thus binds himself to
pay if the principal is unable to pay while a surety
is the insurer of the debt, and he obligates himself
to pay if the principal does not pay. 68(Citations
omitted)
When Rosalina affixed her signature to the Real
Estate Mortgage as mortgagor and to the Surety
Agreement as surety which covered the loan
transaction represented by the Promissory Note,
she thereby bound herself to be liable to China
Bank in case the principal debtors, Barbara and
Rebecca, failed to pay. She consequently became
liable to respondent bank for the payment of the
debt of Barbara and Rebecca when the latter two
actually did not pay.
China Bank, on the other hand, had a right to
proceed after either the principal debtors or the
surety when the debt became due. It had a right to
foreclose the mortgage involving Rosalina's
property to answer for the loan.
The proceeds from the extrajudicial foreclosure,
however, did not satisfy the entire obligation. For
this reason, respondent bank instituted the present
Complaint against Barbara and Rebecca as
principals and Rosalina as surety.
A mortgage is simply a security for, and not a
satisfaction of indebtedness.69 If the proceeds of
the sale are insufficient to cover the debt in an
extrajudicial foreclosure of mortgage, the
mortgagee is entitled to claim the deficiency from
the debtor.70 We have already recognized this rule:
While Act No. 3135, as amended, does not discuss
the mortgagee's right to recover the deficiency,
neither does it contain any provision expressly or
impliedly prohibiting recovery. If the legislature had
intended to deny the creditor the right to sue for any
deficiency resulting from the foreclosure of a
security given to guarantee an obligation, the law
would expressly so provide. Absent such a
provision in Act No. 3135, as amended, the creditor
is not precluded from taking action to recover any
unpaid balance on the principal obligation simply
because he chose to extrajudicially foreclose the
real estate mortgage.71
The creditor, respondent China Bank in this
Petition, is therefore not precluded, from recovering
any unpaid balance on the principal obligation if the
extrajudicial foreclosure sale of the property,
subject of the Real Estate Mortgage, would result in
a deficiency.
Rosalina protests her liability for the deficiency. She
claims that China Bank cancelled the mortgage lien
and released the. principal borrowers from liability.
She contends that this act violated Article 2089 of
the Civil Code on the indivisibility of mortgage and
ultimately discharged her from liability as a surety.
We disagree.
A resort to the terms of the Surety Agreement can
easily settle the question of whether Rosalina
should still be held liable. The agreement expressly
contains the following stipulation:
The Surety(ies) expressly waive all rights to
demand for payment and notice of non-payment
and protest, and agree that the securities of every
kind that are now and may hereafter be left with the
Creditor its successors, indorsees or assigns as
collateral to any evidence of debt or obligation, or
upon which a lien may exist therefor, may be
substituted, withdrawn or surrendered at any
time, and the time for the payment of such
obligations extended, without notice to or
consent by the Surety(ies) x xx. 72 (Emphases
supplied)
We therefore find no merit in Rosalina's
protestations in this petition. As provided by the
quoted clause in the contract, she not only waived
the rights to demand payment and to receive notice
of nonpayment and protest, but she also expressly
agreed that the time for payment may be extended.
More significantly, she agreed that the securities
may be "substituted, withdrawn or surrendered at
any time" without her consent or without notice to
her. That China Bank indeed surrendered the
properties of the principal debtors was precisely
within the ambit of this provision in the contract.
Rosalina cannot now contest that act in light of her
express agreement to that stipulation.
There have been similar cases in which this Court
was tasked to rule on whether a surety can be
discharged from liability due to an act or omission
of the creditor. A review of these rulings reveals
though, that in the absence of an express
stipulation, the surety was discharged from liability
if the act of the creditor was such as would be
declared negligent or constitutive of a material
alteration of the contract. On the other hand, in the
presence of an express stipulation in the surety
agreement allowing these acts, the surety was not
considered discharged and was decreed to be
bound by the stipulations.
In PNB v. Manila Surety,73 the Court en
banc declared the surety discharged from liability
on account of the creditor's negligence. In that
case, the creditor failed to collect the amounts due
to the debtor contrary to the former's duty to make
collections as holder of an exclusive and
irrevocable power of attorney. The negligence of
the creditor allowed the assigned funds to be
exhausted without notice to the surety and
ultimately resulted in depriving the latter of any
possibility of recourse against that security.
Also, in PNB v. Luzon Surety,74 the Court hinted at
the possibility of the surety's discharge from
liability.1avvphi1 It was recognized in that case that
in this jurisdiction, alteration can be a ground for
release. The Court clarified, though, that this
principle can only be successfully invoked on the
condition that the alteration is material. Failure to
comply with this requisite means that the surety
cannot be freed from liability. Applying this doctrine
in that case, the Court ruled that the alterations in
the form of increases in the credit line with the full
consent of the surety did not suffice to release the
surety.
Meanwhile, in Palmares v. CA, 75 the Court ruled:
It may not be amiss to add that leniency shown to a
debtor in default, by delay permitted by the creditor
without change in the time when the debt might be
demanded, does not constitute an extension of the
time of payment, which would release the surety. In
order to constitute an extension discharging the
surety, it should appear that the extension of the
time was for a definite period, pursuant to an
enforceable agreement between the principal and
the creditor, and that it was made without the
consent of the surety or with the reservation of
rights with respect to him. The contract must be
one which precludes the creditor from, or at least
hinders him in, enforcing the principal contract with
the period during which he could otherwise have
enforced it, and which precludes the surety from
paying the debt. (Citations omitted)
In E. Zobel Inc. v. CA, et al.,76 the Court upheld the
validity of the provision on the continuing guaranty -
which we had earlier interpreted as a surety
consistent with its contents and intention of the
parties. The Court upheld the validity of the
provision despite the insistence of the surety that
he should be released from liability due to the
failure of the creditor to register the mortgage. In
particular, the Court decreed:
SOLIDBANK's failure to register the chattel
mortgage did not release petitioner from the
obligation. In the Continuing Guaranty executed in
favor of SOLID BANK, petitioner bound itself to the
contract irrespective of the existence of any
collateral. It even released SOLID BANK from any
fault or negligence that may impair the contract.
The pertinent portions of the contract so provides:
the undersigned (petitioner) who hereby agrees to
be and remain bound upon this guaranty,
irrespective of the existence, value or condition of
any collateral, and notwithstanding any such
change, exchange, settlement, compromise,
surrender, release, sale, application, renewal or
extension, and notwithstanding also that all
obligations of the Borrower to you outstanding and
unpaid at any time(s) may exceed the aggregate
principal sum herein above prescribed.
This is a Continuing Guaranty and shall remain in
force and effect until written notice shall have been
received by you that it has been revoked by the
undersigned, but any such notice shall not be
released the undersigned from any liability as to
any instruments, loans, advances or other
obligations hereby guaranteed, which may be held
by you, or in which you may have any interest, at
the time of the receipt of such notice. No act or
omission of any kind on your part in the premises
shall in any event affect or impair this guaranty, nor
shall same be affected by any change which may
arise by reason of the death of the undersigned, of
any partner(s) of the undersigned, or of the
Borrower, or of the accession to any such
partnership of any one or more new partners. 77
Another illustrative case is Gateway Electronics
Corporation and Geronimo delos Reyes v.
Asianbank, 78 in which the surety similarly asked for
his discharge from liability. He invoked the creditor's
repeated extensions of maturity dates to the
principal debtor's request, without the surety's
knowledge and consent. Still, this Court ruled:
Such contention is unacceptable as it glosses over
the fact that the waiver to be notified of extensions
is embedded in surety document itself, built in the
ensuing provision:
In case of default by any/or all of the DEBTOR(S)
to pay the whole part of said indebtedness herein
secured at maturity, I/WE jointly and severally,
agree and engage to the CREDITOR, its
successors and assigns, the prompt payment,
without demand or notice from said CREDITOR of
such notes, drafts, overdrafts and other credit
obligations on which the DEBTOR(S) may now be
indebted or may hereafter become indebted to the
CREDITOR, together with interest, penalty and
other bank charges as may accrue thereon and all
expenses which may be incurred by the latter in
collecting any or all such instruments. 79
On Rosalina's argument that the release of the
mortgage violates the indivisibility of mortgage as
enunciated in Article 208980 of the Civil
Code, People's Bank and Trust Company v.
Tambunting et al. 81 is most instructive. In that case,
the surety likewise argued that he should be
discharged from liability. He alleged that the
creditor had extended the time of payment and
released the shares pledged by the principal
debtors without his consent. The Court en
banc found his argument unpersuasive and
decreed:
1. It is thus obvious that the contract of
absolute guaranty executed by appellant
Santana is the measure of rights and duties.
As it is with him, so it is with the plaintiff
bank. What was therein stipulated had to be
complied with by both parties. Nor could
appellant have any valid cause for
complaint. He had given his word; he must
live up to it. Once the validity of its terms is
conceded, he cannot be indulged in his
unilateral determination to disregard his
commitment. A promise to which the law
accords binding force must be fulfilled. It is
as simple as that. So the Civil Code
explicitly requires: "Obligations arising from
contracts have the force of law between the
contracting parties and should be complied
with in good faith."
2. It could have been different if there were
no such contract of absolute guaranty to
which appellant was a party under the
aforesaid Article 2080. He would have been
freed from the obligation as a result of
plaintiff releasing to the Tambuntings
without his consent the 135 shares of the
International Sports Development
Corporation pledged to plaintiff bank to
secure the overdraft line. For thereby
subrogation became meaningless. Such a
provision is intended for the benefit of a
surety. That was a right he could avail of.
He is not precluded however from waiving it.
That was what appellant did precisely when
he agreed to the contract of absolute
guaranty. Again the law is clear. A right may
be waived unless it would be contrary to
law, public order, public policy, morals or
good customs. There is no occasion here
for the exceptions corning into play xxx82
While we rule that Rosalina, along with the principal
debtors, Barbara and Rebecca, is still liable as a
surety for the deficiency amount, we modify the
RTC's imposition of interest rate at 12% per
annum, which the CA subsequently affirmed. We
must modify the rates according to prevailing
jurisprudence. Hence, the 12% legal interest should
be imposed on the deficiency amount from 13
January 2000 until 30 June 2013 and 6% legal
interest from 1 July 2013 until full payment.
WHEREFORE, premises considered, the assailed
CA Decision and Resolution finding Rosalina
Carodan jointly and severally liable with Barbara
Perez and Rebecca Perez-Viloria for the deficiency
amount are AFFIRMED WITH
MODIFICATIONS. Rebecca, Barbara and Rosalina
are held jointly and severally liable to China Bank
for the deficiency amount of P365,345.77 and
interest thereon at the rates of 12% per annum
from 13 January 2000 until 30 June 2013 and 6%
per annum from 1 July 2013 until full payment; and
that Rebecca and Barbara are also ordered to
reimburse Rosalina for the amount charged against
her including interests thereon.83

SO ORDERED.
 G.R. No. 206584 January 11, 2016
MAE FLOR GALIDO, Petitioner,
vs.
NELSON P. MAGRARE, EVANGELINE M.
PALCAT, RODOLFO BAYOMBONG, and
REGISTER OF DEEDS OF ANTIQUE, San Jose,
Antique, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing
the Decision2 dated 29 February 2012 and
Resolution3 dated 28 February 2013 of the Court of
Appeals in CA-G.R. CEB CV No. 02306, affirming
the Order4 dated 2 October 2007 of the Regional
Trial Court (RTC), Branch 12, San Jose, Antique in
RTC Cad. Case No. 2004-819, Cad. Record No.
936.
The Antecedent Facts
On 19 August 2004, Mae Flor Galido (petitioner)
filed before the RTC of San Jose, Antique a
petition5 to cancel all entries appearing on Transfer
Certificate of Title (TCT) Nos. T-22374, T-22375
and T-22376, all in the name of Isagani Andigan
(Andigan), and to annul TCT No. T-24815 and all
other TCTs issued pursuant to the Order dated 18
October 2011 of RTC Branch 11, San Jose, Antique
(Branch 11) in RTC Civil Case No. 2001-2-3230.
The petition was raffled to RTC Branch 12, San
Jose, Antique (trial court) and docketed as RTC
Cad. Case No. 2004-819 Cad. Record No. 936.
The controversy revolves around three parcels of
land, designated as Lot 1052-A-1, Lot 1052-A-2
and Lot 1052-A-3, all of the San Jose, Antique
Cadastre. These parcels of land were, prior to
subdivision in 1999, part of Lot 1052-A which was
covered by TCT No. T-21405 in the name of
Andigan.
On 28 December 1998, Andigan sold undivided
portions of Lot 1052-A to Nelson P. Magrare
(Magrare), Evangeline M. Palcat (Palcat) and
Rodolfo Bayombong (Bayombong). To Magrare
was sold an undivided portion with an area of 700
square meters, more or less; to Palcat, 1,000
square meters, more or less; and to Bayombong,
500 square meters, more or less.
Andigan caused the subdivision of Lot 1052-A into
five lots, namely: Lot 1052-A-1, Lot 1052-A-2, Lot
1052-A-3, Lot 1052-A-4 and Lot 1052-A-5. On 18
October 1999, TCT No. T-21405 was cancelled and
new certificates were issued for the subdivided
portions. Pertinent to the case are TCT No. T-
22374 which was issued for Lot 1052-A-1, TCT No.
T-22375 for Lot 1052-A-2 and TCT No. T-22376 for
Lot 1052-A-3, all in the name of Andigan. Andigan
did not turn over the new TCTs to Magrare, Palcat
and Bayombong, and the latter were unaware of
the subdivision.
On 8 May 2000, Andigan mortgaged the same
three lots to petitioner and the latter came into
possession of the owners duplicate copies of TCT
Nos. T-22374, T-22375 and T-22376.
On 6 February 2001, at 11:00 a.m., Magrare, Palcat
and Bayombong registered their respective adverse
claims on TCT Nos. T-22374, T-22375 and T-
22376. On the same day, at 3:00 p.m., petitioner
also registered her mortgage on the same TCTs,
such that the certificates in the custody of the
Register of Deeds were annotated thus:
TCT No. T-22374
Entry No. 246290 Adverse Claim executed by
Nelson Magrare, covering the parcel of land
described herein subject to the conditions
embodied in the instrument on file in this office.
Date of Instrument: February 6, 2001.
Date of Inscription: February 6, 2001.
A:M 11:00
Entry No. 246303 Real Estate Mortgage
executed by Isagani Andigan in favor of Mae Flor
Galido, covering the parcel of land described herein
for the sum of SIXTY THOUSAND PESOS
(P60,000.00), subject to the conditions embodied in
the instrument acknowledged before Notary Public
Mariano R. Pefianco of San Jose, Antique as Doc.
No. 302 Page No. 61; Book No. 61, Series of 2000.
Date of Instrument: May 8, 2000.
Date of Inscription: February 6, 2001.
P:M 3:006
TCT No. T-22375
Entry No. 246300 Adverse Claim executed by
Evangeline M. Palcat, covering the parcel of land
described herein subject to the conditions
embodied in the instrument on file in this office.
Date of Instrument: February 6, 2001.
Date of Inscription: February 6, 2001.
A:M 11:00
Entry No. 246305 Real Estate Mortgage
executed by Isagani Andigan in favor of Mae Flor
Galido, covering the parcel of land described herein
for the sum of TEN THOUSAND PESOS
(P10,000.00), subject to the conditions embodied in
the instrument acknowledged before Notary Public
Mariano R. Pefianco of San Jose, Antique as Doc.
No. 226; Page No. 46; Book No. IV, Series of 2000.
Date of Instrument: May 8, 2000.
Date of Inscription: February 6, 2001.
P:M 3:007
TCT No. T-22376
Entry No. 246299 Adverse Claim executed by
Rodolfo Bayombong, covering the parcel of land
described herein subject to the conditions
embodied in the instrument on file in this office.
Date of Instrument: February 6, 2001.
Date of Inscription: February 6, 2001.
A:M 11:00
Entry No. 246304 Real Estate Mortgage
executed by Isagani Andigan in favor of Mae Flor
Galido, covering the parcel of land described herein
for the sum of SIXTY THOUSAND PESOS
(P60,000.00), subject to the conditions embodied in
the instrument acknowledged before Notary Public
Mariano R. Pefianco of San Jose, Antique as Doc.
No. 219; Page No. 44; Book No. IV, Series of 2000.
Date of Instrument: May 5, 2000.
Date of Inscription: February 6, 2001.
P:M 3:008
On 22 February 2001, Magrare, Palcat and
Bayombong filed before the RTC of San Jose,
Antique a Petition to Compel the Surrender to the
Register of Deeds of Antique the Owners Duplicate
Copies of TCT No. T-22374 Issued for Lot 1052-A-
1; TCT No. T-22375 Issued for Lot 1052-A-2; and
TCT No. T-22376 Issued for Lot 1052-A-3, all of the
San Jose Cadastre against the Spouses Isagani
and Merle Andigan.9 The case, raffled to Branch 11
and docketed as Civil Case No. 2001-2-3230, was
tried and decided on its merits.
Civil Case No. 2001-2-3230 (RTC Branch 11)
According to Magrare, Palcat and Bayombong,
even prior to the subdivision, they had made oral
demands on Andigan to secure TCT No. T-21405 in
order that they may take the appropriate steps to
register the affected lots in their names.10 That
Andigan had proceeded with the subdivision and
registration of the subdivided lots was unknown to
them. They registered their adverse claims upon
discovery of the subdivision. Neither were they
aware that Andigan had mortgaged the lots he sold
to them. They only discovered the mortgage when
they requested certified true copies of TCT Nos. T-
22374, T-22375 and T-22376, in preparation for
filing a petition to compel delivery.
On the other hand, Andigan insisted that he made
demands on Magrare, Palcat and Bayombong to
pay for the costs of subdividing Lot 1052-A and
registering the subdivided lots. Their failure to pay
the costs was his motivation in withholding the
TCTs from them. In other words, Andigan did not
dispute that the undivided portions of Lot 1052-A he
sold them were indeed Lot 1052-A-1 covered by
TCT No. T-22374, Lot 1052-A-2 covered by TCT
No. T-22375 and Lot 1052-A-3 covered by TCT No.
T-22376.11
On 18 October 2001, RTC Branch 11 issued an
Order granting the petition, to wit:
WHEREFORE, premises considered, the
PETITION dated February 16, 2001 is hereby
granted and, in consequence, the respondent
spouses ISAGANI ANDIGAN and MERL[E]
ANDIGAN are hereby directed to surrender or
deliver to the Register of Deeds for Antique the
owners duplicate copies of Transfer Certificates of
Title Nos. T-22374, T-22375 and T-22376.
If for any reason the outstanding owners duplicate
copies of the subject certificates of title cannot be
so surrendered or delivered, the Register of Deeds
for Antique is hereby ordered to annul the same,
issue new certificates of title in lieu thereof which
shall contain a memorandum of the annulment of
the outstanding owners duplicate copies.
SO ORDERED.12
Spouses Andigan through counsel filed a Notice of
Appeal. The appeal was docketed as CA G.R. CV
73363. However, they failed to timely file their
appellants brief, and the appeal was dismissed in a
Resolution dated 15 October 2002.13 The 15
October 2002 Resolution became final and
executory on 22 December 2002 and was recorded
in the Book of Entries of Judgments.14
Upon Motion for Execution, RTC Branch 11 issued
the Writ of Execution directing the Provincial Sheriff
of Antique to cause the satisfaction of the Order
dated 18 October 2001.15 For failure to gain
satisfaction of the order from the Spouses Andigan,
the Register of Deeds was notified and
commanded to annul the duplicate copies of TCT
Nos. T-22374, T-22375 and T-22376 and new ones
were issued in lieu thereof.16
The records bare that petitioner filed a Third Party
Claimants Affidavit dated 3 March 2004 17 before
the RTC Branch 11 after learning of the Notification
and Writ of Execution.
The following were also inscribed on TCT Nos. T-
22374, T-22375, and T-22376:
(1) Notice of Lis Pendens of CA G.R. CV-No.
73363, on 16 July 2002;
(2) Order issued by RTC Branch 11 directing
the Register of Deeds for Antique to annul the
subject certificates and issue new ones in lieu
thereof, on 21 April 2004;
(3) Resolution by the Court of Appeals
dismissing the appeal from the RTC Branch 11
decision in Civil Case No. 2001-2-3230, on 21
April 2004;
(4) Writ of Execution issued by RTC Branch 11,
on 21 April 2004; and
(5) Notification issued by the Sheriff to cancel
the owners duplicate copies, on 21 April
2004.18
Civil Case No. 3345 (RTC Branch 10)
Meanwhile, petitioner also filed with the RTC a
case for foreclosure of mortgage against the heirs
of Isagani Andigan, entitled Mae Flor Galido v.
Heirs of Isagani Andigan.19 The case was raffled to
Branch 10 and docketed as Civil Case No. 3345.
It appears that petitioner prevailed in Civil Case No.
3345. As a result, the Sheriff issued a Certificate of
Sale20 in favor of petitioner of the properties
covered by TCT Nos. T-22374, T-22375 and T-
22376.
RTC Cad. Case No. 2004-819, Cad. Record No.
936 (RTC Branch 12)
Hence, petitioner filed a petition seeking to cancel
all entries appearing on TCT No. T-22374 for Lot
1052-A-1, TCT No. T-22375 for Lot 1052-A-2, and
TCT No. T-22376 for Lot 1052-A-3, and to annul
TCT No. T-2481521 and all other titles issued
pursuant to RTC Civil Case No. 2001-2-3230.
Petitioner alleged that she had been a holder in
good faith of the following owners duplicate
certificates of title, all of the San Jose Cadastre, in
the name of one Andigan:
TCT No. T-22374 for Lot 1052-A-1;
TCT No. T-22375 for Lot 1052-A-2; and
TCT No. T-22376 for Lot 1052-A-3.
And that she had prevailed in Civil Case No. 3345
(RTC Branch 10) and was issued a Certificate of
Sale by the Sheriff. She also averred that the titles
contained adverse claims filed by Magrare, Palcat
and Bayombong, and annotations in connection
with Civil Case No. 2001-2-3230.
Finding that the case was contentious in nature, the
trial court ordered petitioner to amend her petition
to implead the following: (1) Magrare, in whose
name TCT No. T-24815 was registered and who
had earlier registered an adverse claim on TCT No.
T-22374; (2) Palcat, who had registered an adverse
claim on TCT No. T-22375; and (3) Bayombong,
who had registered an adverse claim on TCT No. T-
22376.22
After petitioner amended her petition, the trial court
issued summons to Magrare, Palcat and
Bayombong.23 The summons were duly served on
Magrare and Palcat. However, the sheriff reported
that Bayombong was not served because he was
already dead.24 Petitioner moved to substitute the
heirs of Bayombong, but the trial court ruled that
the substitution was without legal basis because
Bayombong was not properly impleaded. He died
on 13 December 2001 and could not have been
made a party to the petition filed on 19 August
2004. Hence, the trial court dismissed the case
against Bayombong in an Order dated 22 April
2005.25
Petitioner moved to amend her petition for the
second time to include the heirs of Bayombong and
the Rural Bank of Sibalom (Antique), Inc., whose
mortgage was registered on TCT No. T-24815. The
trial court ruled that the names and addresses of all
the heirs of Bayombong were not identified, and
that there was no showing that the widow of
Bayombong represented all the heirs.26 The trial
court also found no legal or factual basis to implead
the bank. Hence, the trial court denied petitioners
motion to further amend the petition.27
Meanwhile, respondents Magrare and Palcat filed
their answer on 4 March 2005,28 setting forth the
following affirmative defenses: (1) petitioner has no
cause of action against them; and (2) the present
case is barred by the prior ruling in Civil Case No.
2001-2-3230.
Upon motion, the trial court held a summary
hearing on the affirmative defenses. Despite due
notice, neither petitioner nor her counsel appeared.
The trial court allowed respondents counsel to
proceed with the presentation of evidence.29
After receiving respondents evidence in support of
their affirmative defenses, the trial court set another
hearing to give petitioner a chance to refute the
same.30 However, despite due notice and even a
postponement requested by petitioner,31 she and
her counsel failed to appear.32 The judge took
petitioners absences during the settings for the
preliminary hearing as a waiver to present
documentary evidence or arguments to refute
respondents evidence.
The Ruling of the Trial Court
On 2 October 2007, the trial court ruled in favor of
respondents, dismissing the case, thus:
On the basis of the foregoing findings and
observations, this court finds meritorious the
affirmative defenses put up by the
respondents/adverse claimants, that, the petitioner
Mae Flor Galido has no cause of action against
them and, that, this case is already barred by prior
judgment rendered in Civil Case No. 2001-2-3230.
In Nicasio I. Alacantara, et al. vs. Vicente C. Ponce,
et al., G.R. No. 131547, Dec. 15, 2005, it was ruled
that, "Litigation must end and terminate sometime
and somewhere, and it is essential to an effective
and efficient administration of justice that once a
judgment has become final, the winning party be
not, through a mere subterfuge, deprived of the
fruits of the verdict. Court[s] must therefore guard
against any scheme calculated to bring about the
result. Constituted as they are to put an end to the
controversies, courts should frown upon any
attempt to prolong them."
PREMISES CONSIDERED, the petition in this case
is hereby DENIED and, this case dismissed for the
reasons aforestated.33
The trial court found petitioners prayer for
cancellation of entries concerning the adverse
claims of respondents moot and academic because
the same were already cancelled.34 Further, the
decision in Civil Case No. 2001-2-3230 had already
become final and in fact was executed.35 The trial
court also ruled that since Andigan had already sold
Lots 1052-A-1 and 1052-A-2 to respondents when
he mortgaged the same to her, it was as if nothing
was mortgaged at all.36
Petitioner filed an appeal before the Court of
Appeals with the following assignment of errors:
1. THE LOWER COURT ERRED IN FAILING
TO GIVE NOTICES TO ALL PARTIES IN
INTEREST;
2. THE LOWER COURT ERRED IN
REQUIRING THE APPELLANT TO AMEND
HER PETITION TO IMPLEAD THE ADVERSE
CLAIMANTS-APPELLEES;
3. THE LOWER COURT ERRED IN
REFUSING TO ADMIT AMENDED PETITION
THAT COMPLIED WITH HIS LIKINGS;
4. THE LOWER COURT ERRED IN
REFUSING TO CONDUCT PRE-TRIAL
CONFERENCE IN THE INSTANT CASE;
5. THE TRIAL COURT ERRED IN ALLOWING
THE HEARING OF ADVERSE CLAIMANTS-
APPELLEES AFFIRMATIVE DEFENSES;
 6. THE TRIAL COURT ERRED IN REFUSING
TO CONSIDER THE EVIDENCE OF THE
APPELLANT IN ITS DECISION; [AND]
7. THE LOWER COURT ERRED IN
DISMISSING THE PETITION FILED IN THE
INSTANT CASE.37
The Ruling of the Court of Appeals
The Court of Appeals denied petitioners appeal in
a Decision38 dated 29 February 2012, the
dispositive portion of which reads:
WHEREFORE, premises considered, and finding
no reversible error in the order appealed from, the
appeal is DENIED and the Order dated October 2,
2007 of the Regional Trial Court, Branch 12 in San
Jose, Antique denying and dismissing the petition,
is AFFIRMED.39
For lack of merit, the Court of Appeals denied
petitioners motion for reconsideration in a
Resolution40 dated 28 February 2013.
Hence, the instant petition.
The Issues
Petitioner raises the following issues:
1. WHETHER OR NOT NOTICES TO ALL
PARTIES IN INTEREST ARE REQUIRED IN
THIS CASE;
2. WHETHER OR NOT THE LOWER COURT
COULD ORDER PETITIONER TO AMEND
HER PETITION TO IMPLEAD THE ADVERSE
CLAIMANTS-APPELLEES;
3. WHETHER OR NOT THE LOWER COURT
COULD REFUSE ADMISSION OF AMENDED
PETITION THAT INCLUDED HEIRS OF THE
DECEASED RODOLFO BAYOMBONG;
4. WHETHER OR NOT THE LOWER COURT
COULD REFUSE HOLDING PRE-TRIAL
CONFERENCE IN THE INSTANT CASE;
5. WHETHER OR NOT THE TRIAL COURT
WAS CORRECT IN ALLOWING THE
HEARING OF ADVERSE CLAIMANTS-
APPELLEES AFFIRMATIVE DEFENSES;
6. WHETHER OR NOT THE TRIAL COURT
WAS CORRECT IN REFUSING TO
CONSIDER THE EVIDENCE OF THE
PETITIONER IN ITS DECISION; [AND]
7. WHETHER OR NOT THE LOWER COURT
WAS CORRECT IN DISMISSING THE
PETITION FILED IN THE INSTANT CASE.41
The Courts Ruling
We grant the petition in part.
At the crux is the question of who has a better right
to the properties concerned: petitioner on the one
hand, and Magrare, Palcat and Bayombong on the
other?
No Valid Mortgage in Favor of Petitioner
Petitioner derives her title from Andigan, as
mortgagor. However, at the time Andigan
mortgaged the lots to petitioner he had already sold
the same to Magrare, Palcat and Bayombong.
Indeed, petitioners case is negated by Civil Case
No. 2001-2-3230. There, Andigan admitted that Lot
Nos. 1052-A-1, 1052-A-2 and 1052-A-3 were the
parcels of land he sold to Magrare, Palcat and
Bayombong, respectively, on 28 December
1998.42 Hence, when Andigan mortgaged the lots to
petitioner on 8 May 2000, he no longer had any
right to do so. We quote with approval the
discussion of the trial court:
Finally, when the spouses Andigan mortgaged to
the herein petitioner Galido Lot Nos. 1052-A-1 and
1052-A-2, the said lots were already sold to the
respondents Palcat and Magrare. It is therefore as
if nothing was mortgaged to her because Isagani
Andigan was no longer the owner of the mortgaged
real property. Under Art. 2085 of the Civil Code, two
of the prescribed requisites for a valid mortgage
are, that, the mortgagor be the absolute owner of
the thing mortgaged and, that, he has the free
disposal thereof. These requisites are absent when
Isagani Andigan and his wife mortgaged the lots
alluded to above to the herein petitioner.43
A spring cannot rise higher than its source. Since
Andigan no longer had any interest in the subject
properties at the time he mortgaged them to her,
petitioner had nothing to foreclose.
Prior Registered Adverse Claims Prevail
The parcels of land involved in this case are
registered under the Torrens system. One who
deals with property registered under the Torrens
system need not go beyond the certificate of title,
but only has to rely on the certificate of title. 44 Every
subsequent purchaser of registered land taking a
certificate of title for value and in good faith shall
hold the same free from all encumbrances except
those noted on said certificate and any of the
encumbrances provided by law.45
The Property Registration Decree46 provides:
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 instruments as are sufficient in
law. But no deed, mortgage, lease, or other
voluntary instrument, except a will purporting to
convey or affect registered land shall take effect as
a conveyance or bind the 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.1wphi1
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.
The adverse claims were registered on the
respective titles on 6 February 2001, at 11:00 in the
morning. They were already in existence when
petitioner filed her case for foreclosure of mortgage.
In fact, when petitioner registered the mortgages on
6 February 2011 at 3:00 in the afternoon, she was
charged with the knowledge that the properties
subject of the mortgage were encumbered by
interests the same as or better than that of the
registered owner.
Petitioner does not hide the fact that she was
aware of the adverse claim and the proceedings in
Civil Case No. 2001-2-3230. In her petition before
the Court, she stated that "on March 03, 2004,
petitioner had filed a third party claim with the
Regional Trial Court, Branch 11 in said Civil Case
No. 2001-2-3230."47
Instead, petitioner insists that it was illegal for
Magrare, Palcat and Bayombong to file a case
compelling the surrender of the owners duplicates
of TCT Nos. T-22374, T-22375 and T-22376. On
the contrary, the law itself provides the recourse
they took registering an adverse claim and filing a
petition in court to compel surrender of the owners
duplicate certificate of title:
Sec. 70. Adverse claim. Whoever claims any part
or interest in registered land adverse to the
registered owner, arising subsequent to the date of
the original registration, may if no other provision is
made in this Decree for registering the same, make
a statement in writing setting forth fully his alleged
right or interest, and how or under whom acquired,
a reference to the number of the certificate of title of
the registered owner, the name of the registered
owner, and a description of the land which the right
or interest is claimed.
xxxx
Sec. 107. Surrender of withheld duplicate
certificates. Where it is necessary to issue a new
certificate of title pursuant to any involuntary
instrument which divests the title of the registered
owner against his consent or where a voluntary
instrument cannot be registered by reason of the
refusal or failure of the holder to surrender the
owners duplicate certificate of title, the party in
interest may file a petition in court to compel
surrender of the same to the Register of Deeds.
The court, after hearing, may order the registered
owner or any person withholding the duplicate
certificate to surrender the same, and direct the
entry of a new certificate or memorandum upon
such surrender. If the person withholding the
duplicate certificate is not amenable to the process
of the court, or if for any reason the outstanding
owners duplicate certificate cannot be delivered,
the court may order the annulment of the same as
well as the issuance of a new certificate of title in
lieu thereof. Such new certificate and all duplicates
thereof shall contain a memorandum of the
annulment of the outstanding duplicate.
Further, RTC Branch 11, after trial on the merits of
Civil Case No. 2001-2-3230, found for Magrare,
Palcat and Bayombong. That decision has attained
finality and was entered in the Book of Judgments.
The trial court was correct in not touching upon the
final and executory decision in that case.
Petitioner is not a Buyer in Good Faith
But even assuming that the mortgage was valid,
petitioner can hardly be considered a buyer in good
faith. A purchaser in good faith and for value is one
who buys the 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 claims or interest of some other
person in the property.48
As discussed above, petitioner had notice as early
as 2001 of the adverse claims of Magrare, Palcat
and Bayombong. The decision in Civil Case No.
2001-2-3230 became final and executory before
the Certificate of Sale was issued by the Provincial
Sheriff on 14 July 2004 in Civil Case No. 3345.
Without speculating as to petitioners motivations in
foreclosing on the mortgage, the law on the matter
is clear. Preference is given to the prior registered
adverse claim because registration is the operative
act that binds or affects the land insofar as third
persons are concerned.49 Thus, upon registration of
respondents adverse claims, notice was given the
whole world, including petitioner.
Hence, the trial courts dismissal of the case
against Magrare and Palcat is in order. There is no
need for us to discuss petitioners other
assignments of error. Besides, the same issues
were sufficiently addressed by the Court of
Appeals.
Heirs of Bayombong are Indispensable Parties
However, we find reversible error on the part of the
trial court in not impleading the heirs of
Bayombong. Indispensable parties are parties in
interest without whom no final determination can be
had of an action.50Petitioners action was for the
cancellation of titles, including TCT No. T-22376. In
its Order dated 17 January 2005,51 the trial court
itself recognized that the controversy was
contentious in nature, and required the participation
of Bayombong, among others. Bayombong, like
respondents Magrare and Palcat stood to be
benefited or prejudiced by the outcome of the case.
Since he was already dead at the time the case
was filed by petitioner, the heirs of Bayombong
stand in his stead not only as parties in interest, but
indispensable parties. Without the heirs of
Bayombong to represent the interest of
Bayombong, there can be no complete
determination of all the issues presented by
petitioner, particularly, in regard to TCT No. T-
22376.
Failure to implead an indispensable party is not a
ground for the dismissal of an action, as the
remedy in such case is to implead the party
claimed to be indispensable, considering that
parties may be added by order of the court, on
motion of the party or on its own initiative at any
stage of the action.52
By denying petitioners motion to implead the heirs
of Bayombong due to technicalities, the trial court in
effect deprived petitioner a full adjudication of the
action, and the heirs of Bayombong any beneficial
effects of the decision. Indeed, the dismissal of the
petition as to Magrare and Palcat greatly benefits
them as the controversy regarding TCT Nos. T-
22374 and T-22375 is finally laid to rest. Not so with
the heirs of Bayombong. We note that the trial
courts decision discusses TCT Nos. T-22374 and
T-22375. The records do not contain any direct
refutation of the claim of petitioner as to TCT No. T-
22376, as could be expected since there were no
parties impleaded to defend such interest. Hence,
we cannot, without depriving petitioner due
process, extend the trial courts decision to TCT No.
T-22376.
Given the Courts authority to order the inclusion of
an indispensable party at any stage of the
proceedings,53 the heirs of Bayombong are hereby
ordered impleaded as parties-defendants. Since
the action has been disposed of as regards
Magrare and Palcat, the action is to proceed solely
against the heirs of Bayombong, once they are
properly impleaded.54
We note that the counsel representing Magrare and
Palcat is the same counsel that represented
Magrare, Palcat and Bayombong in Civil Case No.
2001-2-3230. There is no information on record,
apart from petitioners allegation, whether or not
counsel informed the court of the death of
Bayombong, in accordance with Section 16, Rule 3
of the Rules of Court. Nevertheless, for expediency,
Atty. Alexis C. Salvani is directed to provide the trial
court and petitioner the full names and addresses
of the heirs of Bayombong to enable the trial court
to properly implead them.

WHEREFORE, we GRANT the petition

IN PART. The Decision dated 29 February 2012
and Resolution dated 28 February 2013 of the
Court of Appeals in CA-G.R. CEB CV No. 02306,
affirming the Order dated 2 October 2007 of the
Regional Trial Court, Branch 12, San Jose, Antique
in RTC Cad. Case No. 2004-819, Cad. Record No.
936, is: (1) AFFIRMED insofar as the dismissal of
the case with respect to Nelson P. Magrare and
Evangeline M. Palcat; and (2) REVERSED insofar
as the dismissal of the case pertaining to TCT No.
T-22376. The heirs of Rodolfo Bayombong
are ORDERED IMPLEADED as parties-defendants
and the trial court is directed to proceed with the
case pertaining to TCT No. T-22376. Atty. Alexis C.
Salvani is further directed to provide the full names
and addresses of the heirs of Bayombong.

SO ORDERED.
 G.R. No. 160408 January 11, 2016
SPOUSES ROBERTO and ADELAIDA
PEN, Petitioners,
vs.
SPOUSES SANTOS and LINDA
JULIAN, Respondents.
DECISION
BERSAMIN, J.:
The petitioners who were the buyers of the
mortgaged property of the respondents seek the
reversal of the decision promulgated on October
20, 2003,1 whereby the Court of Appeals (CA)
affirmed with modification the adverse judgment
rendered on August 30, 1999 by the Regional Trial
Court (RTC), Branch 77, in Quezon City.2 In their
respective rulings, the CA and the RTC both
declared the deed of sale respecting the
respondents' property as void and inexistent, albeit
premised upon different reasons.
Antecedents
The CA summarized the antecedent facts and
procedural matters in its assailed decision as
follows:
On April 9, 1986, the appellees (the Julians)
obtained a P60,000.00 loan from appellant
Adelaida Pen. On May 23, 1986 and on the (sic)
May 27, 1986, they were again extended loans in
the amounts of P50,000.00 and P10,000.00,
respectively by appellant Adelaida. The initial
interests were deducted by appellant Adelaida, (1)
P3,600.00 from the P60,000.00 loan; (2) P2,400.00
from the P50,000.00 loan; and (3) P600.00 from the
P10,000.00 loan. Two (2) promissory notes were
executed by the appellees in favor of appellant
Adelaida to evidence the foregoing loans, one
dated April 9, 1986 and payable on June 15, 1986
for the P60,000.00 loan and another dated May 22,
1986 payable on July 22, 1986 for the P50,000.00
loan. Both Joans were charged interest at 6% per
month. As security, on May 23, 1986, the appellees
executed a Real Estate Mortgage over their
property covered by TCT No. 327733 registered
under the name of appellee Santos Julian, Jr. The
owner's duplicate of TCT No. 327733 was delivered
to the appellants.
Appellant's version of the subsequent events run as
follows: When the loans became due and
demandable, appellees failed to pay despite
several demands. As such, appellant Adelaida
decided to institute foreclosure proceedings.
However, she was prevailed upon by appellee
Linda not to foreclose the property because of the
cost of litigation and since it would cause her
embarrassment as the proceedings will be
announced in public places at the City Hall, where
she has many friends. Instead, appellee Linda
offered their mortgaged property as payment in
kind. After the ocular inspection, the parties agreed
to have the property valued at P70,000.00.
Thereafter, on October 22, 1986 appellee executed
a two (2) page Deed of Sale duly signed by her on
the left margin and over her printed name. After the
execution of the Deed of Sale, appellant Pen paid
the capital gains tax and the required real property
tax. Title to the property was transferred to the
appellants by the issuance of TCT No. 364880 on
July 17, 1987. A reconstituted title was also issued
to the appellants on July 09, 1994 when the
Quezon City Register of Deeds was burned (sic).
On July 1989, appellants allege that appellee Linda
offered to repurchase the property to which the
former agreed at the repurchase price of P436,l
15.00 payable in cash on July 31, 1989. The
appellees failed to repurchase on the agreed date.
On February 1990, appellees again offered to
repurchase the property for the same amount, but
they still failed to repurchase. On June 28, 1990,
another offer was made to repurchase the property
for the same amount. Appellee Linda offered to pay
P100,000.00 in cash as sign of good faith. The offer
was rejected by appellant Adelaida. The latter held
the money only for safekeeping upon the pleading
of appellee Linda. Upon the agreement of the
parties, the amount of P100,000.00 was deducted
from the balance of the appellees' indebtedness, so
that as of October 15, 1997, their unpaid balance
amounted to P319,065.00. Appellants allege that
instead of paying lthe] said balance, the appellees
instituted on September 8, 1994 the civil complaint
and filed an adverse claim and lis pendens which
were annotated at the back of the title to the
property.
On the other hand, the appellees aver the following:
At the time the mortgage was executed, they were
likewise required by the appellant Adelaida to sign
a one (1) page document purportedly an "Absolute
Deed of Sale". Said document did not contain any
consideration, and was "undated, unfilled and
unnotarized". They allege that their total payments
amounted to P115,400.00 and that their last
payment was on June 28, 1990 in the amount of
P100,000.00.
In December 1992, appellee Linda Julian offered to
pay appellant Adelaida the amount of P150,000.00.
The latter refused to accept the offer and
demanded that she be paid the amount of
P250,000.00. Unable to meet the demand, appellee
Linda desisted from the offer and requested that
she be shown the land title which she conveyed to
the appellee Adelaida, but the latter refused. Upon
verification with the Registry of Deeds of Quezon
City, she was informed that the title to the
mortgaged property had already been registered in
the name of appellee Adelaida under TCT No.
364880, and that the transfer was entered on July
17, 1987. A reconstituted title, TCT No. RT-45272
(364880), also appeared on file in the Registry of
Deeds replacing TCT No. 364880.
By reason of the foregoing discoveries, appellee
filed an Affidavit of Adverse Claim on January
1993.1avvphi1 Counsel for the appellees, on
August 12, 1994, formally demanded the
reconveyance of the title and/or the property to
them, but the appellants refused. In the process of
obtaining other documents; the appellees also
discovered that the appellants have obtained
several Declarations of Real Property, and a Deed
of Sale consisting of two (2) pages which was
notarized by one Atty. Cesar Ching. Said document
indicates a consideration of P70,000.00 for the lot,
and was made to appear as having been executed
on October 22, 1986. On September 8, 1994,
appellees filed a suit for the Cancellation of Sale,
Cancellation of Title issued to the appellants;
Recovery of Possession; Damages with Prayer for
Preliminary Injunction. The complaint alleged that
appellant Adelaida, through obvious bad faith,
maliciously typed, unilaterally filled up, and caused
to be notarized the Deed of Sale earlier signed by
appellee Julian, and used this spurious deed of
sale as the vehicle for her fraudulent transfer unto
herself the parcel of land covered by TCT No.
327733.3
Judgment of the RTC
In its judgment rendered on August 30, 1999,4 the
RTC ruled in favor of the respondents. According
greater credence to the version of the respondents
on the true nature of their transaction, the trial court
concluded that they had not agreed on the
consideration for the sale at the time they signed
the deed of sale; that in the absence of the
consideration, the sale lacked one of the essential
requisites of a valid contract; that the defense of
prescription was rejected because the action to
impugn the void contract was imprescriptible; and
that the promissory notes and the real estate
mortgage in favor of the petitioners were
nonetheless valid, rendering the respondents liable
to still pay their outstanding obligation with interest.
The RTC disposed thusly:
WHEREFORE, judgment is hereby rendered:
1. Declaring the Deed of Sale, dated October
22, 1986, void or inexistent;
2. Cancelling TCT No. RT-45272 (364480) and
declaring it to be of no further legal force and
effect;
3. Ordering the defendants to reconvey the
subject property to the plaintiffs and to deliver to
them the possession thereof; and
4. Ordering the plaintiffs to pay to the
defendants the unpaid balance of their
indebtedness plus accrued interest totaling
P,319,065.00 as of October 15, 1997, plus
interests at the legal rate counted from the date
of filing of the complaint and until the full
payment thereof, without prejudice to the right
of the defendants to foreclose the mortgage in
the event that plaintiffs will fail to pay their
obligation.
No pronouncement as to cost.
SO ORDERED.5
Decision of the CA
On appeal by the petitioners, the CA affirmed the
RTC with modification under its assailed decision of
October 20, 2003,6 decreeing:
WHEREFORE, premises considered, the Decision
of the Regional Trial Court of Quezon City is
AFFIRMED WITH modification. Judgement is
hereby rendered:
1. Declaring the Deed of Sale, dated October
22, 1986, void or inexistent;
2. Cancelling TCT No. RT-45272 (364880) and
declaring it to be of no further legal force and
effect;
3. Ordering the appellants-defendants to
reconvey the subject property to the plaintiffs-
 appellees and to deliver to them the possession
thereof; and
4. Ordering the plaintiffs-appellces to pay to the
defendants the unpaid balance of their
indebtedness, P43,492.15 as of June 28, 1990,
plus interests at the legal rate of 12% per
annum from said date and until the full payment
thereof, without prejudice to the right of the
defendants to foreclose the mortgage in the
event that plaintiffs-appellees will fail to pay
their obligation.
SO ORDERED.7
The CA pronounced the deed of sale as void but
not because of the supposed lack of consideration
as the R TC had indicated, but because of the deed
of sale having been executed at the same time as
the real estate mortgage, which rendered the sale
as a prohibited pactum commissorium in light of the
fact that the deed of sale was blank as to the
consideration and the date, which details would be
filled out upon the default by the respondents; that
the promissory notes contained no stipulation on
the payment of interest on the obligation, for which
reason no monetary interest could be imposed for
the use of money; and that compensatory interest
should instead be imposed as a form of damages
arising from Linda's failure to pay the outstanding
obligation.
Issues
In this appeal, the petitioners posit the following
issues, namely: (1) whether or not the CA erred in
ruling against the validity of the deed of sale; and
(2) whether or not the CA erred in ruling that no
monetary interest was due for Linda's use of
Adelaida's money.
Ruling of the Court
The appeal is partly meritorious.
That the petitioners are raising factual issues about
the true nature of their transaction with the
respondent is already of itself, sufficient reason to
forthwith deny due course to the petition for review
on certiorari. They cannot ignore that any appeal to
the Court is limited to questions of law because the
Court is not a trier of facts. As such, the factual
findings of the CA should be respected and
accorded great weight, and even finality when
supported by the substantial evidence on
record.8 Moreover, in view of the unanimity between
the RTC and the CA on the deed of sale being void,
varying only in their justifications, the Court affirms
the CA, and adopts its conclusions on the invalidity
of the deed of sale.
Nonetheless, We will take the occasion to explain
why we concur with the CA's justification in
discrediting the deed of sale between the parties
as pactum commissorium.
Article 2088 of the Civil Code prohibits the creditor
from appropriating the things given by way of
pledge or mortgage, or from disposing of them; any
stipulation to the contrary is null and void. The
elements for pactum commissorium to exist are as
follows, to wit: (a) that there should be a pledge or
mortgage wherein property is pledged or
mortgaged by way of security for the payment of
the principal obligation; and (b) that there should be
a stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the
event of non-payment of the principal obligation
within the stipulated period.9 The first element was
present considering that the property of the
respondents was mortgaged by Linda in favor of
Adelaida as security for the farmer's indebtedness.
As to the second, the authorization for Adelaida to
appropriate the property subject of the mortgage
upon Linda's default was implied from Linda's
having signed the blank deed of sale
simultaneously with her signing of the real estate
mortgage. The haste with which the transfer of
property was made upon the default by Linda on
her obligation, and the eventual transfer of the
property in a manner not in the form of a
valid dacion en pago ultimately confirmed the
nature of the transaction as a pactum
commissorium.
It is notable that in reaching its conclusion that
Linda's deed of sale had been executed
simultaneously with the real estate mortgage, the
CA first compared the unfilled deed of sale
presented by Linda with the notarized deed of sale
adduced by Adelaida. The CA justly deduced that
the completion and execution of the deed of sale
had been conditioned on the non-payment of the
debt by Linda, and reasonably pronounced that
such circumstances rendered the
transaction pactum commissorium. The Court
should not disturb or undo the CA's conclusion in
the absence of the clear showing of abuse,
arbitrariness or capriciousness on the part of the
CA.10
The petitioners have theorized that their transaction
with the respondents was a valid dacion en pago by
highlighting that it was Linda who had offered to sell
her property upon her default. Their theory cannot
stand scrutiny. Dacion en pago is in the nature of a
sale because property is alienated in favor of the
creditor in satisfaction of a debt in money.11 For a
valid dacion en pago to transpire, however, the
attendance of the following elements must be
established, namely: (a) the existence of a money
obligation; (b) the alienation to the creditor of a
property by the debtor with the consent of the
former; and (c) the satisfaction of the money
obligation of the debtor.12 To have a valid dacion en
pago, therefore, the alienation of the property must
fully extinguish the debt. Yet, the debt of the
respondents subsisted despite the transfer of the
property in favor of Adelaida.
The petitioners insist that the parties agreed that
the deed of sale would not yet contain the date and
the consideration because they had still to agree on
the price.13 Their insistence is not supported by the
established circumstances. It appears that two days
after the loan fell due on October 15, 1986, 14 Linda
offered to sell the mortgaged property;15 hence, the
parties made the ocular inspection of the premises
on October 18, 1986. By that time, Adelaida had
already become aware that the appraiser had
valued the property at P70,000.00. If that was so,
there was no plausible reason for still leaving the
consideration on the deed of sale blank if the deed
was drafted by Adelaida on October 20, 1986,
especially considering that they could have
conveniently communicated with each other in the
meanwhile on this significant aspect of their
transaction. It was also improbable for Adelaida to
still hand the unfilled deed of sale to Linda as her
copy if, after all, the deed of sale would be
eventually notarized on October 22, 1986.
According to Article 1318 of the Civil Code, the
requisites for any contract to be valid are,
namely: (a) the consent of the contracting parties;
(b) the object; and (c) the consideration. There is a
perfection of a contract when there is a meeting of
the minds of the parties on each of these
requisites.16 The following passage has fittingly
discussed the process of perfection in Moreno, Jr.
v. Private Management Office:17
To reach that moment of perfection, the parties
must agree on the same thing in the same sense,
so that their minds meet as to all the terms. They
must have a distinct intention common to both and
without doubt or difference; until all understand
alike, there can be no assent, and therefore no
contract. The minds of parties must meet at every
point; nothing can be left open for further
arrangement. So long as there is any uncertainty or
indefiniteness, or future negotiations or
considerations to be had between the parties, there
is not a completed contract, and in fact, there is no
contract at all.18
In a sale, the contract is perfected at the moment
when the seller obligates herself to deliver and to
transfer ownership of a thing or right to the buyer
for a price certain, as to which the latter
agrees.19 The absence of the consideration from
Linda's copy of the deed of sale was credible proof
of the lack of an essential requisite for the sale. In
other words, the meeting of the minds of the parties
so vital in the perfection of the contract of sale did
not transpire. And, even assuming that Linda's
leaving the consideration blank implied the
authority of Adelaida to fill in that essential detail in
the deed of sale upon Linda's default on the loan,
the conclusion of the CA that the deed of sale was
a pactum commisorium still holds, for, as earlier
mentioned, all the elements of pactum
commisorium were present.
Anent interest, the CA deleted the imposition of
monetary interest but decreed compensatory
interest of 12% per annum.
Interest that is the compensation fixed by the
parties for the use or forbearance of money is
referred to as monetary interest.1wphi1 On the
other hand, interest that may be imposed by law or
by the courts as penalty or indemnity for damages
is called compensatory interest. In other words, the
right to recover interest arises only either by vi11ue
of a contract or as damages for delay or failure to
pay the principal loan on which the interest is
demanded.20
The CA correctly deleted the monetary interest from
the judgment. Pursuant to Article 1956 of the Civil
Code, no interest shall be due unless it has been
expressly stipulated in writing. In order for monetary
interest to be imposed, therefore, two requirements
must be present, specifically: (a) that there has
been an express stipulation for the payment of
interest; and (b) that the agreement for the payment
of interest has been reduced in
writing.21Considering that the promissory notes
contained no stipulation on the payment of
monetary interest, monetary interest cannot be
validly imposed.
The CA properly imposed compensatory interest to
offset the delay in the respondents' performance of
their obligation. Nonetheless, the imposition of the
legal rate of interest should be modified to conform
to the prevailing jurisprudence. The rate of 12% per
annum imposed by the CA was the rate set in
accordance with Eastern Shipping Lines, Inc., v.
Court of Appeals.22 In the meanwhile, Bangko
Sentral ng Pilipinas Monetary Board Resolution No.
796 dated May 16, 2013, amending Section 2 of
Circular No. 905, Series of 1982, and Circular No.
799, Series of 2013, has lowered to 6% per
annum the legal rate of interest for a loan or
forbearance of money, goods or credit starting July
1, 2013. This revision is expressly recognized
in Nacar v. Gallery Frames.23 It should be noted,
however, that imposition of the legal rate of interest
at 6% per annum is prospective in application.

Accordingly, the legal rate of interest on the

outstanding obligation of P43,492.15 as of June 28,
1990, as the CA found, should be as
follows: (a) from the time of demand on October 13,
1994 until June 30, 2013, the legal rate of interest
was 12% per annum conformably with Eastern
Shipping lines; and (b) following Nacar, from July 1,
2013 until full payment, the legal interest is 6% per
annum.

WHEREFORE, the Court AFFIRMS the decision

promulgated on October 20, 2003 subject to
the MODIFICATION that the amount of P43,492.l5
due from the respondents shall earn legal interest
of 12% per annum reckoned from October 13, 1994
until June 30, 2013, and 6% per annum from July 1,
2013 until full payment.

Without pronouncement on costs of suit.

SO ORDERED.
 G.R. No. 194964-65 January 11, 2016
UNIVERSITY OF MINDANAO, INC., Petitioner,
vs.
BANGKO SENTRAL NG PILIPINAS, ET
AL., Respondents.
DECISION
LEONEN, J.:
Acts of an officer that are not authorized by the
board of directors/trustees do not bind the
corporation unless the corporation ratifies the acts
or holds the officer out as a person with authority to
transact on its behalf.
This is a Petition for Review on Certiorari 1 of the
Court of Appeals' December 17, 2009
Decision2 and December 20, 2010 Resolution.3 The
Court of Appeals reversed the Cagayan De Oro
City trial courts and the Iligan City trial courts
Decisions to nullify mortgage contracts involving
University of Mindanaos properties.4
University of Mindanao is an educational institution.
For the year 1982, its Board of Trustees was
chaired by Guillermo B. Torres. His wife, Dolores P.
Torres, sat as University of Mindanaos Assistant
Treasurer.5
Before 1982, Guillermo B. Torres and Dolores P.
Torres incorporated and operated two (2) thrift
banks: (1) First Iligan Savings & Loan Association,
Inc. (FISLAI); and (2) Davao Savings and Loan
Association, Inc. (DSLAI). Guillermo B. Torres
chaired both thrift banks. He acted as FISLAIs
President, while his wife, Dolores P. Torres, acted
as DSLAIs President and FISLAIs Treasurer.6
Upon Guillermo B. Torres request, Bangko Sentral
ng Pilipinas issued a P1.9 million standby
emergency credit to FISLAI. The release of standby
emergency credit was evidenced by three (3)
promissory notes dated February 8, 1982, April 7,
1982, and May 4, 1982 in the amounts of
P500,000.00, P600,000.00, and P800,000.00,
respectively. All these promissory notes were
signed by Guillermo B. Torres, and were co-signed
by either his wife, Dolores P. Torres, or FISLAIs
Special Assistant to the President, Edmundo G.
Ramos, Jr.7
On May 25, 1982, University of Mindanaos Vice
President for Finance, Saturnino Petalcorin,
executed a deed of real estate mortgage over
University of Mindanaos property in Cagayan de
Oro City (covered by Transfer Certificate of Title
No. T-14345) in favor of Bangko Sentral ng
Pilipinas.8 "The mortgage served as security for
FISLAIs P1.9 Million loan[.]"9 It was allegedly
executed on University of Mindanaos behalf.10
As proof of his authority to execute a real estate
mortgage for University of Mindanao, Saturnino
Petalcorin showed a Secretarys Certificate signed
on April 13, 1982 by University of Mindanaos
Corporate Secretary, Aurora de Leon.11 The
Secretarys Certificate stated:
That at the regular meeting of the Board of
Trustees of the aforesaid corporation [University of
Mindanao] duly convened on March 30, 1982, at
which a quorum was present, the following
resolution was unanimously adopted:
"Resolved that the University of Mindanao, Inc.
be and is hereby authorized, to mortgage real
estate properties with the Central Bank of the
Philippines to serve as security for the credit
facility of First Iligan Savings and Loan
Association, hereby authorizing the President
and/or Vice-president for Finance, Saturnino R.
Petalcorin of the University of Mindanao, Inc. to
sign, execute and deliver the covering
mortgage document or any other documents
which may be proper[l]y required."12
The Secretarys Certificate was supported by an
excerpt from the minutes of the January 19, 1982
alleged meeting of University of Mindanaos Board
of Trustees. The excerpt was certified by Aurora de
Leon on March 13, 1982 to be a true copy of
University of Mindanaos records on file. 13 The
excerpt reads:
3 Other Matters:
(a) Cagayan de Oro and Iligan properties:
Resolution No. 82-1-8
Authorizing the Chairman to appoint Saturnino R.
Petalcorin, Vice-President for Finance, to represent
the University of Mindanao to transact, transfer,
convey, lease, mortgage, or otherwise hypothecate
any or all of the following properties situated at
Cagayan de Oro and Iligan City and authorizing
further Mr. Petalcorin to sign any or all documents
relative thereto:
1. A parcel of land situated at Cagayan de Oro
City, covered and technically described in
TRANSFER CERTIFICATE OF TITLE No. T-
14345 of the Registry of Deeds of Cagayan de
Oro City;
2. A parcel of land situated at Iligan City,
covered and technically described in
TRANSFER CERTIFICATE OF TITLE NO. T-
15696 (a.t.) of the Registry of Deeds of Iligan
City; and
3. A parcel of land situated at Iligan City,
covered and technically described in
TRANSFER CERTIFICATE OF TITLE NO. T-
15697 (a.f.) of the Registry of Deeds of Iligan
City.14
The mortgage deed executed by Saturnino
Petalcorin in favor of Bangko Sentral ng Pilipinas
was annotated on the certificate of title of the
Cagayan de Oro City property (Transfer Certificate
of Title No. 14345) on June 25, 1982. Aurora de
Leons certification was also annotated on the
Cagayan de Oro City propertys certificate of title
(Transfer Certificate of Title No. 14345).15
On October 21, 1982, Bangko Sentral ng Pilipinas
granted FISLAI an additional loan of P620,700.00.
Guillermo B. Torres and Edmundo Ramos executed
a promissory note on October 21, 1982 to cover
that amount.16
On November 5, 1982, Saturnino Petalcorin
executed another deed of real estate mortgage,
allegedly on behalf of University of Mindanao, over
its two properties in Iligan City.1wphi1 This
mortgage served as additional security for FISLAIs
loans. The two Iligan City properties were covered
by Transfer Certificates of Title Nos. T-15696 and T-
15697.17
On January 17, 1983, Bangko Sentral ng Pilipinas
mortgage lien over the Iligan City properties and
Aurora de Leons certification were annotated on
Transfer Certificates of Title Nos. T-15696 and T-
15697.18 On January 18, 1983, Bangko Sentral ng
Pilipinas mortgage lien over the Iligan City
properties was also annotated on the tax
declarations covering the Iligan City properties.19
Bangko Sentral ng Pilipinas also granted
emergency advances to DSLAI on May 27, 1983
and on August 20, 1984 in the amounts of
P1,633,900.00 and P6,489,000.00, respectively.20
On January 11, 1985, FISLAI, DSLAI, and Land
Bank of the Philippines entered into a
Memorandum of Agreement intended to rehabilitate
the thrift banks, which had been suffering from their
depositors heavy withdrawals. Among the terms of
the agreement was the merger of FISLAI and
DSLAI, with DSLAI as the surviving corporation.
DSLAI later became known as Mindanao Savings
and Loan Association, Inc. (MSLAI).21
Guillermo B. Torres died on March 2, 1989.22
MSLAI failed to recover from its losses and was
liquidated on May 24, 1991.23
On June 18, 1999, Bangko Sentral ng Pilipinas sent
a letter to University of Mindanao, informing it that
the bank would foreclose its properties if MSLAIs
total outstanding obligation of P12,534,907.73
remained unpaid.24
In its reply to Bangko Sentral ng Pilipinas June 18,
1999 letter, University of Mindanao, through its Vice
President for Accounting, Gloria E. Detoya, denied
that University of Mindanaos properties were
mortgaged. It also denied having received any loan
proceeds from Bangko Sentral ng Pilipinas.25
On July 16, 1999, University of Mindanao filed two
Complaints for nullification and cancellation of
mortgage. One Complaint was filed before the
Regional Trial Court of Cagayan de Oro City, and
the other Complaint was filed before the Regional
Trial Court of Iligan City.26
University of Mindanao alleged in its Complaints
that it did not obtain any loan from Bangko Sentral
ng Pilipinas. It also did not receive any loan
proceeds from the bank.27
University of Mindanao also alleged that Aurora de
Leons certification was anomalous. It never
authorized Saturnino Petalcorin to execute real
estate mortgage contracts involving its properties to
secure FISLAIs debts. It never ratified the
execution of the mortgage contracts. Moreover, as
an educational institution, it cannot mortgage its
properties to secure another persons debts.28
On November 23, 2001, the Regional Trial Court of
Cagayan de Oro City rendered a Decision in favor
of University of Mindanao,29 thus:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff and against
defendants:
1. DECLARING the real estate mortgage
Saturnino R. Petalcorin executed in favor of
BANGKO SENTRAL NG PILIPINAS involving
Lot 421-A located in Cagayan de Oro City with
an area of 482 square meters covered by TCT
No. T-14345 as annuled [sic];
2. ORDERING the Register of Deeds of
Cagayan de Oro City to cancel Entry No. 9951
and Entry No. 9952 annotated at the back of
said TCT No. T-14345, Registry of Deeds of
Cagayan de Oro City;
Prayer for attorneys fee [sic] is hereby denied there
being no proof that in demanding payment of the
emergency loan, defendant BANGKO SENTRAL
NG PILIPINAS was motivated by evident bad faith,
SO ORDERED.30 (Citation omitted)
The Regional Trial Court of Cagayan de Oro City
found that there was no board resolution giving
Saturnino Petalcorin authority to execute mortgage
contracts on behalf of University of Mindanao. The
Cagayan de Oro City trial court gave weight to
Aurora de Leons testimony that University of
Mindanaos Board of Trustees did not issue a board
resolution that would support the Secretarys
Certificate she issued. She testified that she signed
the Secretarys Certificate only upon Guillermo B.
Torres orders.31
Saturnino Petalcorin testified that he had no
authority to execute a mortgage contract on
University of Mindanaos behalf. He merely
executed the contract because of Guillermo B.
Torres request.32
Bangko Sentral ng Pilipinas witness Daciano
Pagui, Jr. also admitted that there was no board
resolution giving Saturnino Petalcorin authority to
execute mortgage contracts on behalf of University
of Mindanao.33
The Regional Trial Court of Cagayan de Oro City
ruled that Saturnino Petalcorin was not authorized
to execute mortgage contracts for University of
Mindanao. Hence, the mortgage of University of
Mindanaos Cagayan de Oro City property was
unenforceable. Saturnino Petalcorins unauthorized
acts should be annulled.34
Similarly, the Regional Trial Court of Iligan City
rendered a Decision on December 7, 2001 in favor
of University of Mindanao.35 The dispositive portion
of the Decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and against
the defendants, as follows:
1. Nullifying and canceling [sic] the subject
Deed of Real Estate Mortgage dated November
5, 1982 for being unenforceable or void
contract;
2. Ordering the Office of the Register of Deeds
of Iligan City to cancel the entries on TCT No.
T-15696 and TCT No. T-15697 with respect to
the aforesaid Deed of Real Estate Mortgage
dated November 5, 1982 and all other entries
related thereto;
3. Ordering the defendant Bangko Sentral ng
Pilipinas to return the owners duplicate copies
of TCT No. T-15696 and TCT No. 15697 to the
plaintiff;
4. Nullifying the subject [f]oreclosure
[p]roceedings and the [a]uction [s]ale conducted
by defendant Atty. Gerardo Paguio, Jr. on
October 8, 1999 including all the acts
subsequent thereto and ordering the Register of
Deeds of Iligan City not to register any
Certificate of Sale pursuant to the said auction
sale nor make any transfer of the corresponding
titles, and if already registered and transferred,
to cancel all the said entries in TCT No. T-
15696 and TCT No. T-15697 and/or cancel the
corresponding new TCTs in the name of
defendant Bangko Sentral ng Pilipinas;
5. Making the Preliminary Injunction per Order
of this Court dated October 13, 2000
permanent.
No pronouncement as to costs.36 (Citation
omitted)
The Iligan City trial court found that the Secretarys
Certificate issued by Aurora de Leon was
fictitious37 and irregular for being unnumbered.38 It
also did not specify the identity, description, or
location of the mortgaged properties.39
The Iligan City trial court gave credence to Aurora
de Leons testimony that the University of
Mindanaos Board of Trustees did not take up the
documents in its meetings. Saturnino Petalcorin
corroborated her testimony.40
The Iligan City trial court ruled that the lack of a
board resolution authorizing Saturnino Petalcorin to
execute documents of mortgage on behalf of
University of Mindanao made the real estate
mortgage contract unenforceable under Article
140341 of the Civil Code.42 The mortgage contract
and the subsequent acts of foreclosure and auction
sale were void because the mortgage contract was
executed without University of Mindanaos
authority.43
The Iligan City trial court also ruled that the
annotations on the titles of University of Mindanaos
properties do not operate as notice to the University
because annotations only bind third parties and not
owners.44 Further, Bangko Sentral ng Pilipinas right
to foreclose the University of Mindanaos properties
had already prescribed.45
Bangko Sentral ng Pilipinas separately appealed
the Decisions of both the Cagayan de Oro City and
the Iligan City trial courts.46
After consolidating both cases, the Court of
Appeals issued a Decision on December 17, 2009
in favor of Bangko Sentral ng Pilipinas, thus:
FOR THE REASONS STATED, the Decision dated
23 November 2001 of the Regional Trial Court of
Cagayan de Oro City, Branch 24 in Civil Case No.
99-414 and the Decision dated 7 December 2001
of the Regional Trial Court of Iligan City, Branch 1
in Civil Case No. 4790 are REVERSED and SET
ASIDE. The Complaints in both cases before the
trial courts are DISMISSED. The Writ of Preliminary
Injunction issued by the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790
is LIFTED and SET ASIDE.
SO ORDERED.47
The Court of Appeals ruled that "[a]lthough BSP
failed to prove that the UM Board of Trustees
actually passed a Board Resolution authorizing
Petalcorin to mortgage the subject real
properties,"48 Aurora de Leons Secretarys
Certificate "clothed Petalcorin with apparent and
ostensible authority to execute the mortgage deed
on its behalf[.]"49 Bangko Sentral ng Pilipinas
merely relied in good faith on the Secretarys
Certificate.50 University of Mindanao is estopped
from denying Saturnino Petalcorins authority.51
Moreover, the Secretarys Certificate was notarized.
This meant that it enjoyed the presumption of
regularity as to the truth of its statements and
authenticity of the signatures.52 Thus, "BSP cannot
be faulted for relying on the [Secretarys
Certificate.]"53
The Court of Appeals also ruled that since
University of Mindanaos officers, Guillermo B.
Torres and his wife, Dolores P. Torres, signed the
promissory notes, University of Mindanao was
presumed to have knowledge of the
transaction.54 Knowledge of an officer in relation to
matters within the scope of his or her authority is
notice to the corporation.55
The annotations on University of Mindanaos
certificates of title also operate as constructive
notice to it that its properties were mortgaged. 56 Its
failure to disown the mortgages for more than a
decade was implied ratification.57
The Court of Appeals also ruled that Bangko
Sentral ng Pilipinas action for foreclosure had not
yet prescribed because the due date extensions
that Bangko Sentral ng Pilipinas granted to FISLAI
extended the due date of payment to five (5) years
from February 8, 1985.58 The banks demand letter
to Dolores P. Torres on June 18, 1999 also
interrupted the prescriptive period.59
University of Mindanao and Bangko Sentral ng
Pilipinas filed a Motion for Reconsideration60 and
Motion for Partial Reconsideration respectively of
the Court of Appeals Decision. On December 20,
2010, the Court of Appeals issued a Resolution,
thus:
Acting on the foregoing incidents, the
Court RESOLVES to:
1. GRANT the appellants twin motions for
extension of time to file comment/opposition
and NOTE the Comment on the appellees
Motion for Reconsideration it subsequently filed
on June 23, 2010;
2. GRANT the appellees three (3) motions for
extension of time to file comment/opposition
and NOTE the Comment on the appellants
Motion for Partial Reconsideration it filed on
July 26, 2010;
3. NOTE the appellants "Motion for Leave to
File Attached Reply Dated August 11, 2010"
filed on August 13, 2010 and DENY the
 attached "Reply to Comment Dated July 26,
2010";
4. DENY the appellees Motion for
Reconsideration as it does not offer any
arguments sufficiently meritorious to warrant
modification or reversal of the Courts 17
December 2009 Decision. The Court finds that
there is no compelling reason to reconsider its
ruling; and
5. GRANT the appellants Motion for Partial
Reconsideration, as the Court finds it
meritorious, considering that it ruled in its
Decision that "BSP can still foreclose on the
UMs real property in Cagayan de Oro City
covered by TCT No. T-14345." It then follows
that the injunctive writ issued by the RTC of
Cagayan de Oro City, Branch 24 must be lifted.
The Courts 17 December 2009 Decision is
accordingly MODIFIED and AMENDED to read
as follows:
"FOR THE REASONS STATED, the
Decision dated 23 November 2001 of the
Regional Trial Court of Cagayan de Oro
City, Branch 24 in Civil Case No. 99-414
and the Decision dated 7 December 2001 of
the Regional Trial Court of Iligan City,
Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The
Complaints in both cases before the trial
courts are DISMISSED. The Writs of
Preliminary Injunction issued by the
Regional Trial Court of Iligan City, Branch 1
in Civil Case No. 4790 and in the Regional
Trial Court of Cagayan de Oro City, Branch
24 in Civil Case No. 99-414
are LIFTED and SET ASIDE."
SO ORDERED.61 (Citation omitted)
Hence, University of Mindanao filed this Petition for
Review.
The issues for resolution are:
First, whether respondent Bangko Sentral ng
Pilipinas action to foreclose the mortgaged
properties had already prescribed; and
Second, whether petitioner University of Mindanao
is bound by the real estate mortgage contracts
executed by Saturnino Petalcorin.
We grant the Petition.
I
Petitioner argues that respondents action to
foreclose its mortgaged properties had already
prescribed.
Petitioner is mistaken.
Prescription is the mode of acquiring or losing
rights through the lapse of time.62 Its purpose is "to
protect the diligent and vigilant, not those who
sleep on their rights."63
The prescriptive period for actions on mortgages is
ten (10) years from the day they may be
brought.64 Actions on mortgages may be brought
not upon the execution of the mortgage contract but
upon default in payment of the obligation secured
by the mortgage.65
A debtor is considered in default when he or she
fails to pay the obligation on due date and, subject
to exceptions, after demands for payment were
made by the creditor. Article 1169 of the Civil Code
provides:
ART. 1169. Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declare; or
(2) When from the nature and the
circumstances of the obligation it appears that
the designation of the time when the thing is to
be delivered or the service is to be rendered
was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when
the obligor has rendered it beyond his power to
perform.
Article 1193 of the Civil Code provides that an
obligation is demandable only upon due date. It
provides:
ART. 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only
when that day comes.
Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known
when.
If the uncertainty consists in whether the day will
come or not, the obligation is conditional, and it
shall be regulated by the rules of the preceding
Section.
In other words, as a general rule, a person defaults
and prescriptive period for action runs when (1) the
obligation becomes due and demandable; and (2)
demand for payment has been made.
The prescriptive period neither runs from the date
of the execution of a contract nor does the
prescriptive period necessarily run on the date
when the loan becomes due and
demandable.66 Prescriptive period runs from the
date of demand,67 subject to certain exceptions.
In other words, ten (10) years may lapse from the
date of the execution of contract, without barring a
cause of action on the mortgage when there is a
gap between the period of execution of the contract
and the due date or between the due date and the
demand date in cases when demand is
necessary.68
The mortgage contracts in this case were executed
by Saturnino Petalcorin in 1982. The maturity dates
of FISLAIs loans were repeatedly extended until
the loans became due and demandable only in
1990.69 Respondent informed petitioner of its
decision to foreclose its properties and demanded
payment in 1999.
The running of the prescriptive period of
respondents action on the mortgages did not start
when it executed the mortgage contracts with
Saturnino Petalcorin in 1982.
The prescriptive period for filing an action may run
either (1) from 1990 when the loan became due, if
the obligation was covered by the exceptions under
Article 1169 of the Civil Code; (2) or from 1999
when respondent demanded payment, if the
obligation was not covered by the exceptions under
Article 1169 of the Civil Code.
In either case, respondents Complaint with cause
of action based on the mortgage contract was filed
well within the prescriptive period.
Given the termination of all traces of FISLAIs
existence,70 demand may have been rendered
unnecessary under Article 1169(3)71 of the Civil
Code. Granting that this is the case, respondent
would have had ten (10) years from due date in
1990 or until 2000 to institute an action on the
mortgage contract.
However, under Article 115572 of the Civil Code,
prescription of actions may be interrupted by (1) the
filing of a court action; (2) a written extrajudicial
demand; and (3) the written acknowledgment of the
debt by the debtor.
Therefore, the running of the prescriptive period
was interrupted when respondent sent its demand
letter to petitioner on June 18, 1999. This
eventually led to petitioners filing of its annulment
of mortgage complaints before the Regional Trial
Courts of Iligan City and Cagayan De Oro City on
July 16, 1999.
Assuming that demand was necessary,
respondents action was within the ten (10)-year
prescriptive period. Respondent demanded
payment of the loans in 1999 and filed an action in
the same year.
II
Petitioner argues that the execution of the
mortgage contract was ultra vires. As an
educational institution, it may not secure the loans
of third persons.73 Securing loans of third persons is
not among the purposes for which petitioner was
established.74
Petitioner is correct.
Corporations are artificial entities granted legal
personalities upon their creation by their
incorporators in accordance with law. Unlike natural
persons, they have no inherent powers. Third
persons dealing with corporations cannot assume
that corporations have powers. It is up to those
persons dealing with corporations to determine
their competence as expressly defined by the law
and their articles of incorporation.75
A corporation may exercise its powers only within
those definitions. Corporate acts that are outside
those express definitions under the law or articles
of incorporation or those "committed outside the
object for which a corporation is created"76 are ultra
vires.
The only exception to this rule is when acts are
necessary and incidental to carry out a
corporations purposes, and to the exercise of
powers conferred by the Corporation Code and
under a corporations articles of
incorporation.77 This exception is specifically
included in the general powers of a corporation
under Section 36 of the Corporation Code:
SEC. 36. Corporate powers and capacity.Every
corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of
incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals,
or public policy, and to amend or repeal the
same in accordance with this Code;
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell treasury stocks
in accordance with the provisions of this Code;
and to admit members to the corporation if it be
a non-stock corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
property, including securities and bonds of other
corporations, as the transaction of the lawful
business of the corporation may reasonably
and necessarily require, subject to the
limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with
other corporations as provided in this Code;
9. To make reasonable donations, including
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid
of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its purpose
or purposes as stated in its articles of
incorporation. (Emphasis supplied)
Montelibano, et al. v. Bacolod-Murcia Milling Co.,
Inc.78 stated the test to determine if a corporate act
is in accordance with its purposes:
It is a question, therefore, in each case, of
the logical relation of the act to the corporate
purpose expressed in the charter. If that act is one
which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the
promotion of those ends, in a substantial, and not
in a remote and fanciful, sense, it may fairly be
considered within charter powers. The test to be
applied is whether the act in question is in direct
and immediate furtherance of the corporations
business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise,
not.79(Emphasis supplied)
As an educational institution, petitioner serves:
a. To establish, conduct and operate a college
or colleges, and/or university;
b. To acquire properties, real and/or personal, in
connection with the establishment and
operation of such college or colleges;
c. To do and perform the various and sundry
acts and things permitted by the laws of the
Philippines unto corporations like classes and
kinds;
d. To engage in agricultural, industrial, and/or
commercial pursuits in line with educational
program of the corporation and to acquire all
 properties, real and personal[,] necessary for
the purposes[;]
e. To establish, operate, and/or acquire
broadcasting and television stations also in line
with the educational program of the corporation
and for such other purposes as the Board of
Trustees may determine from time to time;
f. To undertake housing projects of faculty
members and employees, and to acquire real
estates for this purpose;
g. To establish, conduct and operate and/or
invest in educational foundations; [As amended
on December 15, 1965][;]
h. To establish, conduct and operate housing
and dental schools, medical facilities and other
related undertakings;
i. To invest in other corporations. [As amended
on December 9, 1998]. [Amended Articles of
Incorporation of the University of Mindanao, Inc.
the Petitioner].80
Petitioner does not have the power to mortgage its
properties in order to secure loans of other
persons. As an educational institution, it is limited to
developing human capital through formal
instruction. It is not a corporation engaged in the
business of securing loans of others.
Hiring professors, instructors, and personnel;
acquiring equipment and real estate; establishing
housing facilities for personnel and students; hiring
a concessionaire; and other activities that can be
directly connected to the operations and conduct of
the education business may constitute the
necessary and incidental acts of an educational
institution.
Securing FISLAIs loans by mortgaging petitioners
properties does not appear to have even the
remotest connection to the operations of petitioner
as an educational institution. Securing loans is not
an adjunct of the educational institutions conduct of
business.81 It does not appear that securing third-
party loans was necessary to maintain petitioners
business of providing instruction to individuals.
This court upheld the validity of corporate acts
when those acts were shown to be clearly within
the corporations powers or were connected to the
corporations purposes.
In Pirovano, et al. v. De la Rama Steamship
Co.,82 this court declared valid the donation given to
the children of a deceased person who contributed
to the growth of the corporation. 83 This court found
that this donation was within the broad scope of
powers and purposes of the corporation to "aid in
any other manner any person . . . in which any
interest is held by this corporation or in the affairs
or prosperity of which this corporation has a lawful
interest."84
In Twin Towers Condominium Corporation v. Court
of Appeals, et al.,85 this court declared valid a rule
by Twin Towers Condominium denying delinquent
members the right to use condominium
facilities.86 This court ruled that the condominiums
power to promulgate rules on the use of facilities
and to enforce provisions of the Master Deed was
clear in the Condominium Act, Master Deed, and
By-laws of the condominium.87 Moreover, the
promulgation of such rule was "reasonably
necessary" to attain the purposes of the
condominium project.88
This court has, in effect, created a presumption that
corporate acts are valid if, on their face, the acts
were within the corporations powers or purposes.
This presumption was explained as early as in
1915 in Coleman v. Hotel De France89 where this
court ruled that contracts entered into by
corporations in the exercise of their incidental
powers are not ultra vires.90
Coleman involved a hotels cancellation of an
employment contract it executed with a gymnast.
One of the hotels contentions was the supposed
ultra vires nature of the contract. It was executed
outside its express and implied powers under the
articles of incorporation.91
In ruling in favor of the contracts validity, this court
considered the incidental powers of the hotel to
include the execution of employment contracts with
entertainers for the purpose of providing its guests
entertainment and increasing patronage.92
This court ruled that a contract executed by a
corporation shall be presumed valid if on its face its
execution was not beyond the powers of the
corporation to do.93 Thus:
When a contract is not on its face necessarily
beyond the scope of the power of the corporation
by which it was made, it will, in the absence of
proof to the contrary, be presumed to be valid.
Corporations are presumed to contract within their
powers. The doctrine of ultra vires, when invoked
for or against a corporation, should not be allowed
to prevail where it would defeat the ends of justice
or work a legal wrong.94
However, this should not be interpreted to mean
that such presumption applies to all cases, even
when the act in question is on its face beyond the
corporations power to do or when the evidence
contradicts the presumption.
Presumptions are "inference[s] as to the existence
of a fact not actually known, arising from its usual
connection with another which is known, or a
conjecture based on past experience as to what
course human affairs ordinarily
take."95 Presumptions embody values and revealed
behavioral expectations under a given set of
circumstances.
Presumptions may be conclusive96 or disputable.97
Conclusive presumptions are presumptions that
may not be overturned by evidence, however
strong the evidence is.98 They are made conclusive
not because there is an established uniformity in
behavior whenever identified circumstances arise.
They are conclusive because they are declared as
such under the law or the rules. Rule 131, Section
2 of the Rules of Court identifies two (2) conclusive
presumptions:
SEC. 2. Conclusive presumptions. The following
are instances of conclusive presumptions:
(a) Whenever a party has, by his own
declaration, act, or omission, intentionally and
deliberately led another to believe a particular
thing true, and to act upon such belief, he
cannot, in any litigation arising out of such
declaration, act or omission, be permitted to
falsify it;
(b) The 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.
On the other hand, disputable presumptions are
presumptions that may be overcome by contrary
evidence.99They are disputable in recognition of the
variability of human behavior. Presumptions are not
always true. They may be wrong under certain
circumstances, and courts are expected to apply
them, keeping in mind the nuances of every
experience that may render the expectations
wrong.
Thus, the application of disputable presumptions on
a given circumstance must be based on the
existence of certain facts on which they are meant
to operate. "[P]resumptions are not allegations, nor
do they supply their absence[.]"100 Presumptions
are conclusions. They do not apply when there are
no facts or allegations to support them.
If the facts exist to set in motion the operation of a
disputable presumption, courts may accept the
presumption. However, contrary evidence may be
presented to rebut the presumption.
Courts cannot disregard contrary evidence offered
to rebut disputable presumptions. Disputable
presumptions apply only in the absence of contrary
evidence or explanations. This court explained
in Philippine Agila Satellite Inc. v. Usec. Trinidad-
Lichauco:101
We do not doubt the existence of the presumptions
of "good faith" or "regular performance of official
duty," yet these presumptions are disputable and
may be contradicted and overcome by other
evidence. Many civil actions are oriented towards
overcoming any number of these presumptions,
and a cause of action can certainly be geared
towards such effect. The very purpose of trial is to
allow a party to present evidence to overcome the
disputable presumptions involved. Otherwise, if trial
is deemed irrelevant or unnecessary, owing to the
perceived indisputability of the presumptions, the
judicial exercise would be relegated to a mere
ascertainment of what presumptions apply in a
given case, nothing more. Consequently, the entire
Rules of Court is rendered as excess verbiage,
save perhaps for the provisions laying down the
legal presumptions.
If this reasoning of the Court of Appeals were ever
adopted as a jurisprudential rule, no public officer
could ever be sued for acts executed beyond their
official functions or authority, or for tortious conduct
or behavior, since such acts would "enjoy the
presumption of good faith and in the regular
performance of official duty." Indeed, few civil
actions of any nature would ever reach the trial
stage, if a case can be adjudicated by a mere
determination from the complaint or answer as to
which legal presumptions are applicable. For
example, the presumption that a person is innocent
of a wrong is a disputable presumption on the same
level as that of the regular performance of official
duty. A civil complaint for damages necessarily
alleges that the defendant committed a wrongful act
or omission that would serve as basis for the award
of damages. With the rationale of the Court of
Appeals, such complaint can be dismissed upon a
motion to dismiss solely on the ground that the
presumption is that a person is innocent of a
wrong.102 (Emphasis supplied, citations omitted)
In this case, the presumption that the execution of
mortgage contracts was within petitioners
corporate powers does not apply. Securing third-
party loans is not connected to petitioners
purposes as an educational institution.
III
Respondent argues that petitioners act of
mortgaging its properties to guarantee FISLAIs
loans was consistent with petitioners business
interests, since petitioner was presumably a FISLAI
shareholder whose officers and shareholders
interlock with FISLAI. Respondent points out that
petitioner and its key officers held substantial
shares in MSLAI when DSLAI and FISLAI merged.
Therefore, it was safe to assume that when the
mortgages were executed in 1982, petitioner held
substantial shares in FISLAI.103
Parties dealing with corporations cannot simply
assume that their transaction is within the corporate
powers. The acts of a corporation are still limited by
its powers and purposes as provided in the law and
its articles of incorporation.
Acquiring shares in another corporation is not a
means to create new powers for the acquiring
corporation. Being a shareholder of another
corporation does not automatically change the
nature and purpose of a corporations business.
Appropriate amendments must be made either to
the law or the articles of incorporation before a
corporation can validly exercise powers outside
those provided in law or the articles of
incorporation. In other words, without an
amendment, what is ultra vires before a corporation
acquires shares in other corporations is still ultra
vires after such acquisition.
Thus, regardless of the number of shares that
petitioner had with FISLAI, DSLAI, or MSLAI,
securing loans of third persons is still beyond
petitioners power to do. It is still inconsistent with
its purposes under the law104 and its articles of
incorporation.105
In attempting to show petitioners interest in
securing FISLAIs loans by adverting to their
interlocking directors and shareholders, respondent
disregards petitioners separate personality from its
officers, shareholders, and other juridical persons.
The separate personality of corporations means
that they are "vest[ed] [with] rights, powers, and
attributes [of their own] as if they were natural
persons[.]"106 Their assets and liabilities are their
own and not their officers, shareholders, or
another corporations. In the same vein, the assets
and liabilities of their officers and shareholders are
not the corporations. Obligations incurred by
corporations are not obligations of their officers and
shareholders. Obligations of officers and
shareholders are not obligations of
corporations.107 In other words, corporate interests
are separate from the personal interests of the
natural persons that comprise corporations.
Corporations are given separate personalities to
allow natural persons to balance the risks of
business as they accumulate capital. They are,
however, given limited competence as a means to
protect the public from fraudulent acts that may be
committed using the separate juridical personality
given to corporations.
Petitioners key officers, as shareholders of FISLAI,
may have an interest in ensuring the viability of
FISLAI by obtaining a loan from respondent and
securing it by whatever means. However, having
interlocking officers and stockholders with FISLAI
does not mean that petitioner, as an educational
institution, is or must necessarily be interested in
the affairs of FISLAI.
Since petitioner is an entity distinct and separate
not only from its own officers and shareholders but
also from FISLAI, its interests as an educational
institution may not be consistent with FISLAIs.
Petitioner and FISLAI have different constituencies.
Petitioners constituents comprise persons who
have committed to developing skills and acquiring
knowledge in their chosen fields by availing the
formal instruction provided by petitioner. On the
other hand, FISLAI is a thrift bank, which
constituencies comprise investors.
While petitioner and FISLAI exist ultimately to
benefit their stockholders, their constituencies
affect the means by which they can maintain their
existence. Their interests are congruent with
sustaining their constituents needs because their
existence depends on that. Petitioner can exist only
if it continues to provide for the kind and quality of
instruction that is needed by its constituents. Its
operations and existence are placed at risk when
resources are used on activities that are not geared
toward the attainment of its purpose. Petitioner has
no business in securing FISLAI, DSLAI, or MSLAIs
loans. This activity is not compatible with its
business of providing quality instruction to its
constituents.
Indeed, there are instances when we disregard the
separate corporate personalities of the corporation
and its stockholders, directors, or officers. This is
called piercing of the corporate veil.
Corporate veil is pierced when the separate
personality of the corporation is being used to
perpetrate fraud, illegalities, and
injustices.108 In Lanuza, Jr. v. BF Corporation:109
Piercing the corporate veil is warranted when "[the
separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate
issues." It is also warranted in alter ego cases
"where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or
where the corporation is so organized and
controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit
or adjunct of another corporation."110
These instances have not been shown in this case.
There is no evidence pointing to the possibility that
petitioner used its separate personality to defraud
third persons or commit illegal acts. Neither is there
evidence to show that petitioner was merely a farce
of a corporation. What has been shown instead
was that petitioner, too, had been victimized by
fraudulent and unauthorized acts of its own officers
and directors.
In this case, instead of guarding against fraud, we
perpetuate fraud if we accept respondents
contentions.
IV
Petitioner argues that it did not authorize Saturnino
Petalcorin to mortgage its properties on its behalf.
There was no board resolution to that effect. Thus,
the mortgages executed by Saturnino Petalcorin
were unenforceable.111
The mortgage contracts executed in favor of
respondent do not bind petitioner. They were
executed without authority from petitioner.
Petitioner must exercise its powers and conduct its
business through its Board of Trustees. Section 23
of the Corporation Code provides:
SEC. 23. The board of directors or trustees.
Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among the
members of the corporation, who shall hold office
for one (1) year and until their successors are
elected and qualified.
Being a juridical person, petitioner cannot conduct
its business, make decisions, or act in any manner
without action from its Board of Trustees. The
Board of Trustees must act as a body in order to
exercise corporate powers. Individual trustees are
not clothed with corporate powers just by being a
trustee. Hence, the individual trustee cannot bind
the corporation by himself or herself.
The corporation may, however, delegate through a
board resolution its corporate powers or functions
to a representative, subject to limitations under the
law and the corporations articles of
incorporation.112
The relationship between a corporation and its
representatives is governed by the general
principles of agency.113Article 1317 of the Civil Code
provides that there must be authority from the
principal before anyone can act in his or her name:
ART. 1317. No one may contract in the name of
another without being authorized by the latter, or
unless he has by law a right to represent him.
Hence, without delegation by the board of directors
or trustees, acts of a personincluding those of the
corporations directors, trustees, shareholders, or
officersexecuted on behalf of the corporation are
generally not binding on the corporation.114
Contracts entered into in anothers name without
authority or valid legal representation are generally
unenforceable. The Civil Code provides:
ART. 1317. . . .
A contract entered into in the name of another by
one who has no authority or legal representation, or
who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other
contracting party.
....
ART. 1403. The following contracts are
unenforceable, unless they are ratified:
(1) Those entered into in the name of another
person by one who has been given no authority or
legal representation, or who has acted beyond his
powers[.]
The unenforceable status of contracts entered into
by an unauthorized person on behalf of another is
based on the basic principle that contracts must be
consented to by both parties.115 There is no contract
without meeting of the minds as to the subject
matter and cause of the obligations created under
the contract.116
Consent of a person cannot be presumed from
representations of another, especially if obligations
will be incurred as a result. Thus, authority is
required to make actions made on his or her behalf
binding on a person. Contracts entered into by
persons without authority from the corporation shall
generally be considered ultra vires and
unenforceable117 against the corporation.
Two trial courts118 found that the Secretarys
Certificate and the board resolution were either
non-existent or fictitious. The trial courts based their
findings on the testimony of the Corporate
Secretary, Aurora de Leon herself. She signed the
Secretarys Certificate and the excerpt of the
minutes of the alleged board meeting purporting to
authorize Saturnino Petalcorin to mortgage
petitioners properties. There was no board meeting
to that effect. Guillermo B. Torres ordered the
issuance of the Secretarys Certificate. Aurora de
Leons testimony was corroborated by Saturnino
Petalcorin.
Even the Court of Appeals, which reversed the trial
courts decisions, recognized that "BSP failed to
prove that the UM Board of Trustees actually
passed a Board Resolution authorizing Petalcorin
to mortgage the subject real properties[.]"119
Well-entrenched is the rule that this court, not being
a trier of facts, is bound by the findings of fact of the
trial courts and the Court of Appeals when such
findings are supported by evidence on
record.120 Hence, not having the proper board
resolution to authorize Saturnino Petalcorin to
execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against
petitioner. They cannot bind petitioner.
However, personal liabilities may be incurred by
directors who assented to such unauthorized
act121 and by the person who contracted in excess
of the limits of his or her authority without the
corporations knowledge.122
V
Unauthorized acts that are merely beyond the
powers of the corporation under its articles of
incorporation are not void ab initio.
In Pirovano, et al., this court explained that
corporate acts may be ultra vires but not
void.123 Corporate acts may be capable of
ratification:124
[A] distinction should be made between corporate
acts or contracts which are illegal and those which
are merely ultra vires. The former contemplates the
doing of an act which is contrary to law, morals, or
public order, or contravene some rules of public
policy or public duty, and are, like similar
transactions between individuals, void. They cannot
serve as basis of a court action, nor acquire validity
by performance, ratification, or estoppel. Mere ultra
vires acts, on the other hand, or those which are
not illegal and void ab initio, but are not merely
within the scope of the articles of incorporation, are
merely voidable and may become binding and
enforceable when ratified by the stockholders.125
Thus, even though a person did not give another
person authority to act on his or her behalf, the
action may be enforced against him or her if it is
shown that he or she ratified it or allowed the other
person to act as if he or she had full authority to do
so. The Civil Code provides:
ART. 1910. The principal must comply with all the
obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
ART. 1911. Even when the agent has exceeded his
authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as
though he had full powers. (Emphasis supplied)
Ratification is a voluntary and deliberate
confirmation or adoption of a previous unauthorized
act.126 It converts the unauthorized act of an agent
into an act of the principal.127 It cures the lack of
consent at the time of the execution of the contract
entered into by the representative, making the
contract valid and enforceable.128 It is, in essence,
consent belatedly given through express or implied
acts that are deemed a confirmation or waiver of
the right to impugn the unauthorized
act.129 Ratification has the effect of placing the
principal in a position as if he or she signed the
original contract. In Board of Liquidators v. Heirs of
M. Kalaw, et al.:130
Authorities, great in number, are one in the idea
that "ratification by a corporation of an unauthorized
act or contract by its officers or others relates back
to the time of the act or contract ratified, and is
equivalent to original authority;" and that "[t]he
corporation and the other party to the transaction
are in precisely the same position as if the act or
contract had been authorized at the time." The
language of one case is expressive: "The adoption
or ratification of a contract by a corporation is
nothing more nor less than the making of an
original contract. The theory of corporate ratification
is predicated on the right of a corporation to
contract, and any ratification or adoption is
equivalent to a grant of prior authority." 131 (Citations
omitted)
Implied ratification may take the form of silence,
acquiescence, acts consistent with approval of the
act, or acceptance or retention of
132
benefits. However, silence, acquiescence,
retention of benefits, and acts that may be
interpreted as approval of the act do not by
themselves constitute implied ratification. For an
act to constitute an implied ratification, there must
be no acceptable explanation for the act other than
that there is an intention to adopt the act as his or
her own.133 "[It] cannot be inferred from acts that a
principal has a right to do independently of the
unauthorized act of the agent."134
No act by petitioner can be interpreted as anything
close to ratification. It was not shown that it issued
a resolution ratifying the execution of the mortgage
contracts. It was not shown that it received
proceeds of the loans secured by the mortgage
contracts. There was also no showing that it
received any consideration for the execution of the
mortgage contracts. It even appears that petitioner
was unaware of the mortgage contracts until
respondent notified it of its desire to foreclose the
mortgaged properties.
Ratification must be knowingly and voluntarily
done.135 Petitioners lack of knowledge about the
mortgage executed in its name precludes an
interpretation that there was any ratification on its
part.
Respondent further argues that petitioner is
presumed to have knowledge of its transactions
with respondent because its officers, the Spouses
Guillermo and Dolores Torres, participated in
obtaining the loan.136
Indeed, a corporation, being a person created by
mere fiction of law, can act only through natural
persons such as its directors, officers, agents, and
representatives. Hence, the general rule is that
knowledge of an officer is considered knowledge of
the corporation.
However, even though the Spouses Guillermo and
Dolores Torres were officers of both the thrift banks
and petitioner, their knowledge of the mortgage
contracts cannot be considered as knowledge of
the corporation.
The rule that knowledge of an officer is considered
knowledge of the corporation applies only when the
officer is acting within the authority given to him or
her by the corporation. In Francisco v. Government
Service Insurance System:137
Knowledge of facts acquired or possessed by an
officer or agent of a corporation in the course of his
employment, and in relation to matters within the
scope of his authority, is notice to the corporation,
whether he communicates such knowledge or
not.138
The public should be able to rely on and be
protected from the representations of a corporate
representative acting within the scope of his or her
authority. This is why an authorized officers
knowledge is considered knowledge of corporation.
However, just as the public should be able to rely
on and be protected from corporate
representations, corporations should also be able
to expect that they will not be bound by
unauthorized actions made on their account.
Thus, knowledge should be actually communicated
to the corporation through its authorized
representatives. A corporation cannot be expected
to act or not act on a knowledge that had not been
communicated to it through an authorized
representative. There can be no implied ratification
without actual communication. Knowledge of the
existence of contract must be brought to the
corporations representative who has authority to
ratify it. Further, "the circumstances must be shown
from which such knowledge may be presumed."139
The Spouses Guillermo and Dolores Torres
knowledge cannot be interpreted as knowledge of
petitioner. Their knowledge was not obtained as
petitioners representatives. It was not shown that
they were acting for and within the authority given
by petitioner when they acquired knowledge of the
loan transactions and the mortgages. The
knowledge was obtained in the interest of and as
representatives of the thrift banks.
VI
Respondent argues that Saturnino Petalcorin was
clothed with the authority to transact on behalf of
petitioner, based on the board resolution dated
March 30, 1982 and Aurora de Leons notarized
Secretarys Certificate.140According to respondent,
petitioner is bound by the mortgage contracts
executed by Saturnino Petalcorin.141
This court has recognized presumed or apparent
authority or capacity to bind corporate
representatives in instances when the corporation,
through its silence or other acts of recognition,
allowed others to believe that persons, through
their usual exercise of corporate powers, were
conferred with authority to deal on the corporations
behalf.142
The doctrine of apparent authority does not go into
the question of the corporations competence or
power to do a particular act. It involves the question
of whether the officer has the power or is clothed
with the appearance of having the power to act for
the corporation. A finding that there is apparent
authority is not the same as a finding that the
corporate act in question is within the corporations
limited powers.
The rule on apparent authority is based on the
principle of estoppel. The Civil Code provides:
ART. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon.
....
ART. 1869. Agency may be express, or implied
from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf
without authority.
Agency may be oral, unless the law requires a
specific form.
A corporation is estopped by its silence and acts of
recognition because we recognize that there is
information asymmetry between third persons who
have little to no information as to what happens
during corporate meetings, and the corporate
officers, directors, and representatives who are
insiders to corporate affairs.143
In Peoples Aircargo and Warehousing Co. Inc. v.
Court of Appeals,144 this court held that the contract
entered into by the corporations officer without a
board resolution was binding upon the corporation
because it previously allowed the officer to contract
on its behalf despite the lack of board resolution.145
In Francisco, this court ruled that Franciscos
proposal for redemption of property was accepted
by and binding upon the Government Service
Insurance System. This court did not appreciate the
Government Service Insurance Systems defense
that since it was the Board Secretary and not the
General Manager who sent Francisco the
acceptance telegram, it could not be made binding
upon the Government Service Insurance System. It
did not authorize the Board Secretary to sign for the
General Manager. This court appreciated the
Government Service Insurance Systems failure to
disown the telegram sent by the Board Secretary
and its silence while it accepted all payments made
by Francisco for the redemption of property.146
There can be no apparent authority and the
corporation cannot be estopped from denying the
binding affect of an act when there is no evidence
pointing to similar acts and other circumstances
that can be interpreted as the corporation holding
out a representative as having authority to contract
on its behalf. In Advance Paper Corporation v.
Arma Traders Corporation,147 this court had the
occasion to say:
The doctrine of apparent authority does not apply if
the principal did not commit any acts or conduct
which a third party knew and relied upon in good
faith as a result of the exercise of reasonable
prudence. Moreover, the agents acts or conduct
must have produced a change of position to the
third partys detriment.148 (Citation omitted)
Saturnino Petalcorins authority to transact on
behalf of petitioner cannot be presumed based on a
Secretarys Certificate and excerpt from the
minutes of the alleged board meeting that were
found to have been simulated. These documents
cannot be considered as the corporate acts that
held out Saturnino Petalcorin as petitioners
authorized representative for mortgage
transactions. They were not supported by an actual
board meeting.149
VII
Respondent argues that it may rely on the
Secretarys Certificate issued by Aurora de Leon
because it was notarized.
The Secretarys Certificate was void whether or not
it was notarized.
Notarization creates a presumption of regularity
and authenticity on the document. This
presumption may be rebutted by "strong, complete
and conclusive proof"150 to the contrary. While
notarial acknowledgment "attaches full faith and
credit to the document concerned[,]"151 it does not
give the document its validity or binding effect.
When there is evidence showing that the document
is invalid, the presumption of regularity or
authenticity is not applicable.
In Basilio v. Court of Appeals,152 this court was
convinced that the purported signatory on a deed of
sale was not as represented, despite testimony
from the notary public that the signatory appeared
before him and signed the instrument.153 Apart from
finding that there was forgery,154 this court noted:
The notary public, Atty. Ruben Silvestre, testified
that he was the one who notarized the document
and that Dionisio Z. Basilio appeared personally
before him and signed the instrument himself.
However, he admitted that he did not know Dionisio
Z. Basilio personally to ascertain if the person who
signed the document was actually Dionisio Z.
Basilio himself, or another person who stood in his
place. He could not even recall whether the
document had been executed in his office or not.
Thus, considering the testimonies of various
witnesses and a comparison of the signature in
question with admittedly genuine signatures, the
Court is convinced that Dionisio Z. Basilio did not
execute the questioned deed of sale. Although the
questioned deed of sale was a public document
having in its favor the presumption of regularity,
such presumption was adequately refuted by
competent witnesses showing its forgery and the
Courts own visual analysis of the
document.155 (Emphasis supplied, citations omitted)
In Suntay v. Court of Appeals,156 this court held that
a notarized deed of sale was void because it was a
mere sham.157 It was not intended to have any
effect between the parties.158 This court said:
[I]t is not the intention nor the function of the notary
public to validate and make binding an instrument
never, in the first place, intended to have any
binding legal effect upon the parties thereto.159
Since the notarized Secretarys Certificate was
found to have been issued without a supporting
board resolution, it produced no effect. It is not
binding upon petitioner. It should not have been
relied on by respondent especially given its status
as a bank.
VIII
The banking institution is "impressed with public
interest"160 such that the publics faith is "of
paramount importance."161 Thus, banks are
required to exercise the highest degree of diligence
in their transactions.162 In China Banking
163
Corporation v. Lagon, this court found that the
bank was not a mortgagee in good faith for its
failure to question the due execution of a Special
Power of Attorney that was presented to it in
relation to a mortgage contract.164 This court said:
Though petitioner is not expected to conduct an
exhaustive investigation on the history of the
mortgagors title, it cannot be excused from the
duty of exercising the due diligence required of a
banking institution. Banks are expected to exercise
more care and prudence than private individuals in
their dealings, even those that involve registered
lands, for their business is affected with public
interest.165 (Citations omitted)
For its failure to exercise the degree of diligence
required of banks, respondent cannot claim good
faith in the execution of the mortgage contracts with
Saturnino Petalcorin. Respondents witness,
Daciano Paguio, Jr., testified that there was no SO ORDERED.
board resolution authorizing Saturnino Petalcorin to
act on behalf of petitioner.166 Respondent did not
inquire further as to Saturnino Petalcorins
authority.

Banks cannot rely on assumptions. This will be

contrary to the high standard of diligence required
of them.

VI

According to respondent, the annotations of

respondents mortgage interests on the certificates
of titles of petitioners properties operated as
constructive notice to petitioner of the existence of
such interests.167 Hence, petitioners are now
estopped from claiming that they did not know
about the mortgage.

Annotations of adverse claims on certificates of title

to properties operate as constructive notice only to
third partiesnot to the court or the registered
owner.1wphi1 In Sajonas v. Court of Appeals:168

[A]nnotation of an adverse claim is a measure

designed to protect the interest of a person over a
piece of real property where the registration of such
interest or right is not otherwise provided for by the
Land Registration Act or Act 496 (now [Presidential
Decree No.] 1529 or the Property Registration
Decree), and serves a warning to third parties
dealing with said property that someone is claiming
an interest on the same or a better right than that of
the registered owner thereof.169 (Emphasis
supplied)

Annotations are merely claims of interest or claims

of the legal nature and incidents of relationship
between the person whose name appears on the
document and the person who caused the
annotation. It does not say anything about the
validity of the claim or convert a defective claim or
document into a valid one. 170 These claims may be
proved or disproved during trial.

Thus, annotations are not conclusive upon courts

or upon owners who may not have reason to doubt
the security of their claim as their properties' title
holders.

WHEREFORE, the Petition is GRANTED. The

Court of Appeals' Decision dated December 17,
2009 is REVERSED and SET ASIDE. The
Regional Trial Courts' Decisions of November 23,
2001 and December 7, 2001 are REINSTATED.
 G.R. No. 198745 January 13, 2016
BANCO DE ORO UNIBANK, INC. (Formerly
Banco De Oro-EPCI, Inc.), Petitioner,
vs.
SUNNYSIDE HEIGHTS HOMEOWNERS
ASSOCIATION, INC., Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review
on Certiorari1 under Rule 45 of the Rules of Court
seeking to annul the Decision2 dated March 11,
2011 of the Court of Appeals (CA) in CA-G.R. SP
No. 101740, which affirmed, with modification, the
Decision3 dated November 22, 2007 of the Office of
the President (OP) in O.P. Case No. 97-E-8033,
entitled Mover Enterprises, Inc. and Philippine
Commercial & International Bank (PCIB) v. The
Housing and Land Use Regulatory Board (HLURB)
and Sunnyside Heights J-Jomeowners Association,
Inc.
The Facts
Mover Enterprises, Inc. (Mover) is the owner and
developer of the Sunnyside Heights Subdivision
located in Batasan Hills, Quezon City. In March
1988, Mover mortgaged Lot 5, Block 10 of Phase I
of the said subdivision containing 5,764 square
meters to the Philippine Commercial International
Bank (PCIB) to secure a loan of Pl ,700,000.00.
Mover failed to pay its loan and PCIB foreclosed on
the mortgage. After title was consolidated in PCIB,
the Registry of Deeds of Quezon City issued
Transfer Certificate of Title (TCT) No. 86389 to the
said bank on May 17, 1993.4
Sometime in mid-1994, PCIB advertised the
aforesaid lot for sale in the newspapers. This
prompted the Sunnyside Heights Homeowners
Association (SI-IHA) to file before the Housing and
Land Use Regulatory Board (I-ILURB) a letter-
complaint,5 docketed as HLURB Case No. REM-
091594-6077, to declare the mortgage between
Mover and PCIB void on the ground that the
subject property, originally covered by TCT No.
366219, has been allocated as SHJ-IA's open
space pursuant to law. SHI-IA thus sought
reconveyance of the property.6
In its Answer,7 PCIB maintained that the mortgaged
lot is different from the lot referred to in SHI-IA's
complaint, and moreover, the title to the said
mortgaged lot bears no annotation that it has been
reserved as open space. Claiming to be an
innocent mortgagee in good faith and for value,
PCIB insisted that under Batas Pambansa Bilang
1298 and Presidential Decree (P.D.) No. 1344, 9 the
complaint should have been filed with the regular
courts.
On August 28, 1995, the BLURB Arbiter dismissed
SHHA's complaint for lack of cause of action.10 He
found that, per the records of the BLURB, the
property claimed by SHI-IA to be an open space is
covered by TCT No. 223475, which is not the same
as the property originally covered by TCT No.
366219 in the name of Mover, and now titled to
PClB, viz:
There is no explanation or allegation, much less
proof, that TCT [N]o. 366219 registered in the
name of respondent Mover and subsequently
registered as TCT [N]o. 8638[9] in the name of
respondent PCIB, and TCT [N]o. 223475 as
identified in the letter of the Technical Services
Section of this Office, refer to one and the same
property.
From the foregoing, it has therefore not been
established that the property of respondent Mover
covered by TCT [N]o. 366219 which had been
mortgaged and been foreclosed by respondent
PCIB, is the very same property identified as Lot 5,
Block 10 and covered by TCT No. 223475, that was
allocated as open space for Sum1yside Heights
Subdivision. The complaint therefore must
necessarily fail as it failed to state a cause of action
x x x.11
Petition for Review to the HLURB Board of
Commissioners
On petition for review to the HLURB Board of
Commissioners,12 SHHA presented a certification
from the HLURB Expanded National Capital Region
Field Office showing that on May 18, 1987 the
HLURB had approved an alteration in the
subdivision plan whereby the former Block 10, the
subdivision's open space, had been renamed as
Block 7, now covered by TCT No. 366219:
Upon review of our records on file, lot 5, block 10
was [an] open space covered by TCT No. 223475;
however, in view of the HL[U]RB's grant of
Alteration of Plan elated 18 May 1987, on which
subject property was involved, the boundaries of
above[-]mentioned open space are [sic] modified
resulting to be identified as Block 7 of consolidation
subdivision plan Pcs-000990 covered by TCT No.
366219. xx x.13
In its Decision14 dated September 6, 1996, the
HLURB Board of Commissioners held that Lot 5,
Block 10 (TCT No. 223475), the designated open
space in the original subdivision plan, became
Block 7 (TCT No. 366219) in the altered plan; that
the said new Block 7 was mortgaged to PCIB; that
by reason of foreclosure, PCIB became the owner
of Block 7 (now covered by TCT No. 86389 in
PCIB's name); that TCT Nos. 223475, 366219 and
86389 all refer to one and the same property.
Concluding that the subject matter of the mortgage
and foreclosure in question was the designated
open space of Sunnyside Heights Subdivision, 15 it
ruled that the said open space, originally covered
by TCT No. 366219, and now registered in the
name of PCIB, can neither be mortgaged nor
foreclosed, being inalienable, non-buildable and
beyond the commerce of man. The HLURB Board
of Commissioners thus ordered, as follows:
WHEREFORE, the decision of the Office below
dated August 28, 1995 is hereby SET ASIDE and a
new decision entered as follows:
1. Declaring subject mortgage and for[e]closure
as null and void;
2. Declaring Block 7 of Phase I, Sunnyside
Heights, Batasan Hills, Quezon City as the
designated open space of the aforesaid project;
3. Ordering the Register of Deeds of Quezon
City to cancel TCT No. 8638[9] in the name of
respondent PCIB and to issue a new title in the
name of respondent Mover;
4. Ordering respondent Mover to comply with
Section 31 of P.D. 957 as amended by Section
2 of P.D. 1216; and
5. Ordering respondent Mover to pay back the
amount of Pl,700,000.00 to respondent PCIB.
Let a copy of this decision be furnished the
Register of Deeds of Quezon City for his/her
guidance and appropriate action.
SO ORDERED.16
Appeal to the Office of the President
After its motion for reconsideration was denied,
PCIB appealed to the OP. Mover did not
appeal.17 In the Decision18dated November 22,
2007, the OP found no merit in the appeal, ruling
that the HLURB has jurisdiction over matters
related to or connected with the complaint for
annulment of mortgage, as in this case.
Meanwhile, in 2000 PCIB merged with Equitable
Banking Corporation to become the Equitable
PCIBank. In May 2001, it merged with Banco de
Oro Universal Bank and became the Banco de Oro-
EPCI, Inc.; now it is known as Banco de Oro
Unibank, Inc. (BDO).
Petition for Review to the CA
In the petition for review filed with the CA,19 Banco
de Oro-EPCI, Inc. alleged that:
THE [OP] SERIOUSLY ERRED IN DISMISSING
THE APPEAL ON THE POLLOWING GROUNDS:
I. THE [HLURB] HAS NO JURISDICTION
OVER ACTIONS FOR ANNULMENT OF TITLE;
II. PCIB IS A MORTGAGEE IN GOOD FAITH,
THEREFORE, ITS TITLE OVER THE SAID
PROPERTY CANNOT BE ANNULLED;
III. NEW EVIDENCE CANNOT BE ADMITTED
ON APPEAL, OTHERWISE IT VIOLATES THE
RULE ON DUE PROCESS OF LAW; and
IV. OBLIGATION OF [MOVER] THAT IS
SECURED BY THE REAL ESTATE
MORTGAGE IS MORE THAN THE PRINCIPAL
AMOUNT OF Phpl,700,000.00.20
Banco de Oro-EPCI, Inc. alleged in the main that
the HLURB has no jurisdiction over SHHA's letter-
complaint to annul the mortgage between Mover
and PCIB. In the event that the nullification of the
mortgage is affirmed, it conceded that it was but fair
that the mortgagor be also adjudged to pay interest
on the principal loan plus costs incurred.21
On March 11, 2011, the CA rendered the assailed
judgment ruling that "[t]he jurisdiction of the HLURB
to regulate the real estate trade is broad enough to
include jurisdiction over complaints for annulment
of mortgage."22 The CA further noted Banco de
Oro-EPCI, Inc. 's argument that Mover's obligation
was more than the principal amount of
Pl,700,000.00. While the CA could not give
credence to Banco de Oro-EPCI, Inc.'s allegations
of expenses it incurred, it acknowledged that Mover
was indebted to Banco de Oro-EPCI, Inc. in the
amount of Pl,700,000.00 as pointed out in the
decision of the HLURB Board of Commissioners.
Inasmuch as the amount represents a loan, Mover
must also be held liable for the payment of interest
at the rate stipulated in the mortgage contract. In
the absence thereof, the legal rate of 12% per
annum in accordance with Eastern Shipping Lines,
Inc. v. CA23 shall be imposed.24
Accordingly, the fallo reads as follows:
WHEREFORE, the Petition is DENIED.
The Decision, dated November 22, 2007, of the
Oflice of the President in O.P. Case No. 97-E-8033
is hereby AFFIRMED, with the modification that
Mover Enterprises, Inc. is held liable to pay the
corresponding interest o[n] its mortgage
indebtedness to Petitioner Banco de Oro-EPCI Inc.,
in addition to its payment of the principal amount of
Php1, 700,000.00 to Banco de Oro-EPCI Inc.
SO ORDERED.25
Banco de Oro-EPCI, Inc. moved for
reconsideration,26 but the same was denied on
September 23, 2011.27
Petition for Review to the Supreme Court
Now in this petition, BDO raises the following
grounds, to wit:
I.
THE [CA] HAS SO FAR DEPARTED FROM THE
USUAL COURSE OF JUDICIAL PROCEEDINGS
IN ITS
QUESTIONED DECISION AND RESOLUTION WH
EN IT AFFIRMED THE DECISIONS OF THE [OP]
AND HLURB BOARD DESPITE THE
UNDISPUTED FACT THAT THE LATTER WAS
BASED ON NEW EVIDENCE RAISED FOR THE
FIRST TIME BY [SHHA] ON APPEAL IN
VIOLATION OF THE RIGHT OF [BOO] TO DUE
PROCESS OF LAW.
II.
THE [CA] COMMITTED SERIOUS AND
REVERSIBLE ERROR AND DECIDED A MATTER
OF SUBSTANCE IN A WAY NOT IN ACCORD
WITH THE LAW AND WITH APPLICABLE
DECISIONS OF THE HONORABLE COURT
WHEN IT DID NOT HOLD THAT [BDO] IS A
MORTGAGEE IN GOOD FAITH AS IT HAD THE
RIGHT TO RELY ON THE TITLE PRESENTED TO
IT; THUS, ITS TITLE OVER THE SUBJECT
PROPERTY CANNOT BE ANNULLED.
III.
THE [CA] HAS SO FAR DEPARTED FROM THE
USUAL COURSE OF JUDICIAL PROCEEDINGS
WHEN ITS
QUESTIONED DECISION AND RESOLUTION DE
NIED [BDO'S] PETITION FOR REVIEW DESPITE
THE FACT THAT THE HLURB DOES NOT HAVE
JURISDICTION OVER THE INSTANT CASE.28
The Court finds no merit in the petition.
Importantly, BDO has interposed a continuing
objection concerning the HLURB's jurisdiction over
what it claims to be the exclusive province of the
regular courts. Corollarily, BDO insists that no
evidence was presented before the HLURB Arbiter
to establish that the property covered by TCT No.
223475, claimed by SHHA as a subdivision open
space, is in any way related to TCT No. 366219
registered in the name of Mover and now covered
by TCT No. 86389 in the name of BDO (then
PCIB).
Section 3 of P.D. No. 957 29 granted to the National
Housing Authority (NBA) exclusive jurisdiction to
regulate the real estate trade and business in order
to curb swindling and fraudulent manipulations by
unscrupulous subdivision and condominium sellers
and operators, such as failure to deliver titles to the
buyers or titles free from liens and encumbrances,
or to pay real estate taxes, and fraudulent sales of
the same subdivision lots to different innocent
purchasers for value. P.D. No. 1344 in turn
expanded the jurisdiction of the NBA to include the
following:
SECTION 1. In the exercise of its functions to
regulate the real estate trade and business and in
addition to its powers provided for in Presidential
Decree No. 957, the National Housing Authority
sl1all have exclusive jurisdiction to hear and decide
cases of the following nature:
a) Unsound real estate business practices;
b) Claims involving refund and any other claims
filed by subdivision lot or condominium unit
 buyer against the project owner, developer,
dealer, broker or salesman; and
c) Cases involving specific performance of
contractual and statutory obligations filed by
buyers of subdivision lot or condominium unit
against the owner, developer, dealer, broker or
salesman.
Under Executive Order (E.O.) No. 648, which
reorganized the Human Settlements Regulatory
Commission in 1981, the regulatory and quasi-
judicial functions of the NHA were transferred to the
Human Settlements Regulatory Commission, later
renamed as HLURB under E.O. No. 90.30 In the
cases reaching this Court, the consistent ruling has
been that the HLURB has jurisdiction over
complaints arising from contracts between the
subdivision developer and the lot buyer, or those
aimed at compelling the developer to comply with
its contractual and statutory obligations.31
SHHA's letter-complaint puts in issue the validity of
the mortgage over Block 10, now renamed as Block
7, of Sunnyside Heights Subdivision, and the
detriment and prejudice to the residents and the
violation by Mover of its obligation to maintain its
open space under P.D. No. 121632 are all too plain,
as the following "whereas" clauses of P.D. No. 1216
underscore:
WHEREAS, there is a compelling need to create
and maintain a healthy environment in human
settlements by providing open spaces, roads, alleys
and sidewalks as may be deemed suitable to
enhance the quality of life of the residents therein;
WHEREAS, such open spaces, roads, alleys and
sidewalks in residential subdivision are for public
use and are, therefore, beyond the commerce of
men[.]
Section 1 of P.D. No. 1216 defines "open space" as
an area in the subdivision reserved exclusively for
parks, playgrounds, recreational uses, schools,
roads, places of worship, hospitals, health
centers, barangay centers and other similar
facilities and amenities. Section 2 thereof further
provides that these reserved areas are non-
alienable and non-buildable. The SHHA was correct
to seek the annulment of the mortgage between
Mover and PCIB before the HLURB, in view of its
exclusive jurisdiction over "any claims filed by
subdivision lot or condominium unit buyer against
the project owner, developer, dealer, broker or
salesman; and cases involving specific
performance of contractual and statutory
obligations filed by buyers of subdivision lot or
condominium unit against the owner or developer. "
As for the claim that SHHA violated BDO's right to
due process when on appeal it "belatedly"
presented a certification to the HLURB Board of
Commissioners that in May 1987 an approved
alteration of the subdivision plan renamed Block 10
of Sunnyside Heights Subdivision as Block 7 but
retained it as open space, let it suffice that in view
of BDO's continuing objection to HLURB 's
jurisdiction, it cannot now complain that additional
documentary proof has been adduced confirming
its jurisdiction. As the agency tasked to oversee the
specific compliance by developers with their
contractual and statutory obligations, such as
maintaining the open space as non-alienable and
non-buildable, there is no doubt that the HLURB is
empowered to annul the subject mortgage. For if a
party may continually interpose the HLURB's lack
of jurisdiction, even raising the same for the first
time on appeal, since jurisdictional issues cannot
be waived, then BDO is estopped to complain that
on appeal SHHA is finally able to present proof of
HLURB's jurisdiction over the present action.33
The Court has long recognized and upheld the
rationale behind P.D. No. 957, which is to protect
innocent lot buyers from scheming
34
developers, buyers who are by law entitled to the
enjoyment of an open space within the
subdivision.1wphi1 Thus, this Court has broadly
construed HLURB's jurisdiction to include
complaints to annul mortgages of condominium or
subdivision units.35 In The Manila Banking Corp. v.
Spouses Rabina, et al.,36 the Court said:
The jurisdiction of the HLURB to regulate the real
estate trade is broad enough to include jurisdiction
over complaints for annulment of mortgage. To
disassociate the issue of nullity of mortgage and
lodge it separately with the liquidation court would
only cause inconvenience to the parties and would
not serve the ends of speedy and inexpensive
administration of justice as mandated by the laws
vesting quasi-judicial powers in the
agency.37(Citations omitted)
Coming now to Mover's liability, the Court agrees
with the observation of the HLURB Board of
Commissioners that it would be unjust enrichment
on the part of Mover not to acknowledge its
indebtedness to BDO in the amount of
Pl,700,000.00 in view of the nullity of the
mortgage.38 It should have known that its mortgage
security was invalid considering the alteration in its
subdivision plan in May 1987. In equity, it must
therefore compensate PCIB for the loss thereat:
reckoned from the filing of SHHA's letter-complaint
on September 14, 1994. Eastern Shipping Lines,
Inc.39 provides, "with regard particularly to an award
of interest in the concept of actual and
compensatory damages,"40 that the rate of interest,
and the accrual thereof shall be imposed as
follows:
1. When the obligation is breached, and it
consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest
due should be that which may have been
stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time
it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from
judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the
Civil Code.41(Citations omitted)
percent (6o/o) per annum from and after July 1,
2013.44
WHEREFORE, the petition is DENIED. The
Decision dated March 11, 2011 of the Court of
Appeals in CA-G.R. SP No. 101740 is AFFIRMED
with CLARIFICATION, in that Mover Enterprises,
Inc. shall pay Banco de Oro-EPCI, Inc., now Banco
de Oro Unibank, Inc., the amount of'Pl,700,000.00
plus legal interest at twelve percent (12%) per
annum from September 14, 1994, the date of the
letter-complaint of Sunnyside Heights Homeowners
Association, Inc., the said rate to be reduced to six
percent (6o/o) per annum starting July 1, 2013 until
finality hereof. Thereafter, interest as thus
computed shall, along with the principal, earn
interest at six percent (6%) per annum until fully
paid.
SO ORDERED.

Sunga-Chan, et al. v. CA, et al. 42 further clarified

the above rules:

Eastern Shipping Lines, Inc. synthesized the rules

on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum
rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits,
as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the.
6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment
of indemnities in the concept of damage arising
from the breach or a delay in the performance of
obligations in general," with the application of both
rates reckoned "from the time the complaint was
filed until the [adjudged] amount is fully paid." In
either instance, the reckoning period for the
commencement of the running of the legal interest
shall be subject to the condition "that the courts are
vested with discretion, depending on the equities
of each case, on the award of interest." 43 (Citations
omitted and emphasis ours)

Lastly, in view of absence of bad faith by PCIB in

the questioned mortgage loan, the Court agrees
that in addition to the loan amount of Pl,700,000.00,
Mover should pay thereon to BDO legal interest at
12% per annum from the time it is due pursuant
to Eastern Shipping Lines, except that with the
effectivity of Monetary Board Circular No. 799, the
rate of interest for the loan shall be reduced to six
 G.R. No. 168078 January 13, 2016
FABIO CAHAYAG and CONRADO
RIVERA, Petitioners,
vs.
COMMERCIAL CREDIT CORPORATION,
represented by its President, LEONARDO B.
ALEJANDRO; TERESITA T. QUA, assisted by
her husband ALFONSO MA. QUA; and the
REGISTER OF DEEDS OF LAS PINAS, METRO
MANILA, DISTRICT IV, Respondents.
x-----------------------x
G.R. No. 168357
DULOS REALTY & DEVELOPMENT
CORPORATION, represented by its President,
JUANITO C. DULOS; and MILAGROS E.
ESCALONA, and ILUMINADA D.
BALDOZA, Petitioners,
vs.
COMMERCIAL CREDIT CORPORATION,
represented by its President, LEONARDO B.
ALEJANDRO; TERESITA T. QUA, assisted by
her husband ALFONSO MA. QUA; and the
REGISTER OF DEEDS OF LAS PINAS, METRO
MANILA, DISTRICT IV, Respondents.
DECISION
SERENO, J.:
Before us are consolidated Rule 45
Petitions1 seeking to nullify the Court of Appeals
(CA) Decision dated 2 November 20042 and
Resolution dated 10 May 20053 in CA-G.R. CV No.
47421. The CA Decision reversed and set aside the
Decision dated 6 July 1992 issued by the Regional
Trial Court (RTC), Branch 65 of Makati.4
FACTUAL ANTECEDENTS
Petitioner Dulos Realty was the registered owner of
certain residential lots covered by Transfer
Certificate of Title (TCT) Nos. S-39767, S-39775, S-
28335, S-39778 and S-29776, located at Airmen's
Village Subdivision, Pulang Lupa II, Las Pinas,
Metro Manila.
On 20 December 1980, Dulos Realty obtained a
loan from respondent CCC in the amount of
P300,000. To secure the loan, the realty executed a
Real Estate Mortgage over the subject properties in
favor of respondent. The mortgage was duly
annotated on the certificates of title on 3 February
1981.5
On 29 March 1981, Dulos Realty entered into a
Contract to Sell with petitioner Cahayag over the lot
covered by TCT No. S-39775.6
On 12 August 1981, Dulos Realty entered into
another Contract to Sell, this time with petitioner
Rivera over the lot covered by TCT No. S-28335.7
Dulos Realty defaulted in the payment of the
mortgage loan, prompting respondent CCC to
initiate extrajudicial foreclosure proceedings. On 17
November 1981, the auction sale was held, with
respondent CCC emerging as the highest bidder.8
On 23 November 1981, a Certificate of Sale
covering the properties, together with all the
buildings and improvements existing thereon, was
issued in favor of CCC.9 The Certificate of Sale was
annotated on the corresponding titles to the
properties on 8 March 1982.10
Thereafter, or on 13 January 1983, Dulos Realty
entered into a Contract to Sell with petitioner
Escalona over the house and lot covered by TCT
No. S-29776.11
On 10 November 1983, an Affidavit of
Consolidation in favor of respondent CCC dated 26
August 1983 was annotated on the corresponding
titles to the properties.12 By virtue of the affidavit,
TCT Nos. S-39775, S-28335, S-39778 and S-
29776 - all in the name of Dulos Realty - were
cancelled and TCT Nos. 74531, 74532, 74533 and
74534 were issued in the name of respondent CCC
on the same day.13
On 10 December 1983, Dulos Realty entered into a
Deed of Absolute Sale with petitioner Baldoza over
the property covered by TCT No. S-39778, together
with the improvements existing thereon.14
On 21 December 1983, respondent CCC, through a
Deed of Absolute Sale, sold to respondent Qua the
same subject properties, now covered by TCT Nos.
74531, 74532, 74533 and 74534, which were in the
name of respondent CCC. The sale was duly
annotated on the corresponding titles to the
properties on 5 January 1984.15
Accordingly, TCT Nos. 74531, 74532, 74533 and
74534 were cancelled; and TCT Nos. 77012,
77013, 77014 and 770015 were issued to
respondent Qua on 5 January 1984.16
Subsequently, respondent Qua filed ejectment suits
individually against petitioners Du1os
Realty,17 Cahayag,18Esca1ona,19 and
Rivera20 before the Metropolitan Trial Court (MTC)
of Las Pias, Metro Manila.
The MTC rendered Decisions in favor of
respondent Qua. It ordered Dulos Realty, Escalona,
Cahayag, and Rivera to vacate the properties.
On 8 March 1988, the MTC issued a Writ of
Execution to enforce its Decision dated 20 October
1986 in Civil Case No. 2257 against Dulos Realty
"and all persons claiming right under
defendant."21 The subject of the writ of execution
was Lot 11 Block II,22 which was the lot sold by
Dulos Realty to petitioner Baldoza.
COMPLAINT FOR ANNULMENT
OF SHERIFF'S SALE AND OTHER DOCUMENTS
On 5 December 1988, petitioners filed a Complaint
against respondents for the "Annulment of Sherifffs]
Sale and Other Documents with Preliminary
Injunction and/or Temporary Restraining Order"
before the RTC of Makati City, where it was
docketed as Civil Case No. 88-2599.23
The Complaint24 alleged that petitioners Cahayag,
Rivera, Escalona and Baldoza were owners of the
properties in question by virtue of Contracts of Sale
individually executed in their favor, and that the
Real Estate Mortgage between Dulos Realty and
defendant-appellant CCC did not include the
houses, but merely referred to the lands
themselves.25 Thus, the inclusion of the housing
units in the Deed of Sale executed by respondent
CCC in favor of respondent Qua was allegedly
illegal.26
Respondents failed to file an answer within the
reglementary period. Subsequently, they were
declared in default. They appealed the order of
default but their appeal was dismissed on 8
February 1990.27
On 6 July 1992, the RTC rendered a
Decision,28 which ruled that the houses were not
included in the Real Estate Mortgage; and that the
foreclosure of the mortgage over the subject lots,
as well as the housing units, was not valid.29 The
trial court held that this conclusion was established
by the plaintiffs' evidence, which went unrefuted
when defendants were declared in default.30
THE CA DECISION
Respondents proceeded to the CA, where they
secured a favorable ruling. In its Decision rendered
on 2 November 2004,31 the appellate court held that
the extrajudicial foreclosure was valid, since the
Real Estate Mortgage clearly included the buildings
and improvements on the lands, subject of the
mortgage.
After establishing the inclusion of the housing units
in the Real Estate Mortgage, the CA determined the
rights of the buyers in the Contracts to Sell/Contract
of Sale vis-a-vis those of the mortgagee and its
successor-in-interest.
In the cases of petitioners Cahayag, Rivera and
Escalona, the CA pointed to lack of evidence
establishing full payment of the price. As supporting
reason, it stated that even if there were full
payment of the purchase price, the mortgagee and
the latter's successor-in-interest had a better right
over the properties. The CA anchored this
conclusion on the fact that the Real Estate
Mortgage was annotated at the back of the titles to
the subject properties before the execution of the
Contracts to Sell. It said that the annotation
constituted sufficient notice to third parties that the
property was subject to an encumbrance. With the
notice, Cahayag, Rivera and Escalona should have
redeemed the properties within the one-year
redemption period, but they failed to do so.
Consequently, the right of respondent CCC over
the properties became absolute, and the transfer to
respondent Qua was valid.
As regards Baldoza, though the case involved a
Contract of Sale, and not a mere Contract to Sell,
the CA declared the transaction null and void on the
purported ground that Dulos was no longer the
owner at the time of the sale.
The CA accordingly reversed and set aside the
RTC Decision, dismissed the case for lack of merit,
and ordered petitioners to surrender possession of
the properties to respondent Qua.
 THE RULE 45 PETITIONS
On 30 May 2005, petitioners Cahayag and Rivera
filed their Rule 45 Petition with this Court. 32 For
their part, petitioners Dulos Realty, Baldoza and
Escalona filed their Rule 45 Petition on 19 July
2005.33
In the Petition under G.R. No. 168357, it is argued,
among others, that the Deed of Absolute Sale in
favor of petitioner Baldoza was the culmination of a
Contract to Sell between her and Dulos Realty. She
claims that the Contract to Sell, marked as Exhibit
"L" during the trial, was executed on 10 January
1979, which preceded the execution of the Deed of
Real Estate Mortgage and the registration of the
mortgage on 3 February 1981. 34 After full payment
of the price under the Contract to Sell, Dulos Realty
executed the Deed of Absolute Sale. In other
words, Baldoza is arguing that she has a better title
to the property than respondent Qua since the
unregistered contract to sell in her favor was
executed before the registration of the mortgage.
But the CA ignored Exhibit "L" and merely stated
that there was only a Deed of Absolute Sale in
favor of Baldoza.
THE ARGUMENTS
The arguments of petitioners, as stated in their
respective Memoranda, are summarized as follows:
Coverage of the Mortgage
Initially, petitioners attempt to stave off the effects of
the extra judicial foreclosure by attacking the
coverage of the Real Estate Mortgage with respect
to its subject-matter.35 They draw attention to the
fact that the List of Properties attached to the Deed
of Real Estate Mortgage refers merely to the lands
themselves and does not include the housing units
found thereon.36 Petitioners also contend that
doubts should be resolved against the drafter
inasmuch as the agreement is a contract of
adhesion, having been prepared by the
mortgagee.37
As backup argument for the theory that the houses
are outside the coverage of the mortgage
agreement, petitioners argue that the
improvements were not owned by Dulos Realty, the
mortgagor, but by its buyers under the Contracts to
Sell and Contracts of Sale; hence, those
improvements are excluded from the coverage of
the real estate mortgage.
Validity of the Mortgage
Petitioners next challenge the validity of the
foreclosure sale on the ground that the mortgage
executed by the mortgagor (petitioner Dulos Realty)
and the mortgagee (respondent CCC) was null and
void.38 Petitioners claim that Dulos Realty was no
longer the owner of the properties it had mortgaged
at the time of the execution of the mortgage
contract, as they were sold under existing
Contracts to Sell and Deed of Absolute Sale.39
Petitioners Cahayag, Rivera and Escalona lean on
the unregistered Contracts to Sell they had
individually executed with Dulos Realty as vendor.
For his part, petitioner Baldoza points to the Deed
of Absolute Sale executed by Dulos Realty in his
favor.
Better Right over the Properties
Petitioners claim that respondent CCC cannot claim
to be a mortgagee in good faith, since it is a
financial institution.40 As such, respondent CCC
knew that it was dealing with a subdivision
developer, which was in the business of selling
subdivision lots.41 Dela Merced v. GSIS42 which
states that the general rule that a mortgagee need
not look beyond the title cannot benefit banks and
other financial institutions, as a higher due diligence
requirement is imposed on them.
They also raise the contention that lack of full
payment of the purchase price under the Contracts
to Sell on the part of Cahayag, Rivera and
Escalona was due to respondent Qua's
"harassment and unlawful actuations.43
Petitioners further state that respondent Qua is a
mere transferee of respondent CCC and that, like a
stream, she cannot rise higher than her source.
They also argue that Qua is not an innocent
purchaser for value, since she is a former investor
of respondent CCC and one of its principal
stockholders.44
No Prior Written HLURB Approval of
the Mortgage
Finally, petitioners allege that the mortgage contract
in this case was not approved by the BLURB, which
violates Section 18 of P.D. 95745 and results in the
nullity of the mortgage.46
Exhibit "L" as Evidence of a Prior
Contract to Sell
The matter of CA ignoring Exhibit "L" as evidence
of a prior unregistered Contract to Sell was not
included in the Memoranda of petitioners.
THE ISSUES
Based on the foregoing facts and arguments raised
by petitioners, the threshold issues to be resolved
are the following:
1. Whether the real mortgage covers the lands
only, as enumerated in the Deed of Real Estate
Mortgage or the housing units as well;
2. Whether Dulos Realty was the owner of the
properties it had mortgaged at the time of its
execution in view of the various Contracts to
Sell and Deed of Absolute Sale respectively
executed in favor of petitioners Cahayag,
Rivera, Escalona and Cahayag;
3. Who, as between petitioners-buyers and
respondent Qua, has a better right over the
properties?
4. Whether the Deed of Absolute Sale in favor
of Baldoza was not preceded by a Contract to
Sell and full payment of the purchase price; and
5. Whether the mortgage is void on the ground
that it lacked the prior written approval of the
HLURB.
OUR RULING
We deny the Petition for reasons as follows.
1. Attack on the Subject-matter of
the Real Estate Mortgage
It is true that the List of Properties attached to the
Deed of Real Estate Mortgage refers merely to the
lands themselves and does not include the housing
units found thereon. A plain reading of the Real
Estate Mortgage, however, reveals that it covers
the housing units as well. We quote the pertinent
provision of the agreement:
[T]he MORTGAGOR has transferred and conveyed
and, by these presents, do hereby transfer and
convey by way of FIRST MORTGAGE unto the
MORTGAGEE, its successors and assigns the real
properties described in the list appearing at the
back of this document and/or in a supplemental
document attached hereto as Annex "A" and made
and integral part hereof, together with all the
buildings and/or other improvements now
existing or which may hereafter be place[d] or
constructed thereon, all of which the
MORTGAGOR hereby warrants that he is the
absolute owner and exclusive possessor thereof,
free from all liens and encumbrances of whatever
kind and nature. xxx.47 (Emphasis Ours)
Thus, the housing units would fall under the catch-
all phrase "together with all the buildings and/or
other improvements now existing or which may
hereafter be placed or constructed thereon."
The contra proferentem rule finds no application to
this case. The doctrine provides that in the
interpretation of documents, ambiguities are to be
construed against the drafter.48 By its very nature,
the precept assumes the existence of an ambiguity
in the contract, which is why contra proferentem is
also called the ambiguity doctrine.49In this case, the
Deed of Real Estate Mortgage clearly establishes
that the improvements found on the real properties
listed therein are included as subject-matter of the
contract. It covers not only the real properties, but
the buildings and improvements thereon as well.
2. Challenge to the Foreclosure
Sale with Regard to the
Ownership of the Mortgaged
Properties
To begin with, the Contracts to Sell and Deed of
Absolute Sale could not have posed an impediment
at all to the mortgage, given that these contracts
had yet to materialize when the mortgage was
constituted. They were all executed after the
constitution of the Real Estate Mortgage on 20
December 1980.
As regards Cahayag, the Contract to Sell in his
favor was executed on 29 March 1981, more than
three months after the execution of the mortgage
contract.50 This is taken from the Contract to Sell
itself, which forms part of the records of this case.51
At this juncture, we note that the CA, for reasons
unknown, specified 29 September 1980,52 and not
29 March 1981, as the date of the execution of the
Contract to Sell in its Decision. Respondent Qua
has raised this point in her Memorandum filed with
us. This Court cannot be bound by the factual
finding of the CA with regard to the date of the
Contract to Sell in favor of Cahayag. The general
rule that the Court is bound by the factual findings
of the CA must yield in this case, as it falls under
one of the exceptions: when the findings of the CA
are contradicted by the evidence on record. 53 In this
case, there is nothing in the records to support the
CA's conclusion that the Contract to Sell was
executed on 29 September 1980. The evidence on
record, however, reveals that the correct date is 29
March 1981.
In the case of petitioner Rivera, the corresponding
Contract to Sell in his favor was executed only on
12 August 1981, or almost eight months after the
perfection of the mortgage contract on 20
December 1980.
Lastly, Dulos Realty executed the Deed of Absolute
Sale in favor of petitioner Baldoza on 10 December
1983, which was almost three years from the time
the mortgage contract was executed on 20
December 1980.
There was neither a contract to sell nor a deed of
absolute sale to speak of when the mortgage was
executed.
Petitioners equate a contract to sell to a contract of
sale, in which the vendor loses ownership over the
property upon its delivery.54 But a contract to sell,
standing alone, does not transfer ownership.55 At
the point of perfection, the seller under a contract to
sell does not even have the obligation to transfer
ownership to the buyer.56 The obligation arises only
when the buyer fulfills the condition: full payment of
the purchase price.57 In other words, the seller
retains ownership at the time of the execution of the
contract to sell.58
There is no evidence to show that any of petitioners
Cahayag, Rivera and Escalona were able to effect
full payment of the purchase price, which could
have at least given rise to the obligation to transfer
ownership. Petitioners Cahayag and Rivera even
admit that they defaulted on their obligations under
their respective Contracts to Sell, although they
attribute the default to respondent Qua's
"harassment and unlawful actuations."59The
statement, though, was a mere allegation that was
left unsubstantiated and, as such, could not qualify
as proof of anything.60
3. Who Has a Better Right over the Properties
Registration of the mortgage hound the buyers
under the Contracts to Sell
Registration of the mortgage establishes a real right
or lien in favor of the mortgagee, as provided by
Articles 131261 and 212662 of the Civil
63
Code. Corollary to the rule, the lien has been
treated as "inseparable from the property inasmuch
as it is a right in rem." 64 In other words, it binds third
persons to the mortgage.
The purpose of registration is to notify persons
other than the parties to the contract that a
transaction concerning the property was entered
into.65 Ultimately, registration, because it provides
constructive notice to the whole world, makes the
certificate of title reliable, such that third persons
dealing with registered land need only look at the
certificate to determine the status of the property.66
In this case, the Real Estate Mortgage over the
property was registered on 3 February 1981. On
the other hand, the Contracts to Sell were all
executed after the registration of the mortgage. The
Contract to Sell in favor of petitioner Cahayag was
executed on 29 March 1981, or almost two
months after the registration of the mortgage. The
corresponding Contract to Sell in favor of Rivera
was executed only on 12 August 1981, roughly six
months after the registration of the mortgage
contract. Lastly, the Contract to Sell in favor of
Escalona was executed on 13 January 1983, or
nearly two years after the registration of the
mortgage on 3 February 1981.
Consequently, petitioners Cahayag, Rivera and
Escalona, were bound to the mortgage executed
between mortgagor Dulos Realty and mortgagee
CCC, by virtue of its registration. Definitely, the
buyers each had constructive knowledge of the
existence of the mortgage contract when they
individually executed the Contracts to Sell.
Dela Merced v. GSIS not applicable
Petitioner invokes the above case. Dela
Merced involved a clash between an unrecorded
contract to sell and a registered mortgage contract.
The contract to sell between the mortgagors
(Spouses Zulueta) and the buyer (Francisco Dela
Merced) was executed before the former's
constitution of the mortgage in favor of GSIS.
Because the Zuluetas defaulted on their loans, the
mortgage was foreclosed; the properties were sold
at public auction to GSIS as the highest bidder; and
the titles were consolidated after the spouses'
failure to redeem the properties within the one-year
redemption period. GSIS later sold the contested
lot to Elizabeth D. Manlongat and Ma. Therese D.
Manlongat. However, Dela Merced was able to fully
pay the purchase price to Spouses Zulueta,
who executed a Deed of Absolute Sale in his
favor prior to the foreclosure sale.
This Court stated therein the general rule that the
purchaser is not required to go beyond the Torrens
title if there is nothing therein to indicate any cloud
or vice in the ownership of the property or any
encumbrance thereon. The case nonetheless
provided an exception to the general rule. The
exception arises when the purchaser or mortgagee
has knowledge of a defect in the vendor's title or
lack thereof, or is aware of sufficient facts to induce
a reasonably prudent person to inquire into the
status of the property under litigation. The Court
applied the exception, taking into consideration the
fact that GSIS, the mortgagee, was a financing
institution.
But Dela Merced is not relevant here. Dela
Merced involved a Contract to Sell that was
executed prior to the mortgage, while the Contracts
to Sell in this case were all executed after the
constitution and registration of the mortgage.
In Dela Merced, since GSIS had knowledge of the
contract to sell, this knowledge was equivalent to
the registration of the Contract to Sell. Effectively,
this constitutes registration canceled out the
subsequent registration of the mortgage. In other
words, the buyer under the Contract to Sell became
the- first to register. Following the priority in
time rule in civil law, the lot buyer was accorded
preference or priority in right in Dela Merced.
In this case, the registration of the mortgage, which
predated the Contracts to Sell, already bound the
buyers to the mortgage. Consequently, the
determination of good faith does not come into play.
Dela Merced materially differs from this case on
another point. The Contract to Sell in favor of Dela
Merced was followed by full payment of the price
and execution of the Deed of Absolute Sale. In
this case, the Contract to Sell in favor of each of
petitioners Cahayag, Rivera and Escalona, is not
coupled with full payment and execution of a deed
of absolute sale.
This case also needs to be distinguished
from Luzon Development Bank v. Enriquez. 67 In
that case, the unregistered Contract to Sell was
executed after the execution of the mortgage.
Instead of resorting to foreclosure, the
owner/developer and the bank entered into
a dacion en pago. The Court declared that the bank
was bound by the Contract to Sell despite the non-
registration of the contract. It reasoned that the
bank impliedly assumed the risk that some of the
units might have been covered by contracts to sell.
On the other hand, the Court pronounced the
mortgage to be void, as it was without the approval
of the Housing and Land Use Regulatory Board
(HLURB). The Court consequently ordered the unit
buyer in that case to pay the balance to the bank,
after which the buyer was obliged to deliver a clean
title to the property.
There are points of distinction between the case at
bar and Luzon Development Bank. First, there is a
definite finding in Luzon Development Bank that the
mortgage was without prior HLURB approval,
rendering the mortgage void. In the present case,
as will be discussed later, there is no proof from the
records on whether the HLURB did or did not
approve the mortgage. Second, Luzon
Development Bank did not even reach the
foreclosure stage of the mortgage. This case,
however, not only reached the foreclosure stage; it
even went past the redemption period,
consolidation of the title in the owner, and sale of
the property by the highest bidder to a third person.
The first distinction deserves elaboration. The
absence of prior written approval of the mortgage
by the HLURB rendered it void. This effectively
wiped out any discussion on whether registration
bound the installment buyer. In fact, Luzon
Development Bank did not even bother to state
whether the mortgage was registered or not. More
important, the tables were turned when Luzon
Development Bank held that the bank was bound to
the Contract to Sell in view of the latter's
constructive notice of the Contract to Sell. Stated
differently, the actually unregistered Contract to Sell
became fictionally registered, making it binding on
the bank.
In this case, on account of its registration, and the
fact that the contracts were entered into after it, the
mortgage is valid even as to petitioners.
No Redemption within One Year from the
Foreclosure Sale
When it comes to extrajudicial foreclosures, the
law68 grants mortgagors or their successors-in-
interest an opportunity to redeem the property
within one year from the date of the sale. The one-
year period has been jurisprudentially held to be
counted from the registration of the foreclosure sale
with the Register of Deeds.69 An exception to this
rule has been carved out by Congress for juridical
mortgagors. Section 47 of the General Banking
Law of 2000 shortens the redemption period to
within three months after the foreclosure sale or
until the registration of the certificate of sale,
whichever comes first.70 The General Banking Law
of 2000 came into law on 13 June 2000.
If the redemption period expires and the
mortgagors or their successors-in-interest fail to
redeem the foreclosed property, the title thereto is
consolidated in the purchaser.71 The consolidation
confirms the purchaser as the owner of the
property; concurrently, the mortgagor-for failure to
exercise the right of redemption within the period-
loses all interest in the property.72
We now apply the rules to this case.
As the foreclosure sale took place prior to the
advent of the General Banking Law of 2000, the
applicable redemption period is one year. In this
case, because the Certificate of Sale in favor of
respondent CCC was registered on 8 March 1982,
the redemption period was until 8 March 1983. It
lapsed without any right of redemption having been
exercised by Dulos Realty. Consequently, the right
of respondent CCC, as purchaser of the subject
lots, became absolute. As a matter of right, it was
entitled to the consolidation of the titles in its name
and to the possession of those lots. Further, the
right of respondent CCC over the lots was
transferred to respondent Qua by virtue of the Deed
of Sale executed between them.
Given the foregoing considerations, respondent
Qua, who now has title to the properties subject of
the various Contracts to Sell, is the lawful owner
thereof.
Foreclosure Sale vs. Contract of Sale
When Dulos Realty executed a Deed of Absolute
Sale covering the real property registered under
TCT No. S-39778 in favor of petitioner Baldoza on
10 December 1983, it was no longer the owner of
the property. Titles to the subject properties,
including the one sold to Baldoza, had already
been consolidated in favor of respondent CCC as
early as 10 November 1983. In fact, on the same
date, the titles to the subject lots in the name of
Dulos Realty had already been cancelled and new
ones issued to respondent CCC.
The fact that Dulos Realty was no longer the owner
of the real property at the time of the sale led the
CA to declare that the Contract of Sale was null and
void. On this premise, the appellate court
concluded that respondent Qua had a better title to
the property over petitioner Baldoza.
We find no error in the conclusion of the CA that
respondent Qua has a better right to the property.
The problem lies with its reasoning. We therefore
take a different route to reach the same conclusion.
Proper place of nemo dat quod non habet in the
Law on Sales
Undeniably, there is an established rule under the
law on sales that one cannot give what one does
not have (Nemo dat quad non ha bet).73 The CA,
however, confuses the application of this rule with
respect to time. It makes the nemo dat quad non
habet rule a requirement for the perfection of a
contract of sale, such that a violation thereof goes
into the validity of the sale. But the Latin precept
has been jurisprudentially held to apply to a
contract of sale at its consummation stage, and not
at the perfection stage.74
Cavite Development Bank v. Spouses Syrus
Lim75 puts nemo dat quad non habet in its proper
place.1wphi1 Initially, the Court rules out
ownership as a requirement for the perfection of a
contract of sale. For all that is required is a meeting
of the minds upon the object of the contract and the
price. The case then proceeds to give examples of
the rule. It cites Article 1434 of the Civil Code,
which provides that in case the seller does not own
the subject matter of the contract at the time of the
sale, but later acquires title to the thing sold,
ownership shall pass to the buyer. The Court also
refers to the rule as the rationale behind Article
1462, which deals with sale of "future goods."
Cavite Development Bank thereafter turns to Article
1459, which requires ownership by the seller of the
thing sold at the time of delivery or
consummation stage of the sale. The Court
explains that if the rule were otherwise, the seller
would not be able to comply with the latter's
obligation to transfer ownership to the buyer under
a perfected contract of sale. The Court ends the
discourse with the conclusion that "[i]t is at the
consummation stage where the principle of nemo
dat quad non habet applies.76
Case law also provides that the fact th,at the seller
is not the owner of the subject matter of the sale at
the time of perfection does not make the sale
void.77
Hence, the lesson: for title to pass to the buyer, the
seller must be the owner of the thing sold at
the consummation stage or at the time
of delivery of the item sold. The seller need not be
the owner at the perfection stage of the contract,
whether it is of a contract to sell or a contract of
sale. Ownership is not a requirement for a valid
contract of sale; it is a requirement for a valid
transfer of ownership'.
Consequently, it was not correct for the CA to
consider the contract of sale void. The CA
erroneously considered lack of ownership on the
part of the seller as having an effect on the validity
of the sale. The sale was very much valid when the
Deed of Absolute Sale between the parties was
executed on 10 December 1983, even though title
to the property had earlier been consolidated in
favor of respondent CCC as early as 10 November
1983. The fact that Dulos Realty was no longer the
owner of the property in question at the time of the
sale did not affect the validity of the contract.
On the contrary, lack of title goes into
the performance of a contract of sale. It is
therefore crucial to determine in this case if the
seller was the owner at the time of delivery of the
object of the sale. For this purpose, it should be
noted that execution of a public instrument
evidencing a sale translates to delivery.78 It
transfers ownership of the item sold to the buyer.79
In this case, the delivery coincided with the
perfection of the contract -The Deed of Absolute
Sale covering the real property in favor of petitioner
Baldoza was executed on 10 December 1983. As
already mentioned, Dulos Realty was no longer the
owner of the property on that date. Accordingly, it
could not have validly transferred ownership of the
real property it had sold to petitioner.
Thus, the correct conclusion that should be made is
that while there was a valid sale, there was no valid
transfer of title to Baldoza, since Dulos Realty was
no longer the owner at the time of the execution of
the Deed of Absolute Sale.
No Bad Faith on Qua
The contention that Qua is a stockholder and
former member of the Board of Directors of
respondent CCC and therefore she is not exactly a
stranger to the affairs of CCC is not even relevant.
An innocent purchaser for value is one who "buys
the property of another without notice that some
other person has a right to or interest in it, and who
pays a full and fair price at the time of the purchase
or before receiving any notice of another person's
claim."80 The concept thus presupposes that there
must be an adverse claim or defect in the title to the
property to be purchased by the innocent purchaser
for value.
Respondent Qua traces her title to respondent
CCC, whose acquisition over the property
proceeded from a foreclosure sale that was valid.
As there is no defect in the title of respondent CCC
to speak of in this case, there is no need to go into
a discussion of whether Qua is an innocent
purchaser for value.
4. Dispute as to the Factual Finding of the CA
that the Deed of Absolute Sale in Favor of
Baldoza was not Preceded by a Contract to Sell
and Full Payment of the Purchase Price
We absolutely discard the argument. We can think
of at least four reasons why. First, Exhibit "L" was
not formally offered in evidence. Second, it was not
even incorporated into the records. Third, the
argument is irrelevant. Fourth, it was even
abandoned in the Memoranda filed by petitioners
with us. Last, we are not a trier of facts and thus we
yield to the finding of the CA.
Exhibit "L" not formally offered
A perusal of the records shows that the Contract to
Sell that Baldoza referred to had in fact been
marked as Exhibit "L" during her direct examination
in court.81 Even so, Exhibit "L" was never formally
offered as evidence. For this reason, we reject her
contention. Courts do not consider evidence that
has not been formally offered.82 This explains why
the CA never mentioned the alleged Contract to
Sell in favor of Baldoza.
The rationale behind the rule rests on the need for
judges to confine their factual findings and
ultimately their judgment solely and strictly to the
evidence offered by the parties to a suit. 83 The rule
has a threefold purpose. It allows the trial judge to
know the purpose of the evidence presented;
affords opposing parties the opportunity to examine
the evidence and object to its admissibility when
necessary; and facilitates review, given that an
appellate court does not have to review documents
that have not been subjected to scrutiny by the trial
court.84
Exhibit "L" not incorporated into the records
The rule, of course, admits an exception. Evidence
not formally offered may be admitted and
considered by the trial court so long as the
following requirements obtain: (1) the evidence is
duly identified by testimony duly recorded; and (2)
the evidence is incorporated into the records of the
case.
The exception does not apply to the case of
Baldoza. While she duly identified the Contract to
Sell during her direct examination, which was duly
recorded, Exhibit "L" was not incorporated into the
records.
Exhibit "L" not relevant
Be that as it may, the contention that a Contract to
Sell in favor of Baldoza preceded the sale in her
favor is irrelevant. It must be stressed that the sale
to Baldoza made by Dulos Realty took place after
the lapse of the redemption period and after
consolidation of title in the name of respondent
CCC on 10 November 1983, one month prior to the
sale to Baldoza on 10 December 1983. Dulos
Realty still would have lost all interest over the
property mortgaged.
The fact that Dulos Realty ceased to be the owner
of the property and therefore it could no longer
effect delivery of the property at the time the Deed
of Absolute Sale in favor of Baldoza was executed
is the very reason why the case of Baldoza cannot
be compared with Dela Merced. In the case, the
buyer in the Contract to Sell was able to effect full
payment of the purchase price and to execute a
Deed of Absolute Sale in his favor before the
foreclosure sale. In this case, the full payment of
the purchase price and the execution of a Deed of
Absolute Sale in favor of Baldoza was done after
the foreclosure sale.
Issue over Exhibit "L" not included in the
Memorandum
Equally important is the fact that petitioners failed to
include the issue over Exhibit "L" in any of the
Memoranda they filed with us. The omission is
fatal. Issues raised in previous pleadings but
not included in the memorandum are deemed
waived or abandoned (A.M. No. 99-2-04-SC). As
they are "a summation of the parties' previous
pleadings, the memoranda alone may be
considered by the Court in deciding or resolving the
petition."85 Thus, even as the issue was raised in
the Petition, the Court may not consider it in
resolving the case on the ground of failure of
petitioners to include the issue in the Memorandum.
They have either waived or abandoned it.
5. Issue of HLURB's Non-Approval of the
Mortgage
Petitioners allege before the Court that the
mortgage contract in this case was not approved by
the HLURB. They claim that this violates Section 18
of P.D. 95786 and results in the nullity of the
mortgage. Respondents have disputed the claim
and counter-argue that the allegation of the
petitioners is not supported by evidence.
Respondents likewise aver that the argument was
raised for the first time on appeal.87
It is rather too late in the day for petitioners to raise
this argument. Parties are not permitted to change
their theory of a case at the appellate stage.88 Thus,
theories and issues not raised at the trial level will
not be considered by a reviewing court on the
ground that they cannot be raised for the first time
on appeal.89 Overriding considerations of fair play,
justice and due process dictate this recognized
rule.90 This Court cannot even receive evidence on
this matter.
Petitioners' original theory of the case is the nullity
of the mortgage on the grounds previously
discussed. If petitioners are allowed to introduce
their new theory, respondents would have no more
opportunity to rebut the new claim with contrary
evidence, as the trial stage has already been
terminated. In the interest of fair play and justice,
the introduction of the new argument must be
barred.91
Exceptions Not Applicable
The Court is aware that the foregoing is merely a
general rule. Exceptions are written in case
law: first, an issue of jurisdiction may be raised at
any time, even on appeal, for as long as the
exercise thereof will not result in a mockery of the
demands of fair play;92 second, in the interest of
justice and at the sound discretion of the appellate
court, a party may be allowed to change its legal
theory on appeal, but only when the factual bases
thereof would not require further presentation of
evidence by the adverse party for the purpose of
addressing the issue raised in the new
theory;93 and last, which is actually a bogus
exception, is when the question falls within the
issues raised at the trial court.94
The exceptions do not apply to the instant case.
The new argument offered in this case concerns a
factual matter - prior approval by the HLURB. This
prerequisite is not in any way related to jurisdiction,
and so the first exception is not applicable. There is
nothing in the record to allow us to make any
conclusion with respect to this new allegation.

Neither will the case fall under the second

exception. Evidence would be required of the
respondents to disprove the new allegation that the
mortgage did not have the requisite prior HLURB
approval. Besides, to the mind of this court, to allow
petitioners to change their theory at this stage of
the proceedings will be exceedingly inappropriate.

Petitioners raised the issue only after obtaining an

unfavorable judgment from the CA. Undoubtedly, if
we allow a change of theory late in the game, so to
speak, we will unjustifiably close our eyes to the
fundamental right of petitioners to procedural due
process. They will lose the opportunity to meet the
challenge, because trial has already ended.
Ultimately, we will be throwing the Constitutional
rulebook out the window.

WHEREFORE, premises considered, the Petitions

are DENIED, and the Court of Appeals Decision
dated 2 November 2004 and Resolution dated 10
May 2005 in CA-G.R. CV No. 47421 are
hereby AFFIRMED.

SO ORDERED.
 G.R. No. 203949 April 6, 2016
SPOUSES GEORGE A. GALLENT, SR. and
MERCEDES M. GALLENT, Petitioners,
vs.
JUAN G. VELASQUEZ, Respondent.
x-----------------------x
G.R. No. 205071
JUAN G. VELASQUEZ, Petitioner,
vs.
SPOUSES GEORGE A. GALLENT, SR. and
MERCEDES M. GALLENT, Respondents.
DECISION
REYES, J.:
Before this Court are two conflicting decisions
rendered by two different divisions of the Court of
Appeals (CA) on the same question of whether the
Regional Trial Court (RTC) may validly issue an ex
parte writ of possession to the transferee of the
winning bidder at the extrajudicial foreclosure sale
of mortgaged real property.
Antecedent Facts
George A. Gallent, Sr. (George) was the registered
owner of a 761-square-meter residential property
covered by Transfer Certificate of Title (TCT) No. S-
99286, 1 located at No. 3, Angeles Street, Alabang
Hills Village, Muntinlupa City, with improvements
thereon consisting of a two-storey house and a
swimming pool. On December 20, 1996, the
Spouses George and Mercedes Gallent (Spouses
Gallent) mortgaged the said property to Allied
Banking Corporation (Allied Bank) as security for a
loan of Pl.5 Million. The Spouses Gallent failed to
pay their loan, which had ballooned to P4,631,97
4.66; thus, Allied Bank extrajudicially foreclosed the
mortgaged property. At the public auction, Allied
Bank emerged as the highest bidder and was
issued a corresponding certificate of sale2 dated
September 25, 2000. Since the Spouses Gallent
failed to redeem the subject property after one year,
Allied Bank consolidated its ownership over the
subject property. Accordingly, TCT No. S-99286
was cancelled and replaced with TCT No. 8460 3 in
the name of Allied Bank.4
On June 11, 2003, Allied Bank agreed to sell back
the foreclosed property to the Spouses Gallent for
P4 Million, as evidenced by an Agreement to
Sell, 5 wherein the Spouses Gallent paid a down
payment of P3.5 Million, evidenced by an Official
Receipt (O.R.) No. 0990687-A6 dated March 12,
2003, and the balance thereof was payable in 12
monthly amortizations. It was also stipulated that
the Spouses Gallent would be allowed to keep the
possession of the subject property as tenants or
lessees of Allied Bank. 7
Due to financial difficulties, sometime in October
2003, the Spouses Gallent sought the help of their
close family friend, Juan Velasquez (Velasquez), to
help them settle their remaining monthly
amortizations. As an inducement, they agreed that
Velasquez would have the subject property
registered under his name until they have repaid
him. 8
On October 24, 2003, the Spouses Gallent
executed a Deed of Assignment of Rights9 whereby
they assigned to Velasquez all their rights,
interests, and obligations under their Agreement to
Sell with Allied Bank. Velasquez paid Allied Bank
the remaining balance amounting to P216,635.97,
evidenced by O.R. No. 0006352. 10
On November 5, 2003, Allied Bank and Velasquez
executed a Deed of Absolute Sale11 over the
subject property for the price of P4 Million, wherein
George himself signed as an instrumental
witness. 12 However, the said instrument was not
registered. Subsequently, Velasquez caused
another Deed of Sale13 dated November 19, 2003,
over the subject property which showed a lower
selling price of Pl.2 Million to be registered,
purportedly for tax purposes.
On November 28, 2003, TCT No. 1181414 was
issued under the name of Velasquez to replace
TCT No. 8460.
After more than four years, or on June 27, 2008,
Velasquez sent a demand letter15 to the Spouses
Gallent to vacate the subject property, but the latter
refused to do so. On July 6, 2009, Velasquez filed
an ex parte petition for issuance of a writ of
possession, docketed as LRC Case No. 09-055, in
the RTC of Muntinlupa City. 16 The Spouses Gallent
sought to dismiss the petition by filing Consolidated
Motions for Leave to Intervene and to Dismiss
Petition17 on January 14, 2010.
On February 12, 2010, the RTC of Muntinlupa City,
Branch 256, issued an Order18 denying the
Spouses Gallent's consolidated motions, viz:
The issuance of the writ of possession is a
ministerial duty of the court upon filing of the
proper application and proof of title and by its
nature does not require notice upon persons
interested in the subject properties. By virtue of
the sale of the properties involved, [Velasquez]
became the new owner of the lots entitled to all
rights and interests its predecessor [Allied Bank]
had therein, including the right to file an application
for writ of possession. The court therefore finds the
petition to be sufficient in form and substance.
As to the motion for leave to intervene filed by
[Spouses Gallent], the same will be treated by this
court as their opposition to the petition and they will
be considered an oppositor.
Wherefore premises considered, the motions are
hereby denied for lack of merit.
xxxx
SO ORDERED.19 (Emphasis ours)
The Spouses Gallent filed a motion for
reconsideration but it was denied by the RTC in an
Order20 dated April 13, 2010, reasoning as follows:
The instant motion deserves a scant consideration
considering that the issues and arguments raised
by the oppositors are mere rehashed which were
already passed upon by this court in the order
sought to be reconsidered. To reiterate, it is a
ministerial duty on the part of this court to act on
cases of this nature, particularly if the twelve-month
period for redemption had already lapsed. Should
the oppositors intend to recover title over the
subject property, the same should be ventilated in a
separate proceeding and proceed independently of
this petition.
Wherefore premises considered, the motion for
reconsideration is hereby denied for lack of merit.
Accordingly, the reception of ex parte evidence is
hereby assigned to the Branch Clerk of Court to act
as Commissioner and to make a report to this Court
ten (10) days upon completion thereof.
xxxx
SO ORDERED.21
On July 2, 2010, the Spouses Gallent filed a
petition for certiorari22 before the CA, docketed
as CA-G.R. SP No. 114527, raffled to the Special
4th Division, seeking to annul the RTC Orders
dated February 12, 2010 and April 13, 2010.
Invoking Mendoza v. Salinas,23 the Spouses Gallent
argued that: (1) the RTC has no jurisdiction to issue
an ex parte writ of possession to Velasquez since
he did not acquire the property at a foreclosure
sale, but purchased the same from the mortgagee,
winning bidder and purchaser, Allied Bank, and only
after it had consolidated its title thereto; 24 (2) in their
Agreement to Sell, Allied Bank and the Spouses
Gallent entered into new contractual relations as
vendees-lessees and vendor-lessor, and ceased to
be mortgagors and mortgagee;25 (3) Velasquez
should have filed an action for ejectment or for
recovery of ownership or possession, not an ex
parte petition for writ of possession;26 and (4) the
RTC's duty to issue the writ has ceased to be
ministerial in view of the Spouses Gallent's adverse
claim upon the property based on their substantial
payment of its purchase price, in addition to the fact
that Velasquez and Allied Bank executed a forged
deed of sale.27
Meanwhile, on July 7, 2010, the RTC rendered its
Decision28 in LRC Case No. 09-055, the dispositive
portfon of which reads:
WHEREFORE, in view of the foregoing and
considering that it is a ministerial duty of the court
to issue writ of possession, the redemption period
having been expired without the subject property
being redeemed by the mortgagors, the petition is
hereby granted. Accordingly, let a writ of
possession be issued in favor of [Velasquez] and
against the oppositors and all persons claiming
rights under them, to place [Velasquez] in
possession of the subject property and for the
oppositors and all persons claiming rights under
them to vacate the land covered by TCT No. 11814
of the Register of Deeds of Muntinlupa City.
SO ORDERED.29
On September 24, 2010, the Spouses Gallent filed
another petition for certiorari30 before the CA,
docketed as CA-G.R. SP No. 116097 and raffled to
the 10th Division, arguing that the deed of sale
between Velasquez and Allied Bank was a forgery.
In their certification of non-forum shopping,31 they
mentioned the pendency of CA-GR. SP No.
114527 in the CA. Surprisingly, neither of the
parties nor the CA 10th Division moved for the
consolidation of CA-G.R. SP No. 116097 with CA-
G.R. SP No. 114527.
Meanwhile, on October 21, 2010, the Spouses
Gallent also filed before the RTC of Muntinlupa City
a complaint for "Reformation of Instruments,
Consignation, Annulment of TCT No. 11814 of the
Registry of Deeds for the City of Muntinlupa and
Damages With Application for Immediate Issuance
of Temporary Restraining Order and/or Writ of
Preliminary Injunction," docketed as Civil Case No.
10-102. In this action, the Spouses Gallent sought
to annul the deed of assignment they executed in
favor of Velasquez allegedly because their true
intent was an equitable mortgage. They thus
prayed to declare void the sale between Velasquez
and Allied Bank on account of forgery, to order the
judicial consignment of the amount of P216,635.97
to settle their "loan" from Velasquez, and to enjoin
him from taking possession of the property. 32
Rulings of the CA
CA-G.R. SP No. 116097
The CA 10th Division rendered its Decision33 on May
23, 2012 finding that since Allied Bank, the
mortgagee-purchaser at the extrajudicial
foreclosure sale, is entitled to an ex parte writ of
possession after the title to the mortgaged property
had been consolidated in its name, Velasquez, as
the bank's transferee of the said property may also
petition the court for an ex parte writ of possession
since he merely stepped into the shoes of Allied
Bank. The 10th Division also ruled that the Spouses
Gallent can no longer be considered to hold an
interest in the property adverse to Allied Bank or
Velasquez after they assigned their entire interest
therein to Velasquez. Having no more claims on the
title of either Allied Bank or Velasquez, an ex
parte writ of possession may issue against them.
On October 12, 2012, the CA 10th Division denied
the Spouses Gallent's motion for
reconsideration.34 On December 6, 2012, they filed
a Petition for Review on Certiorari35 before this
Court docketed as G.R. No. 203949.
CA-G.R. SP No. 11.4527
The CA Special 4th Division issued its
Decision36 dated August 28, 2012, finding that
an ex parte writ of possession cannot issue against
the Spouses Gallent since they are adverse
claimants of the property who are in actual
possession. The CA relied on Mendoza, 37 where
the Court ruled that an ex parte writ of possession
may be issued as a ministerial duty of the court
only in three instances: (a) in a land registration
case, as provided under Section 17 of Act No. 496;
(b) in a judicial foreclosure of real estate mortgage;
or (c) in an extra judicial foreclosure of real estate
mortgage under Section 7 of Act No. 3135,38 as
amended. 39 According to the CA, since Velasquez
did not acquire his title to the property in a
foreclosure sale, but bought the same directly from
Allied Bank after title had been consolidated in the
said bank, he must first bring an ejectment suit or
an accion reivindictoria against the Spouses
Gallent in order for him to obtain possession
thereof. 40
According to Mendoza, an ex parte writ of
possession ceases to issue as a ministerial duty of
the court when sought against a party who has
remained in the property upon an adverse claim of
ownership, viz:
Based on these tenets, the issuance of a writ of
possession, therefore, is clearly a ministerial duty of
the land registration court. Such ministerial duty,
however, ceases to be so with particular regard
to petitioners who are actual possessors of the
property under a claim of ownership. Actual
possession under claim of ownership raises a
disputable presumption of ownership. This
conclusion is supported by Article 433 of the Civil
Code, which provides:
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 said 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 reinvindicatory action, in which the
ownership claims of the contending parties may be
properly heard and adjudicated. 41 (Citation omitted
and emphasis ours)
Velasquez filed a motion for reconsideration, but it
was denied;42 hence, he filed a Petition for Review
on Certiorarz43 before this Court docketed as GR.
No. 205071.
Ruling of the Court
The Court grants the petition of the Spouses
Gallent, but denies the petition of Velasquez.
The general rule in extrajudicial
foreclosure of mortgage is that after
the consolidation of the title over
the foreclosed property in the
buyer, it is the ministerial duty of
the court to issue a writ of
possession upon an ex parte
petition44 by the new owner as a
matter of right.
It is well-settled that the purchaser in an
extrajudicial foreclosure of real property becomes
the absolute owner of the property if no redemption
is made within one year from the registration of the
certificate of sale by those entitled to redeem. 45 As
absolute owner, he is entitled to all the rights of
ownership over a property recognized in Article 428
of the New Civil Code, not least of which is
possession, or jus possidendi:46
A torrens title recognizes the owner whose name
appears in the certificate as entitled to all the rights
of ownership under the civil law. The Civil Code of
the Philippines defines ownership in Articles 427,
428 and 429. This concept is based on Roman Law
which the Spaniards introduced to the Philippines
through the Civil Code of 1889. Ownership, under
Roman Law, may be exercised over things or
rights. It primarily includes the right of the owner to
enjoy and dispose of the thing owned. And the right
to enjoy and dispose of the thing includes the right
to receive from the thing what it produces, [jus
utendi; jus fruendi] the right to consume the thing
by its use, [jus abutendi] the right to alienate,
encumber, transform or even destroy the thing
owned, [jus disponendi] and the right to exclude
from the possession of the thing owned by any
other person to whom the owner has not
transmitted such thing [jus vindicandi].47
Possession being an essential right of the owner
with which he is able to exercise the other
attendant rights of ownership, 48 after consolidation
of title the purchaser in a foreclosure sale may
demand possession as a matter of right.49 This is
why Section 7 of Act No. 3135, as amended by Act
No. 4118, imposes upon the RTC a ministerial duty
to issue a writ of possession to the new owner upon
a mere ex parte motion.50 Section 7 reads:
Sec. 7. In any sale made under the provisions of
this Act, the purchaser may petition the Court of
First Instance of the province or place where the
property or any part thereof is situated, to give him
possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to
indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or
without complying with the requirements of this Act.
Such petition shall be made under oath and filed in
form of an ex parte motion in the registration or
cadastral proceedings if the property is registered,
or in special proceedings in the case of property
registered under the Mortgage Law or under
Section 194 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 court shall, upon the filing of such
petition, collect the fees specified in paragraph 11
of Section 114 of Act No. 496, as amended by Act
No. 2866, 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.
In Spouses Arquiza v. CA,51 it is reiterated that
simply on the basis of the purchaser's ownership of
the foreclosed property there is no need for an
ordinary action to gain possession thereof:
Indeed, it is well-settled that an ordinary action to
acquire possession in favor of the purchaser at an
extrajudicial foreclosure of real property is not
necessary. There is no law in this jurisdiction
whereby the purchaser at a sheriff's sale of real
property is obliged to bring a separate and
independent suit for possession after the one-year
period for redemption has expired and after he has
obtained the sheriff's final certificate of sale. The
basis of this right to possession is the purchaser's
ownership of the property. The mere filing of an ex
parte motion for the issuance of the writ of
possession would suffice, and no bond is
required. 52 (Citations omitted)
As also explained in Asia United Bank v. Goodland
Company, Jnc.,53 the ex parte application for writ of
possession is a non-litigious summary proceeding
without need to post a bond, except when
possession is being sought even during the
redemption period:
It is a time-honored legal precept that after the
consolidation of titles in the buyer's name, for
failure of the mortgagor to redeem, entitlement to a
writ of possession becomes a matter of right. As the
confirmed owner, the purchaser's right to
possession becomes absolute. There is even no
need for him to post a bond, and it is the ministerial
duty of the courts to issue the same upon proper
application and proof of title. To accentuate the
writ's ministerial character, the Court has
consistently disallowed injunction to prohibit its
issuance despite a pending action for annulment of
mortgage or the foreclosure itself.
The nature of an ex parte petition for issuance of
the possessory writ under Act No. 3135 has been
described as a non-litigious proceeding and
summary in nature. As an ex parte proceeding, it is
brought for the benefit of one party only, and
without notice to or consent by any person
adversely interested. 54 (Citations omitted)
Moreover, not even a pending action to annul the
mortgage or the foreclosure sale will by itself stay
the issuance of the writ of possession, as held
in BPI Family Savings Bank, Inc. v. Golden Power
Diesel Sales Center, Inc., et al.:55
Furthermore, it is settled that a pending action for
annulment of mortgage or foreclosure sale does not
stay the issuance of the writ of possession. The trial
court, where the application for a writ of possession
is filed, does not need to look into the validity of the
mortgage or the manner of its foreclosure. The
purchaser is entitled to a writ of possession without
prejudice to the outcome of the pending annulment
case. 56 (Citations omitted)
When the thing purchased at a
foreclosure sale is in turn sold or
transferred, the right to the
possession thereof, along with all
other rights of ownership, follows
the thing sold to its new owner.
In Laureano v. Bormaheco, 57 the mortgagee-
purchaser, Philippine National Cooperative Bank
(PNCB), sold the foreclosed lots located in Bel-Air,
Makati City to Bormaheco, Inc. without first seeking
its possession. The latter filed an ex parte petition
for a writ of possession, but the RTC of Makati City
ordered the service of a copy of the petition upon
the former owners, the Spouses Laureano, who as
in the case before the Court, opposed the ex
parte petition and moved to dismiss the same on
the ground of the RTC's lack of jurisdiction. The
RTC denied the said motion, which was upheld by
the CA in a certiorari action. When the case
reached the Court, it was held that, by the nature of
an ex parte petition for writ of possession, no notice
is needed to be served upon the Spouses
Laureano, the mortgagors-debtors of PNCB, since
they already lost all their interests in the properties
when they failed to redeem them. By virtue of the
sale, Bormaheco, Inc. became the new owner of
the lots, entitled to all rights and interests that its
predecessor PNCB acquired, including the right to
a writ of possession.
As an exception, the ministerial
duty of the court to issue an ex
parte writ of possession ceases
once it appears that a third party,
not the debtor-mortgagor, is in
possession of the property under a
claim of title adverse to that of the
applicant.
Section 33 of Rule 39 of the Rules of Court
provides that in an execution sale, the possession
of the property shall be given to the purchaser or
last redemptioner, unless a third party is actually
holding the property adversely to the judgment
obligor.
Sec. 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 ours)
Pursuant to Section 6 of Act No. 3135, the
application of Section 33, Rule 39 of the Rules of
Court has been extended to extrajudicial
foreclosure sales, 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 464 to 466,
inclusive, of the Code of Civil Procedure, in so far
as these are not inconsistent with the provisions of
this Act.1wphi1
In China Banking Corporation v. Spouses
Lozada, 58 it was held that for the court's ministerial
duty to issue a writ of possession to cease, it is not
enough that the property be held by a third party,
but rather the said possessor must have a claim
thereto adverse to the debtor/mortgagor:
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.
Similarly, in an extrajudicial foreclosure of real
property, when the foreclosed property is in the
possession of a third party holding the same
adversely to the defaulting debtor/mortgagor, the
issuance by the RTC of a writ of possession in
favor of the purchaser of the said real property
ceases to be ministerial and may no longer be
done ex parte. For the exception to apply, however,
the property need not only be possessed by a third
party, but also held by the third party adversely to
the debtor/mortgagor. 59 (Citation omitted)
Specifically, the Court held that to be considered in
adverse possession, the third party possessor must
have done so in his own right and not merely as a
successor or transferee of the debtor or mortgagor:
The exception provided under Section 33 of Rule
39 of the Revised Rules of Court 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. x
x x.60 (Citations omitted)
Thus, in BPI Family, 61 the Court held that it was an
error to issue an ex parte writ of possession to the
purchaser in an extrajudicial foreclosure, or to
refuse to abate one already granted, where a third
party has raised in an opposition to the writ or in a
motion to quash the same, his actual possession
thereof upon a claim of ownership or a right
adverse to that of the debtor or mortgagor. The
procedure, according to Unchuan v. CA,62 is for the
trial court to order a hearing to determine the nature
of the adverse possession, conformably with the
time-honored principle of due process.63
In Okabe v. Saturnina, 64 the Court made a definite
ruling on the matter, to wit:
The remedy of a writ of possession, a remedy that
is available to the mortgagee-purchaser to acquire
possession of the foreclosed property from the
mortgagor, is made available to a subsequent
purchaser, but only after hearing and after
determining that the subject property is still in the
possession of the mortgagor. Unlike if the
purchaser is the mortgagee or a third party during
the redemption period, a writ of possession may
issue ex parte or without hearing. In other words, if
the purchaser is a third party who acquired the
property after the redemption period, a hearing
must be conducted to determine whether
possession over the subject property is still with the
mortgagor or is already in the possession of a third
party holding the same adversely to the defaulting
debtor or mortgagor. If the property is in the
possession of the mortgagor, a writ of possession
could thus be issued. Otherwise, the remedy of a
writ of possession is no longer available to such
purchaser, but he can wrest possession over the
property through an ordinary action of ejectment.65
In regard to their deed of
assignment in favor of Velasquez,
the Spouses Gallent may be
considered as adverse possessors in
their own right, the said agreement
being in essence an equitable
mortgage.
It is the Spouses Gallent's contention that the Deed
of Assignment of Rights which they executed in
favor of Velasquez was in reality an equitable
mortgage under Article 1602 of the New Civil Code.
The Spouses Gallent maintained that their true
agreement with Velasquez was an equitable
mortgage and not an assignment of their interest in
the subject property.66 Having substantially paid the
repurchase price of their property, that is,
P3,790,500.00 out of the price of P4 Million, they
insisted that they had virtually recovered full
ownership of the house when they entered into an
equitable mortgage with Velasquez. To prove their
allegation, they filed an action, Civil Case No. 10-
102, to reform the said deed into a mortgage. In
addition, they are seeking to declare void the
transfer of the title to Velasquez.
An equitable mortgage67 has been defined as one
which although lacking in some formality, or form or
words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to
charge real property as security for a debt, there
being no impossibility nor anything contrary to law
in this intent. 68 A contract where the
vendor/mortgagor remains in physical possession
as lessee or otherwise has been held to be an
equitable mortgage. 69 In determining the nature of
a contract, the Court is not bound by the title or
name given to it by the parties, but by their
intention, as shown not necessarily by the
terminology used in the contract but by their
conduct, words, actions and deeds prior to,
during and immediately after executing the
agreement. 70
Without in any way pre-empting the trial court's
factual determination in Civil Case No. 10-102,
particularly as regards what the Spouses Gallent
may have additionally received from Velasquez by
way of favor or consideration for the house, if any,
the Court will rule on the matter, but only in order to
resolve the question of whether the Spouses
Gallent may be considered as adverse claimant-
occupants against whom an ex parte writ of
possession will not issue. The substantial payment
for the repurchase from Allied Bank of the subject
property, P3,790,500.00 out of the price of P4
Million, as against Velasquez's assumption of the
remaining balance of P216,635.97, entitles the
Spouses Gallent to the legal presumption that their
assignment to Velasquez of all their interest under
their Contract to Sell with Allied Bank was an
equitable mortgage. In a contract of mortgage, the
mortgagor retains possession of the property given
as security for the payment of the sum borrowed
from the mortgagee. 71 By the clear dictate of
equity, and as held in Rockville Excel International
Exim Corporation v. Spouses Culla and
Miranda,72 when the vendor remains in possession
of the property sold as lessee or otherwise, or the
price of the sale is unusually inadequate, as in this
case, the law deems the contract as an equitable
mortgage. 73
It is evident that on account of the Spouses
Gallent's substantial down payment under their
contract to sell, Allied Bank allowed them to remain
in the property, albeit as "lessees". The Spouses
Gallent eventually paid a total of P3,790,500.00, all
within five months. After the additional payment by
Velasquez of P216,635.97, the next logical step
would have been for Allied Bank to execute the sale
in favor of the Spouses Gallent, by virtue of their
Contract to Sell, but the Spouses Gallent had
assured Velasquez that he could keep the title to
the property until they have repaid him. To achieve
this, they executed a deed of assignment to enable
Allied Bank to transfer the title directly to
Velasquez, since a transfer, first to the Spouses
Gallent, and then a sale or assignment to
Velasquez, would have entailed paying capital
gains and documentary stamp taxes twice, along
with the transfer fees. It was also apparently agreed
with Velasquez that the Spouses Gallent could
remain in the property, but it seems that they could
do so not just as lessees but as owners-
mortgagors.
If there was a forgery in the sale to Velasquez by
Allied Bank, it was obviously a mere ploy to reduce
the taxes and fees due on the said transaction, and
not the cause of the transfer of the title of Allied
Bank to Velasquez. The consent of the Spouses
Gallent to the said transfer, for the probable
reasons already expounded, is clear from the fact
that George himself signed in the first deed of sale
to Velasquez as an instrumental witness. But even
if it is eventually shown that there was in fact
forgery for the purpose of committing fraud against
the Spouses Gallent, as held in Capital Credit
Dimension, Inc. v. Chua, 74 they, as third party
occupants, should not be adversely affected by
the ex parte writ of possession sought by
Velasquez, for not being parties to the forgery.
Thus, they cannot be summarily ejected without
due process.
To recapitulate, it is important to note that this
controversy can no longer be considered as an
offshoot of the extrajudicial foreclosure proceedings
involving Allied Bank, but rather is the result of a
subsequent personal transaction between the
Spouses Gallent and Velasquez, which they called
an assignment; but which the law otherwise
recognizes as an equitable mortgage. In the face
then of the ex parte motion of Velasquez for a writ
of possession, it must be kept in mind that, under
the facts laid down, the contending parties are now
Velasquez and the Spouses Gallent. The Spouses
Gallent's defense of equitable mortgage is upheld
in law and, they have a superior right to retain the
possession of the subject property in their own
right.
WHEREFORE, premises considered, the petition
in G.R. No. 203949 is GRANTED. The Decision
dated May 23, 2012 of the Court of Appeals in CA-
G.R. SP No. 116097 is SET ASIDE.

The petition in G.R. No. 205071 is DENIED. The

Decision dated August 28, 2012 of the Court of
Appeals in CA-G.R. SP No. 114527 is AFFIRMED.

No costs.

SO ORDERED.
 G.R. No. 214752 March 9, 2016
EQUITABLE SAVINGS BANK, (now known as
the merged entity "BDO Unibank, Inc.") vs.
ROSALINDA C. P ALCES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari are
the Decision dated February 13, 2014 and the
Resolution3 dated October 8, 2014 of the Court of
Appeals (CA) in CA-G.R. CV No. 96008, which
partially affirmed the Decision4 dated May 20, 2010
of the Regional Trial Court of Pasay City, Branch
114 (RTC) in Civil Case No. 07-0386-CFM and
ordered petitioner Equitable Savings Bank, now
BDO Unibank, Inc. (petitioner), to reimburse
respondent Rosalinda C. Palces (respondent) the
installments she made in March 2007 amounting to
P103,000.00.
The Facts
On August 15, 2005, respondent purchased a
Hyundai Starex GRX Jumbo (subject vehicle)
through a loan granted by petitioner in the amount
of Pl, 196, 100.00. In connection therewith,
respondent executed a Promissory Note with
Chattel Mortgage5 in favor of petitioner, stating,
inter alia, that: (a) respondent shall pay petitioner
the afore said amount in 36 monthly installments of
P33,225.00 per month, beginning September 18,
2005 and every 18th of the month thereafter until full
payment of the loan; ( b) respondent's default in
paying any installment renders the remaining
balance due and payable; and (c) respondent's
failure to pay any installments shall give petitioner
the right to declare the entire obligation due and
payable and may likewise, at its option, x x x
foreclose this mortgage; or file an ordinary civil
action for collection and/or such other action or
proceedings as may be allowed under the law.6
From September 18, 2005 to December 21, 2006,
respondent paid the monthly installment of
P33,225.00 per month. However, she failed to pay
the monthly installments in January and February
2007, thereby triggering the acceleration clause
contained in the Promissory Note with Chattel
Mortgage 7 and prompting petitioner to send a
demand letter8 dated February 22, 2007 to compel
respondent to pay the remaining balance of the
loan in the amount of P664,500.00.9 As the
demand went unheeded, petitioner filed on March
7, 2007 the instant Complaint for Recovery of
Possession with Replevin with Alternative Prayer
for Sum of Money and Damages 10 against
respondent before the RTC, praying that the court a
quo: (a) issue a writ of replevin ordering the seizure
of the subject vehicle and its delivery to petitioner;
or (b) in the alternative as when the recovery of the
subject vehicle cannot be effected, to render
judgment ordering respondent to pay the remaining
balance of the loan, including penalties, charges,
and other costs appurtenant thereto. 11
Pending respondent's answer, summons 12 and a
writ of replevin13 were issued and served to her
personally on April 26, 2007, and later on, a
Sheriffs Return14 dated May 8, 2007 was
submitted as proof of the implementation of such
writ.
In her defense, 16 while admitting that she indeed
defaulted on her installments for January and
February 2007, respondent nevertheless insist~d
that she called petitioner regarding such delay in
payment and spoke to a bank officer, a certain
Rodrigo Dumagpi, who gave his consent thereto.
Respondent then maintained that in order to update
her installment payments, she paid petitioner the
amounts of P70,000.00 on March 8, 2007 and
P33,000.00 on March 20, 2007, or a total of
P103,000.00. Despite the aforesaid payments,
respondent was surprised when petitioner filed the
instant complaint, resulting in the sheriff taking
possession of the subject vehicle. 17
The RTC Ruling
In a Decision18 dated May 20, 2010, the RTC ruled
in petitioner's favor and, accordingly, confirmed
petitioner's right and possession over the subject
vehicle and ordered respondent to pay the former
the amount of P15,000.00 as attorney's fees as
well as the costs of suit. 19
The RTC found that respondent indeed defaulted
on her installment payments in January and
February 2007, thus, rendering the entire balance
of the loan amounting to P664,500.00 due and
demandable. In this relation, the RTC observed that
although respondent made actual payments of the
installments due, such payments were all late and
irregular, and the same were not enough to fully
pay her outstanding obligation, considering that
petitioner had already declared the entire balance
of the loan due and
demandable. However, since the writ of replevin
over the subject vehicle had already been
implemented, the R TC merely confirmed
petitioner's right to possess the same and ruled that
it is no longer entitled to its alternative prayer, i.e.,
the payment of the remaining balance of the loan,
including penalties, charges, and other costs
appurtenant thereto.20
Respondent moved for reconsideration, 21 but was
denied in an Order22 dated August 31, 2010.
Dissatisfied, respondent appealed23 to the CA,
contending that petitioner acted in bad faith in
seeking to recover more than what is due by
attempting to collect the balance of the loan and, at
the same time, recover the subject vehicle.
The CA Ruling
In a Decision25 dated February 13, 2014, the CA
affirmed the RTC ruling with modification: (a)
ordering petitioner to return the amount of
Pl03,000.00 to respondent; and (b) deleting the
award of attorney's fees in favor of petitioner for
lack of sufficient basis. It held that while respondent
was indeed liable to petitioner under the
Promissory Note with Chattel Mortgage, petitioner
should not have accepted respondent's late partial
payments in the aggregate amount of Pl03,000.00.
In this regard, the CA opined that by choosing to
recover the subject vehicle via a writ of replevin,\
petitioner already waived its right to recover any
unpaid installments, pursuant to Article 1484 of the
Civil Code. As such, the CA concluded that
respondent is entitled to the recovery of the
aforesaid amount. 26
Aggrieved, petitioner moved for partial
reconsideration specifically praying for the setting
aside of the order to return the amount of Pl
03,000.00 to respondent - which was, however,
denied in a Resolution28 dated October 8, 2014;
hence, this petition.
The Issues Before The Court
The issues raised for the Court's resolution are
whether or not the CA correctly: (a) ordered
petitioner to return to respondent the amount of Pl
03,000.00 representing the latter's late installment
payments; and (b) deleted the award of attorney's
fees in favor of petitioner.
The Court's Ruling
The petition is partly meritorious.
Citing Article 1484 of the Civil Code, specifically
paragraph thereof, the CA ruled that petitioner had
already waived its right to recover any unpaid
installments when it sought - and was granted - a
writ of replevin in order to regain possession of the
subject vehicle. As such, petitioner is no longer
entitled to receive respondent's late partial
payments in the aggregate amount of Pl03,000.00.
The CA is mistaken on this point.
Article 1484 of the Civil Code, which governs the
sale of personal properties in installments, states in
full:
Article 1484. In a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise any of
the following remedies:
(1) Exact fulfilment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure
to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no
further action against the purchaser to recover
any unpaid balance of the price. Any agreement
to the contrary shall be void. (Emphases and
underscoring supplied)
In this case, there was no vendor-vendee
relationship between respondent and petitioner. A
judicious perusal of the records would reveal that
respondent never bought the subject vehicle from
petitioner but from a third party, and merely sought
financing from petitioner for its full purchase price.
In order to document the loan transaction between
petitioner and respondent, a Promissory Note with
Chattel Mortgage29 dated August 18, 2005 was
executed wherein, inter alia, respondent
acknowledged her indebtedness to petitioner in the
amount of Pl, 196, 100.00 and placed the subject
vehicle as a security for the loan.30 Indubitably, a
loan contract with the accessory chattel mortgage
contract - and not a contract of sale of personal
property in installments - was entered into by the
parties with respondent standing as the debtor-
mortgagor and petitioner as the creditormortgagee.
Therefore, the conclusion of the CA that Article
1484 finds application in this case is misplaced,
and thus, must be set aside.
The Promissory Note with Chattel Mortgage subject
of this case expressly stipulated, among others,
that: (a) monthly installments shall be paid on due
date without prior notice or demand;31 (b) in case
of default, the total unpaid principal sum plus the
agreed charges shall become immediately due and
payable;32 and ( c) the mortgagor's default will
allow the mortgagee to exercise the remedies
available to it under the law. In light of the foregoing
provisions, petitioner is justified in filing his
Complaint33 before the RTC seeking for either the
recovery of possession of the subject vehicle so
that it can exercise its rights as a mortgagee, i.e., to
conduct foreclosure proceedings over said
vehicle;34 or in the event that the subject vehicle
cannot be recovered, to compel respondent to pay
the outstanding balance of her loan. 35 Since it is
undisputed that petitioner had regained possession
of the subject vehicle, it is only appropriate that
foreclosure proceedings, if none yet has been
conducted/concluded, be commenced in
accordance with the provisions of Act No. 1508,36
otherwise known as "The Chattel Mortgage Law,"
as intended. Otherwise, respondent will be placed
in an unjust position where she is deprived of
possession of the subject vehicle while her
outstanding debt remains unpaid, either in full or in
part, all to the undue advantage of petitioner - a
situation which law and equity will never permit.37
Further, there is nothing in the Promissory Note
with Chattel Mortgage that bars petitioner from
receiving any late partial payments from
respondent. If at all, petitioner's acceptance of
respondent's late partial payments in the aggregate
amount of P103,000.00 will only operate to reduce
her outstanding obligation to petitioner from
P664,500.00 to P561,500.00. Such a reduction in
respondent's outstanding obligation should be
accounted for when petitioner conducts the
impending foreclosure sale of the subject vehicle.
Once such foreclosure sale has been made, the
proceeds thereof should be applied to the reduced
amount of respondent's outstanding obligation, and
the excess of said proceeds, if any, should be
returned to her.38
In sum, the CA erred in ordering petitioner to return
the amount of P103,000.00 to respondent. In view
of petitioner's prayer for and subsequent
possession of the subject vehicle in preparation for
its foreclosure, it is only proper that petitioner be
ordered to commence foreclosure proceedings, if
none yet has been conducted/concluded, over the
vehicle in accordance with the provisions of the
Chattel Mortgage Law, i.e., within thirty (30) days
from the finality of this Decision.
Finally, anent the issue of attorney's fees, it is
settled that attorney's fees "cannot be recovered as
part of damages because of the policy that no
premium should be placed on the right to litigate.
They are not to be awarded every time a party wins
a suit. The power of the court to award attorney's
fees under Article 220840 of the Civil Code
demands factual, legal, and equitable justification.
Even when a claimant is compelled to litigate with
third persons or to incur expenses to protect his
rights, still, attorney's fees may not be awarded
where no sufficient showing of bad faith could be
reflected in a party's persistence in a case other
than an erroneous conviction of the righteousness
of his cause."41 In this case, suffice it to say that
the CA correctly ruled that the award of attorney's
fees and costs of suit should be deleted for lack of
sufficient basis.
WHEREFORE, the petition is PARTLY GRANTED.
The Decision dated February 13, 2014 and the
Resolution dated October 8, 2014 of the Court of
Appeals in CA-G.R. CV No. 96008 are hereby SET
ASIDE. In case foreclosure proceedings on the
subject chattel mortgage has not yet been
conducted/concluded, petitioner Equitable Savings
Bank, now BDO Unibank, Inc., is ORDERED to
commence foreclosure proceedings on the subject
vehicle in accordance with the Chattel Mortgage
Law, i.e., within thirty (30) days from the finality of
this Decision. The proceeds therefrom should be
applied to the reduced outstanding balance of
respondent Rosalinda C. Palces in the amount of
P561,500.00, and the excess, if any, should be
returned to her.
SO ORDERED.