[G.R. No. 118342.

January 5, 1998]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT

OF APPEALS and LYDIA CUBA, respondents.
[G.R. No. 118367. January 5, 1998]

LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT

BANK
OF
THE
PHILIPPINES
and
AGRIPINA
P.
CAPERAL, respondents.
DECISION
DAVIDE, JR., J.:

These two consolidated cases stemmed from a complaint filed against the
Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by
Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of
Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of
DBPs appropriation of CUBAs rights, title, and interests over a 44-hectare fishpond
located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code; (2)
the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3) the
annulment of DBPs sale of the subject fishpond to Caperal; (4) the restoration of her
rights, title, and interests over the fishpond; and (5) the recovery of damages, attorneys
fees, and expenses of litigation.
[1]

After the joinder of issues following the filing by the parties of their respective
pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the
following facts, which were embodied in the pre-trial order:
[2]

1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new)
dated May 13, 1974 from the Government;
2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the
Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under
the terms stated in the Promissory Notes dated September 6, 1974; August 11,
1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment
of her Leasehold Rights;

4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the
terms of the Promissory Notes;
5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP
appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in
question;
6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba
over the fishpond in question, defendant DBP, in turn, executed a Deed of
Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the
same fishpond in question;
7.

In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the
Manager DBP, Dagupan City dated November 6, 1979 and December 20,
1979. DBP thereafter accepted the offer to repurchase in a letter addressed to
plaintiff dated February 1, 1982;

8.

After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a
new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by
the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding
her husband;

9.

Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of
Conditional Sale;

10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of
Conditional Sale, she entered with the DBP a temporary arrangement whereby in
consideration for the deferment of the Notarial Rescission of Deed of Conditional
Sale, plaintiff Lydia Cuba promised to make certain payments as stated in
temporary Arrangement dated February 23, 1982;
11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated
March 13, 1984, and which was received by plaintiff Lydia Cuba;
12. After the Notice of Rescission, defendant DBP took possession of the Leasehold
Rights of the fishpond in question;
13. That after defendant DBP took possession of the Leasehold Rights over the
fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding
dated June 24, 1984, to dispose of the property;
14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant
Agripina Caperal on August 16, 1984;

15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083A on December 28, 1984 by the Ministry of Agriculture and Food.

Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the
pre-trial order.
[3]

Trial was thereafter had on other matters.

The principal issue presented was whether the act of DBP in appropriating to itself
CUBAs leasehold rights over the fishpond in question without foreclosure proceedings
was contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on
an affirmative resolution. DBP stressed that it merely exercised its contractual right
under the Assignments of Leasehold Rights, which was not a contract of
mortgage. Defendant Caperal sided with DBP.
The trial court resolved the issue in favor of CUBA by declaring that DBPs taking
possession and ownership of the property without foreclosure was plainly violative of
Article 2088 of the Civil Code which provides as follows:

ART. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and
void.
It disagreed with DBPs stand that the Assignments of Leasehold Rights were
not contracts of mortgage because (1) they were given as security for loans, (2)
although the fishpond land in question is still a public land, CUBAs leasehold rights
and interest thereon are alienable rights which can be the proper subject of a mortgage;
and (3) the intention of the contracting parties to treat the Assignment of Leasehold
Rights as a mortgage was obvious and unmistakable; hence, upon CUBAs default,
DBPs only right was to foreclose the Assignment in accordance with law.
The trial court also declared invalid condition no. 12 of the Assignment of Leasehold
Rights for being a clear case of pactum commissorium expressly prohibited and
declared null and void by Article 2088 of the Civil Code. It then concluded that since
DBP never acquired lawful ownership of CUBAs leasehold rights, all acts of ownership
and possession by the said bank were void. Accordingly, the Deed of Conditional Sale
in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale
in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed
by Caperal in favor of DBP, were also void and ineffective.

As to damages, the trial court found ample evidence on record that in 1984 the
representatives of DBP ejected CUBA and her caretakers not only from the fishpond
area but also from the adjoining big house; and that when CUBAs son and caretaker
went there on 15 September 1985, they found the said house unoccupied and
destroyed and CUBAs personal belongings, machineries, equipment, tools, and other
articles used in fishpond operation which were kept in the house were missing. The
missing items were valued at about P550,000. It further found that when CUBA and her
men were ejected by DBP for the first time in 1979, CUBA had stocked the fishpond
with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP
representatives prevented CUBAs men from feeding the fish. At the conservative price
of P3.00 per fish, the gross value would have been P690,000, and after deducting 25%
of said value as reasonable allowance for the cost of feeds, CUBA suffered a loss
of P517,500. It then set the aggregate of the actual damages sustained by CUBA
at P1,067,500.
The trial court further found that DBP was guilty of gross bad faith in falsely
representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBAs
leasehold rights. Such representation induced the said Bureau to terminate CUBAs
leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. And
considering that by reason of her unlawful ejectment by DBP, CUBA suffered moral
shock, degradation, social humiliation, and serious anxieties for which she became sick
and had to be hospitalized the trial court found her entitled to moral and exemplary
damages. The trial court also held that CUBA was entitled to P100,000 attorneys fees
in view of the considerable expenses she incurred for lawyers fees and in view of the
finding that she was entitled to exemplary damages.
In its decision of 31 January 1990,

[4]

the trial court disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff:

1. DECLARING null and void and without any legal effect the act of
defendant Development Bank of the Philippines in appropriating for its
own interest, without any judicial or extra-judicial foreclosure, plaintiffs
leasehold rights and interest over the fishpond land in question under
her Fishpond Lease Agreement No. 2083 (new);
2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by
and between the defendant Development Bank of the Philippines and
plaintiff (Exh. E and Exh. 1) and the acts of notarial rescission of the

Development Bank of the Philippines relative to said sale (Exhs. 16

and 26) as void and ineffective;
3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by
and between the Development Bank of the Philippines and defendant
Agripina Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement
No. 2083-A dated December 28, 1984 of defendant Agripina Caperal
(Exh. 23) and the Assignment of Leasehold Rights dated February 12,
1985 executed by defendant Agripina Caperal in favor of the defendant
Development Bank of the Philippines (Exh. 24) as void ab initio;
4. ORDERING defendant Development Bank of the Philippines and
defendant Agripina Caperal, jointly and severally, to restore to plaintiff
the latters leasehold rights and interests and right of possession over
the fishpond land in question, without prejudice to the right of defendant
Development Bank of the Philippines to foreclose the securities given
by plaintiff;
5. ORDERING defendant Development Bank of the Philippines to pay to
plaintiff the following amounts:
a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE
HUNDRED PESOS (P1,067,500.00), as and for actual damages;
b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as
moral damages;
c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for
exemplary damages;
d) And the sum of ONE HUNDRED THOUSAND (P100,000.00)
PESOS, as and for attorneys fees;
6. And ORDERING defendant Development Bank of the Philippines to
reimburse and pay to defendant Agripina Caperal the sum of ONE
MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED
TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75)
representing the amounts paid by defendant Agripina Caperal to

defendant Development Bank of the Philippines under their Deed of

Conditional Sale.
CUBA and DBP interposed separate appeals from the decision to the Court of
Appeals. The former sought an increase in the amount of damages, while the latter
questioned the findings of fact and law of the lower court.
In its decision of 25 May 1994, the Court of Appeals ruled that (1) the trial court
erred in declaring that the deed of assignment was null and void and that defendant
Caperal could not validly acquire the leasehold rights from DBP; (2) contrary to the
claim of DBP, the assignment was not a cession under Article 1255 of the Civil Code
because DBP appeared to be the sole creditor to CUBA - cession presupposes plurality
of debts and creditors; (3) the deeds of assignment represented the voluntary act of
CUBA in assigning her property rights in payment of her debts, which amounted to a
novation of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was
estopped from questioning the assignment of the leasehold rights, since she agreed to
repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of
the deed of assignment was an express authority from CUBA for DBP to sell whatever
right she had over the fishpond. It also ruled that CUBA was not entitled to loss of
profits for lack of evidence, but agreed with the trial court as to the actual damages
ofP1,067,500. It, however, deleted the amount of exemplary damages and reduced the
award of moral damages from P100,000 to P50,000 and attorneys fees, from P100,000
to P50,000.
[5]

The Court of Appeals thus declared as valid the following: (1) the act of DBP in
appropriating Cubas leasehold rights and interest under Fishpond Lease Agreement
No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP; (3) the deed
of conditional sale between CUBA and DBP; and (4) the deed of conditional sale
between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the
assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered
DBP to turn over possession of the property to Caperal as lawful holder of the leasehold
rights and to pay CUBA the following amounts: (a) P1,067,500 as actual
damages; P50,000 as moral damages; and P50,000 as attorneys fees.
Since their motions for reconsideration were denied, DBP and CUBA filed separate
petitions for review.
[6]

In its petition (G.R. No. 118342), DBP assails the award of actual and moral
damages and attorneys fees in favor of CUBA.

Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the
Court of Appeals erred (1) in not holding that the questioned deed of assignment was
a pactum commissorium contrary to Article 2088 of the Civil Code; (b) in holding that
the deed of assignment effected a novation of the promissory notes; (c) in holding that
CUBA was estopped from questioning the validity of the deed of assignment when she
agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in
reducing the amounts of moral damages and attorneys fees, in deleting the award of
exemplary damages, and in not increasing the amount of damages.
We agree with CUBA that the assignment of leasehold rights was a mortgage
contract.
It is undisputed that CUBA obtained from DBP three separate loans
totalling P335,000, each of which was covered by a promissory note. In all of these
notes, there was a provision that: In the event of foreclosure of the mortgage securing
this notes, I/We further bind myself/ourselves, jointly and severally, to pay the
deficiency, if any.
[7]

Simultaneous with the execution of the notes was the execution of Assignments of
Leasehold Rights where CUBA assigned her leasehold rights and interest on a 44hectare fishpond, together with the improvements thereon. As pointed out by CUBA,
the deeds of assignment constantly referred to the assignor (CUBA) as borrower; the
assigned rights, as mortgaged properties; and the instrument itself, as mortgage
contract. Moreover, under condition no. 22 of the deed, it was provided that failure to
comply with the terms and condition of any of the loans shall cause all other loans to
become due and demandable and all mortgages shall be foreclosed. And, condition
no. 33 provided that if foreclosure is actually accomplished, the usual 10% attorneys
fees and 10% liquidated damages of the total obligation shall be imposed. There is,
therefore, no shred of doubt that a mortgage was intended.
[8]

Besides, in their stipulation of facts the parties admitted that the assignment was by
way of security for the payment of the loans; thus:

3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of
Assignment of her Leasehold Rights.
In Peoples Bank & Trust Co. vs. Odom, this Court had the occasion to rule that an
assignment to guarantee an obligation is in effect a mortgage.
[9]

We find no merit in DBPs contention that the assignment novated the promissory
notes in that the obligation to pay a sum of money the loans (under the promissory

notes) was substituted by the assignment of the rights over the fishpond (under the
deed of assignment). As correctly pointed out by CUBA, the said assignment merely
complemented or supplemented the notes; both could stand together. The former was
only an accessory to the latter. Contrary to DBPs submission, the obligation to pay a
sum of money remained, and the assignment merely served as security for the loans
covered by the promissory notes. Significantly, both the deeds of assignment and the
promissory notes were executed on the same dates the loans were granted. Also, the
last paragraph of the assignment stated: The assignor further reiterates and states all
terms, covenants, and conditions stipulated in the promissory note or notes covering the
proceeds of this loan, making said promissory note or notes, to all intent and purposes,
an integral part hereof.
Neither did the assignment amount to payment by cession under Article 1255 of the
Civil Code for the plain and simple reason that there was only one creditor, the
DBP. Article 1255 contemplates the existence of two or more creditors and involves the
assignment of all the debtors property.
Nor did the assignment constitute dation in payment under Article 1245 of the civil
Code, which reads: Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law on sales. It bears
stressing that the assignment, being in its essence a mortgage, was but a security and
not a satisfaction of indebtedness.
[10]

We do not, however, buy CUBAs argument that condition no. 12 of the deed of
assignment constituted pactum commissorium. Said condition reads:

12. That effective upon the breach of any condition of this assignment, the
Assignor hereby appoints the Assignee his Attorney-in-fact with full power and
authority to take actual possession of the property above-described, together
with all improvements thereon, subject to the approval of the Secretary of
Agriculture and Natural Resources, to lease the same or any portion thereof
and collect rentals, to make repairs or improvements thereon and pay the
same, to sell or otherwise dispose of whatever rights the Assignor has or
might have over said property and/or its improvements and perform any other
act which the Assignee may deem convenient to protect its interest. All
expenses advanced by the Assignee in connection with purpose above
indicated which shall bear the same rate of interest aforementioned are also
guaranteed by this Assignment. Any amount received from rents,
administration, sale or disposal of said property may be supplied by the

Assignee to the payment of repairs, improvements, taxes, assessments and

other incidental expenses and obligations and the balance, if any, to the
payment of interest and then on the capital of the indebtedness secured
hereby. If after disposal or sale of said property and upon application of total
amounts received there shall remain a deficiency, said Assignor hereby binds
himself to pay the same to the Assignee upon demand, together with all
interest thereon until fully paid. The power herein granted shall not be
revoked as long as the Assignor is indebted to the Assignee and all acts that
may be executed by the Assignee by virtue of said power are hereby ratified.
The elements of pactum commissorium are as follows: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and
(2) there should be a stipulation for automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal obligation within the stipulated
period.
[11]

Condition no. 12 did not provide that the ownership over the leasehold rights would
automatically pass to DBP upon CUBAs failure to pay the loan on time. It merely
provided for the appointment of DBP as attorney-in-fact with authority, among other
things, to sell or otherwise dispose of the said real rights, in case of default by CUBA,
and to apply the proceeds to the payment of the loan. This provision is a standard
condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code,
which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged
property for the payment of the principal obligation.
DBP, however, exceeded the authority vested by condition no. 12 of the deed of
assignment. As admitted by it during the pre-trial, it had [w]ithout foreclosure
proceedings, whether judicial or extrajudicial, appropriated the [l]easehold [r]ights of
plaintiff Lydia Cuba over the fishpond in question. Its contention that it limited itself to
mere administration by posting caretakers is further belied by the deed of conditional
sale it executed in favor of CUBA. The deed stated:

WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in

its favor by the herein vendees [Cuba spouses] the former acquired all the
rights and interest of the latter over the above-described property;

The title to the real estate property [sic] and all improvements thereon shall
remain in the name of the Vendor until after the purchase price, advances and
interest shall have been fully paid. (Emphasis supplied).
It is obvious from the above-quoted paragraphs that DBP had appropriated and
taken ownership of CUBAs leasehold rights merely on the strength of the deed of
assignment.
DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its
act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not
provide that CUBAs default would operate to vest in DBP ownership of the said
rights. Besides, an assignment to guarantee an obligation, as in the present case, is
virtually a mortgage and not an absolute conveyance of title which confers ownership on
the assignee.
[12]

At any rate, DBPs act of appropriating CUBAs leasehold rights was violative of
Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing
of, the thing given as security for the payment of a debt.
The fact that CUBA offered and agreed to repurchase her leasehold rights from
DBP did not estop her from questioning DBPs act of appropriation. Estoppel is
unavailing in this case. As held by this Court in some cases, estoppel cannot give
validity to an act that is prohibited by law or against public policy. Hence, the
appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and
to public policy, cannot be deemed validated by estoppel.
[13]

Instead of taking ownership of the questioned real rights upon default by CUBA,
DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of
the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet,
in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural
Resources and coursed through the Director of the Bureau of Fisheries and Aquatic
Resources, DBP declared that it had foreclosed the mortgage and enforced the
assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba
spouces] to pay their loan amortizations. This only goes to show that DBP was aware
of the necessity of foreclosure proceedings.
[14]

In view of the false representation of DBP that it had already foreclosed the
mortgage, the Bureau of Fisheries cancelled CUBAs original lease permit, approved the
deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which
were predicated on such false representation, as well as the subsequent acts
emanating from DBPs appropriation of the leasehold rights, should therefore be set

aside. To validate these acts would open the floodgates to circumvention of Article 2088
of the Civil Code.
Even in cases where foreclosure proceedings were had, this Court had not
hesitated to nullify the consequent auction sale for failure to comply with the
requirements laid down by law, such as Act No. 3135, as amended. With more reason
that the sale of property given as security for the payment of a debt be set aside if there
was no prior foreclosure proceeding.
[15]

Hence, DBP should render an accounting of the income derived from the operation
of the fishpond in question and apply the said income in accordance with condition no.
12 of the deed of assignment which provided: Any amount received from rents,
administration, may be applied to the payment of repairs, improvements, taxes,
assessment, and other incidental expenses and obligations and the balance, if any, to
the payment of interest and then on the capital of the indebtedness.
We shall now take up the issue of damages.
Article 2199 provides:

Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or compensatory
damages.
Actual or compensatory damages cannot be presumed, but must be proved with
reasonable degree of certainty. A court cannot rely on speculations, conjectures, or
guesswork as to the fact and amount of damages, but must depend upon competent
proof that they have been suffered by the injured party and on the best obtainable
evidence of the actual amount thereof. It must point out specific facts which could
afford a basis for measuring whatever compensatory or actual damages are borne.
[16]

[17]

[18]

In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual
damages consisting of P550,000 which represented the value of the alleged lost articles
of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus
allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the
adjoining house. This award was affirmed by the Court of Appeals.
We find that the alleged loss of personal belongings and equipment was not proved
by clear evidence. Other than the testimony of CUBA and her caretaker, there was no
proof as to the existence of those items before DBP took over the fishpond in

question. As pointed out by DBP, there was not inventory of the alleged lost items
before the loss which is normal in a project which sometimes, if not most often, is left to
the care of other persons. Neither was a single receipt or record of acquisition
presented.
Curiously, in her complaint dated 17 May 1985, CUBA included losses of property
as among the damages resulting from DBPs take-over of the fishpond. Yet, it was only
in September 1985 when her son and a caretaker went to the fishpond and the
adjoining house that she came to know of the alleged loss of several articles. Such
claim for losses of property, having been made before knowledge of the alleged actual
loss, was therefore speculative. The alleged loss could have been a mere afterthought
or subterfuge to justify her claim for actual damages.
With regard to the award of P517,000 representing the value of the alleged 230,000
pieces of bangus which died when DBP took possession of the fishpond in March 1979,
the same was not called for. Such loss was not duly proved; besides, the claim therefor
was delayed unreasonably. From 1979 until after the filing of her complaint in court in
May 1985, CUBA did not bring to the attention of DBP the alleged loss. In fact, in her
letter dated 24 October 1979, she declared:
[19]

1. That from February to May 1978, I was then seriously ill in Manila and
within the same period I neglected the management and supervision of the
cultivation and harvest of the produce of the aforesaid fishpond thereby
resulting to the irreparable loss in the produce of the same in the amount of
about P500,000.00 to my great damage and prejudice due to fraudulent acts
of some of my fishpond workers.
Nowhere in the said letter, which was written seven months after DBP took
possession of the fishpond, did CUBA intimate that upon DBPs take-over there was a
total of 230,000 pieces of bangus, but all of which died because of DBPs
representatives prevented her men from feeding the fish.
The award of actual damages should, therefore, be struck down for lack of sufficient
basis.
In view, however, of DBPs act of appropriating CUBAs leasehold rights which was
contrary to law and public policy, as well as its false representation to the then Ministry
of Agriculture and Natural Resources that it had foreclosed the mortgage, an award of
moral damages in the amount of P50,000 is in order conformably with Article 2219(10),
in relation to Article 21, of the Civil Code. Exemplary or corrective damages in the

amount of P25,000 should likewise be awarded by way of example or correction for the
public good. There being an award of exemplary damages, attorneys fees are also
recoverable.
[20]

[21]

WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV

No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral
damages, which is hereby sustained. The 31 January 1990 Decision of the Regional
Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting
aside the finding that condition no. 12 of the deed of assignment constituted pactum
commissorium and the award of actual damages; and by reducing the amounts of
moral damages from P100,000 to P50,000; the exemplary damages, from P50,000
to P25,000; and the attorneys fees, from P100,000 to P20,000. The Development
Bank of the Philippines is hereby ordered to render an accounting of the income derived
from the operation of the fishpond in question.
Let this case be REMANDED to the trial court for the reception of the income
statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the
determination of each partys financial obligation to one another.
SO ORDERED.

[G. R. No. 126800. November 29, 1999]

NATALIA P. BUSTAMANTE, petitioner vs. SPOUSES RODITO F. ROSEL
and NORMA A. ROSEL, respondents.
R E S O LUTIO N
PARDO, J. :

The case before the Court is a petition for review on certiorari [1] to annul the
decision of the Court of Appeals, [2] reversing and setting aside the decision of the
Regional Trial Court,[3], dated November 10, 1992, Judge Teodoro P. Regino. 3 Quezon City, Branch
84, in an action for specific performance with consignation.
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan agreement
with petitioner Natalia Bustamante and her late husband Ismael C. Bustamante, under
the following terms and conditions:
1. That the borrowers are the registered owners of a parcel of land, evidenced by
TRANSFER CERTIFICATE OF TITLE No. 80667, containing an area of FOUR
HUNDRED TWENTY THREE (423) SQUARE Meters, more or less, situated along
Congressional Avenue.
2. That the borrowers were desirous to borrow the sum of ONE HUNDRED
THOUSAND (P100,000.00) PESOS from the LENDER, for a period of two (2) years,
counted from March 1, 1987, with an interest of EIGHTEEN (18%) PERCENT per
annum, and to guaranty the payment thereof, they are putting as a collateral
SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of
the aforestated parcel of land, however, in the event the borrowers fail to pay, the
lender has the option to buy or purchase the collateral for a total consideration of
TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed
amount and interest therein;
3. That the lender do hereby manifest her agreement and conformity to the preceding
paragraph, while the borrowers do hereby confess receipt of the borrowed amount.[4]

When the loan was about to mature on March 1, 1989, respondents proposed to
buy at the pre-set price of P200,000.00, the seventy (70) square meters parcel of land
covered by TCT No. 80667, given as collateral to guarantee payment of the loan.
Petitioner, however, refused to sell and requested for extension of time to pay the loan
and offered to sell to respondents another residential lot located at Road 20, Project 8,
Quezon City, with the principal loan plus interest to be used as down
payment. Respondents refused to extend the payment of the loan and to accept the lot
in Road 20 as it was occupied by squatters and petitioner and her husband were not
the owners thereof but were mere land developers entitled to subdivision shares or
commission if and when they developed at least one half of the subdivision area. [5]
Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents
which the latter refused to accept, insisting on petitioners signing a prepared deed of
absolute sale of the collateral.
On February 28, 1990, respondents filed with the Regional Trial Court, Quezon
City, Branch 84, a complaint for specific performance with consignation against
petitioner and her spouse.[6]
Nevertheless, on March 4, 1990, respondents sent a demand letter asking
petitioner to sell the collateral pursuant to the option to buy embodied in the loan
agreement.
On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court,
Quezon City a petition for consignation, and deposited the amount of P153,000.00
with the City Treasurer of Quezon City on August 10, 1990. [7]
When petitioner refused to sell the collateral and barangay conciliation failed,
respondents consigned the amount of P47,500.00 with the trial court. [8] In arriving at
the amount deposited, respondents considered the principal loan of P100,000.00 and
18% interest per annum thereon, which amounted to P52,500.00.[9] The principal loan
and the interest taken together amounted to P152,500.00, leaving a balance of P
47,500.00.[10]
After due trial, on November 10, 1992, the trial court rendered decision holding:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Denying the plaintiffs prayer for the defendants execution of the Deed of Sale to
Convey the collateral in plaintiffs favor;
2. Ordering the defendants to pay the loan of P100,000.00 with interest thereon at
18% per annum commencing on March 2, 1989, up to and until August 10, 1990,
when defendants deposited the amount with the Office of the City Treasurer under
Official Receipt No. 0116548 (Exhibit 2); and
3. To pay Attorneys Fees in the amount of P 5,000.00, plus costs of suit.
SO ORDERED.
Quezon City, Philippines, November 10, 1992.
TEODORO P. REGINO
Judge[11]

On November 16, 1992, respondents appealed from the decision to the Court of
Appeals.[12] On July 8, 1996, the Court of Appeals rendered decision reversing the
ruling of the Regional Trial Court. The dispositive portion of the Court of Appeals
decision reads:
IN VIEW OF THE FOREGOING, the judgment appeal (sic) from
is REVERSED and SET ASIDE and a new one entered in favor of the plaintiffs
ordering the defendants to accept the amount of P47,000.00 deposited with the Clerk
of Court of Regional Trial Court of Quezon City under Official Receipt No. 0719847,
and for defendants to execute the necessary Deed of Sale in favor of the plaintiffs over
the 70 SQUARE METER portion and the apartment standing thereon being occupied
by the plaintiffs and covered by TCT No. 80667 within fifteen (15) days from finality
hereof. Defendants, in turn, are allowed to withdraw the amount of P153,000.00
deposited by them under Official Receipt No. 0116548 of the City Treasurers Office
of Quezon City. All other claims and counterclaims areDISMISSED, for lack of
sufficient basis. No costs.
SO ORDERED.[13]

Hence, this petition.[14]

On January 20, 1997, we required respondents to comment on the petition within

ten (10) days from notice.[15] On February 27, 1997, respondents filed their comment. [16]
On February 9, 1998, we resolved to deny the petition on the ground that there
was no reversible error on the part of respondent court in ordering the execution of the
necessary deed of sale in conformity the with the parties stipulated agreement. The
contract is the law between the parties thereof (Syjuco v. Court of Appeals, 172 SCRA
111, 118, citing Phil. American General Insurance v. Mutuc, 61 SCRA 22; Herrera v.
Petrophil Corporation, 146 SCRA 360).[17]
On March 17, 1998, petitioner filed with this Court a motion for reconsideration
of the denial alleging that the real intention of the parties to the loan was to put up the
collateral as guarantee similar to an equitable mortgage according to Article 1602 of
the Civil Code.[18]
On April 21, 1998, respondents filed an opposition to petitioners motion for
reconsideration. They contend that the agreement between the parties was not a sale
with right of re-purchase, but a loan with interest at 18% per annum for a period of
two years and if petitioner fails to pay, the respondent was given the right to purchase
the property or apartment for P200,000.00, which is not contrary to law, morals, good
customs, public order or public policy. [19]
Upon due consideration of petitioners motion, we now resolve to grant the
motion for reconsideration.
The questions presented are whether petitioner failed to pay the loan at its
maturity date and whether the stipulation in the loan contract was valid and
enforceable.
We rule that petitioner did not fail to pay the loan.
The loan was due for payment on March 1, 1989. On said date, petitioner tendered
payment to settle the loan which respondents refused to accept, insisting that
petitioner sell to them the collateral of the loan.
When respondents refused to accept payment, petitioner consigned the amount
with the trial court.

We note the eagerness of respondents to acquire the property given as collateral to

guarantee the loan. The sale of the collateral is an obligation with a suspensive
condition.[20] It is dependent upon the happening of an event, without which the
obligation to sell does not arise. Since the event did not occur, respondents do not
have the right to demand fulfillment of petitioners obligation, especially where the
same would not only be disadvantageous to petitioner but would also unjustly enrich
respondents considering the inadequate consideration (P200,000.00) for a 70 square
meter property situated at Congressional Avenue, Quezon City.
Respondents argue that contracts have the force of law between the contracting
parties and must be complied with in good faith. [21] There are, however, certain
exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:
Article 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor
to acquire the property given as security for the loan. This is embraced in the concept
of pactum commissorium, which is proscribed by law.[22]
The elements of pactum commissorium are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal obligation, and (2) there should be a
stipulation for automatic appropriation by the creditor of the thing mortgaged in case of nonpayment of the principal obligation within the stipulated period.[23]

In Nakpil vs. Intermediate Appellate Court, [24] we said:

The arrangement entered into between the parties, whereby Pulong Maulap was to
be considered sold to him (respondent) xxx in case petitioner fails to reimburse
Valdes, must then be construed as tantamount to pactum commissorium which is
expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic
appropriation of the property by Valdes in the event of failure of petitioner to pay the
value of the advances. Thus, contrary to respondents manifestation, all the elements
of a pactum commissorium were present: there was a creditor-debtor relationship
between the parties; the property was used as security for the loan; and there was
automatic appropriation by respondent of Pulong Maulap in case of default of
petitioner.

A significant task in contract interpretation is the ascertainment of the intention of

the parties and looking into the words used by the parties to project that intention. In
this case, the intent to appropriate the property given as collateral in favor of the
creditor appears to be evident, for the debtor is obliged to dispose of the collateral at
the pre-agreed consideration amounting to practically the same amount as the loan. In
effect, the creditor acquires the collateral in the event of non payment of the loan. This
is within the concept of pactum commissorium. Such stipulation is void.[25]
All persons in need of money are liable to enter into contractual relationships
whatever the condition if only to alleviate their financial burden albeit
temporarily. Hence, courts are duty bound to exercise caution in the interpretation
and resolution of contracts lest the lenders devour the borrowers like vultures do with
their prey.
WHEREFORE, we GRANT petitioners motion for reconsideration and SET
ASIDE the Courts resolution of February 9, 1998. We REVERSE the decision of the
Court of Appeals in CA-G. R. CV No. 40193. In lieu thereof, we hereby DISMISS
the complaint in Civil Case No. Q-90-4813.
No costs.
SO ORDERED.

SECOND DIVISION
SPOUSES WILFREDO N. ONG and EDNA
SHEILA PAGUIO-ONG,
Petitioners,
- versus -

ROBAN LENDING CORPORATION,

Respondent.

G.R. No. 172592

Present:
QUISUMBING, J
airperson,
CARPIO MORALES,
TINGA,
BRION, and
AUSTRIAMARTINEZ,*JJ.
Promulgated:
July 9, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CARPIO MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses
Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from Roban
Lending Corporation (respondent) in the total amount of P4,000,000.00. These
loans were secured by a real estate mortgage on petitioners parcels of land located
in Binauganan, TarlacCity and covered by TCT No. 297840.[1]
On February 12, 2001, petitioners and respondent executed an Amendment
to Amended Real Estate Mortgage[2] consolidating their loans inclusive of charges
thereon which totaled P5,916,117.50. On even date, the parties executed a Dacion
in Payment Agreement[3] wherein petitioners assigned the properties covered by

TCT No. 297840 to respondent in settlement of their total obligation, and a

Memorandum of Agreement[4] reading:
That the FIRST PARTY [Roban Lending Corporation] and the
SECOND PARTY [the petitioners] agreed to consolidate and
restructure all aforementioned loans, which have been all past due and
delinquent since April 19, 2000, and outstanding obligations totaling
P5,916,117.50. The SECOND PARTY hereby sign [sic] another
promissory note in the amount of P5,916,117.50 (a copy of which is
hereto attached and forms xxx an integral part of this document), with
a promise to pay the FIRST PARTY in full within one year from the
date of the consolidation and restructuring, otherwise the SECOND
PARTY agree to have their DACION IN PAYMENT agreement,
which they have executed and signed today in favor of the FIRST
PARTY be enforced[.][5]

In April 2002 (the day is illegible), petitioners filed a Complaint, [6] docketed
as Civil Case No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for
declaration of mortgage contract as abandoned, annulment of deeds, illegal
exaction, unjust enrichment, accounting, and damages, alleging that the
Memorandum of Agreement and the Dacion in Payment executed are void for
being pactum commissorium.[7]
Petitioners alleged that the loans extended to them from July 14, 1999 to
March 20, 2000 were founded on several uniform promissory notes, which
provided for 3.5% monthly interest rates, 5% penalty per month on the total
amount due and demandable, and a further sum of 25% attorneys fees thereon,
[8]
and in addition, respondent exacted certain sums denominated as
EVAT/AR.[9] Petitioners decried these additional charges as illegal, iniquitous,
unconscionable, and revolting to the conscience as they hardly allow any borrower
any chance of survival in case of default.[10]
Petitioners further alleged that they had previously made payments on their
loan accounts, but because of the illegal exactions thereon, the total balance
appears not to have moved at all, hence, accounting was in order.[11]

Petitioners thus prayed for judgment:

a)
Declaring the Real Estate Mortgage Contract and its
amendments x x x as null and void and without legal force and effect
for having been renounced, abandoned, and given up;
b)
Declaring the Memorandum of Agreement xxx and
Dacion in Payment x x x as null and void for being pactum
commissorium;
c)
Declaring the interests, penalties, Evat [sic] and
attorneys fees assessed and loaded into the loan accounts of the
plaintiffs with defendant as unjust, iniquitous, unconscionable and
illegal and therefore, stricken out or set aside;
d)
Ordering an accounting on plaintiffs loan accounts to
determine the true and correct balances on their obligation against
legal charges only; and
e)

Ordering defendant to [pay] to the plaintiffs: -e.1 Moral damages in an amount not less than
P100,000.00 and exemplary damages of P50,000.00;
e.2 Attorneys fees in the amount of P50,000.00 plus
P1,000.00 appearance fee per hearing; and
e.3 The cost of suit.[12]

as well as other just and equitable reliefs.

In its Answer with Counterclaim,[13] respondent maintained the legality of its
transactions with petitioners, alleging that:
xxxx

If the voluntary execution of the Memorandum of Agreement

and Dacion in Payment Agreement novated the Real Estate Mortgage
then the allegation of Pactum Commissorium has no more legal leg to
stand on;
The Dacion in Payment Agreement is lawful and valid as it is
recognized x x x under Art. 1245 of the Civil Code as a special form
of payment whereby the debtor-Plaintiffs alienates their property to
the creditor-Defendant in satisfaction of their monetary obligation;
The accumulated interest and other charges which were
computed for more than two (2) years would stand reasonable and
valid taking into consideration [that] the principal loan isP4,000,000
and if indeed it became beyond the Plaintiffs capacity to pay then the
fault is attributed to them and not the Defendant[.] [14]

After pre-trial, the initial hearing of the case, originally set on December 11,
2002, was reset several times due to, among other things, the parties efforts to
settle the case amicably.[15]
During the scheduled initial hearing of May 7, 2003, the RTC issued the
following order:
Considering that the plaintiff Wilfredo Ong is not around on the
ground that he is in Manila and he is attending to a very sick relative,
without objection on the part of the defendants counsel, the initial
hearing of this case is reset to June 18, 2003 at 10:00 oclock in the
morning.
Just in case [plaintiffs counsel] Atty. Concepcion cannot
present his witness in the person of Mr. Wilfredo Ong in the next
scheduled hearing, the counsel manifested that he will submit the case
for summary judgment.[16] (Underscoring supplied)

It appears that the June 18, 2003 setting was eventually rescheduled
to February 11, 2004 at which both counsels were present [17] and the RTC issued
the following order:

The counsel[s] agreed to reset this case on April 14, 2004,

at 10:00 oclock in the morning. However, the counsels are directed
to be ready with their memorand[a] together with all the exhibits or
evidence needed to support their respective positions which should be
the basis for the judgment on the pleadings if the parties fail to settle
the case in the next scheduled setting.
x x x x[18] (Underscoring supplied)

At the scheduled April 14, 2004 hearing, both counsels appeared but only
the counsel of respondent filed a memorandum.[19]
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on
the basis of the pleadings that there was no pactum commissorium, dismissed the
complaint.[20]
On appeal,[21] the Court of Appeals[22] noted that
x x x [W]hile the trial court in its decision stated that it was
rendering judgment on the pleadings, x x x what it actually rendered
was a summary judgment. A judgment on the pleadings is proper
when the answer fails to tender an issue, or otherwise admits the
material allegations of the adverse partys pleading. However, a
judgment on the pleadings would not have been proper in this case as
the answer tendered an issue, i.e. the validity of the MOA and
DPA. On the other hand, a summary judgment may be rendered by
the court if the pleadings, supporting affidavits, and other documents
show that, except as to the amount of damages, there is no genuine
issue as to any material fact.[23]

Nevertheless, finding the error in nomenclature to be mere semantics with

no bearing on the merits of the case, [24] the Court of Appeals upheld the RTC
decision that there was no pactum commissorium.[25]
Their Motion for Reconsideration[26] having been denied,[27] petitioners filed
the instant Petition for Review on Certiorari,[28] faulting the Court of Appeals for
having committed a clear and reversible error

I.

. . . WHEN IT FAILED AND REFUSED TO APPLY

PROCEDURAL REQUISITES WHICH WOULD WARRANT
THE SETTING ASIDE OF THE SUMMARY JUDGMENT IN
VIOLATION OF APPELLANTS RIGHT TO DUE
PROCESS;

II.

. . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN

THIS CASE IS NECESSARY BECAUSE THE FACTS ARE
VERY MUCH IN DISPUTE;

III.

. . . WHEN IT FAILED AND REFUSED TO HOLD THAT

THE MEMORANDUM OF AGREEMENT (MOA) AND THE
DACION EN PAGO AGREEMENT (DPA) WERE
DESIGNED
TO
CIRCUMVENT
THE
LAW
AGAINST PACTUM COMMISSORIUM; and

IV.

. . . WHEN IT FAILED TO CONSIDER THAT THE

MEMORANDUM OF AGREEMENT (MOA) AND THE
DACION EN PAGO (DPA) ARE NULL AND VOID FOR
BEING CONTRARY TO LAW AND PUBLIC POLICY.[29]

The petition is meritorious.

Both parties admit the execution and contents of the Memorandum of
Agreement and Dacion in Payment. They differ, however, on whether both
contracts constitutepactum commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dacion in
Payment constitute pactum commissorium, which is prohibited under Article 2088
of the Civil Code which provides:
The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and
void.

The elements of pactum commissorium, which enables the mortgagee to

acquire ownership of the mortgaged property without the need of any foreclosure

proceedings,[30]are: (1) there should be a property mortgaged by way of security

for the payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of nonpayment of the principal obligation within the stipulated period.[31]
In the case at bar, the Memorandum of Agreement and the Dacion in
Payment contain no provisions for foreclosure proceedings nor redemption. Under
the Memorandum of Agreement, the failure by the petitioners to pay their debt
within the one-year period gives respondent the right to enforce the Dacion in
Payment transferring to it ownership of the properties covered by TCT No.
297840. Respondent, in effect, automatically acquires ownership of the properties
upon petitioners failure to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special form
of payment whereby the debtor alienates property to the creditor in satisfaction of a
monetary obligation.[32] This does not persuade. In a true dacion en pago, the
assignment of the property extinguishes the monetary debt. [33] In the case at bar,
the alienation of the properties was by way of security, and not by way of
satisfying the debt.[34] The Dacion in Payment did not extinguish petitioners
obligation to respondent. On the contrary, under the Memorandum of Agreement
executed on the same day as the Dacion in Payment, petitioners had to execute a
promissory note for P5,916,117.50 which they were to pay within one year.[35]
Respondent cites Solid Homes, Inc. v. Court of Appeals[36] where this Court
upheld a Memorandum of Agreement/Dacion en Pago.[37] That case did not
involve the issue of pactum commissorium.[38]
That the questioned contracts were freely and voluntarily executed by
petitioners and respondent is of no moment, pactum commissorium being void for
being prohibited by law.[39]
Respecting the charges on the loans, courts may reduce interest rates,
penalty charges, and attorneys fees if they are iniquitous or unconscionable.[40]
This Court, based on existing jurisprudence, [41] finds the monthly interest
rate of 3.5%, or 42% per annum unconscionable and thus reduces it to 12% per

annum. This Court finds too the penalty fee at the monthly rate of 5% (60% per
annum) of the total amount due and demandable principal plus interest, with
interest not paid when due added to and becoming part of the principal and
likewise bearing interest at the same rate, compounded monthly [42]
unconscionable and reduces it to a yearly rate of 12% of the amount due, to be
computed from the time of demand. [43] This Court finds the attorneys fees of 25%
of the principal, interests and interests thereon, and the penalty fees
unconscionable, and thus reduces the attorneys fees to 25% of the principal
amount only.[44]
The prayer for accounting in petitioners complaint requires presentation of
evidence, they claiming to have made partial payments on their loans, vis a
vis respondents denial thereof.[45] A remand of the case is thus in order.
Prescinding from the above disquisition, the trial court and the Court of
Appeals erred in holding that a summary judgment is proper. A summary
judgment is permitted only if there is no genuine issue as to any material fact and a
moving party is entitled to a judgment as a matter of law.[46] A summary judgment
is proper if, while the pleadings on their face appear to raise issues, the affidavits,
depositions, and admissions presented by the moving party show that such issues
are not genuine.[47] A genuine issue, as opposed to a fictitious or contrived one, is
an issue of fact that requires the presentation of evidence.[48] As mentioned above,
petitioners prayer for accounting requires the presentation of evidence on the issue
of partial payment.
But neither is a judgment on the pleadings proper. A judgment on the
pleadings may be rendered only when an answer fails to tender an issue or
otherwise admits the material allegations of the adverse partys pleadings. [49] In the
case at bar, respondents Answer with Counterclaim disputed petitioners claims
that the Memorandum of Agreement and Dation in Payment are illegal and that the
extra charges on the loans are unconscionable.[50] Respondent disputed too
petitioners allegation of bad faith.[51]
WHEREFORE, the challenged Court of Appeals Decision
is REVERSED and SET ASIDE. The Memorandum of Agreement and the
Dacion in Payment executed by petitioner- spouses Wilfredo N. Ong and Edna

Sheila Paguio-Ong and respondent Roban Lending Corporation on February 12,

2001 are declared NULL AND VOID for beingpactum commissorium.
In line with the foregoing findings, the following terms of the loan contracts
between the parties are MODIFIED as follows:
1.

The monthly interest rate of 3.5%, or 42% per annum, is reduced to

12% per annum;

2.

The monthly penalty fee of 5% of the total amount due and

demandable is reduced to 12% per annum, to be computed from the
time of demand; and

3.

The attorneys fees are reduced to 25% of the principal amount only.

Civil Case No. 9322 is REMANDED to the court of origin only for the
purpose of receiving evidence on petitioners prayer for accounting.
SO ORDERED.

G.R. No. 131679

February 1, 2000

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No.
42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are
banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a
certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which
he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered
by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB
foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property
was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB
consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was
cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.
1wphi1.nt

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by
Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon
City for P300,000.00 under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or tenants.
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option
Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However,
after some time following up the sale, Lim discovered that the subject property was originally
registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No.
91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the
same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It
appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial
Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial
court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT

No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has
since become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company,
FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29,
1989 an action for specific performance and damages against petitioners in the Regional Trial Court,
Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as an additional
defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1)
there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that
the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale
and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No.
Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were
not exempt from liability despite the impossibility of performance, because they could not credibly
disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure
to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are
liable for damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the
trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of
P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also
ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as
moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of
the suit.4
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in
toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion
was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend
that
1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were
aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in
Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit
of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil
Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages,
exemplary damages, attorney's fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent
Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was
given as option money, not as earnest money.5 They thus conclude that the contract between CDB
and Lim was merely an option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parries thereto but by principles of
law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it
by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the
offer to purchase as "option money," is actually in the nature of earnest money or down payment
when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the
nature of an option contract, viz.
An option contract is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to enter into a
principal contract, it binds the party who has given the option not to enter into the principal
contract with any other person during the period; designated, and within that period, to enter
into such contract with the one to whom the option was granted, if the latter should decide to
use the option. It is a separate agreement distinct from the contract to which the parties may
enter upon the consummation of the option.
An option contract is therefore a contract separate from and preparatory to a contract of sale which,
if perfected, does not result in the perfection or consummation of the sale. Only when the option is
exercised may a sale be perfected.
In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for
the payment only of the balance of the purchase price, implying that the "option money" forms part of
the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil
Code. It is clear then that the parties in this case actually entered into a contract of sale, partially
consummated as to the payment of the price. Moreover, the following findings of the trial court based
on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase:
It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and
no longer subject to a final approval. In his testimony for the defendants on February 13,
1992, FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department
of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla,
CDB's senior vice-president, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in accord with one of
the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants
(tsn, p. 12); that, in compliance with the request, a petition for writ of possession was
thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the
banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which
was not a normal procedure, and neither did the banks return the amount of P30,000.00 to
the plaintiffs.9
Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected
and, indeed, partially executed because of the partial payment of the purchase price. There is,

however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its
obligation as seller to deliver and transfer ownership of the property.
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not
have. In applying this precept to a contract of sale, a distinction must be kept in mind between the
"perfection" and "consummation" stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.10 It is, therefore, not required that, at the perfection stage,
the seller be the owner of the thing sold or even that such subject matter of the sale exists at that
point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing
which, at that time, was not his, but later acquires title thereto, such title passes by operation of law
to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462
of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the
sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to
comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where
the principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the
subject land were no longer the owners of the same because of a prior sale. 13 Again, in Nool v. Court
of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the
property sold, is invalid:
We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid
and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the
principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in
Exhibit D are both void. This conclusion of the two lower courts appears to find support
in Dignos v. Court of Appeals, where the Court held:
Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of land at
the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the
validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily,
Article 1422 of the Civil Code provides that (a) contract which is the direct result of a
previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a "sale is null and
void" where the sellers "were no longer the owners" of the property. Such a situation (where
the sellers were no longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a
sale where the goods are to be acquired . . . by the seller after the perfection of the contract
of sale, clearly implying that a sale is possible even if the seller was not the owner at the time
of sale, provided he acquires title to the property later on.

In the present case, however, it is likewise clear that the sellers can no longer deliver the
object of the sale to the buyers, as the buyers themselves have already acquired title and
delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code:
Those which contemplate an impossible service. Article 1459 of the Civil Code provides that
"the vendor must have a right to transfer the ownership thereof [subject of the sale] at the
time it is delivered." Here, delivery of ownership is no longer possible. It has become
impossible.15
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must,
therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB
never acquired a valid title to the property because the foreclosure sale, by virtue of which, the
property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not
the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of
the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer
the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid
price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale. This is the reason Art. 2085 16 of the Civil Code, in providing
for the essential requisites of the contract of mortgage and pledge, requires, among other things,
that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in
anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising
therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good
faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of
Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the
title.17 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.
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make
a detailed investigation of the history of the title of the property given as security before accepting a
mortgage.
We are not convinced, however, that under the circumstances of this case, CDB can be considered
a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation
on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due
diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice
for banks, before approving a loan, to send representatives to the premises of the land offered as
collateral and to investigate who are real owners thereof, noting that banks are expected to exercise
more care and prudence than private individuals in their dealings, even those involving registered
lands, for their business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the
innocent original registered owner who obtained his certificate of title through perfectly legal
and regular proceedings, than one who obtains his certificate from a totally void one, as to
prevail over judicial pronouncements to the effect that one dealing with a registered land,
such as a purchaser, is under no obligation to look beyond the certificate of title of the
vendor, for in the latter case, good faith has yet to be established by the vendee or
transferee, being the most essential condition, coupled with valuable consideration, to entitle
him to respect for his newly acquired title even as against the holder of an earlier and
perfectly valid title. There might be circumstances apparent on the face of the certificate of
title which could excite suspicion as to prompt inquiry, such as when the transfer is not by
virtue of a voluntary act of the original registered owner, as in the instant case, where it was
by means of a self-executed deed of extra-judicial settlement, a fact which should be noted
on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be
consistent with any pretense of good faith, which the appellant bank invokes to claim the
right to be protected as a mortgagee, and for the reversal of the judgment rendered against it
by the lower court.19
In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity
of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by
executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he
and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had
waived all his rights thereto. This self-executed deed should have placed CDB on guard against any
possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection
report20 by CDB's representative was never formally offered in evidence. Indeed, petitioners admit
that they are aware that the subject land was being occupied by persons other than Rodolfo
Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.21
II.
The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was
at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners
guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option
money, CDB already knew that it was no longer the owner of the said property, its title having been
cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on
speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the
mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4)
the final decision cancelling the mortgagor's title was not annotated in the latter's title.
As a rule, only questions of law may be raised in a petition for review, except in circumstances where
questions of fact may be properly raised.23 Here, while petitioners raise these factual issues, they
have not sufficiently shown that the instant case falls under any of the exceptions to the above rule.
We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of
petitioners' negligence in approving the mortgage application of Rodolfo Guansing.
III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of
the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
xxx

xxx

xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given
by reason of the contract, or ask for the fulfillment of what has been promised him. The other,
who is not at fault, may demand the return of what he has given without any obligation to
comply with his promise.
Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a demand by
respondents for the return of their money, interest thereon at the legal rate should be computed from
August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners
accepted the payment. This is in accord with our ruling inCastillo v. Abalayan24 that in case of avoid
sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund
it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid.
Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has
given" clearly implies that without such prior demand, the obligation to return what was given does
not become legally demandable.
Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and
2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be
recovered even if a bank's negligence is not attended with malice and bad faith. We find, however,
that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only
intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the
expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to
P50,000.00.
Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the
Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's
fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to
P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the
award of damages as above stated.
1wphi1.nt

SO ORDERED.

G.R. No. 77465 May 21, 1988

SPOUSES UY TONG & KHO PO GIOK, petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C. EJERCITO, Judge of the
Court of First Instance of Manila, Branch XXXVII and BAYANIHAN AUTOMOTIVE
CORPORATION, respondents.
Platon A. Baysa for petitioner.
Manuel T. Ybarra for respondents.

CORTES, J.:
In the present petition, petitioners assail the validity of a deed of assignment over an apartment unit
and the leasehold rights over the land on which the building housing the said apartment stands for
allegedly being in the nature of a pactum commissorium.
The facts are not disputed.
Petitioners Uy Tong (also known as Henry Uy) and Kho Po Giok (SPOUSES) used to be the owners
of Apartment No. 307 of the Ligaya Building, together with the leasehold right for ninety- nine (99)
years over the land on which the building stands. The land is registered in the name of Ligaya
Investments, Inc. as evidenced by Transfer Certificate of Title No. 79420 of the Registry of Deeds of
the City of Manila. It appears that Ligaya Investments, Inc. owned the building which houses the
apartment units but sold Apartment No. 307 and leased a portion of the land in which the building
stands to the SPOUSES.
In February, 1969, the SPOUSES purchased from private respondent Bayanihan Automotive, Inc.
(BAYANIHAN) seven (7) units of motor vehicles for a total amount of P47,700.00 payable in three (3)
installments. The transaction was evidenced by a written "Agreement" wherein the terms of payment
had been specified as follows:
That immediately upon signing of this Agreement, the VENDEE shall pay unto the
VENDOR the amount of Seven Thousand Seven Hundred (P7,000.00) Pesos,
Philippine Currency, and the amount of Fifteen Thousand (P15,000.00) Pesos shah
be paid on or before March 30, 1969 and the balance of Twenty Five Thousand
(P25,000.00) Pesos shall be paid on or before April 30, 1969, the said amount again
to be secured by another postdated check with maturity on April 30, 1969 to be
drawn by the VENDEE;
That it is fully understood that should the two (2) aforementioned checks be not
honored on their respective maturity dates, herein VENDOR will give VENDEE

another sixty (60) days from maturity dates, within which to pay or redeem the value
of the said checks;
That if for any reason the VENDEE should fail to pay her aforementioned obligation
to the VENDOR,the latter shall become automatically the owner of the former's
apartment which is located at No. 307, Ligaya Building, Alvarado St., Binondo,
Manila, with the only obligation on its part to pay unto the VENDEE the amount of
Three Thousand Five Hundred Thirty Five (P3,535.00) Pesos, Philippine Currency;
and in such event the VENDEE shall execute the corresponding Deed of absolute
Sale in favor of the VENDOR and or the Assignment of Leasehold Rights. [emphasis
supplied]. (Quoted in Decision in Civil Case No. 80420, Exhibit "A" of Civil Case No.
1315321].
After making a downpayment of P7,700.00, the SPOUSES failed to pay the balance of P40,000.00.
Due to these unpaid balances, BAYANIHAN filed an action for specific performance against the
SPOUSES docketed as Civil Case No. 80420 with the Court of First Instance of Manila.
On October 28, 1978, after hearing, judgment was rendered in favor of BAYANIHAN in a decision
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered, ordering the defendants, jointly and
severally, to pay the plaintiffs, the sum of P40,000.00, with interest at the legal rate
from July 1, 1970 until full payment. In the event of their failure to do so within thirty
(30) days from notice of this judgment, they are hereby ordered to execute the
corresponding deed of absolute sale in favor of the plaintiff and/or the assignment of
leasehold rights over the defendant's apartment located at 307 Ligaya Building,
Alvarado Street, Binondo, Manila, upon the payment by the plaintiff to the
defendants of the sum of P3,535.00. [emphasis supplied].
Pursuant to said judgment, an order for execution pending appeal was issued by the trial court and a
deed of assignment dated May 27, 1972, was executed by the SPOUSES [Exhibit "B", CFI Records,
p. 127] over Apartment No. 307 of the Ligaya Building together with the leasehold right over the land
on which the building stands. The SPOUSES acknowledged receipt of the sum of P3,000.00 more or
less, paid by BAYANIHAN pursuant to the said judgment.
Notwithstanding the execution of the deed of assignment the SPOUSES remained in possession of
the premises. Subsequently, they were allowed to remain in the premises as lessees for a stipulated
monthly rental until November 30,1972.
Despite the expiration of the said period, the SPOUSES failed to surrender possession of the
premises in favor of BAYANIHAN. This prompted BAYANIHAN to file an ejectment case against them
in the City Court of Manila docketed as Civil Case No. 240019. This action was however dismissed
on the ground that BAYANIHAN was not the real party in interest, not being the owner of the
building.

On February 7, 1979, after demands to vacate the subject apartment made by BAYANIHAN's
counsel was again ignored by the SPOUSES, an action for recovery of possession with damages
was filed with the Court of First Instance of Manila, docketed as Civil Case No. 121532 against the
SPOUSES and impleading Ligaya Investments, Inc. as party defendant. On March 17, 1981,
decision in said case was rendered in favor of BAYANIHAN ordering the following:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants spouses UY TONG and KHO GIOK and defendant Ligaya Investment,
Inc., dismissing defendants' counterclaim and ordering:
1. The defendants spouses UY TONG and KHO PO GIOK and any andlor persons
claiming right under them, to vacate, surrender and deliver possession of Apartment
307, Ligaya Building, located at 64 Alvarado Street, Binondo, Manila to the plaintiff;
2. Ordering defendant Ligaya Investment, Inc. to recognize the right of ownership
and possession of the plaintiff over Apartment No. 307, Ligaya Building;
3. Ordering Ligaya Investment, Inc. to acknowledge plaintiff as assignee-lessee in
liue of defendants spouses Uy Tong and Kho Po Giok over the lot on which the
building was constructed;
4. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay to the plaintiff
the sum of P200.00 commencing from June, 1971 to November 30, 1972, or a total
amount of P3,400.00 as rental for the apartment, and the sum of P200.00 from
December 1, 1972 until the premises are finally vacated and surrendered to the
plaintiff, as reasonable compensation for the use of the apartment; and
5. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay P3,000.00 as
and for attorney's fees to the plaintiff, and the costs of this suit.
Not satisfied with this decision, the SPOUSES appealed to the Court of Appeals. On October
2,1984, the respondent Court of Appeals affirmed in toto the decision appealed from [Petition, Annex
"A", Rollo, pp. 15-20]. A motion for reconsideration of the said decision was denied by the
respondent Court in a resolution dated February 11, 1987 [Petition, Annex "C", Rollo, pp. 31- 34].
Petitioners-SPOUSES in seeking a reversal of the decision of the Court of Appeals rely on the
following reasons:
I. The deed of assignment is null and void because it is in the nature of a pactum
commissoriumand/or was borne out of the same.
II. The genuineness and due Prosecution of the deed of assignment was not deemed
admitted by petitioner.
III. The deed of assignment is unenforceable because the condition for its execution
was not complied with.

IV. The refusal of petitioners to vacate and surrender the premises in question to
private respondent is justified and warranted by the circumstances obtaining in the
instant case.
I. In support of the first argument, petitioners bring to the fore the contract entered into by the parties
whereby petitioner Kho Po Giok agreed that the apartment in question will automatically become the
property of private respondent BAYANIHAN upon her mere failure to pay her obligation. This
agreement, according to the petitioners is in the nature of a pactum commissorium which is null and
void, hence, the deed of assignment which was borne out of the same agreement suffers the same
fate.
The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil
Code:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of the same. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that
there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security
for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
A perusal of the terms of the questioned agreement evinces no basis for the application of
the pactum commissorium provision. First, there is no indication of 'any contract of mortgage entered
into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of the property by BAYANIHAN. When the
SPOUSES defaulted in their payments of the second and third installments of the trucks they
purchased, BAYANIHAN filed an action in court for specific performance. The trial court rendered
favorable judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their
obligation and in case of failure to do so, to execute a deed of assignment over the property involved
in this case. The SPOUSES elected to execute the deed of assignment pursuant to said judgment.
Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of the
trial court to exact fulfillment of the obligation, which, by its very nature is ". . anathema to the
concept of pacto commissorio" [Northern Motors, Inc. v. Herrera, G.R. No. L-32674, February 22,
1973, 49 SCRA 392]. And even granting that the original agreement between the parties had the
badges of pactum commissorium, the deed of assignment does not suffer the same fate as this was
executed pursuant to a valid judgment in Civil Case No. 80420 as can be gleaned from its very
terms and conditions:
DEED OF ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS:

This deed made and entered into by Uy Tiong also known as Henry Uy and Kho Po
Giok, both of legal age, husband and wife, respectively, and presently residing at 307
Ligaya Bldg., Alvarado St., Binondo, Manila, and hereinafter to be known and called
as the ASSIGNORS, in favor of Bayanihan Automotive Corporation, an entity duly
organized and existing under the laws of the Philippines, with principal business
address at 1690 Otis St., Paco, Manila and hereinafter to be known and called the
ASSIGNEE;
-witnessethWHEREAS, the ASSIGNEE has filed a civil complaint for "Specific Performance with
Damages" against the ASSIGNORS in the Court of First Instance of Manila, Branch
V, said case having been docketed as Civil Case No. 80420;
WHEREAS, the ASSIGNEE was able to obtain a judgment against the ASSIGNOR
wherein the latter was ordered by the court as follows, to wit:
WHEREFORE, judgment is hereby rendered ordering the
defendants, jointly and severally to pay the plaintiff the sum of
P40,000.00, with interest at the legal rate from July 31, 1970 until full
payment. In the event of their failure to do so within thirty (30) days
from notice of this judgment, they are hereby ordered to execute the
corresponding deed of absolute sale in favor of the plaintiff and/or the
assignment of leasehold, rights over the defendants' apartment
located at No. 307 Ligaya Building, Alvarado Street, Binondo, Manila,
upon the payment by the plaintiff to the defendants the sum of P
3,535.00. The defendants shall pay the costs.
WHEREAS, the court, upon petition by herein ASSIGNEE and its deposit of sufficient
bond, has ordered for the immediate execution of the said decision even pending
appeal of the aforesaid decision;
WHEREAS, the ASSIGNORS have elected to just execute the necessary deed of
sale and/or assignment of leasehold rights over the apartment mentioned in the
decision in favor of the herein ASSIGNEE;
NOW, THEREFORE, for and in consideration of the foregoing premises, the
ASSIGNORS have transferred assigned and ceded, and by these presents do
hereby transfer, assign and cede all their rights and interests over that place known
as Apartment No. 307 at the Ligaya Building which is located at No. 864 Alvarado St.,
Binondo, Manila, together with the corresponding leasehold rights over the lot on
which the said building is constructed, in favor of the hererein ASSIGNEE, its heirs or
assigns.
IN WITNESS WHEREOF, We have hereunto signed our names this 27th day of May,
1971 at Manila, Philippines.

UY TONG/HENRY UY KHO PO GIOK

Assignor Assignor
ACR-2151166 Manila 1/13/51 ACR-C-001620
Manila March 3, 1965
This being the case, there is no reason to impugn the validity of the said deed of assignment.
II. The SPOUSES take exception to the ruling of the Court of Appeals that their failure to deny the
genuineness and due execution of the deed of assignment was deemed an admission thereof. The
basis for this exception is the SPOUSES' insistence that the deed of assignment having been borne
out of pactum commissorio is not subject to ratification and its invalidity cannot be waived.
There is no compelling reason to reverse the abovementioned ruling of the appellate court.
Considering this Court's above conclusion that the deed of assignment is not invalid, it follows that
when an action founded on this written instrument is filed, the rule on contesting its genuineness and
due execution must be followed.
That facts reveal that the action in Civil Case No. 121532 was founded on the deed of assignment.
However, the SPOUSES, in their answer to the complaint, failed to deny under oath and specifically
the genuineness and due execution of the said deed. Perforce, under Section 8, Rule 8 of the
Revised Rules of Court, the SPOUSES are deemed to have admitted the deed's genuineness and
due execution. Besides, they themselves admit that ". . . the contract was duly executed and that the
same is genuine" [Sur-Rejoinder, Rollo, p. 67]. They cannot now claim otherwise.
III. The SPOUSES also question the enforceability of the deed of assignment. They contend that the
deed is unenforceable because the condition for its execution was not complied with. What
petitioners SPOUSES refer to is that portion of the disposition in Civil Case No. 80420 requiring
BAYANIHAN to pay the former the sum of P 3,535.00. To buttress their claim of non- compliance,
they invoke the following receipt issued by the SPOUSES to show that BAYANIHAN was P535.00
short of the complete payment.
RECEIPT
This is to acknowledge the fact that the amount of THREE THOUSAND (P3,000.00)
PESOS, more or less as indicated in the judgment of the Hon. Conrado Vasquez,
Presiding Judge of the Court of First Instance of Manila, Branch V, in Civil Case
entitled "Bayanihan Automotive Corp. v. Pho (sic) Po Giok, etc." and docketed as
Civil Case No. 80420 has been applied for the payment of the previous rentals of the
property which is the subject matter of the aforesaid judgment. [emphasis supplied.]
(Sgd.) Pho (sic) Po
Glok

(Sgd.) Henry Uy
August 21, 1971
The issue presented involves a question of fact which is not within this Court's competence to look
into. Suffice it to say that this Court is of the view that findings and conclusion of the trial court and
the Court of Appeals on the question of whether there was compliance by BAYANIHAN of its
obligation under the decision in Civil Case No. 80420 to pay the SPOUSES the sum of P3,535.00 is
borne by the evidence on record. The Court finds merit in the following findings of the trial court:
... Defendants 'contention that the P 3,535.00 required in the decision in Civil Case
No. 80420 as a condition for the execution of the deed of assignment was not paid
by the plaintiff to the defendants is belied by the fact that the
defendants acknowledged payment of P3,000.00, more or less, in a receipt dated
August 21, 1971. This amount was expressly mentioned in this receipt as indicated in
the judgment of the Honorable Conrado Vasquez, presiding Judge of the CFI of
Manila, Branch V, in Civil Case entitled Bayanihan Automotive Corp. versus Kho Po
Giok, docketed as Civil Case No. 80420, and also expressly mentioned as having
been applied for the payment of the previous rentals of the property subject matter of
the said judgment. Nothing could be more explicit. The contention that there is still a
difference of P535.00 is had to believe because the spouses Kho Po Giok and Uy
Tong executed the deed of assignment without first demanding from the plaintiff the
payment of P535.00. Indeed, as contended by the plaintiff, for it to refuse to pay this
small amount and thus gave defendants a reason not to execute the Deed of
Assignment. is hard to believe Defendants further confirm by the joint manifestation
of plaintiff and defendants, duly assisted by counsel, Puerto and Associates, dated
September, 1971, Exhibit "O", wherein it was stated that plaintiff has fully complied
with its obligation to the defendants caused upon it (sic) by the pronouncement of the
judgment as a condition for the execution of their (sic) leasehold rights of
defendants, as evidenced by the receipt duly executed by the defendants, and which
was already submitted in open court for the consideration of the sum of P3,535.00.
[Emphasis supplied]. [Decision, Civil Case No. 121532, pp. 3-4].
This Court agrees with private respondent BAYANIHAN's reasoning that inasmuch as the decision in
Civil Case No. 80420 imposed upon the parties correlative obligations which were simultaneously
demandable so much so that if private respondent refused to comply with its obligation under the
judgment to pay the sum of P 3,535.00 then it could not compel petitioners to comply with their own
obligation to execute the deed of assignment over the subject premises. The fact that petitioners
executed the deed of assignment with the assistance of their counsel leads to no other conclusion
that private respondent itself had paid the full amount.
IV. Petitioners attempt to justify their continued refusal to vacate the premises subject of this litigation
on the following grounds:
(a) The deed of assingnment is in the nature of a pactum commissorium and,
therefore, null and void.

(b) There was no full compliance by private respondent of the condition imposed in
the deed of assignment.
(c) Proof that petitioners have been allowed to stay in the premises, is the very
admission of private respondent who declared that petitioners were allowed to stay in
the premises until November 20, 1972. This admission is very significant. Private
respondent merely stated that there was a term-until November 30, 1972-in order to
give a semblance of validity to its attempt to dispossess herein petitioners of the
subject premises. In short, this is one way of rendering seemingly illegal petitioners
'possession of the premises after November 30, 1972.
The first two classifications are mere reiterations of the arguments presented by the petitioners and
which had been passed upon already in this decision. As regards the third ground, it is enough to
state that the deed of assignment has vested in the private respondent the rights and interests of the
SPOUSES over the apartment unit in question including the leasehold rights over the land on which
the building stands. BAYANIHAN is therefore entitled to the possession thereof. These are the clear
terms of the deed of assignment which cannot be superseded by bare allegations of fact that find no
support in the record.
WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of
Appeals is AFFIRMED in toto.
SO ORDERED.

G.R. No. L-27706 June 16, 1970

MARIA T. GUANZON, assisted by her husband Genaro Guanzon, petitioner,
vs.
HON. MANUEL ARGEL, Presiding Judge of the Court of First Instance of Antique, JUAN,
ERNESTO, ESTRELLA, BARTOLOME, HONORATO, all surnamed DUMARAOG, respondents.
Angel V. Sanchez and C. V. Pefianco for petitioner.
Jose Gaton for respondents Juan, Ernesto, et al.

REYES, J.B.L., J.:

Special civil action for certiorari, prohibition and mandamus to annul and set aside the orders issued
by the Court of First Instance of Antique, in its Civil Case No. 334, under date of 6 January and 4
March 1967, denying petitioner Guanzon's motions to require the Sheriff to convey and restore to
her the possession and ownership of Lot 5250 of the cadastral survey of San Jose, Antique.
The factual background of the case is as follows:
The respondents Dumaraogs filed an action against petitioner Guanzon for the redemption of a
parcel of rice land situated in barrio Inabasan, San Jose, Antique, which their mother, Ines Flores,
had mortgaged to defendant, and to recover damages, before the Antique Court of First Instance,
presided by respondent judge. They prayed that the purported pacto de retro sale be declared a
mortgage and that Guanzon be ordered to execute an instrument of reconveyance after payment by
Dumaraog of the loan of P1,500.00.
Guanzon denied the material allegations of the complaint and alleged that the document executed
by Flores was in fact a pacto de retro sale and that her title as vendee had been consolidated.
After trial, the lower court rendered judgment declaring the document involved to be one of equitable
mortgage, and ordered Guanzon to execute an instrument of reconveyance in favor of Dumaraog
upon payment by the latter of P1,500.00 within 20 days from the finality of the decision, otherwise
execution may issue and the Provincial Sheriff may execute the necessary document of
conveyance, with costs against Dumaraog. The trial court also declared that whatever additional
amounts were loaned to the vendor-a-retro, Flores, by Guanzon were offset by the value of the 30
cavans of palay a year she received from 1949 to 1962.
Thereafter, alleging that although the aforesaid decision had become final and that the Dumaraogs
had not paid to her P1,500.00 within 20 days from the date of the decision, Guanzon filed a motion
for execution wherein she prayed that the Provincial Sheriff be ordered to execute the necessary
conveyance of the property in question in her favor and that she be placed in the possession thereof.

Acting upon Guanzon's motion for execution, the trial court ordered the Dumaraogs to deposit the
P1,500.00 redemption price with the clerk of court, which Guanzon shall receive, and that Guanzon
shall within 10 days from receipt of the order execute the deed of reconveyance in favor of
Dumaraog, otherwise the Provincial Sheriff shall execute the necessary conveyance in favor of
Dumaraog and Guanzon could withdraw the said amount.
Dumaraog filed with the lower court a bill of costs for its approval which Guanzon opposed on the
ground that she could be liable for costs only if Dumaraog paid her P1,500.00 within 20 days from
the finality of the decision. Despite this opposition, the respondent judge by order approved the said
bill of costs and issued an execution of the same.
Meanwhile, in pursuance of the decision, Dumaraog filed a notice of deposit of the redemption price
of P1,500.00.
From the orders of the respondent judge (1) directing Dumaraog to deposit the P1,500.00
redemption price and for her to receive the said amount and to execute a deed of reconveyance in
favor of Dumaraog, and (2) approving the Dumaraog's bill of costs, Guanzon filed a motion for
reconsideration, alleging that the lower court has no jurisdiction to issue the said order for lack of
jurisdiction, considering that the decision has become final and executory, hence it becomes the
ministerial duty of the court to issue the writ of execution.
In an order dated 4 March 1967, the respondent judge denied Guanzon's motion for reconsideration
for lack of merit. Respondent judge stated that it is not contemplated in the decision that Guanzon is
entitled to a deed of conveyance, and that at most, she could withhold execution of the deed of
reconveyance until Dumaraog pays P1,500.00, otherwise the Provincial Sheriff shall execute the
necessary conveyance in her favor.
Guanzon filed this petition claiming that the respondent judge acted in excess of jurisdiction and with
grave abuse of discretion, arguing that the respondent judge altered his original decision, because
although she was directed to execute a reconveyance within 20 days in the original decision
declaring the questioned document as an equitable mortgage, in the order of 6 January 1967 herein
complained of she was given another additional 10 days to do so; and also in its order of 4 March
1967, the respondent judge allowed Dumaraog to deposit the redemption price of P1,500.00 even
after the lapse of 20 days after the finality of the judgment. The petitioner states that while the
decision of 31 August 1966 has become final and executory on 14 October 1966, it was only on 6
January 1967 that Dumaraog deposited the said amount with the clerk of court.
We find the charge of grave abuse of discretion not justified. The final decision of the respondent
court, in this operative clause, provided the following:
WHEREFORE, the Court hereby renders judgment:
1. Declaring the document executed on 26 April 1949 by Ines Flores in favor of
Maria T. Guanzon, Exhibit A (same as Exhibit 2) an equitable mortgage instead of a
pacto de retro sale;

2. Ordering the defendant Maria T. Guanzon to execute a reconveyance in favor

of the plaintiffs herein upon payment by the said plaintiffs of the amount of P1,500.00
within twenty (20) days from the finality of this decision otherwise execution may
issue and that Provincial Sheriff may execute the necessary conveyance, with costs
against the defendants.
3. Counterclaim is dismissed for lack of proof.
SO ORDERED.
While paragraph 2 is not as clear as it could have been, nevertheless, its purport is plain that should
the plaintiffs (now private respondents Dumaraog) fail to pay the P1,500.00 within the specified 20
days, petitioner Guanzon would be entitled to have execution issue to collect the said amount from
the properties of the respondents Dumaraog whereupon the deed of reconveyance would be
executed by Guanzon. A converso, should respondents Dumaraog deposit the money, but Guanzon
refused to reconvey, the reconveyance could then be made by the Provincial Sheriff. This is in
accord with the provisions of section 10, Rule 39, of the Revised Rules of Court:
SEC. 10. Judgment for specific acts; vesting title. If a judgment directs a party to
execute a conveyance of land, or to deliver deeds or other documents, or to perform
any other specific act, and the party fails to comply within the time specified, the
court may direct the act to be done at the costs of the disobedient party by some
other person appointed by the court and the act when so done shall have like effect
as if done by the party. If real or personal property is within the Philippines, the court
in lieu of directing a conveyance thereof may enter judgment divesting the title of any
party and vesting it in others and such judgment shall have the force and effect of a
conveyance executed in due form of law.
In no way can the judgment at bar be construed to mean that should the Dumaraogs fail to pay the
money within the specified period then the party would be conveyed by the Sheriff to Guanzon. Any
interpretation in that sense would contradict the declaration made in the same judgment that the
contract between the parties was in fact a mortgage and not a pacto de retro sale. The only right of a
mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose the
mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The
mortgagor's default does not operate to vest in the mortgagee the ownership of the encumbered
property, for any such effect is against public policy, as enunciated by the Civil Code. 1 The court can
not be presumed to have adjudged what would be contrary to law, unless it be plain and inescapable from
its final judgment. No such purport appears or is legitimately inferable from the terms of the judgment
aforequoted. Hence, the orders of the court below refusing to command the sheriff to convey the property
to petitioner Guanzon, as she demanded, and instead ordering her to reconvey the property to
respondents Dumaraog and receive the P1,500.00 deposited by the latter, were in conformity with the
original decision that had become final and executory.
The writs prayed for are denied. Costs against the petitioner.

G.R. No. L-45710 October 3, 1985

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF
THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of
Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February
15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of respondent
Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with
preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department,
approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the
loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo,
Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the
said title the next day. The approved loan application called for a lump sum P80,000.00 loan,
repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to
develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank;
and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at
12% annual interest, payable within 3 years from the date of execution of the contract at semiannual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering
a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But
this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being
informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance
(p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the
P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was
suffering liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its
deposit liabilities, the Board, by unanimous vote, decided as follows:

1) To prohibit the bank from making new loans and investments [except investments
in government securities] excluding extensions or renewals of already approved
loans, provided that such extensions or renewals shall be subject to review by the
Superintendent of Banks, who may impose such limitations as may be necessary to
insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the
required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings
Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to
take charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the
promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage
covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for
January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan
for injunction, specific performance or rescission and damages with preliminary injunction, alleging
that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is
entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with
interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind
the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary
restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the
mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of
the petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central
Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the
amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the restraining
order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court
of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific
performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor
collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.

The issues are:

1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the
promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate
mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on
April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or
promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
[1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is
ready and willing to perform his part of the contract, the other party who has not performed or is not
ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the
P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he
signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings
Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the
Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank
from doing further business. Such prohibition made it legally impossible for Island Savings Bank to
furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take
over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265,
which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and investments, and nowhere did it
prohibit island Savings Bank from releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of
the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez
Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is
never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the
contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest
amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be
taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in
asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper
considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be
legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the prededucted interest was an exercise of his right to it, which right exist independently of his right to
demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.

The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot
exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This
Court previously ruled that bank officials and employees are expected to exercise caution and
prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151
[1981]). It is the obligation of the bank's officials and employees that before they approve the loan
application of their customers, they must investigate the existence and evaluation of the properties
being offered as a loan security. The recent rush of events where collaterals for bank loans turn out
to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere
reliance by bank officials and employees on their customer's representation regarding the loan
collateral being offered as loan security is a patent non-performance of this responsibility. If ever
bank officials and employees totally reIy on the representation of their customers as to the valuation
of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued.
The representation made by the customer is immaterial to the bank's responsibility to conduct its
own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined
petitioners from presenting proof on the alleged over-valuation because of their failure to raise the
same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned
by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the
same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since Island Savings Bank is now
prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant
specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such
amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the
partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note
to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to
pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil
Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is,
Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he
cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that
is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated,
they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE

rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI
7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the
interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration
of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate
mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid,
voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was
then in existence, as there was no debt yet because Island Savings Bank had not made any release
on the loan, does not make the real estate mortgage void for lack of consideration. It is not
necessary that any consideration should pass at the time of the execution of the contract of real
mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter.
But when the consideration is subsequent to the mortgage, the mortgage can take effect only when
the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p.
583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of such failure (Dow. et al. vs.
Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually
owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage
cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol.
19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real
estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is
78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to
the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is
inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among the
successors in interest of the debtor or creditor.

Therefore, the debtor's heirs who has paid a part of the debt can not ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of other heirs who have not been
paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes
several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS
HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12%
INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.

G.R. No. 132287

January 24, 2006

SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA, Petitioners,

vs.
DRA. ABDULIA C. RODRIGUEZ, MIGUELA R. JARIOL assisted by her husband ANTOLIN
JARIOL, SR., LEONORA NOLASCO assisted by her husband FELICIANO NOLASCO,
DOLORES SOBERANO assisted by her husband JOSE SOBERANO, JR., JULIA R.
GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R. SORONIO assisted by her husband
ALFONSO SORONIO, Respondents.
DECISION
TINGA, J.:
The assailed decision of the Court of Appeals took off on the premise that pledged shares of stock
auctioned off in a notarial sale could still be redeemed by their owners. This notion is wrong, and we
thus reverse.
The facts, as culled from the record, follow.
Respondents were the owners, in their respective personal capacities, of shares of stock in a
corporation known as the Quirino-Leonor-Rodriguez Realty Inc.1 Sometime during the years 1979 to
1980, respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio
and Faustina Paray ("Parays") the payment of certain loan obligations. The shares pledged are listed
below:
Miguel Rodriguez Jariol .1,000 shares covered by Stock Certificates No. 011, 060, 061 & 062;
Abdulia C. Rodriguez . 300 shares covered by Stock Certificates
No. 023 & 093;
Leonora R. Nolasco .. 407 shares covered by Stock Certificates
No. 091 & 092;
Genoveva Soronio. 699 shares covered by Stock Certificates
No. 025, 059 & 099;
Dolores R. Soberano. 699 shares covered by Stock Certificates
No. 021, 053, 022 & 097;

Julia Generoso .. 1,100 shares covered by Stock Certificates

No. 085, 051, 086 & 084;
Teresita Natividad.. 440 shares covered by Stock Certificates
Nos. 054 & 0552
When the Parays attempted to foreclose the pledges on account of respondents failure to pay their
loans, respondents filed complaints with the Regional Trial Court (RTC) of Cebu City. The actions,
which were consolidated and tried before RTC Branch 14, Cebu City, sought the declaration of nullity
of the pledge agreements, among others. However the RTC, in its decision 3 dated 14 October 1988,
dismissed the complaint and gave "due course to the foreclosure and sale at public auction of the
various pledges subject of these two cases."4 This decision attained finality after it was affirmed by
the Court of Appeals and the Supreme Court. The Entry of Judgment was issued on 14 August 1991.
Respondents then received Notices of Sale which indicated that the pledged shares were to be sold
at public auction on 4 November 1991. However, before the scheduled date of auction, all of
respondents caused the consignation with the RTC Clerk of Court of various amounts. It was
claimed that respondents had attempted to tender these payments to the Parays, but had been
rebuffed. The deposited amounts were as follows:
Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991
Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991
Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991
38,385.44 .. 14 Oct. 1991
Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991
Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991
Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991
520,216.39 ..11 Nov. 1991
Miguela Jariol . 490,000.00.. 18 Oct. 1991
88,000.00 ..18 Oct. 19915
Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal
Espeleta successfully bidding the amount of P6,200,000.00 for all of the pledged shares. None of
respondents participated or appeared at the auction of 4 November 1991.

Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the
concluded public auction. The complaint, docketed as Civil Case No. CEB-10926, was assigned to
Branch 16 of the Cebu City RTC. Respondents argued that their tender of payment and subsequent
consignations served to extinguish their loan obligations and discharged the pledge contracts.
Petitioners countered that the auction sale was conducted pursuant to the final and executory
judgment in Civil Cases Nos. R-20120 and 20131, and that the tender of payment and consignations
were made long after their obligations had fallen due.
The Cebu City RTC dismissed the complaint, expressing agreement with the position of the
Parays.6 It held, among others that respondents had failed to tender or consign payments within a
reasonable period after default and that the proper remedy of respondents was to have participated
in the auction sale.7 The Court of Appeals Eighth Division however reversed the RTC on appeal,
ruling that the consignations extinguished the loan obligations and the subject pledge contracts; and
the auction sale of 4 November 1991 as null and void.8 Most crucially, the appellate court chose to
uphold the sufficiency of the consignations owing to an imputed policy of the law that favored
redemption and mandated a liberal construction to redemption laws. The attempts at payment by
respondents were characterized as made in the exercise of the right of redemption.
The Court of Appeals likewise found fault with the auction sale, holding that there was a need to
individually sell the various shares of stock as they had belonged to different pledgors. Thus, it was
observed that the minutes of the auction sale should have specified in detail the bids submitted for
each of the shares of the pledgors for the purpose of knowing the price to be paid by the different
pledgors upon redemption of the auctioned sales of stock.
Petitioners now argue before this Court that they were authorized to refuse as they did the tender of
payment since they were undertaking the auction sale pursuant to the final and executory decision in
Civil Cases Nos. R-20120 and 20131, which did not authorize the payment of the principal obligation
by respondents. They point out that the amounts consigned could not extinguish the principal loan
obligations of respondents since they were not sufficient to cover the interests due on the debt. They
likewise argue that the essential procedural requisites for the auction sale had been satisfied.
We rule in favor of petitioners.
The fundamental premise from which the appellate court proceeded was that the consignations
made by respondents should be construed in light of the rules of redemption, as if respondents were
exercising such right. In that perspective, the Court of Appeals made three crucial conclusions
favorable to respondents: that their act of consigning the payments with the RTC should be deemed
done in the exercise of their right of redemption; that the buyer at public auction does not ipso
facto become the owner of the pledged shares pending the lapse of the one-year redemptive period;
and that the collective sale of the shares of stock belonging to several individual owners without
specification of the apportionment in the applications of payment deprives the individual owners of
the opportunity to know of the price they would have to pay for the purpose of exercising the right of
redemption.
The appellate courts dwelling on the right of redemption is utterly off-tangent. The right of
redemption involves payments made by debtors after the foreclosure of their properties, and not

those made or attempted to be made, as in this case, before the foreclosure sale. The proper focus
of the Court of Appeals should have been whether the consignations made by respondents
sufficiently acquitted them of their principal obligations. A pledge contract is an accessory contract,
and is necessarily discharged if the principal obligation is extinguished.
Nonetheless, the Court is now confronted with this rather new fangled theory, as propounded by the
Court of Appeals, involving the right of redemption over pledged properties. We have no hesitation in
pronouncing such theory as discreditable.
Preliminarily, it must be clarified that the subject sale of pledged shares was an extrajudicial sale,
specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale.
Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the
courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to proceed
before a Notary Public to the sale of the thing pledged.9
In this case, petitioners attempted as early as 1980 to proceed extrajudicially with the sale of the
pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil
Cases No. R-20120 and 20131, which sought to annul the pledge contracts. The final and executory
judgment in those cases affirmed the pledge contracts and disposed them in the following fashion:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the complaints at bar,
and
(1) Declaring the various pledges covered in Civil Cases Nos. R-20120 and R-20131 valid
and effective; and
(2) Giving due course to the foreclosure and sale at public auction of the various pledges
subject of these two cases.
Costs against the plaintiffs.
SO ORDERED.10
The phrase "giving due course to the foreclosure and sale at public auction of the various pledges
subject of these two cases" may give rise to the impression that such sale is judicial in character.
While the decision did authorize the sale by public auction, such declaration could not detract from
the fact that the sale so authorized is actually extrajudicial in character. Note that the final judgment
in said cases expressly did not direct the sale by public auction of the pledged shares, but instead
upheld the right of the Parays to conduct such sale at their own volition.
Indeed, as affirmed by the Civil Code,11 the decision to proceed with the sale by public auction
remains in the sole discretion of the Parays, who could very well choose not to hold the sale without
violating the final judgments in the aforementioned civil cases. If the sale were truly in compliance
with a final judgment or order, the Parays would have no choice but to stage the sale for then the
order directing the sale arises from judicial compulsion. But nothing in the dispositive portion directed

the sale at public auction as a mandatory recourse, and properly so since the sale of pledged
property in public auction is, by virtue of the Civil Code, extrajudicial in character.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution
sales, more precisely execution sales of real property.
The Court of Appeals expressly asserted the notion that pledged property, necessarily personal in
character, may be redeemed by the creditor after being sold at public auction. Yet, as a fundamental
matter, does the right of redemption exist over personal property? No law or jurisprudence
establishes or affirms such right. Indeed, no such right exists.
The right to redeem property sold as security for the satisfaction of an unpaid obligation does not
exist preternaturally. Neither is it predicated on proprietary right, which, after the sale of property on
execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory
privilege to be exercised only by the persons named in the statute. 12
The right of redemption over mortgaged real property sold extrajudicially is established by Act No.
3135, as amended. The said law does not extend the same benefit to personal property. In fact,
there is no law in our statute books which vests the right of redemption over personal property. Act
No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any
legislative intent to bestow a right of redemption over personal property, since that law governs the
extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point. And
Section 39 of the 1997 Rules of Civil Procedure, extensively relied upon by the Court of Appeals,
starkly utters that the right of redemption applies to real properties, not personal properties, sold on
execution.
Tellingly, this Court, as early as 1927, rejected the proposition that personal property may be
covered by the right of redemption. In Sibal 1. v. Valdez,13 the Court ruled that sugar cane crops are
personal property, and thus, not subject to the right of redemption. 14 No countervailing statute has
been enacted since then that would accord the right of redemption over personal property, hence the
Court can affirm this decades-old ruling as effective to date.
Since the pledged shares in this case are not subject to redemption, the Court of Appeals had no
business invoking and applying the inexistent right of redemption. We cannot thus agree that the
consigned payments should be treated with liberality, or somehow construed as having been made
in the exercise of the right of redemption. We also must reject the appellate courts declaration that
the buyer of at the public auction is not "ipso facto" rendered the owner of the auctioned shares,
since the debtor enjoys the one-year redemptive period to redeem the property. Obviously, since
there is no right to redeem personal property, the rights of ownership vested unto the purchaser at
the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive
period.
The Court of Appeals also found fault with the apparent sale in bulk of the pledged shares,
notwithstanding the fact that these shares were owned by several people, on the premise the
pledgors would be denied the opportunity to know exactly how much they would need to shoulder to
exercise the right to redemption. This concern is obviously rendered a non-issue by the fact that

there can be no right to redemption in the first place. Rule 39 of the Rules of Court does provide for
instances when properties foreclosed at the same time must be sold separately, such as in the case
of lot sales for real property under Section 19. However, these instances again pertain to execution
sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that
pledged properties sold at auction be sold separately.
On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right
to choose which of the items should be sold if two or more things are pledged. 15 No similar option is
given to pledgors under the Civil Code. Moreover, there is nothing in the Civil Code provisions
governing the extrajudicial sale of pledged properties that prohibits the pledgee of several different
pledge contracts from auctioning all of the pledged properties on a single occasion, or from the
buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The
relative insignificance of ascertaining the definite apportionments of the sale price to the individual
shares lies in the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor
can recover whatever deficiency or excess there may be between the purchase price and the
amount of the principal obligation.16
A different ruling though would obtain if at the auction, a bidder expressed the desire to bid on a
determinate number or portion of the pledged shares. In such a case, there may lie the need to
ascertain with particularity which of the shares are covered by the bid price, since not all of the
shares may be sold at the auction and correspondingly not all of the pledge contracts extinguished.
The same situation also would lie if one or some of the owners of the pledged shares participated in
the auction, bidding only on their respective pledged shares. However, in this case, none of the
pledgors participated in the auction, and the sole bidder cast his bid for all of the shares. There
obviously is no longer any practical reason to apportion the bid price to the respective shares, since
no matter how slight or significant the value of the purchase price for the individual share is, the sale
is completed, with the pledgor and the pledgee not entitled to recover the excess or the deficiency,
as the case may be. To invalidate the subject auction solely on this point serves no cause other than
to celebrate formality for formalitys sake.
Clearly, the theory adopted by the Court of Appeals is in shambles, and cannot be resurrected. The
question though yet remains whether the consignations made by respondents extinguished their
respective pledge contracts in favor of the Parays so as to enjoin the latter from auctioning the
pledged shares.
There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as
well. Article 2098 of the Civil Code provides that the right of the creditor to retain possession of the
pledged item exists only until the debt is paid. Article 2105 of the Civil Code further clarifies that the
debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until
he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the
pledge is also established under the Civil Code. When the credit has not been satisfied in due time,
the creditor may proceed with the sale by public auction under the procedure provided under Article
2112 of the Code.
Respondents argue that their various consignations made prior to the auction sale discharged them
from the loan and the pledge agreements. They are mistaken.

Petitioners point out that while the amounts consigned by respondents could answer for their
respective principal loan obligations, they were not sufficient to cover the interests due on these
loans, which were pegged at the rate of 5% per month or 60% per annum. Before this Court,
respondents, save for Dolores Soberano, do not contest this interest rate as alleged by petitioners.
Soberano, on the other hand, challenges this interest rate as "usurious." 17
The particular pledge contracts did not form part of the records elevated to this Court. However, the
5% monthly interest rate was noted in the statement of facts in the 14 October 1988 RTC Decision
which had since become final. Moreover, the said decision pronounced that even assuming that the
interest rates of the various loans were 5% per month, "it is doubtful whether the interests so
charged were exorbitantly or excessively usurious. This is because for sometime now, usury has
become legally inexistent."18 The finality of this 1988 Decision is a settled fact, and thus the time to
challenge the validity of the 5% monthly interest rate had long passed. With that in mind, there is no
reason for the Court to disagree with petitioners that in order that the consignation could have the
effect of extinguishing the pledge contracts, such amounts should cover not just the principal loans,
but also the 5% monthly interests thereon.
It bears noting that the Court of Appeals also ruled that respondents had satisfied the requirements
under Section 18, Rule 39, which provides that the judgment obligor may prevent the sale by paying
the amount required by the execution and the costs that have been incurred therein. 19 However, the
provision applies only to execution sales, and not extra-judicial sales, as evidenced by the use of the
phrases "sale of property on execution" and "judgment obligor." The reference is inapropos, and
even if it were applicable, the failure of the payment to cover the interests due renders it insufficient
to stay the sale.
The effect of the finality of the judgments in Civil Cases Nos. R-20120 and R-20131 should also not
be discounted. Petitioners right to proceed with the auction sale was affirmed not only by law, but
also by a final court judgment. Any subsequent court ruling that would enjoin the petitioners from
exercising such right would have the effect of superseding a final and executory judgment.
Finally, we cannot help but observe that respondents may have saved themselves much trouble if
they simply participated in the auction sale, as they are permitted to bid themselves on their pledged
properties.20 Moreover, they would have had a better right had they
matched the terms of the highest bidder.21 Under the circumstances, with the high interest payments
that accrued after several years, respondents were even placed in a favorable position by the pledge
agreements, since the creditor would be unable to recover any deficiency from the debtors should
the sale price be insufficient to cover the principal amounts with interests. Certainly, had respondents
participated in the auction, there would have been a chance for them to recover the shares at a price
lower than the amount that was actually due from them to the Parays. That respondents failed to
avail of this beneficial resort wholly accorded them by law is their loss. Now, all respondents can
recover is the amounts they had consigned.
WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET
ASIDE and the decision of the Cebu City RTC, Branch 16, dated 18 November 1992 is
REINSTATED. Costs against respondents.

SO ORDERED.

G.R. No. 98334 May 8, 1992

MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK (formerly
Cebu City Savings and Loan Association, Inc.) and TEOTIMO ABELLANA, petitioners,
vs.
COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA DOLINO, respondents.
Gines N. Abellana for petitioners.
Dionisio U. Flores for private respondents.

REGALADO, J.:
The core issue in this case is whether or not a mortgagor, whose property has been extrajudicially
foreclosed and sold at the corresponding foreclosure sale, may validly execute a mortgage contract
over the same property in favor of a third party during the period of redemption.
The present appeal by certiorari assails the decision 1 of respondent Court of Appeals in CA-G.R. CV
No. 12678 where it answered the question posed by the foregoing issue in the negative and modified the
decision 2 of the then Court of First Instance of Cebu in Civil Case No. R-18616 wherein the validity of
said subsequent mortgage was assumed and the case was otherwise disposed of on other grounds.
The facts which gave rise to the institution of the aforesaid civil case in the trial court, as found by
respondent Court of Appeals, are as follows:
On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption
over lot 4731 of the Cebu City Cadastre and embraced under TCT No. 14272 from
Mr. Juan Gandioncho, purchaser of the aforesaid lot at the foreclosure sale of the
previous mortgage in favor of Cebu City Development Bank, went to Teotimo
Abellana, president of defendant Association, to obtain a loan of P30,000.00. Prior
thereto or on October 3, 1974, their son Teofredo Dolino filed a similar loan
application for Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731 offered
as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant
association. Subsequently, they executed a promissory note in favor of defendant
association. Both documents indicated that the principal obligation is for Thirty
Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%)
percent per annum.
When the loan became due and demandable without plaintiff paying the same,
defendant association caused the extrajudicial foreclosure of the mortgage on March
16, 1976. After the posting and publication requirements were complied with, the land
was sold at public auction on April 19, 1976 to defendant association being the
highest bidder. The certificate of sale was issued on April 20, 1976 and registered on
May 10, 1976 with the Register of Deeds of Cebu.

On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT
No. 14272 was cancelled and in lieu thereof TCT No. 68041 was issued in the name
of defendant association. 3
xxx xxx xxx

On October 18, 1979, private respondents filed the aforestated Civil Case No. R-18616 in the
court a quo for the annulment of the sale at public auction conducted on April 19, 1976, as well as
the corresponding certificate of sale issued pursuant thereto.
In their complaint, private respondents, as plaintiffs therein, assailed the validity of the extrajudicial
foreclosure sale of their property, claiming that the same was held in violation of Act No. 3135, as
amended, and prayed, inter alia, for the cancellation of Transfer Certificate of Title No. 68041 issued
in favor of therein defendant City Savings and Loan Association, Inc., now known as City Savings
Bank and one of the petitioners herein.
In its answer, the defendant association therein denied the material allegations of the complaint and
averred, among others, that the present private respondent spouses may still avail of their right of
redemption over the land in question.
On January 12, 1983, after trial on the merits, the court below rendered judgment upholding the
validity of the loan and the real estate mortgage, but annulling the extrajudicial foreclosure sale
inasmuch as the same failed to comply with the notice requirements in Act No. 3135, as amended,
under the following dispositive part:
WHEREFORE, the foregoing premises considered and upon the view taken by the
Court of this case, judgment is hereby rendered, as follows:
1. Declaring ineffective the extrajudicial foreclosure of the mortgage over Lot No.
4731 of the Cadastral Survey of Cebu;
2. Ordering the cancellation of Transfer Certificate of Title No. 68041 of the Registry
of Deeds of the City of Cebu in the name of defendant Cebu City Savings and Loan
Association, Inc. the corresponding issuance of a new transfer certificate to contain
all the annotations made in TCT No. 14272 of the plaintiffs Pascuala Sabellano,
married to Andres Dolino;
3. Ordering the plaintiffs aforenamed to pay the defendant Cebu City Savings and
Loan Association, Inc. the unpaid balance of the loan, plus interest; and reimbursing
said defendant the value of any necessary and useful expenditures on the property
after deducting any income derived by said defendant from the property.
For this purpose, defendant Association is given 15 days from receipt hereof within
which to submit its statement of the amount due it from the plaintiffs Dolino, with
notice to them. The payment to be made by the plaintiffs shall be within ninety (90)

days from their receipt of the order approving the amount due the defendant Cebu
City Savings and Loan Association, Inc.
No award of damages or costs to either party.
SO ORDERED. 4
Not satisfied therewith, herein private respondents interposed a partial appeal to respondent court
with respect to the second and third paragraphs of the aforequoted decretal portion, contending that
the lower court erred in (1) declaring that the mortgage executed by the therein plaintiff spouses
Dolino is valid; (2) permitting therein Cebu City Savings and Loan Association, Inc. to collect interest
after the same foreclosure proceedings and auction sale which are null and void from the beginning;
(3) not ordering the forfeiture of the capital or balance of the loan with usurious interest; and (4) not
sentencing therein defendant to pay damages and attorney's fees to plaintiffs. 5
On September 28, 1990, respondent Court of Appeals promulgated its decision modifying the
decision of the lower court, with this adjudication:
WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby
MODIFIED declaring as void and ineffective the real estate mortgage executed by
plaintiffs in favor of defendant association. With this modification, the decision is
AFFIRMED in other respects. 6
Herein petitioners then filed a motion for reconsideration which was denied by respondent court in its
resolution dated March 5, 1991, hence the present petition which, in synthesis, postulates that
respondent court erred in declaring the real estate mortgage void, and also impugns the judgment of
the trial court declaring ineffective the extrajudicial foreclosure of said mortgage and ordering the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of the predecessor of petitioner
bank. 7
The first submission assailing the judgment of respondent Court of Appeals is meritorious.
Said respondent court declared the real estate mortgage in question null and void for the reason that
the mortgagor spouses, at the time when the said mortgage was executed, were no longer the
owners of the lot, having supposedly lost the same when the lot was sold to a purchaser in the
foreclosure sale under the prior mortgage. This holding cannot be sustained.
Preliminarily, the issue of ownership of the mortgaged property was never alleged in the complaint
nor was the same raised during the trial, hence that issue should not have been taken cognizance of
by the Court of Appeals. An issue which was neither averred in the complaint nor ventilated during
the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the
basic rule of fair play, justice and due process. 8
Nonetheless, since respondent Court took cognizance thereof and, in fact, anchored its modificatory
judgment on its ratiocination of that issue, we are inclined to liberalize the rule so that we can in turn
pass upon the correctness of its conclusion. We may consider such procedure as analogous to the

rule that an unassigned error closely related to an error properly assigned, or upon which the
determination of the question properly assigned is dependent, may be considered by an appellate
court. 9 We adopt this approach since, after all, both lower courts agreed upon the invalidity of the
extrajudicial foreclosure but differed only on the matter of the validity of the real estate mortgage upon
which the extrajudicial foreclosure was based.
In arriving at its conclusion, respondent court placed full reliance on what obviously is an obiter
dictum laid down in the course of the disquisition in Dizon vs. Gaborro, et al. which we shall
analyze. 10 For, as explicitly stated therein by the Court, "(t)he basic issue to be resolved in this case is
whether the 'Deed of Sale with Assumption of Mortgage' and the 'Option to Purchase Real Estate,' two
instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro (defendant below)
on the same day, October 6, 1959, constitute in truth and in fact an absolute sale of the three parcels of
land therein described or merely an equitable mortgage or conveyance thereof by way of security for
reimbursement or repayment by petitioner Jose P. Dizon of any and all sums which may have been paid
to the Development Bank of the Philippines and the Philippine National Bank by Alfredo G. Gaborro . . . ."
Said documents were executed by the parties and the payments were made by Gaborro for the debt of
Dizon to said banks after the Development Bank of the Philippines had foreclosed the mortgage executed
by Dizon and during the period of redemption after the foreclosure sale of the mortgaged property to said
creditor bank.
The trial court held that the true agreement between the parties therein was that Gaborro would
assume and pay the indebtedness of Dizon to the banks and, in consideration thereof, Gaborro was
given the possession and enjoyment of the properties in question until Dizon shall have reimbursed
him for the amount paid to the creditor banks. Accordingly, the trial court ordered the reformation of
the documents to the extent indicated and such particular relief was affirmed by the Court of
Appeals. This Court held that the agreement between the parties is one of those innominate
contracts under Article 1307 of the Civil Code whereby the parties agreed "to give and to do" certain
rights and obligations, but partaking of the nature of antichresis.
Hence, on appeal to this Court, the judgment of the Court of Appeals in that case was affirmed but
with the following pronouncements:
The two instruments sought to be reformed in this case appear to stipulate rights and
obligations between the parties thereto pertaining to and involving parcels of land
that had already been foreclosed and sold extrajudicially, and purchased by the
mortgage creditor, a third party. It becomes, therefore, necessary, to determine the
legality of said rights and obligations arising from the foreclosure and sale
proceedings not only between the two contracting parties to the instruments
executed between them but also in so far as the agreement affects the rights of the
third party, the purchaser Bank.
xxx xxx xxx
Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains
in possession of the property foreclosed and sold, during the period of redemption. If
the judgment debtor is in possession of the property sold, he is entitled to retain it,
and receive the fruits, the purchaser not being entitled to such possession. (Riosa vs.

Verzosa, 26 Phil. 86; Velasco vs. Rosenberg's, Inc., 32 Phil. 72; Pabico vs. Pauco,
43 Phil. 572; Power vs. PNB, 54 Phil. 54; Gorospe vs. Gochangco, L-12735, Oct. 30,
1959).
xxx xxx xxx
Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed
by the sheriff. (Section 27, Revised Rules of Court). After the termination of the
period of redemption and no redemption having been made, the purchaser is entitled
to a deed of conveyance and to the possession of the properties. (Section 35,
Revised Rules of Court). The weight of authority is to the effect that the purchaser of
land sold at public auction under a writ of execution has only an inchoate right to the
property, subject to be defeated and terminated within the period of 12 months from
the date of sale, by a redemption on the part of the owner. Therefore, the judgment
debtor in possession of the property is entitled to remain therein during the period for
redemption. (Riosa vs. Verzosa, 26 Phil. 86, 89; Gonzales vs. Calimbas, 51 Phil.
355).
In the case before Us, after the extrajudicial foreclosure and sale of his properties,
petitioner Dizon retained the right to redeem the lands, the possession, use and
enjoyment of the same during the period of redemption. And these are the only rights
that Dizon could legally transfer, cede and convey unto respondent Gaborro under
the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. AStipulation), likewise the same rights that said respondent could acquire in
consideration of the latter's promise to pay and assume the loan of petitioner Dizon
with DBP and PNB.
Such an instrument cannot be legally considered a real and unconditional sale of the
parcels of land, firstly, because there was absolutely no money consideration
therefor, as admittedly stipulated, the sum of P131,831.91 mentioned in the
document as the consideration "receipt of which was acknowledged" was not actually
paid; and, secondly, because the properties had already been previously sold by the
sheriff at the foreclosure sale, thereby divesting the petitioner of his full right as
owner thereof to dispose and sell the lands. (Emphasis ours.)
It was apparently the second reason stated by the Court in said case which was relied upon by
respondent court in the present case on which to premise its conclusion. Yet, as demonstrated by
the relevant excerpts above quoted, not only was that obiter therein unnecessary since evidently no
sale was concluded, but even inaccurate, if not inconsistent, when considered in the context of the
discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale merely acquired an
inchoate right to the property which could ripen into ownership only upon the lapse of the redemption
period without his credit having been discharged, it is illogical to hold that during that same period of
twelve months the mortgagor was "divested" of his ownership, since the absurd result would be that
the land will consequently be without an owner although it remains registered in the name of the
mortgagor.

That is why the discussion in said case carefully and felicitously states that what is divested from the
mortgagor is only his "full right as owner thereof to dispose (of) and sell the lands," in effect, merely
clarifying that the mortgagor does not have the unconditional power to absolutely sell the land since
the same is encumbered by a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the lapse of the period of redemption.
Even on that score, it may plausibly be argued that what is delimited is not the mortgagor's jus
dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal
which may correspondingly be restricted.
At any rate, even the foregoing considerations and arguments would have no application in the case
at bar and need not here be resolved since what is presently involved is a mortgage, not a sale, to
petitioner bank. Such mortgage does not involve a transfer, cession or conveyance of the property
but only constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even after
the auction sale of the property but during the redemption period, since no distinction is made
between a mortgage constituted over the property before or after the auction sale thereof.
Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or mortgage on
the property sold, or on some part thereof, subsequent to the judgment under which the property
was sold. 11 Of course, while in extrajudicial foreclosure the sale contemplated is not under a judgment
but the proceeding pursuant to which the mortgaged property was sold, a subsequent mortgage could
nevertheless be legally constituted thereafter with the subsequent mortgagee becoming and acquiring the
rights of a redemptioner, aside from his right against the mortgagor.
In either case, what bears attention is that since the mortgagor remains as the absolute owner of the
property during the redemption period and has the free disposal of his property, there would be
compliance with the requisites of Article 2085 of the Civil Code for the constitution of another
mortgage on the property. To hold otherwise would create the inequitable situation wherein the
mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds
wherewith to timely redeem his property through another mortgage thereon.
Coming back to the present controversy, it is undisputed that the real estate mortgage in favor of
petitioner bank was executed by respondent spouses during the period of redemption. We reiterate
that during said period it cannot be said that the mortgagor is no longer the owner of the foreclosed
property since the rule up to now is that the right of a purchaser at a foreclosure sale is merely
inchoate until after the period of redemption has expired without the right being exercised. 12 The title
to land sold under mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the
redemption period and conveyance by the master's deed. 13 To repeat, the rule has always been that it is
only upon the expiration of the redemption period, without the judgment debtor having made use of his
right of redemption, that the ownership of the land sold becomes consolidated in the purchaser. 14
Parenthetically, therefore, what actually is effected where redemption is seasonably exercised by the
judgment or mortgage debtor is not the recovery of ownership of his land, which ownership he never
lost, but the elimination from his title thereto of the lien created by the levy on attachment or
judgment or the registration of a mortgage thereon. The American rule is similarly to the effect that
the redemption of property sold under a foreclosure sale defeats the inchoate right of the purchaser
and restores the property to the same condition as if no sale had been attempted. Further, it does

not give to the mortgagor a new title, but merely restores to him the title freed of the encumbrance of
the lien foreclosed. 15
We cannot rule on the plaint of petitioners that the trial court erred in declaring ineffective the
extrajudicial foreclosure and the sale of the property to petitioner bank. The court below spelled out
at length in its decision the facts which it considered as violative of the provisions of Act No. 3135, as
amended, by reason of which it nullified the extrajudicial foreclosure proceeding and its effects. Such
findings and ruling of the trial court are already final and binding on petitioners and can no longer be
modified, petitioners having failed to appeal therefrom.
An appellee who has not himself appealed cannot obtain from the appellate court any affirmative
relief other than the ones granted in the decision of the court below. 16 He cannot impugn the
correctness of a judgment not appealed from by him. He cannot assign such errors as are designed to
have the judgment modified. All that said appellee can do is to make a counter-assignment of errors or to
argue on issues raised at the trial only for the purpose of sustaining the judgment in his favor, even on
grounds not included in the decision of the court a quo nor raised in the appellant's assignment of errors
or arguments. 17
WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the judgment of
the trial court, is REVERSED and SET ASIDE. The judgment of said trial court in Civil Case No. R18616, dated January 12, 1983, is hereby REINSTATED.
SO ORDERED.

G.R. No. 128567

September 1, 2000

HUERTA ALBA RESORT INC., petitioner,

vs.
COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC., respondents.
PURISIMA, J.:
Litigation must at some time be terminated, even at the risk of occasional errors. Public policy
dictates that once a judgment becomes final, executory and unappealable, the prevailing party
should not be denied the fruits of his victory by some subterfuge devised by the losing party.
Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing
justiciable controversies with finality.
The Case
At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated March
11, 1997, of the Court of Appeals in CA-G.R. No. 38747, which set aside the Order, dated July 21,
1995 and Order, dated September 4, 1997, of the Regional Trial Court of Makati City, in Civil Case
No. 89-5424. The aforesaid orders of the trial court held that petitioner had the right to redeem
subject pieces of property within the one-year period prescribed by Section 78 of Republic Act No.
337 otherwise known as the General Banking Act.
Section 78 of R.A. No. 337 provides that "in case of a foreclosure of a mortgage in favor of a bank,
banking or credit institution, whether judicially or extrajudicially, the mortgagor shall have the right,
within one year after the sale of the real estate as a result of the foreclosure of the respective
mortgage, to redeem the property."
The Facts
The facts that matter are undisputed:
In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on October 19,
1989, docketed as Civil Case No. 89-5424 before the Regional Trial Court of Makati City, the herein
private respondent sought the foreclosure of four (4) parcels of land mortgaged by petitioner to
Intercon Fund Resource, Inc. ("Intercon").
Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee of a loan amounting to
P8.5 million obtained by petitioner from Intercon, in whose favor petitioner mortgaged the aforesaid
parcels of land as security for the said loan.
In its answer below, petitioner questioned the assignment by Intercon of its mortgage right thereover
to the private respondent, on the ground that the same was ultra vires. Petitioner also questioned
during the trial the correctness of the charges and interest on the mortgage debt in question.

On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice
Buenaventura J. Guerrero, came out with its decision "granting herein private respondent SMGI's
complaint for judicial foreclosure of mortgage", disposing as follows:
"WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the
following:
(1) P8,500,000.00 representing the principal of the amount due;
(2) P850,000.00 as penalty charges with interest at 6% per annum, until fully paid;
(3) 22% per annum interest on the above principal from September 6, 1998, until fully
paid;
(4) 5% of the sum total of the above amounts, as reasonable attorney's fees; and,
(5) Costs.
All the above must be paid within a period of not less than 150 days from receipt hereof by
the defendant. In default of such payment, the four parcels of land subject matter of the suit
including its improvements shall be sold to realize the mortgage debt and costs, in the
manner and under the regulations that govern sales of real estate under execution." 1
Petitioner appealed the decision of the trial court to the Court of Appeals, the appeal docketed as
CA-G.R. CV No. 39243 before the Sixth Division of the appellate court, which dismissed the case on
June 29, 1993 on the ground of late payment of docket fees.
Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a petition for
certiorari, docketed as G.R. No. 112044, which this court resolved to dismiss on December 13, 1993,
on the finding that the Court of Appeals erred not in dismissing the appeal of petitioner.
Petitioner's motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was denied
with finality in this Court's Resolution promulgated on February 16, 1994. On March 10, 1994, leave
to present a second motion for reconsideration in G.R. No. 112044 or to submit the case for hearing
by the Court en banc was filed, but to no avail. The Court resolved to deny the same on May 11,
1994.
On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No. 112044 became final and
executory and was entered in the Book of Entries of Judgment.
On July 4, 1994, private respondent filed with the trial court of origin a motion for execution of the
Decision promulgated on April 30, 1992 in Civil Case No. 89-5424. The said motion was granted on
July 15, 1994.

Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of Levy and
Execution was issued by the Sheriff concerned, who issued on August 1, 1994 a Notice of Sheriff's
Sale for the auction of subject properties on September 6, 1994.
On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash and Set
Aside Writ of Execution ascribing to it grave abuse of discretion in issuing the questioned Writ of
Execution. To support its motion, petitioner invited attention and argued that the records of the case
were still with the Court of Appeals and therefore, issuance of the writ of execution was premature
since the 150-day period for petitioner to pay the judgment obligation had not yet lapsed and
petitioner had not yet defaulted in the payment thereof since no demand for its payment was made
by the private respondent. In petitioner's own words, the dispute between the parties was "principally
on the issue as to when the 150-day period within which Huerta Alba may exercise its equity of
redemption should be counted."
In its Order of September 2, 1994, the lower court denied petitioner's urgent motion to quash the writ
of execution in Civil Case No. 89-5424, opining that subject judgment had become final and
executory and consequently, execution thereof was a matter of right and the issuance of the
corresponding writ of execution became its ministerial duty.
Challenging the said order granting execution, petitioner filed once more with the Court of Appeals
another petition for certiorari and prohibition with preliminary injunction, docketed as C.A.-G.R. SP
No. 35086, predicated on the same grounds invoked for its Motion to Quash Writ of Execution.
On September 6, 1994, the scheduled auction sale of subject pieces of properties proceeded and
the private respondent was declared the highest bidder. Thus, private respondent was awarded
subject bidded pieces of property. The covering Certificate of Sale issued in its favor was registered
with the Registry of Deeds on October 21, 1994.
On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the trial court
to "clarify" whether or not the twelve (12) month period of redemption for ordinary execution applied
in the case.
On September 26, 1994, the trial court ruled that the period of redemption of subject property should
be governed by the rule on the sale of judicially foreclosed property under Rule 68 of the Rules of
Court.
Thereafter, petitioner then filed an Exception to the Order dated September 26, 1994 and Motion to
Set Aside Said Order, contending that the said Order materially altered the Decision dated April 30,
1992 "which declared that the satisfaction of the judgment shall be in the manner and under the
regulation that govern sale of real estate under execution."
Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues raised
by the petitioner in C.A.-G.R. SP No. 35086, holding that the one hundred-fifty day period within
which petitioner may redeem subject properties should be computed from the date petitioner was
notified of the Entry of Judgment in G.R. No. 112044; and that the 150-day period within which
petitioner may exercise its equity of redemption expired on September 11, 1994.

Thus:
"Petitioner must have received the resolution of the Supreme Court dated February 16, 1994
denying with finality its motion for reconsideration in G.R. No. 112044 before March 14,
1994, otherwise the Supreme Court would not have made an entry of judgment on March 14,
1994. While, computing the 150-day period. Petitioner may have until September 11, 1994.
within which to pay the amounts covered by the judgment, such period has already expired
by this time, and therefore, this Court has no more reason to pass upon the parties' opposing
contentions, the same having become moot and academic." 2 (Emphasis supplied).
Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP No.
35086. In its Motion for Reconsideration dated October 18, 1994, petitioner theorized that the period
of one hundred fifty (150) days should not be reckoned with from Entry of Judgment but from receipt
on or before July 29, 1994 by the trial court of the records of Civil Case No. 89-5424 from the Court
of Appeals. So also, petitioner maintained that it may not be considered in default, even after the
expiration of 150 days from July 29, 1994, because prior demand to pay was never made on it by
the private respondent. According to petitioner, it was therefore, premature for the trial court to issue
a writ of execution to enforce the judgment.
The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the
pendency of petitioner's Motion for Reconsideration in CA-G.R. SP No. 35086.
On December 23, 1994, the Court of Appeals denied petitioner's motion for reconsideration in CAG.R. SP No. 35086. Absent any further action with respect to the denial of the subject motion for
reconsideration, private respondent presented a Second Motion for Confirmation of Certificate of
Sale before the trial court.
As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA G.R. SP
No. 35086 it became final and executory on January 25, 1995.
On February 10, 1995, the lower court confirmed the sale of subject properties to the private
respondent. The pertinent Order declared that all pending incidents relating to the Order dated
September 26, 1994 had become moot and academic. Conformably, the Transfer Certificates of Title
to subject pieces of property were then issued to the private respondent.
On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking
"clarification" of the date of commencement of the one (1) year period for the redemption of the
properties in question.
In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for
Clarification since its Decision promulgated on September 30, 1994 had already become final and
executory; ratiocinating thus:
"We view the motion for clarification filed by petitioner, purportedly signed by its proprietor,
but which we believe was prepared by a lawyer who wishes to hide under the cloak of
anonymity, as a veiled attempt to buy time and to delay further the disposition of this case.

Our decision of September 30, 1994 never dealt on the right and period of redemption of
petitioner, but was merely circumscribed to the question of whether respondent judge could
issue a writ of execution in its Civil Case No. 89-5424 . . .
We further ruled that the one-hundred fifty day period within which petitioner may exercise
its equity of redemption should be counted, not from the receipt of respondent court of the
records of Civil Case No. 89-5424 but from the date petitioner was notified of the entry of
judgment made by the appellate court.
But we never made any pronouncement on the one-year right of redemption of petitioner
because, in the first place, the foreclosure in this case is judicial. and as such the mortgagor
has only the equity not the right of redemption . . . While it may be true that under Section 78
of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a
bank, banking or credit institution, whether the foreclosure was done judicially or
extrajudicially, has a period of one year from the auction sale within which to redeem the
foreclosed property, the question of whether the Syndicated Management Group,. Inc., is a
bank or credit institution was never brought before us squarely, and it is indeed odd and
strange that petitioner would now sarcastically ask a rhetorical question in its motion for
clarification."3 (Emphasis supplied).
Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of Appeals
in CA-G.R. No. 35086 its pretended right under Section 78 of R.A. No. 337 but it never did so.
At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure, petitioner
should have averred in its pleading that it was entitled to the beneficial provisions of Section 78 of
R.A. No. 337; but again, petitioner did not make any such allegation in its answer.
From the said Resolution, petitioner took no further step such that on March 31, 1995, the private
respondent filed a Motion for Issuance of Writ of Possession with the trial court.
During the hearing called on April 21, 1995, the counsel of record of petitioner entered appearance
and asked for time to interpose opposition to the Motion for Issuance of Writ of Possession.
On May 2, 1995, in opposition to private respondent's Motion for Issuance of writ of Possession,
petitioner filed a "Motion to Compel Private Respondent to Accept Redemption." It was the first time
petitioner ever asserted the right to redeem subject properties under Section 78 of R.A. No. 337, the
General Banking Act; theorizing that the original mortgagee, being a credit institution, its assignment
of the mortgage credit to petitioner did not remove petitioner from the coverage of Section 78 of R.A.
No. 337. Therefore, it should have the right to redeem subject properties within one year from
registration of the auction sale, theorized the petitioner which concluded that in view of its "right of
redemption," the issuance of the titles over subject parcels of land to the private respondent was
irregular and premature.
In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied
private respondent's motion for a writ of possession, opining that Section 78 of the General Banking

Act was applicable and therefore, the petitioner had until October 21, 1995 to redeem the said
parcels of land, said Order ruled as follows:
"It is undisputed that Intercon is a credit institution from which defendant obtained a loan
secured with a real estate mortgage over four (4) parcels of land. Assuming that the
mortgage debt had not been assigned to plaintiff, there is then no question that defendant
would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant
to the above quoted Section 78 of RA 337, as amended.
However, the pivotal issue here is whether or not the defendant lost its right of redemption by
virtue of the assignment of its mortgage debt by Intercon to plaintiff, which is not a bank or
credit institution. The issue is resolved in the negative. The right of redemption in this case is
vested by law and is therefore an absolute privilege which defendant may not lose even
though plaintiff-assignee is not a bank or credit institution (Tolentino versus Court of Appeals,
106 SCRA 513). Indeed, a contrary ruling will lead to a possible circumvention of Section 78
because all that may be needed to deprive a defaulting mortgagor of his right of redemption
is to assign his mortgage debt from a bank or credit institution to one which is not. Protection
of defaulting mortgagors, which is the avowed policy behind the provision, would not be
achieved if the ruling were otherwise. Consequently, defendant still possesses its right of
redemption which it may exercise up to October 21, 1995 only, which is one year from the
date of registration of the certificate of sale of subject properties (GSIS versus Iloilo, 175
SCRA 19, citing Limpin versus IAC, 166 SCRA 87).
Since the period to exercise defendant's right of redemption has not yet expired, the
cancellation of defendant's transfer certificates of title and the issuance of new ones in lieu
thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating
reconveyance (see Sec. 63 (a) PD 1529, as amended).
WHEREFORE, the Court hereby rules as follows:
(1) The Motion for Issuance of Writ of Possession is hereby denied;
(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in an
amount computed according to the terms stated in the Writ of Execution dated July
15, 1994 plus all other related costs and expenses mentioned under Section 78, RA
337, as amended; and
(3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the
defendant the following titles of the four (4) parcels of land, namely TCT Nos. V38878, V-38879, V-38880, and V-38881, now in the name of plaintiff, and (b) to
register the certificate of sale dated October 7, 1994 and the Order confirming the
sale dated February 10, 1995 by a brief memorandum thereof upon the transfer
certificates of title to be issued in the name of defendant, pursuant to Sec. 63 (a) PD
1529, as amended.

The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now
deemed resolved.
SO ORDERED."4
Private respondent interposed a Motion for Reconsideration seeking the reversal of the Order but to
no avail. In its Order dated September 4, 1995, the trial court denied the same.
To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of September 4,
1995 of the trial court, the private respondent filed with this court a Petition for Certiorari, Prohibition
and Mandamus, docketed as G.R. No. 121893, but absent any special and cogent reason shown for
entertaining the same, the Court referred the petition to the Court of Appeals, for proper
determination.
Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course to the
petition and set aside the trial court's Order dated July 21, 1995 and Order dated September 4,
1995.
In its Resolution of March 11, 1997, the Court of Appeals denied petitioner's Motion for
Reconsideration of the Decision promulgated on November 14, 1996 in CA-G.R. No. 38747.
Undaunted, petitioner has come to this Court via the present petition, placing reliance on the
assignment of errors, that:
I
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE
COURT OF APPEALS (TWELFTH DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED
"WITH FINALITY" THAT PETITIONER HUERTA ALBA HAD NO RIGHT OF REDEMPTION
BUT ONLY THE EQUITY OF REDEMPTION.
II
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT
PETITIONER HUERTA ALBA POSSESSES THE ONE-YEAR RIGHT OF REDEMPTION
UNDER SECTION 78, R.A. NO. 337 (THE GENERAL BANKING ACT).
III
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
PRIVATE RESPONDENT SYNDICATED MANAGEMENT GROUP, INC. IS ENTITLED TO
THE ISSUANCE OF A WRIT OF POSSESSION OVER THE SUBJECT PROPERTY.5
In its comment on the petition, private respondent countered that:

"A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLVED

WITH FINALITY IN C.A.-G.R. SP NO. 35086 THAT PETITIONER ONLY HAD THE RIGHT
OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES.
B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE
FINALITY OF VARIOUS DECISIONS, RESOLUTIONS AND ORDERS WHICH HELD THAT,
PETITIONER ONLY POSSESSES THE EQUITY OF REDEMPTION IN RESPECT OF THE
SUBJECT PROPERTIES.
C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF
ITS ALLEGED 'RIGHT OF REDEMPTION. HDAECI
D. IN HOLDING THAT THE PETITIONER HAD THE 'RIGHT OF REDEMPTION' OVER THE
SUBJECT PROPERTIES, THE TRIAL COURT MADE A MOCKERY OF THE 'LAW OF THE
CASE."'6
And by way of Reply, petitioner argued, that:
I.
THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY
RESOLVED THEREIN WHETHER WITH FINALITY OR OTHERWISE - THE ISSUE OF
PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO.
337.
II.
THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER
CONFIRMATION BY THE COURT OF THE FORECLOSURE SALE, AND WITHIN ONE (1)
YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE OF SALE.
III.
THE PRINCIPLE OF 'THE LAW OF THE CASE' HAS ABSOLUTELY NO BEARING HERE:
(1)
THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT
PREDICATED UPON THE FINALITY AND CORRECTNESS OF THE DECISION IN CIVIL
CASE NO. 89-5424.
(2)
THUS, THE RTC'S ORDER RECOGNIZING PETITIONER HUERTA ALBA'S RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 37 DOES NOT IN ANY WAY HAVE THE

EFFECT OF AMENDING, MODIFYING, OR SETTING ASIDE THE DECISION IN CIVIL

CASE NO. 89-5424.
The above arguments and counter-arguments advanced relate to the pivotal issue of whether or not
the petitioner has the one-year right of redemption of subject properties under Section 78 of
Republic Act No. 337 otherwise known as the General Banking Act.
The petition is not visited by merit.
Petitioner's assertion of right of redemption under Section 78 of Republic Act No. 337 is premised on
the submission that the Court of Appeals did not resolve such issue in CA-G.R. SP No. 35086;
contending thus:
(1)
BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP
NO. 35086 BE INTERPRETED TO MEAN THE COURT OF APPEALS HAD RESOLVED
'WITH FINALITY' THE ISSUE OF WHETHER PETITIONER HUERTA ALBA HAD THE
RIGHT OF REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY
NOTE THE MOTION FOR CLARIFICATION.
(2)
THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL
JUDGMENT, ORDER OR DECREE. IT IS NOT EVEN A JUDGMENT OR ORDER TO
BEGIN WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING.
(3)
PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO.
37 WAS NOT AN ISSUE AND WAS NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY
BEEN AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO. 35086.
(4)
THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY
BECOME FINAL EVEN BEFORE THE FILING OF THE MOTION FOR CLARIFICATION,
THE COURT OF APPEALS NO LONGER HAD ANY JURISDICTION TO ACT OF THE
MOTION OR ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY
NOTE THE MOTION. EASIHa
II.
IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBA'S RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 337 WAS DIRECTLY RAISED AND JOINED
BY THE PARTIES, AND THE SAME DULY RESOLVED BY THE TRIAL COURT.

III.
THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY
AND AUTOMATICALLY EXISTS BY LAW. THE COURTS ARE DUTY-BOUND TO
RECOGNIZE SUCH RIGHT.
IV.
EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA
ALBA, NOT THE LEAST OF WHICH IS THE WELL-SETTLED POLICY OF THE LAW TO
AID RATHER THAN DEFEAT THE RIGHT OF REDEMPTION.
V.
THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL
COURT ARE VALID AND PROPER IN ACCORDANCE WITH THE MANDATE OF THE LAW.
From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has
been adjudged to have was only the equity of redemption over subject properties. On the distinction
between the equityof redemption and right of redemption, the case of Gregorio Y. Limpin vs.
Intermediate Appellate Court,7 comes to the fore. Held the Court in the said case:
"The equity of redemption is, to be sure, different from and should not be confused with
the right of redemption.
The right of redemption in relation to a mortgage understood in the sense of a prerogative
to re-acquire mortgaged property after registration of the foreclosure sale exists only in the
case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial
foreclosure except only where the mortgagee is the Philippine National Bank or a bank or
banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of
redemption within one (1) year from the registration of the sheriff's certificate of foreclosure
sale.
Where the foreclosure is judicially effected, however, no equivalent right of redemption
exists. The law declares that a judicial foreclosure sale 'when confirmed be an order of the
court. . . . shall operate to divest the rights of all the parties to the action and to vest their
rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such
rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are
those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and
the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in
interest or any judgment creditor of the mortgagor, the right to redeem the property sold on
foreclosure after confirmation by the court of the foreclosure sale which right may be
exercised within a period of one (1) year, counted from the date of registration of the
certificate of sale in the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage
if the mortgagee is not the PNB or a bank or banking institution. In such a case, the
foreclosure sale, 'when confirmed by an order of the court. . . shall operate to divest the
rights of all the parties to the action and to vest their rights in the purchaser.' There then
exists only what is known as the equity of redemption. This is simply the right of the
defendant mortgagor to extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the judgment becomes final, in
accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.
Section 2, Rule 68 provides that
'. . If upon the trial . . the court shall find the facts set forth in the complaint to be true, it shall
ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including
interest and costs, and shall render judgment for the sum so found due and order the same
to be paid into court within a period of not less than ninety (90) days from the date of the
service of such order, and that in default of such payment the property be sold to realize the
mortgage debt and costs.'
This is the mortgagor's equity (not right) of redemption which, as above stated, may be
exercised by him even beyond the 90-day period 'from the date of service of the order,' and
even after the foreclosure sale itself, provided it be before the order of confirmation of the
sale. After such order of confirmation, no redemption can be effected any
longer."8 (Emphasis supplied)
Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337.
Petitioner avers in its petition that the Intercom, predecessor in interest of the private respondent, is
a credit institution, such that Section 78 of Republic Act No. 337 should apply in this case. Stated
differently, it is the submission of petitioner that it should be allowed to redeem subject properties
within one year from the date of sale as a result of the foreclosure of the mortgage constituted
thereon.
The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted right
under Section 78 of R.A. No. 337 to redeem subject properties.
Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after confirmation by the court
of the foreclosure sale, and within one (1) year from the date of registration of the certificate of sale.
Indeed, the facts show that it was only on May 2, 1995 when, in opposition to the Motion for
Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to Accept
Redemption, invoking for the very first time its alleged right to redeem subject properties under to
Section 78 of R.A. No. 337.
In light of the aforestated facts, it was too late in the day for petitioner to invoke a right to redeem
under Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several crucial
stages of the proceedings.

For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for
Clarification, petitioner failed to allege and prove that private respondent's predecessor in interest
was a credit institution and therefore, Section 78 of R.A. No. 337 was applicable. Petitioner merely
asked the trial court to clarify whether the sale of subject properties was execution sale or judicial
foreclosure sale.
So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside
Said Order dated October 13, 1994, petitioner again was silent on its alleged right under Section 78
of R.A. No. 337, even as it failed to show that private respondent's predecessor in interest is a credit
institution. Petitioner just argued that the aforementioned Order materially altered the trial court's
Decision of April 30, 1992.
Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337
and of the predecessor in interest of private respondent as a credit institution, when the trial court
came out with an order on February 10, 1995, confirming the sale of subject properties in favor of
private respondent and declaring that all pending incidents with respect to the Order dated
September 26, 1994 had become moot and academic.
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of
Appeals, seeking "clarification" of the date of commencement of the one (1) year redemption period
for the subject properties, petitioner never intimated any alleged right under Section 78 of R.A. No.
337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest
was a credit institution. Consequently, in its Resolution dated March 20, 1995, the Court of Appeals
ruled on the said motion thus:
"But we never made any pronouncement on the one-year right of redemption of petitioner
because, in the first place, the foreclosure in this case is judicial, and as such. the mortgagor
has only the equity. not the right of redemption . . . While it may be true that under Section 78
of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a
bank, banking or credit institution, whether the foreclosure was done judicially or
extrajudicially, has a period of one year from the auction sale within which to redeem the
foreclosed property, the question of whether the Syndicated Management Group. Inc., is
bank or credit institution was never brought before us squarely, and it is indeed odd and
strange that petitioner would now sarcastically ask a rhetorical question in its motion for
clarification."9 (Emphasis supplied).
If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in
CA-G.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but petitioner never did do so.
Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial
foreclosure, petitioner should have alleged that it was entitled to the beneficial provisions of Section
78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any right
thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the
factual question of whether or not private respondent's predecessor in interest was a credit
institution. As was held in Limpin, a judicial foreclosure sale, "when confirmed by an order of the
court, . . shall operate to divest the rights of all the parties to the action and to vest their rights in the

purchaser, subject to such rights of redemption as may be allowed by law'," 10 which confer on the
mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem
the property sold on foreclosure after confirmation by the court of the judicial foreclosure sale. Thus,
the claim that petitioner is entitled to the beneficial provisions of Section 78 of R.A. No. 337 since
private respondent's predecessor-in-interest is a credit institution is in the nature of a compulsory
counterclaim which should have been averred in petitioner's answer to the compliant for judicial
foreclosure.
". . . A counterclaim is, most broadly, a cause of action existing in favor of the defendant
against the plaintiff. More narrowly, it is a claim which. if established, will defeat or in some
way qualify a judgment or relief to which plaintiff is otherwise entitled It is sometimes defined
as any cause of action arising in contract available against any action also arising in contract
and existing at the time of the commencement of such an action. It is frequently defined by
the codes as a cause of action arising out of the contract or transaction set forth in the
complaint as the foundation of the plaintiff's claim, or connected with the subject of the
action."11 (emphasis supplied)
"The counterclaim is in itself a distinct and independent cause of action, so that when
properly stated as such, the defendant becomes, in respect to the matters stated by him, an
actor, and there are two simultaneous actions pending between the same parties, wherein
each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as
well as a defensive plea and is not necessarily confined to the justice of the plaintiff's
claim. It represents the right of the defendant to have the claims of the parties
counterbalanced in whole or in part, and judgment to be entered in excess, if any. A
counterclaim stands on the same footing, and is to be tested be the same rules, as if it were
an independent action."12 (emphasis supplied)
The very purpose of a counterclaim would have been served had petitioner alleged in its answer its
purported right under Section 78 of R.A. No. 337:
". . . The rules of counterclaim are designed to enable the disposition of a whole controversy
of interested parties' conflicting claims, at one time and in one action, provided all parties' be
brought before the court and the matter decided without prejudicing the rights of any party." 13
The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337
precludes it from so doing at this late stage case. Estoppel may be successfully invoked if the party
fails to raise the question in the early stages of the proceedings.14 Thus, "a party to a case who failed
to invoked his claim in the main case, while having the opportunity to do so, will be precluded,
subsequently, from invoking his claim, even if it were true, after the decision has become final,
otherwise the judgment may be reduced to a mockery and the administration of justice may be
placed in disrepute."15
All things viewed in proper perspective, it is decisively clear that the trial court erred in still allowing
petitioner to introduce evidence that private respondent's predecessor-in-interest was a credit
institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section
78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter

failed to do before the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A.
No. 337 although the Court of Appeals in CA-G.R. no. 35086 already found that 'the question of
whether the Syndicated Management Council Group, Inc. is a bank or credit institution was never
brought before (the Court of Appeals) squarely." The said pronouncement by the Court of Appeals
unerringly signified that petitioner did not make a timely assertion of any right under Section 78 of
R.A. No. 337 in all the stages of the proceedings below.
Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-ininterest of the private respondent is a credit institution. Thus, when the trial court, and the Court of
Appeals repeatedly passed upon the issue of whether or not petitioner had the right of redemption or
equity of redemption over subject properties in the decisions, resolutions and orders, particularly in
Civil Case no. 89-5424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R. SP No.
38747, it was unmistakable that the petitioner was adjudged to just have the equity of redemption
without any qualification whatsoever, that is, without any right of redemption allowed by law.
The "law of case" holds that petitioner has the equity of redemption without any qualification.
There is, therefore, merit in private respondent's contention that to allow petitioner to belatedly
invoke its right under Section 78 of R.A. No. 337 will disturb the "law of the case." However, private
respondent's statement of what constitutes the "law of the case" is not entirely accurate. The "law of
the case" is not simply that the defendant possesses an equity of redemption. As the Court has
stated, the "law of the case" holds that petitioner has the equity of the redemption without any
qualification whatsoever, that is, without the right of redemption afforded by Section 78 of R.A. No.
337. Whether or not the "law of the case" is erroneous is immaterial, it still remains the "law of the
case". A contrary rule will contradict both the letter and spirit of the rulings of the Court of Appeals in
CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the
repeated attempts of petitioner to forestall so simple a matter as making the security given for a just
debt to answer for its payment.
Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as confirmed by the
Order dated February 10, 1995 of the trial court in Civil Case No. 89-5424 operated to divest the
rights of all the parties to the action and to vest their rights in private respondent. There then existed
only what is known as the equity of redemption, which is simply the right of the petitioner to
extinguish the mortgage and retain ownership of the property by paying the secured debt within the
90-day period after the judgment became final. There being an explicit finding on the part of the
Court of Appeals in its Decision of September 30, 1994 in CA-G.R. No. 35086 that the herein
petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no
longer be effected. The confirmation of the sale and the issuance of the transfer certificates of title
covering the subject properties to private respondent was then, in order. The trial court therefore,
has the ministerial duty to place private respondent in the possession of subject properties.
WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals, declaring
null and void the Order dated 21 July 1995 and Order dated 4 September 1997 of the Regional Trial
Court of Makati City in Civil Case No. 89-5424, AFFIRMED. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 137792. August 12, 2003]

SPOUSES
RICARDO
ROSALES
and
SIBUG, petitioners, vs. SPOUSES ALFONSO and
SUBA, THE CITY SHERIFF OF MANILA,respondents.

ERLINDA
LOURDES

DECISION
SANDOVAL-GUTIERREZ, J.:

Challenged in the instant petition for review on certiorari are the

Resolutions dated November 25, 1998 and February 26, 1999 of the Court of
Appeals dismissing the petition forcertiorari in CA G.R. SP No. 49634,
Spouses Ricardo Rosales and Erlinda Sibug vs. Alfonso and Lourdes Suba.
[1]

On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a
Decision in Civil Cases Nos. 94-72303 and 94-72379, the dispositive portion
of which reads:
[2]

WHEREFORE, judgment is rendered:

(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting the property in
question, as an equitable mortgage;
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from
finality of this Decision, to deposit with the Clerk of Court, for payment to the parties
Felicisimo Macaspac and Elena Jiao, the sum of P65,000.00, with interest at nine (9)
percent per annum from September 30, 1982 until payment is made, plus the sum
of P219.76 as reimbursement for real estate taxes;
(3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on
their behalf of the amounts specified in the foregoing paragraph, to execute a deed of
reconveyance of the property in question to Erlinda Sibug, married to Ricardo
Rosales, and the Register of Deeds of Manila shall cancel Transfer Certificate of Title
No. 150540 in the name of the Macaspacs (Exh. E) and issue new title in the name of
Sibug;

(4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of
this dispositive portion, let the property be sold in accordance with the Rules of Court
for the release of the mortgage debt and the issuance of title to the purchaser.
SO ORDERED.

[3]

The decision became final and executory. Spouses Ricardo and Erlinda
Rosales, judgment debtors and herein petitioners, failed to comply with
paragraph 2 quoted above, i.e., to deposit with the Clerk of Court, within 90
days from finality of the Decision, P65,000.00, etc., to be paid to Felicisimo
Macaspac and Elena Jiao. This prompted Macaspac, as judgment creditor, to
file with the trial court a motion for execution.
Petitioners opposed the motion for being premature, asserting that the
decision has not yet attained finality. On March 5, 1998, they filed a
manifestation and motion informing the court of their difficulty in paying
Macaspac as there is no correct computation of the judgment debt.
On February 23, 1998, Macaspac filed a supplemental motion for
execution stating that the amount due him is P243,864.08.
Petitioners failed to pay the amount. On March 25, 1998, the trial court
issued a writ of execution ordering the sale of the property subject of litigation
for the satisfaction of the judgment.
On May 15, 1998, an auction sale of the property was held wherein
petitioners participated. However, the property was sold for P285,000.00 to
spouses Alfonso and Lourdes Suba, herein respondents, being the highest
bidders. On July 15, 1998, the trial court issued an order confirming the sale
of the property and directing the sheriff to issue a final deed of sale in their
favor.
On July 28, 1998, Macaspac filed a motion praying for the release to him
of the amount of P176,176.06 from the proceeds of the auction sale,
prompting petitioners to file a motion praying that an independent certified
public accountant be appointed to settle the exact amount due to movant
Macaspac.

Meanwhile, on August 3, 1998, the Register of Deeds of Manila issued a

new Transfer Certificate of Title over the subject property in the names of
respondents.
On August 18, 1998, respondents filed with the trial court a motion for a
writ of possession, contending that the confirmation of the sale effectively cut
off petitioners equity of redemption. Petitioners on the other hand, filed a
motion for reconsideration of the order dated July 15, 1998 confirming the sale
of the property to respondents.
On October 19, 1998, the trial court, acting upon both motions, issued an
order (1) granting respondents prayer for a writ of possession and (2) denying
petitioners motion for reconsideration. The trial court ruled that petitioners
have no right to redeem the property since the case is for judicial foreclosure
of mortgage under Rule 68 of the 1997 Rules of Civil Procedure, as
amended. Hence, respondents, as purchasers of the property, are entitled to
its possession as a matter of right.
Forthwith, petitioners filed with the Court of Appeals a petition for certiorari,
docketed as CA-G.R. SP No. 49634, alleging that the trial court committed
grave abuse of discretion amounting to lack or excess of jurisdiction in issuing
a writ of possession to respondents and in denying their motion for
reconsideration of the order dated July 15, 1998 confirming the sale of the
property to said respondents.
On November 25, 1998, the CA dismissed outright the petition for lack of
merit, holding that there is no right of redemption in case of judicial
foreclosure of mortgage. Petitioners motion for reconsideration was also
denied.
Hence this petition.
In the main, petitioners fault the Appellate Court in applying the rules on
judicial foreclosure of mortgage. They contend that their loan with Macaspac
is unsecured, hence, its payment entails an execution of judgment for money
under Section 9 in relation to Section 25, Rule 39 of the 1997 Rules of Civil
Procedure, as amended, allowing the judgment debtor one (1) year from
[4]

the date of registration of the certificate of sale within which to redeem

the foreclosed property.
Respondents, upon the other hand, insist that petitioners are actually
questioning the decision of the trial court dated June 13, 1997 which has long
become final and executory; and that the latter have no right to redeem a
mortgaged property which has been judicially foreclosed.
Petitioners contention lacks merit. The decision of the trial court, which is
final and executory, declared the transaction between petitioners and
Macaspac an equitable mortgage. InMatanguihan vs. Court of Appeals, this
Court defined an equitable mortgage 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, and contains nothing impossible or contrary to law. An
equitable mortgage is not different from a real estate mortgage, and the lien
created thereby ought not to be defeated by requiring compliance with the
formalities necessary to the validity of a voluntary real estate mortgage.
Since the parties transaction is an equitable mortgage and that the trial court
ordered its foreclosure, execution of judgment is governed by Sections 2 and
3, Rule 68 of the 1997 Rules of Civil Procedure, as amended, quoted as
follows:
[5]

[6]

SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such
action the court shall find the facts set forth in the complaint to be true, it shall
ascertain the amount due to the plaintiff upon the mortgage debt or obligation,
including interest and other charges as approved by the court, and costs, and shall
render judgment for the sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less that ninety (90) days
nor more than one hundred twenty (120) days from the entry of judgment, and
that in default of such payment the property shall be sold at public auction to
satisfy the judgment.
SEC. 3. Sale of mortgaged property, effect. When the defendant, after being
directed to do so as provided in the next preceding section, fails to pay the amount of
the judgment within the period specified therein, the court, upon motion, shall
order the property to be sold in the manner and under the provisions of Rule 39 and

other regulations governing sales of real estate under execution. Such sale shall not
effect the rights of persons holding prior encumbrances upon the property or a part
thereof, and when confirmed by an order of the court, also upon motion, it shall
operate to divest the rights in the property of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of redemption as may be
allowed by law.
x x x.
In Huerta Alba Resort, Inc. vs. Court of Appeals, we held that the right of
redemption is not recognized in a judicial foreclosure, thus:
[7]

The right of redemption in relation to a mortgageunderstood in the sense of a

prerogative to re-acquire mortgaged property after registration of the
foreclosure saleexists only in the case of theextrajudicial foreclosure of the
mortgage. No such right is recognized in a judicial foreclosure except only where
the mortgagee is the Philippine National bank or a bank or a banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the
right of redemption within one (1) year from the registration of the sheriffs certificate
of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale, when
confirmed by an order of the court, x x x shall operate to divest the rights of all the
parties to the action and to vest their rights in the purchaser, subject to such rights
of redemption as may be allowed by law. Such rights exceptionally allowed by law
(i.e., even after the confirmation by an order of the court) are those granted by the
charter of the Philippine National Bank (Act Nos. 2747 and 2938), and the General
Banking Act (R.A.337). These laws confer on the mortgagor, his successors in
interest or any judgment creditor of the mortgagor, the right to redeem the property
sold on foreclosureafter confirmation by the court of the foreclosure salewhich right
may be exercised within a period of one (1) year, counted from the date of registration
of the certificate of sale in the Registry of Property.
But, to repeat, no such right of redemption exists in case of judicial foreclosure
of a mortgage if the mortgagee is not the PNB or a bank or banking

institution. In such a case, the foreclosure sale, when confirmed by an order of

the court, x x x shall operate to divest the rights of all the parties to the action
and to vest their rights in the purchaser. There then exists only what is known
as the equity of redemption. This is simply the right of the defendant mortgagor to
extinguish the mortgage and retain ownership of the property by paying the secured
debt within the 90-day period after the judgment becomes final, in accordance with
Rule 68, or even after the foreclosure sale but prior to its confirmation.
xxx
This is the mortgagors equity (not right) of redemption which, as above stated,
may be exercised by him even beyond the 90-day period from the date of service
of the order, and even after the foreclosure sale itself, provided it be before the
order of confirmation of the sale. After such order of confirmation, no
redemption can be effected any longer. (Italics supplied)
Clearly, as a general rule, there is no right of redemption in a judicial
foreclosure of mortgage. The only exemption is when the mortgagee is the
Philippine National Bank or a bank or a banking institution. Since the
mortgagee in this case is not one of those mentioned, no right of redemption
exists in favor of petitioners. They merely have an equity of redemption,
which, to reiterate, is simply their right, as mortgagor, to extinguish the
mortgage and retain ownership of the property by paying the secured debt
prior to the confirmation of the foreclosure sale. However, instead of
exercising this equity of redemption, petitioners chose to delay the
proceedings by filing several manifestations with the trial court. Thus, they
only have themselves to blame for the consequent loss of their property.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of
Appeals dated November 25, 1998 and February 26, 1999 in CA G.R. SP No.
49634 are AFFIRMED.
SO ORDERED.

G.R. No. 178242

January 20, 2009

HEIRS OF NORBERTO J. QUISUMBING, Petitioners,

vs.
PHILIPPINE NATIONAL BANK and SANTIAGO LAND DEVELOPMENT
CORPORATION, Respondents.
DECISION
CARPIO MORALES, J.:
From the Court of Appeals Decision1 of February 14, 2007 denying petitioners appeal from the
Decision2 of the Regional Trial Court, Branch 62, Makati City in Civil Case No. 10513, they come to
this Court on petition for review on certiorari.
Culled from the eight-volume records of the case are the following facts:
In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses Silverio) and Ricardo C.
Silverio as Chairman of the Board of the following companies, namely Delta Motors Corporation
(Delta Motors), Komatsu Industries (Komatsu), R.C. Silverio Management Corporation (RCSMC),
through Deeds of Assignment3 dated April 11 and 12, 1985, assigned to Atty. Norberto J. Quisumbing
(Quisumbing) their rights of redemption with respect to various real properties which herein
respondent Philippine National Bank (PNB) had foreclosed and acquired as the highest bidder. The
properties included lots in Quezon City, Manila, Pampanga and Bulacan in the name of Ricardo C.
Silverio, married to Beatriz Sison; a lot in Tagaytay in the name of Ricardo C. Silverio; lots in Nueva
Ecija in the name of RCSMC; lots in Baguio and Benguet in the name of Delta Motors; a lot in
Zambales in the name of RCSMC; and a lot in Rizal (actually Pasong Tamo, Makati) including
improvements in the name of Komatsu (hereafter referred to as Pasong Tamo property).
By letter4 dated April 8, 1985, Quisumbing made a formal tender of redemption to PNB for the
abovementioned properties, with the request that he be informed within 10 days of the total amount
of the redemption prices so "he would know how much to pay." Quisumbing furnished the sheriffs
who conducted the sales, as well as the registers of deeds in the various localities where the
properties are situated, with a copy of said tender letter.
Acting on Quisumbings tender of redemption, the PNB, by letter of April 15, 1985, requested copies
of the Deeds of Assignment so that it may "have a basis to reply to" his request. 5 Quisumbing
furnished PNB with copies of the Deeds, requesting a reply to his tender letter and requested for the
computation of the total amount of redemption price for which he gave PNB until April 30, 1985 to do
so. Before PNB could reply, however, or on April 23, 1985, Quisumbing executed an Affidavit of
Redemption,6 furnishing PNB, the sheriffs and the registers of deeds a copy thereof.
Before the one-year redemption period expired, PNB, by letter dated May 3, 1985, 7 denied
Quisumbings offer of redemption on the ground that the Deeds of Assignment were invalid for not
having been registered and for being against Art. 1491 (5) of the Civil Code; that the tender was not

proper because it was not accompanied by actual money payment; and that the amount Quisumbing
offered was way below that required under Sec. 25 of P.D. No. 694.
Quisumbing thus filed a Complaint8 before the Regional Trial Court (RTC) of Makati9 against PNB to
compel it to allow him to exercise his right of redemption over the foreclosed properties and to inform
him of the total amount of redemption price. At the same time, he caused the annotation of a notice
of lis pendens on the certificates of title of the properties.
In its Answer,10 PNB contended that Quisumbing had no cause of action as his tender offer was "proforma," as the same was unaccompanied by cash payment; that the offer was not in accordance
with Section 25 of P.D. No. 694, as amended; that the assignment of rights made in Quisumbings
favor was ineffectual because the same was not registered and annotated on the certificates of title
of the properties; that the Deeds of Assignment executed by RSCMC, Komatsu and Delta Motors
were defectively acknowledged as public instruments; and that the assignments were barred by
Article 1491 (5) of the Civil Code.11 During the pendency of the case, Quisumbing died, hence, he
was substituted by his heirs-herein petitioners on September 14, 1990.
On December 8, 1989, with the approval by Branch 149 of the Makati RTC, the herein other
respondent Santiago Land Development Corporation (SLDC) intervened, it having purchased
pendente lite from PNB the Pasong Tamo property, and adopted in its Answer-in-Intervention PNBs
defenses as set forth in its Answer, and raised additional defenses.
Petitioners thus filed before the appellate court a Petition for Certiorari, docketed as CA-G.R. SP No.
25826, questioning, inter alia, the trial courts grant of SLDCs move to intervene, arguing that SLDC
should have joined as an additional defendant for it to be bound by all prior proceedings.
By Decision dated July 6, 1992, the appellate court granted the petition of petitioners and nullified
the trial courts Order granting SLDCs intervention. SLDC appealed to this Court via certiorari,
docketed as G.R. No. 106194.
By Decision12 of January 28, 1997, the Court dismissed SLDCs petition and affirmed the appellate
courts decision, ruling that SLDC is a transferee pendente lite and, as such, could no longer
intervene as the law already considers it joined or substituted in the pending action, hence, bound by
all prior proceedings and barred from presenting a new or different claim.
SLDC thereupon filed a Motion for Partial Substitution in Civil Case No. 10513, which was granted
on April 14, 1998.
By Decision13 of October 24, 2000, the trial court dismissed petitioners Amended Complaint as
against PNB, as well as that against SLDC, ruling that Quisumbing did not make a valid tender of
redemption as it was not accompanied by cash payment; that Sec. 25 of P.D. No. 694 is not
unconstitutional and was applicable not only to direct debtors/mortgagors but constructively also to
accommodation mortgagors following Nepomuceno v. RFC.14Aggrieved, petitioners appealed to the
Court of Appeals.

By the assailed Decision of February 14, 2007, the appellate court affirmed the trial courts decision,
holding that there was no valid offer to redeem the properties owing to Quisumbings failure to validly
tender payment; and that even if his filing of the complaint was considered as judicial redemption, it
was still ineffectual due to non-tender of the redemption price. On account of such ruling, the
appellate court no longer ruled on the issue of the constitutionality of Sec. 25 of P.D. 694 and on the
validity of the Deeds of Assignment. Petitioners motion for reconsideration having been denied by
Resolution dated June 5, 2007, this present petition was filed.
Petitioners insist that Quisumbing made a valid tender of redemption because he did not have to
tender the redemption prices due to, so they claim, PNBs outright refusal to accept or allow any
redemption, and that he perfected a judicial redemption following Tioseco v. CA. 15 They assail the
ruling of the trial court that spouses Silverio were accommodation mortgagors or direct
debtors/mortgagors and that Sec. 25 of P.D. No. 694 applies to accommodation mortgagors, as well
as the trial and appellate courts ruling that Sec. 25 is not unconstitutional despite its being violative,
so petitioners contend, of the due process and equal protection clauses of the Constitution.
Petitioners maintain that Sec. 25 applies only to debtors-mortgagors, hence, the case at bar should
have been governed by the general law on redemption Sec. 6 of Republic Act No. 3135 vis a vis
Rule 39, Sec. 30. In support of their position, they draw attention to the fact that all the certificates of
sale state that the proceedings/sale were pursuant to an "extra-judicial foreclosure of real estate
mortgage under RA 3135 as amended," without any mention whatsoever of P.D. No. 694. Petitioners
thus conclude that Sec. 25 of P.D. No. 694 should be struck down for being void for vagueness; and
that it is arbitrary and unreasonable because it grants a preferred position to PNB which may abuse
to unjustly enrich itself at the expense of mortgagors, hence, violative of the right to due process.
At all events, they argue that assuming that Sec. 25 applies to accommodation mortgagors such as
the spouses Silverio still, the redemption price would be based on the value of the properties
foreclosed, not on the obligations of the debtor, as what PNB insists on doing.
In its Comment,16 PNB, averring that what petitioners are raising are questions of fact, maintains that
the Deeds of Assignment are void for being against public policy because at the time they were
executed, Quisumbing was already the lawyer not only of the spouses Silverio but also of Komatsu
and the other companies, the properties of which were being foreclosed.
In its separate Comment,17 SLDC argues that the present petition, insofar as the Pasong Tamo
property is concerned, is barred by res judicata, the Court in Komatsu Industries (Phils.) Inc. v.
Philippine National Bank and Santiago Land Development Corporation and Maximo Contreras,
(Komatsu case)18 having declared PNBs extrajudicial foreclosure of the said property and eventual
sale to SLDC valid. It adds that, since in G.R. No. 106194 or the "Intervention Case," it was held that
a purchaser pendente lite SLDC is bound by the outcome of the case instituted by the transferor
PNB, then Quisumbing, as transferee pendente lite of Komatsus right to redeem the Pasong Tamo
property, "must also necessarily be bound by the outcome of the Komatsu case" and that,
perforce, "if he cannot intervene, then neither can he be allowed to file or maintain a separate case."
Maintaining that Quisumbings "judicial redemption" should not be allowed, SLDC contends that
since redemption is inconsistent with the claim of invalidity of a foreclosure sale, then Komatsus act

of assigning its right of redemption to Quisumbing was incompatible with its earlier remedy of
contesting the validity of PNBs foreclosure and is, therefore, prohibited.
SLDC further avers that Sec. 25 of PD No. 694 does not violate the due process clause, its provision
requiring the mortgagors to pay the redemption price being in line with the purpose of the law, viz "to
protect the investment of the government in the institution."
Aside from reiterating their previous arguments, petitioners, in their Consolidated Reply,19 refute
SLDCs and PNBs arguments. They contend that the action is not barred by res judicata because in
the Komatsu case, the Court "contemplated" that the issue of validity of the exercise of redemption
would not be resolved in that case but in Civil Case No. 10513, and the reason why Quisumbing was
not required to intervene in Komatsu was because he was not a party thereto, and the case involved
annulment of the foreclosure sale, not the exercise of the right of redemption.
Petitioners further maintain that the issue of whether the assignment of rights made in Quisumbings
favor was barred for being against public policy (under Art. 1491[5] of the Civil Code) can no longer
be raised as an issue, respondents having failed to raise it in the proceedings below; and assuming
arguendo that it had been raised, said provision would not apply, as what were assigned were
merely the rights of redemption, not the properties themselves, and Quisumbing did not represent
Komatsu or the other companies in the annulment of foreclosure proceedings.
In a Supplemental Petition20 filed on August 28, 2007, petitioners submit that the sale of the
Philippine Governments remaining minority shares (12.28%) in the PNB on August 1, 2007
reinforces their argument that if Sec. 25 of P.D. No. 694 is made applicable to accommodation
mortgagors, the same should be struck down for being unconstitutional, as it would then be violative
of the equal protection clause. And they assert that if, indeed, the purpose of said provision is to
protect the governments investment in PNB, then it has ceased to exist due to the privatization of
said institution and, as such, Sec. 25 should be struck down.
The pivotal issue that needs to be resolved is whether the original plaintiff, Atty. Norberto J.
Quisumbing, made a valid tender of redemption.
The Court rules in the negative.
Sec. 25 of P.D. No. 694 otherwise known as the Revised Charter of the Philippine National Bank
enacted on May 8, 1975 provides:
Section 25. Right of redemption of foreclosed property Right of possession during redemption
period. Within one year from the registration of the foreclosure sale of real estate, the mortgagor
shall have the right to redeem the property by paying all claims of the Bank against him on the date
of the sale including all the costs and other expenses incurred by reason of the foreclosure sale and
custody of the property, as well as charges and accrued interests.
The Bank may take possession of the foreclosed property during the redemption period. When the
Bank takes possession during such period, it shall be entitled to the fruits of the property with no
obligation to account for them, the same being considered compensation for the interest that would

otherwise accrue on the account. Neither shall the Bank be obliged to post a bond for the purpose of
such possession. (Emphasis supplied)
On the other hand, under Act No. 3135, An Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate Mortgages (which took effect on March 6, 1924), as
amended by Act. No. 4118, redemption of extra-judicially foreclosed properties is undertaken as
follows:
SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year from
and after the date of the sale; and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in
so far as these are not inconsistent with the provisions of this Act. (Emphasis supplied)
And the pertinent provision of the Code of Civil Procedure, now Section 28 of Rule 39 of the Revised
Rules of Civil Procedure, reads:
SEC. 28. Time and manner of, and amounts payable on, successive redemptions; notice to be given
and filed. The judgment obligor, or redemptioner, may redeem the property from the purchaser, at
any time within one (1) year from the date of the registration of the certificate of sale, by paying the
purchaser the amount of his purchase, with one per centum per month interest thereon in addition,
up to the time of redemption, together with the amount of any assessments or taxes which the
purchaser may have paid thereon after purchase, and interest on such last named amount of the
same rate; and if the purchaser be also a creditor having a prior lien to that of the redemptioner,
other than the judgment under which such purchase was made, the amount of such other lien, with
interest. (Emphasis supplied)
As to the requisites for a valid tender of redemption in case of extra-judicially foreclosed properties
by banks, Banco Filipino Savings and Mortgage Bank, Inc., v. Court of Appeals, 21 instructs:
Section 6 of Act 3135 provides for the requisites for a valid redemption, 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 sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure,
insofar as these are not inconsistent with the provisions of this Act.
However, considering that petitioner is a banking institution, the determination of the redemption
price is governed by Section 78 of the General Banking Act which provides:

In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which
is security for any loan granted before the passage of this Act or under the provisions of this Act, the
mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially,
for the full or partial payment of an obligation to any bank, banking or credit institution, within the
purview of this Act shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by
the court in the order of execution, or the amount due under the mortgage deed, as the case may
be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and
other expenses incurred by the bank or institution concerned by reason of the execution and sale
and as a result of the custody of said property less the income received from the property.
Clearly, the right of redemption should be exercised within the specified time limit, which is one year
from the date of registration of the certificate of sale. The redemptioner should make an actual
tender in good faith of the full amount of the purchase price as provided above, i.e., the amount fixed
by the court in the order of execution or the amount due under the mortgage deed, as the case may
be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and
other expenses incurred by the bank or institution concerned by reason of the execution and sale
and as a result of the custody of said property less the income received from the property.
xxxx
In BPI Family Savings Bank, Inc. vs. Veloso, we held:
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests
his desire to do so. The statement of intention must be accompanied by an actual and simultaneous
tender of payment. This constitutes the exercise of the right to repurchase.
xxxx
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant.
Redemption within the period allowed by law is not a matter of intent but a question of payment or
valid tender of the full redemption price within said period. (Emphasis supplied)
Evidently, whether the redemption is being made under Act No. 3135 or the General Banking Act, as
amended by Presidential Decree No. 1828, or under P.D. No.
694, the mortgagor or his assignee is required to tenderpayment to make said redemption valid
something which petitioners predecessor failed to do. The only instance when this rule may be
construed liberally, i.e., allow the non-simultaneous tender of payment, is if a judicial action is
instituted by the redemptioner. 22
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of
Appeals and Lee Chuy Realty Corporation v. Court of Appeals that in case of disagreement over the
redemption price, the redemptioner may preserve his right of redemption through judicial action
which must be filed within the one-year period of redemption. The filing of a court action to enforce
redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his
redemptive rights and "freezing" the expiration of the one-year period. Bona fidetender of the

redemption price, within the prescribed period is only essential to preserve the right of redemption
for future enforcement beyond such period of redemption and within the period prescribed for the
action by the statute of limitations. Where the right to redeem is exercised through judicial action
within the reglementary period, the offer to redeem, accompanied by a bona fide tender of the
redemption price, while proper, may be unessential. (Emphasis supplied)
For this exception to apply, however, certain conditions must be met, viz:
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals, we held that the action
for judicial redemption should be filed on time and in good faith, the redemption price is finally
determined and paid within a reasonable time, and the rights of the parties are respected. Stated
otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or
redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have
been for the sole purpose of determining the redemption price and not to stretch the redemptive
period indefinitely; and (3) once the redemption price is determined within a reasonable time, the
redemptioner must make prompt payment in full. (Emphasis supplied)
While Quisumbing filed the Complaint on May 7, 1985, days or even weeks before the expiration of
the one-year redemption period reckoned from the dates of registration of the different certificates of
sale, it cannot be said that he was motivated by good faith when he filed the Complaint, as
contemplated in the above ruling. For the Complaint was filed not for the sole purpose of determining
the redemption price, but, as Quisumbing himself admitted on direct examination, it was to seek the
annulment of Sec. 25 of P.D. No. 694, thus:
Q: And what is the purpose of your present suit?
A: To compel the redemption, because the redemption were (sic) disallowed unless the entire
obligation rather than just leaving the purchase price of the foreclosure sale is paid. The purpose of
suit therefore, is to seek the annulment of that provision of Section 25 of the Revised Chapter (sic) of
the Philippine National Bank, which provides that redemption can be effected only by paying the
entire claim of the Philippine National Bank, against in this case, Delta Motors Corporation. As the
Complaint alleges the sale . . . contrary to law, moral, customs, public security, since the law favors
in the long line of decisions of the right of redemption. Second, with such a provision no one can get
a fair price at a foreclosure sale of an individual property.23 (Emphasis and underscoring supplied)
And on cross-examination, when questioned why he wrote to PNB on April 8, 1985 offering to
redeem the property when the Deeds of Assignment in his favor were not yet executed, Quisumbing
replied:
xxxx
Q: The Deeds of Assignment were executed either on April 12 or 11 in the case of Komatsu,
1985. Why did you write PNB a tender of letter as early as April 8 when the Deeds of Assignment
were not yet executed have not yet been executed?

A: Well, there might have been a delay in the execution of the Deeds of Assignment; but since I was
certain that PNB will reject a redemption, not in accordance with Sec. 25 of its charter. In other
words, just offering the purchase price derive from we began the process of redemption early.
Besides, the Philippine National Bank, in some cases, in other creditors of . . . 24
x x x x (Emphasis and underscoring supplied)
Clearly, from the admissions reflected in the testimony, Quisumbings filing of the Complaint was not
solely due to a mere disagreement in the redemption price; rather, it was because he was not willing
to pay whatever amount PNB would compute on the basis of Sec. 25 of P.D. No. 694. By
questioning the constitutionality of said provision, Quisumbing, wittingly delayed the redemption,
since he must have known that raising the issue of constitutionality of a statute in any suit would
result in a litigious process which could stretch for an indefinite period as, in fact, the history of the
present case shows. More importantly, his act of executing his Affidavit of Redemption on April 23,
1985 and alleging therein his oft-repeated excuse of "PNBs refusal to allow him to redeem the
subject properties" even before PNB could provide him the computations by April 30, 1985, as he
himself requested in his April 23, 1985 letter, and before PNBs actual refusal as stated in its May 3,
1985 letter, reflected that from the very beginning, his mindset was that if any redemption would be
had, the same should be made according to his terms and conditions and under Act No. 3135, not
P.D. No. 694. Indubitably, such actuations belie good faith and, therefore, the exception as
enunciated in Tolentino case would not apply.
Had Quisumbing believed in good faith that Act No. 3135 was applicable, he could have tendered
the amount as computed thereunder, if only to show that he was able and willing to redeem the
properties.
Respecting the issues raised by petitioners that Sec. 25 of P.D. No. 694 is unconstitutional, the same
has been rendered moot and academic by the full privatization of PNB pursuant to E.O. 80 25 which
repealed said P.D., as well as the subsequent sale of the remaining shares of the government on
August, 2007 which converted it from a government financial institution to a private banking
institution.
The foregoing discussions render it unnecessary to address the other points pleaded by petitioners,
such as the validity of the Deeds of Assignment, whether the Silverio spouses are accommodation
mortgagors or direct debtors/mortgagors, or whether the suit is barred by the principle of res
judicata.
WHEREFORE, the petition is DENIED. The February 14, 2007 Decision of the Court of Appeals and
the June 5, 2007 Resolution in CA-G.R. CV No. 69337 are AFFIRMED.
Costs against petitioner.
SO ORDERED.

SPS.
ESMERALDO
and
ELIZABETH SUICO,
Petitioners,

- versus -

G.R. No. 170215

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

PHILIPPINE
NATIONAL
BANK and HON. COURT OF
Promulgated:
APPEALS,
Respondents.
August 28, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:
Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan
from the Philippine National Bank (PNB) secured by a real estate mortgage [1] on
real properties in the name of the former. The petitioners were unable to pay their
obligation prompting the PNB to extrajudicially foreclose the mortgage over the
subject properties before the City Sheriff of Mandaue City under EJF Case No. 925-15.
The petitioners thereafter filed a Complaint against the PNB before the
Regional Trial Court (RTC) of Mandaue City, Branch 55, docketed as Civil Case
No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of
Mortgage.[2]
The Complaint alleged that on 6 May 1992, PNB filed with the Office of
the Mandaue City Sheriff a petition for the extrajudicial foreclosure of mortgage
constituted on the petitioners properties (subject properties) for an outstanding

loan obligation amounting to P1,991,770.38 as of 10 March 1992. The foreclosure

case before the Office of theMandaue City Sheriff, which was docketed as EJF
Case No. 92-5-15, covered the following properties:
TCT NO. 13196
A parcel of land (Lot 701, plan 11-5121 Amd-2) situated
at Mandaue City, bounded on the NE., and SE., by lot no. 700; on the
SW. by lots nos. 688 and 702; on the NW. by lot no. 714, containing an
area of 2,078 sq. m. more or less.
TAX DECL. NO. 00553
A parcel of land situated at Tabok, Mandaue City, Cad. Lot No. 700-C1; bounded on the North by Lot No. 701 & 700-B; on the South by Lot
No. 700-C-3; on the East by lot no. 700-C-3 and on the West by Lot no.
688, containing an area of 200 square meters, more or less.
TAX DECL. NO. 00721
Two (2) parcels of land situated at Tabok, Mandaue City, Cad. lot nos.
700-C-3 and 700-C-2; bounded on the North by Lot Nos. 700-C-1 and
700-B; on the South by Lot No. 700-D; on the East by Lot Nos. 695 and
694; and on the West by Lot Nos. 688 and 700-C-1, containing an
aggregate area of 1,683 sq. m. more or less.
TAX DECL. NO. 0237
A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-B.
Bounded on the NE. by (Lot 699) 109, (Lot No. 69) 110, on the SE
(Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on the SW. (Lot 701)
113; containing an area of .1785 HA more or less.

TAX DECL. NO. 9267

A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-A.
Bounded on the NE. by (Lot 699) 109, on the South West by (Lot 701)
113, on the SE. by (Lot 700-B) 111, and on the NW. by (lot 714)
040039; containing an area of .1785 HA more or less. [3]

Petitioners claimed that during the foreclosure sale of the subject properties
held on 30 October 1992, PNB, as the lone bidder, offered a bid in the amount
ofP8,511,000.00. By virtue of the said bid, a Certificate of Sale of the subject
properties was issued by the Mandaue City Sheriff in favor of PNB. PNB did not
pay to the Sheriff who conducted the auction sale the amount of its bid which
was P8,511,000.00 or give an accounting of how said amount was applied against
petitioners outstanding loan, which, as of 10 March 1992, amounted only
to P1,991,770.38. Since the amount of the bid grossly exceeded the amount of
petitioners outstanding obligation as stated in the extrajudicial foreclosure of
mortgage, it was the legal duty of the winning bidder, PNB, to deliver to
the Mandaue City Sheriff the bid price or what was left thereof after deducting the
amount of petitioners outstanding obligation. PNB failed to deliver the amount of
their bid to the Mandaue City Sheriff or, at the very least, the amount of such bid in
excess of petitioners outstanding obligation.
One year after the issuance of the Certificate of Sale, PNB secured a
Certificate of Final Sale from the Mandaue City Sheriff and, as a result, PNB
transferred registration of all the subject properties to its name.
Owing to the failure of PNB as the winning bidder to deliver to the
petitioners the amount of its bid or even just the amount in excess of petitioners
obligation, the latter averred that the extrajudicial foreclosure conducted over the
subject properties by the Mandaue City Sheriff, as well as the Certificate of Sale
and the Certificate of Finality of Sale of the subject properties issued by
the Mandaue City Sheriff, in favor of PNB, were all null and void.
Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for:
a)

Declaring the Nullity of Extra-judicial Foreclosure of Mortgage

under EJF Case No. 92-5-15 including the certificate of sale and
the final deed of sale of the properties affected;

b)

Order[ing] the cancellation of the certificates of titles and tax

declaration already in the name of [herein respondent] PNB and
revert the same back to herein [petitioners] name;

c)

Ordering the [PNB] to pay [petitioners] moral damages

amounting to more than P1,000,000,00; Exemplary damages
of P500,000.00; Litigation expenses of P100,000.00 and
attorneys fees of P300,000.00.[4]

PNB filed a Motion to Dismiss[5] Civil Case No. MAN-2793 citing

the pendency of another action between the same parties, specifically Civil Case
No. CEB-15236 before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and
Elizabeth Suico where PNB was seeking the payment of the balance of petitioners
obligation not covered by the proceeds of the auction sale held on 30 October
1992. PNB argued that these two cases involve the same parties. Petitioners
opposed the Motion to Dismiss filed by PNB. [6] Subsequently, the Motion to
Dismiss Civil Case No. MAN-2793 was denied in the Order of the RTC dated 15
July 1997;[7] thus, PNB was constrained to file its Answer.[8]
PNB disputed petitioners factual narration. PNB asserted that petitioners
had other loans which had likewise become due. Petitioners outstanding
obligation ofP1,991,770.38 as of 10 March 1992 was exclusive of attorneys fees,
and other export related obligations which it did not consider due and demandable
as of said date. PNB maintained that the outstanding obligation of the petitioners
under their regular and export- related loans was already more than the bid price
of P8,511,000.00, contradicting the claim of surplus proceeds due the
petitioners. Petitioners were well aware that their total principal outstanding
obligation on the date of the auction sale was P5,503,293.21.
PNB admitted the non-delivery of the bid price to the sheriff and the
execution of the final deed of sale, but claimed that it had not transferred in its
name all the foreclosed properties because the petition to register in its name
Transfer Certificates of Title (TCT) No. 37029 and No. 13196 were still pending.
On 2 February 1999, the RTC rendered its Decision [9] in Civil Case No.
MAN-2793 for the declaration of nullity of the extrajudicial foreclosure of
mortgage, thedispositive portion of which states:

WHEREFORE, based on the foregoing, judgment is rendered in

favor of [herein petitioners] Sps. Esmeraldo & Elizabeth Suico and
against [herein respondent], Philippine National Bank (PNB), declaring
the nullity of Extrajudicial Foreclosure of Mortgage under EJF Case No.
92-5-15, including the certificate of sale and the final deed of sale of the
subject properties; ordering the cancellation of the certificates of titles
and tax declaration already in the name of [respondent] PNB, if any, and
revert the same back to the [petitioners] name; ordering [respondent]
PNB to cause a new foreclosure proceeding, either judicially or extrajudicially.
Furnish parties thru counsels copy of this order.[10]

In granting the nullification of the extrajudicial foreclosure of mortgage, the

RTC reasoned that given that petitioners had other loan obligations which had not
yet matured on 10 March 1992 but became due by the date of the auction sale on
30 October 1992, it does not justify the shortcut taken by PNB and will not excuse
it from paying to the Sheriff who conducted the auction sale the excess bid in the
foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the
filing fee in the said foreclosure inadequate but, worse, the same constitutes a
misrepresentation regarding the amount of the indebtedness to be paid in the
foreclosure sale as posted and published in the notice of sale.[11] Such
misrepresentation is fatal because in an extrajudicial foreclosure of mortgage,
notice of sale is jurisdictional. Any error in the notice of sale is fatal and
invalidates the notice.[12]
When the PNB appealed its case to the Court of Appeals, [13] the appellate
court rendered a Decision[14] dated 12 April 2005, the fallo of which provides:
WHEREFORE, premises considered, the instant appeal is
GRANTED. The
questioned
decision
of
the Regional Trial Court of Mandaue City, Branch 55 dated February 2,
1999 is hereby REVERSED and SET ASIDE. Accordingly, the extra
judicial foreclosure of mortgage under EJF 92-5-15 including the
certificate of sale and final deed of sale executed appurtenant thereto are
hereby declared to be valid and binding.[15]

In justifying reversal, the Court of Appeals held:

A careful scrutiny of the evidence extant on record would show
that in a letter dated January 12, 1994, [petitioners] expressly admitted
that their outstanding principal obligation amounted to P5.4 Million and
in fact offered to redeem the properties at P6.5 Million. They eventually
increased their offer at P7.5 Million as evidenced by that letter
dated February 4, 1994. And finally on May 16, 1994, they offered to
redeem the foreclosed properties by paying the whole amount of the
obligation by installment in a period of six years. All those offers made
by the [petitioners] not only contradicted their very assertion that their
obligation is merely that amount appearing on the petition for
foreclosure but are also indicative of the fact that they have admitted the
validity of the extra judicial foreclosure proceedings and in effect have
cured the impugned defect. Thus, for the [petitioners] to insist that their
obligation is only over a million is unworthy of belief. Oddly enough, it
is evident from their acts that they themselves likewise believe
otherwise.
Even assuming that indeed there was a surplus and the [PNB] is
retaining more than the proceeds of the sale than it is entitled, this fact
alone will not affect the validity of the sale but simply gives the
[petitioners] a cause of action to recover such surplus. In fine, the failure
of the [PNB] to remit the surplus, if any, is not tantamount to a noncompliance of statutory requisites that could constitute a jurisdictional
defect invalidating the sale. This situation only gives rise to a cause of
action on the part of the [petitioners] to recover the alleged surplus from
the [PNB]. This ruling is in harmony with the decisional rule that in
suing for the return of the surplus proceeds, the mortgagor is deemed to
have affirmed the validity of the sale since nothing is due if no valid sale
has been made.[16]

Petitioners filed a Motion for Reconsideration[17] of the foregoing Decision,

but the Court of Appeals was not persuaded. It maintained the validity of the
foreclosure sale and, in its Amended Decision dated 28 September 2005, it merely
directed PNB to pay the deficiency in the filing fees, holding thus:
WHEREFORE, Our decision dated April 12, 2005 is hereby
AMENDED. [Herein respondent PNB] is hereby required to pay the

deficiency in the filing fees due on the petition for extra judicial
foreclosure sale to be based on the actual amount of mortgage debts at
the time of filing thereof. In all other respects, Our decision subject of
herein petitioners] motion for reconsideration is hereby AFFIRMED. [18]

Unflinching, petitioners elevated the case before this Court via the present
Petition for Review essentially seeking the nullification of the extrajudicial
foreclosure of the mortgage constituted on the subject properties. Petitioners
forward two reasons for declaring null and void the said extrajudicial foreclosure:
(1) the alleged defect or misrepresentation in the notice of sheriffs sale; and/or (2)
failure of PNB to pay and tender the price of its bid or the surplus thereof to the
sheriff.
Petitioners argue that since the Notice of Sheriffs Sale stated that their
obligation was only P1,991,770.38 and PNB bidded P8,511,000.00, the said Notice
as well as the consequent sale of the subject properties were null and void.
It is true that statutory provisions governing publication of notice of
mortgage foreclosure sales must be strictly complied with, and that even slight
deviations therefromwill invalidate the notice and render the sale at least voidable.
[19]
Nonetheless, we must not also lose sight of the fact that the purpose of the
publication of the Notice of Sheriffs Sale is to inform all interested parties of
the date, time and place of the foreclosure sale of the real property subject
thereof. Logically, this not only requires that the correct date, time and place of the
foreclosure sale appear in the notice, but also that any and all interested parties be
able to determine that what is about to be sold at the foreclosure sale is the real
property in which they have an interest.[20]
Considering the purpose behind the Notice of Sheriffs Sale, we disagree
with the finding of the RTC that the discrepancy between the amount of
petitioners obligation as reflected in the Notice of Sale and the amount actually
due and collected from the petitioners at the time of the auction sale constitute
fraud which renders the extrajudicial foreclosure sale null and void.

Notices are given for the purpose of securing bidders and to prevent a
sacrifice of the property. If these objects are attained, immaterial errors and
mistakes will not affect the sufficiency of the notice; but if mistakes or omissions
occur in the notices of sale, which are calculated to deter or mislead bidders, to
depreciate the value of the property, or to prevent it from bringing a fair price, such
mistakes or omissions will be fatal to the validity of the notice, and also to the sale
made pursuant thereto.[21]
All these considered, we are of the view that the Notice of Sale in this case is
valid. Petitioners failed to convince this Court that the difference between the
amount stated in the Notice of Sale and the amount of PNBs bid resulted in
discouraging or misleading bidders, depreciated the value of the property or
prevented it from commanding a fair price.
The cases cited by the RTC in its Decision do not apply herein. San Jose v.
Court of Appeals[22] refers to a Notice of Sheriffs Sale which did not state the
correct number of the transfer certificates of title of the property to be sold. This
Court considered the oversight as a substantial and fatal error which resulted in
invalidating the entire notice. The case of Community Savings and Loan
Association, Inc. v. Court of Appeals[23] is also inapplicable, because the said case
refers to an extrajudicial foreclosure tainted with fraud committed by therein
petitioners, which denied therein respondents the right to redeem the property. It
actually has no reference to a Notice of Sale.
We now proceed to the effect of the non-delivery by PNB of the bid price or
the surplus to the petitioners.
The following antecedents are not disputed:
For failure to pay their loan obligation secured by a real estate mortgage on
the subject properties, PNB foreclosed the said mortgage. In its petition for
foreclosure sale under ACT No. 3135 filed before the Mandaue City Sheriff, PNB
stated therein that petitioners total outstanding obligation amounted
to P1,991,770.38.[24] PNB bidded the amount of P8,511,000.00. Admittedly, PNB
did not pay its bid in cash or deliver the excess either to the City Sheriff who
conducted the bid or to the petitioners after deducting the difference between the

amount of its bid and the amount of petitioners obligation in the Notice of
Sale. The petitioners then sought to declare the nullity of the foreclosure, alleging
that their loan obligation amounted only to P1,991,770.38 in the Notice of Sale,
and that PNB did not pay its bid in cash or deliver to petitioner the surplus, which
is required under the law.[25]
On the other hand, PNB claims that petitioners loan obligation reflected in
the Notice of Sale dated 10 March 1992 did not include their other obligations,
which became due at the date of the auction sale on 10 October 1992; as well as
interests, penalties, other charges, and attorneys fees due on the said obligation.[26]
Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial
foreclosure sale provide:
SEC. 21. Judgment obligee as purchaser. When the purchaser
is the judgment obligee, and no third-party claim has been filed, he need
not pay the amount of the bid if it does not exceed the amount of his
judgment. If it does, he shall pay only the excess. (Emphasis
supplied.)
SEC. 39. Obligor may pay execution against obligee. After a
writ of execution against property has been issued, a person indebted to
the judgment obligor may pay to the sheriff holding the writ of execution
the amount of his debt or so much thereof as may be necessary to satisfy
the judgment, in the manner prescribed in section 9 of this Rule, and the
sheriffs receipt shall be a sufficient discharge for the amount so paid or
directed to be credited by the judgment obligee on the execution.

Conspicously emphasized under Section 21 of Rule 39 is that if the amount

of the loan is equal to the amount of the bid, there is no need to pay the amount in
cash. Same provision mandates that in the absence of a third-party claim, the
purchaser in an execution sale need not pay his bid if it does not exceed the amount
of the judgment; otherwise, he shall pay only the excess.[27]
The raison de etre is that it would obviously be senseless for the Sheriff or
the Notary Public conducting the foreclosure sale to go through the idle ceremony

of receiving the money and paying it back to the creditor, under the truism that the
lawmaking body did not contemplate such a pointless application of the law in
requiring that the creditor must bid under the same conditions as any other
bidder. It bears stressing that the rule holds true only where the amount of the bid
represents the total amount of the mortgage debt.[28]
The question that needs to be addressed in this case is: considering the
amount of PNBs bid of P8,511,000.00 as against the amount of the petitioners
obligation ofP1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the
excess?
Petitioners insist that the PNB should deliver the excess. On the other hand
PNB counters that on the date of the auction sale on 30 October 1992, petitioners
other loan obligation already exceeded the amount of P1,991,770.38 in the Notice
of Sale.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized
from the foreclosure sale of the mortgaged property shall, after
deducting the costs of the sale, be paid to the person foreclosing the
mortgage, and when there shall be any balance or residue, after paying
off the mortgage debt due, the same shall be paid to
junior encumbrancers in the order of their priority, to be ascertained by
the court, or if there be no such encumbrancers or there be a balance or
residue after payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.

Under the above rule, the disposition of the proceeds of the sale in
foreclosure shall be as follows:
(a)

first, pay the costs

(b)

secondly, pay off the mortgage debt

(c)

thirdly, pay the junior encumbrancers, if any in the order of

priority

(d)

fourthly, give the balance to the mortgagor, his agent or the

person entitled to it.[29]

Based on the foregoing, after payment of the costs of suit and satisfaction of
the claim of the first mortgagee/senior mortgagee, the claim of the second
mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The
application of the proceeds from the sale of the mortgaged property to the
mortgagors obligation is an act of payment, not payment by dacion; hence, it is
the mortgagees duty to return any surplus in the selling price to the
mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a
mortgage is considered a custodian of the fund and, being bound to apply it
properly, is liable to the persons entitled thereto if he fails to do so. And even
though the mortgagee is not strictly considered a trustee in a purely equitable
sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a
trustee for the mortgagor or owner of the equity of redemption.[30]
Thus it has been held that if the mortgagee is retaining more of the proceeds
of the sale than he is entitled to, this fact alone will not affect the validity of the
sale but simply give the mortgagor a cause of action to recover such surplus.[31]
In the case before us, PNB claims that petitioners loan obligations on the
date of the auction sale were already more than the amount of P1,991,770.38 in the
Notice of Sale. In fact, PNB claims that on the date of the auction sale, petitioners
principal obligation, plus penalties, interests, attorneys fees and other charges were
already beyond the amount of its bid of P8,511,000.00.
After a careful review of the evidence on record, we find that the same is
insufficient to support PNBs claim. Instead, what is available on record is
petitioners Statement of Account as prepared by PNB and attached as Annex
A[32] to its Answer with counterclaim.[33] In this Statement of Account, petitioners
principal obligation with interest/penalty and attorneys fees as of 30 October
1992 already amounted to P6,409,814.92.

Although petitioners denied the amounts reflected in the Statement of

Account from PNB, they did not interpose any defense to refute the computations
therein. Petitioners mere denials, far from being compelling, had nothing to offer
by way of evidence. This then enfeebles the foundation of petitioners protestation
and will not suffice to overcome the computation of their loan obligations as
presented in the Statement of Account submitted by PNB.[34]
Noticeably, this Statement of Account is the only piece of evidence available
before us from which we can determine the outstanding obligations of petitioners
to PNB as of the date of the auction sale on 10 October 1992.
It did not escape the attention of this Court that petitioners wrote a number
of letters to PNB almost two years after the auction sale, [35] in which they offered to
redeem the property. In their last letter, petitioners offered to redeem their
foreclosed properties for P9,500,000.00. However, these letters by themselves
cannot be used as bases to supportPNBs claim that petitioners obligation is more
than its bid of P8,500,000.00, without any other evidence. There was no
computation presented to show how petitioners obligation already
reached P9,500,000.00. Petitioners could very well have offered such an amount
on the basis of the value of the foreclosed properties rather than their total
obligation to PNB. We cannot take petitioners offer to redeem their properties in
the amount of P9,500,000.00 on its face as an admission of the amount of their
obligation to PNB without any supporting evidence.
Given that the Statement of Account from PNB, being the only existing
documentary evidence to support its claim, shows that petitioners loan obligations
to PNB as of 30 October 1992 amounted to P6,409,814.92, and considering that
the amount of PNBs bid is P8,511,000.00, there is clearly an excess in the bid
price which PNB must return, together with the interest computed in accordance
with the guidelines laid down by the court in Eastern Shipping Lines v. Court of
Appeals,[36] regarding the manner of computing legal interest, viz:
II.
With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is 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.
2.
When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6%
per
annum. No
interest,
however,
shall
be
adjudged
on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established
at the time the demand is made, the interest shall begin to run only from
the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall,
in any case, be on the amount finally adjudged.
3.
When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of
credit.

In Philippine National Bank v. Court of Appeals,[37] it was held that:

The rate of 12% interest referred to in Cir. 416 applies only to:
Loan or forbearance of money, or to cases where money is
transferred from one person to another and the obligation to return the
same or a portion thereof is adjudged. Any other monetary judgment
which does not involve or which has nothing to do with loans or
forbearance of any, money, goods or credit does not fall within its

coverage for such imposition is not within the ambit of the authority
granted to the Central Bank. When an obligation not constituting a loan
or forbearance of money is breached then an interest on the amount of
damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum in accordance with Art. 2209 of the Civil
Code. Indeed, the monetary judgment in favor of private respondent
does not involve a loan or forbearance of money, hence the proper
imposable rate of interest is six (6%) per cent.

Using the above rule as yardstick, since the responsibility of PNB arises not
from a loan or forbearance of money which bears an interest rate of 12%, the
proper rate of interest for the amount which PNB must return to the petitioners is
only 6%. This interest according to Eastern Shipping shall be computed from the
time of the filing of the complaint. However, once the judgment becomes final
and executory, the "interim period from the finality of judgment awarding a
monetary claim and until payment thereof, is deemed to be equivalent to a
forbearance of credit. Thus, in accordance with the pronouncement in Eastern
Shipping, the rate of 12% per annum should be imposed, to be computed from the
time the judgment becomes final and executory until fully satisfied.
It must be emphasized, however, that our holding in this case does not
preclude PNB from proving and recovering in a proper proceeding any deficiency
in the amount of petitioners loan obligation that may have accrued after the date of
the auction sale.
WHEREFORE, premises considered, the Decision of the Court of Appeals
dated 12 April 2005 is MODIFIED in that the PNB is directed to return to the
petitioners the amount of P2,101,185.08 with interest computed at 6% per
annum from the time of the filing of the complaint until its full payment before
finality of judgment. Thereafter, if the amount adjudged remains unpaid, the
interest rate shall be 12% per annum computed from the time the judgment became
final and executory until fully satisfied. Costs against private respondent.

G.R. No. L-49101 October 24, 1983

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF
COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.

GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals,
now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs.
Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution
denying the motion for reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First
Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the
Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce
by the spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made
on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration
and (b) the mortgage was executed by one who was not the owner of the mortgaged property. It
further alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended,
without, however, complying with the condition imposed for a valid foreclosure. Granting the validity
of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have
accepted petitioner's offer to redeem the property under the principle of equity said justice.
On the other hand, the answer of defendant Bank, now private respondent herein, specifically
denied most of the allegations in the complaint and raised the following affirmative defenses: (a) that
the defendant has not given its consent, much less the requisite written consent, to the sale of the
mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that
the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was
notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that
the law on contracts requires defendant's consent before Jose Lozano can be released from his
bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose
Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two
renewals remain unpaid despite countless reminders and demands; of that the property in question
remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no
entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking
practice that payments against accounts need not be personally made by the debtor himself; and (h)
that it is not true that the mortgage, at the time of its execution and registration, was without
consideration as alleged because the execution and registration of the securing mortgage, the

signing and delivery of the promissory note and the disbursement of the proceeds of the loan are
mere implementation of the basic consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a
motion for intervention. The intervention was premised on the Deed of Assignment executed by
petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and
interests of petitioner Honesto Bonnevie over the subject property. The intervention was ultimately
granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as
follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered
dismissing the complaint with costs against the plaintiff and the intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to
respondent Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by Jose
Lozano was null and void;
2. The lower court erred in not finding that the auction sale decide on August 19,
1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the
property;
4. The lower court erred in not finding that the defendant acted in bad faith; and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision of the
lower court, and on October 3. 1978 denied the motion for reconsideration. Hence, the present
petition for review.
The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby
adopt the facts found the trial court and found by the Court of Appeals to be consistent with the
evidence adduced during trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the
owners of the property which they mortgaged on December 6, 1966, to secure the
payment of the loan in the principal amount of P75,000.00 they were about to obtain
from defendant-appellee Philippine Bank of Commerce; that on December 8, 1966,
executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in
consideration of the sum of P100,000.00, P25,000.00 of which amount being payable
to the Lozano spouses upon the execution of the document, and the balance of

P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when

the mortgage was executed by the Lozano spouses in favor of defendant-appellee,
the loan of P75,000.00 was not yet received them, as it was on December 12, 1966
when they and their co-maker Alfonso Lim signed the promissory note for that
amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made payments
to defendant-appellee on the mortgage in the total amount of P18,944.22; that on
May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10,
1968, defendant-appellee applied for the foreclosure of the mortgage, and notice of
sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14,
1968; that auction sale was conducted on August 19, 1968, and the property was
sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to
repurchase the property failed, and on October 9, 1969, he caused an adverse claim
to be annotated on the title of the property. (Decision of the Court of Appeals, p. 5).
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in
refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They
primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent
Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and
equity. In attacking the validity of the deed of mortgage, they contended that when it was executed
on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was
not received by the Lozano spouses "So much so that in the absence of a principal obligation, there
is want of consideration in the accessory contract, which consequently impairs its validity and fatally
affects its very existence." (Petitioners' Brief, par. 1, p. 7).

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly
seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano
spouses. The fact that the latter did not collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract,
the herein contract of loan was perfected at the same time the contract of mortgage was executed.
The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does
not indicate lack of consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the
original loan, using as security the same property which the Lozano spouses had already sold to
petitioners, rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale,
disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent
of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged
property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is
constituted. These provisions are expressly made part and parcel of the Deed of Sale with
Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so that
the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned,
the Lozano spouses could rightfully and validly mortgage the property. Respondent Bank had every
right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the
mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent
mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48).
Another argument for the respondent Bank is that a mortgage follows the property whoever the
possessor may be and subjects the fulfillment of the obligation for whose security it was constituted.
Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into
the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its
validity whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following
grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not in
accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not
being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not
aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner
Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had transferred

and assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie and
respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not
entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor.
The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July
14, 1968 and notices of the sale were posted for not less than twenty days in at least three (3) public
places in the Municipality where the property is located. Petitioners were thus placed on constructive
notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said
case involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly
registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in
accordance with law, namely: once a week for at least three consecutive weeks, the Court of
Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the
publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July 14 is only
14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week
for at least three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs.
Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance
with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit
of publication, executed by the Publisher, business/advertising manager of the Luzon Weekly
Courier, stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of
Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This constitutes
prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of
local news and general information; that it has a bona fide subscription list of paying subscribers;
that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not
have the largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67).
The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof that said
newspaper is not a newspaper of general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of
fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126).
Nevertheless, the records show that copies of said notice were posted in three conspicuous places
in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig

Municipal Hall. In the same manner, copies of said notice were also posted in the place where the
property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and
on Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of
respondent bank, namely:
Q How many days were the notices posted in these two places, if you
know?
A We posted them only once in one day. (TSN, p. 45, July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting
requirement in the absence of proof or even of allegation that the notices were removed before the
expiration of the twenty- day period. A single act of posting (which may even extend beyond the
period required by law) satisfies the requirement of law. The burden of proving that the posting
requirement was not complied with is now shifted to the one who alleges non-compliance.
On the question of whether or not the petitioners had a right to redeem the property, We hold that the
Court of Appeals did not err in ruling that they had no right to redeem. No consent having been
secured from respondent Bank to the sale with assumption of mortgage by petitioners, the latter
were not validly substituted as debtors. In fact, their rights were never recorded and hence,
respondent Bank is charged with the obligation to recognize the right of redemption only of the
Lozano spouses. But even granting that as purchaser or assignee of the property, as the case may
be, the petitioners had acquired a right to redeem the property, petitioners failed to exercise said
right within the period granted by law. Thru certificate of sale in favor of appellee was registered on
September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not
until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered to
redeem the property. Moreover, on September 29, 1969, Honesto had at that time already
transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent
Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to
respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized
to make payments for the amount secured by the mortgage on the subject property, to receive
acknowledgment of payments, obtain the Release of the Mortgage after full payment of the
obligation and to take delivery of the title of said property. On the assumption that the letter was
received by respondent Bank, a careful reading of the same shows that the plaintiff was merely
authorized to do acts mentioned therein and does not mention that petitioner is the new owner of the
property nor request that all correspondence and notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the
maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for
the foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and
misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968,
when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners'
payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan

may be effected, not only the payment of the accrued interest is necessary but also the payment of
interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed
does not solely depend on the debtor but more so on the discretion of the bank. Respondent Bank
may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby
AFFIRMED. Costs against petitioners.
SO ORDERED.