Republic of the Philippines on December 15, 1983,[3] as evidenced by Provisional

SUPREME COURT
Manila Receipt No. 1356 dated November 14, 1983.[4]

On December 5, 1983, a person claiming to be Lim

SECOND DIVISION
Sio Wan called up Cristina So, an officer of Allied,
and instructed the latter to pre-terminate Lim Sio
ALLIED BANKING G.R. No. 133179 Wans money market placement, to issue a managers
CORPORATION,
Petitioner, Present: check representing the proceeds of the placement,
QUISUMBING, J., Chairperson, and to give the check to one Deborah Dee Santos
- versus - CARPIO MORALES, who would pick up the check.[5] Lim Sio Wan
TINGA,
described the appearance of Santos so that So could
VELASCO, JR., and
CHICO-NAZARIO,* JJ. easily identify her.[6]
LIM SIO WAN, METROPOLITAN
BANK AND TRUST CO., and Promulgated:
Later, Santos arrived at the bank and signed the
PRODUCERS BANK,
Respondents. March 27, 2008 application form for a managers check to be
x------------------------------------------------------------------- issued.[7] The bank issued Managers Check No.
----------------------x
035669 for PhP 1,158,648.49, representing the
DECISION proceeds of Lim Sio Wans money market placement
in the name of Lim Sio Wan, as payee.[8] The check
VELASCO, JR., J.: was cross-checked For Payees Account Only and
given to Santos.[9]
To ingratiate themselves to their valued
depositors, some banks at times bend over Thereafter, the managers check was deposited in the
backwards that they unwittingly expose themselves account of Filipinas Cement Corporation (FCC) at
to great risks. respondent Metropolitan Bank and Trust Co.
The Case (Metrobank),[10] with the forged signature of Lim Sio
Wan as indorser.[11]
This Petition for Review on Certiorari under
Rule 45 seeks to reverse the Court of Appeals (CAs) Earlier, on September 21, 1983, FCC had deposited a
Decision promulgated on March 18, 1998[1] in CA- money market placement for PhP 2 million with
G.R. CV No. 46290 entitled Lim Sio Wan v. Allied respondent Producers Bank. Santos was the money
Banking Corporation, et al. The CA Decision modified market trader assigned to handle FCCs
the Decision dated November 15, 1993[2] of the account.[12] Such deposit is evidenced by Official
Regional Trial Court (RTC), Branch 63 Receipt No. 317568[13] and a Letter dated September
in Makati City rendered in Civil Case No. 6757. 21, 1983 of Santos addressed to Angie Lazo of FCC,
The Facts acknowledging receipt of the placement.[14] The
placement matured on October 25, 1983 and was
The facts as found by the RTC and affirmed by the rolled-over until December 5, 1983 as evidenced by
CA are as follows: a Letter dated October 25, 1983.[15] When the
placement matured, FCC demanded the payment of
On November 14, 1983, respondent Lim Sio Wan the proceeds of the placement.[16] On December 5,
deposited with petitioner Allied Banking 1983, the same date that So received the phone call
Corporation (Allied) at its Quintin Paredes Branch instructing her to pre-terminate Lim Sio Wans
in Manila a money market placement of PhP placement, the managers check in the name of Lim
1,152,597.35 for a term of 31 days to mature Sio Wan was deposited in the account of FCC,
purportedly representing the proceeds of FCCs

1
money market placement with Producers
Bank.[17] In other words, the Allied check was
deposited with Metrobank in the account of FCC as
Producers Banks payment of its obligation to FCC.
To clear the check and in compliance with the
requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check, which
reads: All prior endorsements and/or lack of
endorsement guaranteed.[18]
The check was sent to Allied through the PCHC.
Upon the presentment of the check, Allied funded
the check even without checking the authenticity of
Lim Sio Wans purported indorsement. Thus, the
amount on the face of the check was credited to the
account of FCC.[19]
On December 9, 1983, Lim Sio Wan deposited with
Allied a second money market placement to mature
on January 9, 1984.[20]
On December 14, 1983, upon the maturity date of the
first money market placement, Lim Sio Wan went to
Allied to withdraw it.[21] She was then informed that
the placement had been pre-terminated upon her
instructions. She denied giving any instructions and
receiving the proceeds thereof. She desisted from
further complaints when she was assured by the
banks manager that her money would be
recovered.[22]
When Lim Sio Wans second placement matured
on January 9, 1984, So called Lim Sio Wan to ask for
the latters instructions on the second
placement. Lim Sio Wan instructed So to roll-over
the placement for another 30 days.[23] On January 24,
1984, Lim Sio Wan, realizing that the promise that
her money would be recovered would not
materialize, sent a demand letter to Allied asking for
the payment of the first placement.[24] Allied refused
to pay Lim Sio Wan, claiming that the latter had
authorized the pre-termination of the placement and
its subsequent release to Santos.[25]
2
Consequently, Lim Sio Wan filed with the RTC a
Complaint dated February 13, 1984[26] docketed as
Civil Case No. 6757 against Allied to recover the
proceeds of her first money market placement.
Sometime in February 1984, she withdrew her
second placement from Allied.
Allied filed a third party complaint[27] against
Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint[28] against FCC. FCC for its
part filed a fifth party complaint[29] against
Producers Bank. Summonses were duly served
upon all the parties except for Santos, who was no
longer connected with Producers Bank.[30]
On May 15, 1984, or more than six (6) months after
funding the check, Allied informed Metrobank that
the signature on the check was forged.[31] Thus,
Metrobank withheld the amount represented by the
check from FCC. Later on, Metrobank agreed to
release the amount to FCC after the latter executed
an Undertaking, promising to indemnify Metrobank
in case it was made to reimburse the amount.[32]
Lim Sio Wan thereafter filed an amended
complaint to include Metrobank as a party-
defendant, along with Allied.[33] The RTC admitted
the amended complaint despite the opposition of
Metrobank.[34] Consequently, Allieds third party
complaint against Metrobank was converted into a
cross-claim and the latters fourth party complaint
against FCC was converted into a third party
complaint.[35]
After trial, the RTC issued its Decision, holding as
follows:
WHEREFORE, judgment is hereby
rendered as follows:
1. Ordering defendant Allied
Banking Corporation to pay plaintiff
the amount of P1,158,648.49 plus 12%
interest per annum from March 16,
1984 until fully paid;
2. Ordering defendant Allied Bank to
pay plaintiff the amount of
P100,000.00 by way of moral
damages;
 3. Ordering defendant Allied Bank to
pay plaintiff the amount of
P173,792.20 by way of attorneys fees;
and,
4. Ordering defendant Allied Bank to
pay the costs of suit.
Defendant Allied Banks cross-claim
against defendant Metrobank is
DISMISSED.
Likewise defendant Metrobanks
third-party complaint as against
Filipinas Cement Corporation is
DISMISSED.
Filipinas Cement Corporations
fourth-party complaint against
Producers Bank is also DISMISSED.
SO ORDERED.[36]
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the
assailed Decision on March 18, 1998, modifying the
RTC Decision, as follows:
WHEREFORE, premises considered,
the decision appealed from is
MODIFIED. Judgment is rendered
ordering and sentencing defendant-
appellant Allied Banking
Corporation to pay sixty (60%)
percent and defendant-appellee
Metropolitan Bank and Trust
Company forty (40%) of the amount
of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until
fully paid. The moral damages,
attorneys fees and costs of suit
adjudged shall likewise be paid by
defendant-appellant Allied Banking
Corporation and defendant-appellee
Metropolitan Bank and Trust
Company in the same proportion of
60-40. Except as thus modified, the
decision appealed from is
AFFIRMED.
SO ORDERED.[37]
Hence, Allied filed the instant petition.
The Issues
3
Allied raises the following issues for our
consideration:
The Honorable Court of
Appeals erred in holding that Lim
Sio Wan did not authorize [Allied] to
pre-terminate the initial placement
and to deliver the check to Deborah
Santos.
The Honorable Court of
Appeals erred in absolving
Producers Bank of any liability for
the reimbursement of amount
adjudged demandable.
The Honorable Court of
Appeals erred in holding [Allied]
liable to the extent of 60% of amount
adjudged demandable in clear
disregard to the ultimate liability of
Metrobank as guarantor of all
endorsement on the check, it being
the collecting bank.[38]
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and
appellate courts that Allied was not authorized to
release the proceeds of Lim Sio Wans money market
placement to Santos.Allied clearly raises a question
of fact. When the CA affirms the findings of fact of
the RTC, the factual findings of both courts are
binding on this Court.[39]
We also agree with the CA when it said that it could
not disturb the trial courts findings on the credibility
of witness So inasmuch as it was the trial court that
heard the witness and had the opportunity to
observe closely her deportment and manner of
testifying. Unless the trial court had plainly
overlooked facts of substance or value, which, if
considered, might affect the result of the case,[40] we
find it best to defer to the trial court on matters
pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of
negligence is also a factual question.[41] Thus, the
finding of the RTC, affirmed by the CA, that the
respective parties were negligent in the exercise of
their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied
is liable to Lim Sio Wan. Fundamental and familiar
is the doctrine that the relationship between a bank
and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a
loan of money or any other fungible
thing acquires the ownership thereof,
and is bound to pay to the creditor an
equal amount of the same kind and
quality.
Art. 1980. Fixed, savings, and current
deposits of money in banks and
similar institutions shall be governed
by the provisions concerning simple
loan.
Thus, we have ruled in a line of cases that a
bank deposit is in the nature of a simple loan or
mutuum.[42] More succinctly, in Citibank,
N.A. (Formerly First National City Bank) v. Sabeniano,
this Court ruled that a money market placement is a
simple loan or mutuum.[43] Further, we defined a
money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:
[A] money market is a market
dealing in standardized short-term
credit instruments (involving large
amounts) where lenders and
borrowers do not deal directly with
each other but through a middle man
or dealer in open market. In a money
market transaction, the investor is a
lender who loans his money to a
borrower through a middleman or
dealer.
In the case at bar, the money
market transaction between the
petitioner and the private respondent
is in the nature of a loan.[44]
Lim Sio Wan, as creditor of the bank for her
money market placement, is entitled to payment
upon her request, or upon maturity of the
4
placement, or until the bank is released from its
obligation as debtor. Until any such event, the
obligation of Allied to Lim Sio Wan remains
unextinguished.
Art. 1231 of the Civil Code enumerates the
instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are
extinguished:
(1) By payment or
performance;
(2) By the loss of the
thing due;
(3) By the
condonation or remission of the
debt;
(4) By the confusion
or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Other causes of
extinguishment of obligations, such
as annulment, rescission, fulfillment
of a resolutory condition, and
prescription, are governed elsewhere
in this Code. (Emphasis supplied.)
From the factual findings of the trial and
appellate courts that Lim Sio Wan did not authorize
the release of her money market placement to Santos
and the bank had been negligent in so doing, there
is no question that the obligation of Allied to pay
Lim Sio Wan had not been extinguished. Art. 1240
of the Code states that payment shall be made to the
person in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it. As commented by
Arturo Tolentino:
Payment made by the debtor
to a wrong party does not extinguish
the obligation as to the creditor, if
there is no fault or negligence which
can be imputed to the latter. Even
when the debtor acted in utmost
good faith and by mistake as to the
person of his creditor, or through
error induced by the fraud of a third
person, the payment to one who is
not in fact his creditor, or authorized
to receive such payment, is void,
except as provided in Article
1241. Such payment does not
prejudice the creditor, and accrual
 of interest is not suspended by Metrobanks negligence in indorsing the check
it.[45](Emphasis supplied.)
without verifying the genuineness of the
indorsement thereon.
Since there was no effective payment of Lim Sio
Wans money market placement, the bank still has an
Section 66 in relation to Sec. 65 of the
obligation to pay her at six percent (6%) interest
Negotiable Instruments Law provides:
from March 16, 1984 until the payment thereof.
Section 66. Liability of general
We cannot, however, say outright that Allied is indorser.Every indorser who indorses
without qualification, warrants to all
solely liable to Lim Sio Wan. subsequent holders in due course;

Allied claims that Metrobank is the proximate cause a) The matters and
things mentioned in
of the loss of Lim Sio Wans money. It points out that subdivisions (a), (b)
Metrobank guaranteed all prior indorsements and (c) of the next
inscribed on the managers check, and without preceding section;
and
Metrobanks guarantee, the present controversy
would never have occurred. According to Allied: b) That the instrument
is at the time of his
Failure on the part of the collecting indorsement valid
bank to ensure that the proceeds of and subsisting;
the check is paid to the proper party
is, aside from being an efficient And in addition, he engages
intervening cause, also the last that on due presentment, it shall be
negligent act, x x x contributory to the accepted or paid, or both, as the case
injury caused in the present case, may be according to its tenor, and
which thereby leads to the conclusion that if it be dishonored, and the
that it is the collecting bank, necessary proceedings on dishonor
Metrobank that is the proximate be duly taken, he will pay the amount
cause of the alleged loss of the thereof to the holder, or to any
plaintiff in the instant case.[46] subsequent indorser who may be
compelled to pay it.

We are not persuaded. Section 65. Warranty where

negotiation by delivery, so forth.Every
person negotiating an instrument by
Proximate cause is that cause, which, in natural and
delivery or by a qualified
continuous sequence, unbroken by any efficient indorsement, warrants:
intervening cause, produces the injury and without
a) That the instrument
which the result would not have occurred.[47] Thus,
is genuine and in all
there is an efficient supervening event if the event respects what it
breaks the sequence leading from the cause to the purports to be;
b) That he has a good
ultimate result. To determine the proximate cause of
title of it;
a controversy, the question that needs to be asked c) That all prior parties
is: If the event did not happen, would the injury had capacity to
contract;
have resulted? If the answer is NO, then the event is
d) That he has no
the proximate cause. knowledge of any fact
which would impair
the validity of the
instrument or render
In the instant case, Allied avers that even if it had not it valueless.
issued the check payment, the money represented
But when the negotiation is
by the check would still be lost because of
by delivery only, the warranty
5
 extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision
(c) of this section do not apply to
persons negotiating public or
corporation securities, other than
bills and notes. (Emphasis supplied.)
The warranty that the instrument is genuine and in
all respects what it purports to be covers all the
defects in the instrument affecting the validity
thereof, including a forged indorsement. Thus, the
last indorser will be liable for the amount indicated
in the negotiable instrument even if a previous
indorsement was forged. We held in a line of cases
that a collecting bank which indorses a check
bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and
ultimately should be held liable therefor.[48]
However, this general rule is subject to exceptions.
One such exception is when the issuance of the
check itself was attended with negligence. Thus, in
the cases cited above where the collecting bank is
generally held liable, in two of the cases where the
checks were negligently issued, this Court held the
institution issuing the check just as liable as or more
liable than the collecting bank.
In isolated cases where the checks were deposited in
an account other than that of the payees on the
strength of forged indorsements, we held the
collecting bank solely liable for the whole amount of
the checks involved for having indorsed the
same. In Republic Bank v. Ebrada,[49] the check was
properly issued by the Bureau of Treasury. While
in Banco de Oro Savings and Mortgage Bank (Banco de
Oro) v. Equitable Banking Corporation,[50] Banco de
Oro admittedly issued the checks in the name of the
correct payees.And in Traders Royal Bank v. Radio
Philippines Network, Inc.,[51] the checks were issued at
the request of Radio Philippines Network, Inc. from
Traders Royal Bank.
However, in Bank of the Philippine Islands v. Court of
Appeals, we said that the drawee bank is liable for
6
60% of the amount on the face of the negotiable
instrument and the collecting bank is liable for
40%. We also noted the relative negligence exhibited
by two banks, to wit:
Both banks were negligent in
the selection and supervision of their
employees resulting in the
encashment of the forged checks by
an impostor. Both banks were not
able to overcome the presumption of
negligence in the selection and
supervision of their employees. It
was the gross negligence of the
employees of both banks which
resulted in the fraud and the
subsequent loss. While it is true that
petitioner BPIs negligence may have
been the proximate cause of the loss,
respondent CBCs
negligence contributed equally to the
success of the impostor in encashing
the proceeds of the forged checks.
Under these circumstances, we apply
Article 2179 of the Civil Code to the
effect that while respondent CBC
may recover its losses, such losses are
subject to mitigation by the courts.
(See Phoenix Construction Inc. v.
Intermediate Appellate Courts, 148
SCRA 353 [1987]).
Considering the comparative
negligence of the two (2) banks, we
rule that the demands of substantial
justice are satisfied by allocating the
loss of P2,413,215.16 and the costs of
the arbitration proceeding in the
amount of P7,250.00 and the cost of
litigation on a 60-40 ratio.[52]
Similarly, we ruled in Associated Bank v. Court of
Appeals that the issuing institution and the collecting
bank should equally share the liability for the loss of
amount represented by the checks concerned due to
the negligence of both parties:
The Court finds as reasonable, the
proportionate sharing of fifty
percent-fifty percent (50%-50%). Due
to the negligence of the Province of
Tarlac in releasing the checks to an
unauthorized person (Fausto
Pangilinan), in allowing the retired
hospital cashier to receive the checks
for the payee hospital for a period
 close to three years and in not
properly ascertaining why the retired
hospital cashier was collecting checks
for the payee hospital in addition to
the hospitals real cashier, respondent
Province contributed to the loss
amounting to P203,300.00 and shall
be liable to the PNB for fifty (50%)
percent thereof. In effect,
the Province of Tarlac can only
recover fifty percent (50%) of
P203,300.00 from PNB.
The collecting bank,
Associated Bank, shall be liable to
PNB for fifty (50%) percent of
P203,300.00. It is liable on its
warranties as indorser of the checks
which were deposited by Fausto
Pangilinan, having guaranteed the
genuineness of all prior
indorsements, including that of the
chief of the payee hospital, Dr. Adena
Canlas. Associated Bank was also
remiss in its duty to ascertain the
genuineness of the payees
indorsement.[53]
The liability of Allied, however, is concurrent with
that of Metrobank as the last indorser of the
check. When Metrobank indorsed the check in
compliance with the PCHC Rules and
Regulations[55] without verifying the authenticity of
Lim Sio Wans indorsement and when it accepted the
check despite the fact that it was cross-checked
payable to payees account only,[56] its negligent and
cavalier indorsement contributed to the easier
release of Lim Sio Wans money and perpetuation of
the fraud. Given the relative participation of Allied
and Metrobank to the instant case, both banks
cannot be adjudged as equally liable. Hence, the
60:40 ratio of the liabilities of Allied and Metrobank,
as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of
the check and in the forgery of Lim Sio Wans
indorsement, can raise the real defense of forgery as
against both banks.[57]

As to Producers Bank, Allied Banks

A reading of the facts of the two immediately
argument that Producers Bank must be held liable
preceding cases would reveal that the reason why
as employer of Santos under Art. 2180 of the Civil
the bank or institution which issued the check was
Code is erroneous. Art. 2180 pertains to the
held partially liable for the amount of the check was
vicarious liability of an employer for quasi-delicts
because of the negligence of these parties which
that an employee has committed. Such provision of
resulted in the issuance of the checks.
law does not apply to civil liability arising from
In the instant case, the trial court correctly found
delict.
Allied negligent in issuing the managers check and
in transmitting it to Santos without even a written
One also cannot apply the principle of
authorization.[54] In fact, Allied did not even ask for
subsidiary liability in Art. 103 of the Revised Penal
the certificate evidencing the money market
Code in the instant case. Such liability on the part of
placement or call up Lim Sio Wan at her residence
the employer for the civil aspect of the criminal act
or office to confirm her instructions. Both actions
of the employee is based on the conviction of the
could have prevented the whole fraudulent
employee for a crime. Here, there has been no
transaction from unfolding. Allieds negligence must
conviction for any crime.
be considered as the proximate cause of the resulting
loss.
As to the claim that there was unjust
enrichment on the part of Producers Bank, the same
To reiterate, had Allied exercised the diligence due
is correct. Allied correctly claims in its petition that
from a financial institution, the check would not
Producers Bank should reimburse Allied for
have been issued and no loss of funds would have
whatever judgment that may be rendered against it
resulted. In fact, there would have been no issuance
pursuant to Art. 22 of the Civil Code, which
of indorsement had there been no check in the first
provides: Every person who through an act of
place.
performance by another, or any other means,

7
acquires or comes into possession of something at
the expense of the latter without just cause or legal
ground, shall return the same to him.
The above provision of law was clarified
in Reyes v. Lim, where we ruled that [t]here is unjust
enrichment when a person unjustly retains a benefit
to the loss of another, or when a person retains
money or property of another against
fundamental principles of justice, equity and good
conscience.[58]
In Tamio v. Ticson, we further clarified the
principle of unjust enrichment, thus: Under Article
22 of the Civil Code, there is unjust enrichment
when (1) a person is unjustly benefited, and (2) such
benefit is derived at the expense of or with damages
to another.[59]
In the instant case, Lim Sio Wans money
market placement in Allied Bank was pre-
terminated and withdrawn without her consent.
Moreover, the proceeds of the placement were
deposited in Producers Banks account in Metrobank
without any justification. In other words, there is no
reason that the proceeds of Lim Sio Wans placement
should be deposited in FCCs account purportedly as
payment for FCCs money market placement and
interest in Producers Bank. With such payment,
Producers Banks indebtedness to FCC
extinguished, thereby benefitting the former.
Clearly, Producers Bank was unjustly enriched at
the expense of Lim Sio Wan. Based on the facts and
circumstances of the case, Producers Bank should
reimburse Allied and Metrobank for the amounts
the two latter banks are ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and
not Producers Bank, should be considered as having
been unjustly enriched. It must be remembered that
FCCs money market placement with Producers
Bank was already due and demandable; thus,
Producers Banks payment thereof was justified.
FCC was entitled to such payment. As earlier stated,
the fact that the indorsement on the check was
forged cannot be raised against FCC which was not a
part in any stage of the negotiation of the check. FCC
was not unjustly enriched.
From the facts of the instant case, we see
that Santos could be the architect of the entire
controversy. Unfortunately, since summons had not
been served on Santos, the courts have not acquired
jurisdiction over her.[60] We, therefore, cannot
the ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable
to Allied and Metrobank for the amount of the check
plus 12% interest per annum, moral damages,
attorneys fees, and costs of suit which Allied and
Metrobank are adjudged to pay Lim Sio Wan based
on a proportion of 60:40.
WHEREFORE, the petition is PARTLY
GRANTED. The March 18, 1998 CA Decision in CA-
G.R. CV No. 46290 and the November 15, 1993 RTC
Decision in Civil Case No. 6757
are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED,
the fallo of which is reproduced, as follows:
WHEREFORE, premises considered,
the decision appealed from is
MODIFIED. Judgment is rendered
was ordering and sentencing defendant-
appellant Allied Banking
Corporation to pay sixty (60%)
percent and defendant-appellee
Metropolitan Bank and Trust
Company forty (40%) of the amount
of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until
fully paid. The moral damages,
attorneys fees and costs of suit
adjudged shall likewise be paid by
defendant-appellant Allied Banking
Corporation and defendant-appellee
Metropolitan Bank and Trust
Company in the same proportion of
60-40. Except as thus modified, the
decision appealed from is
AFFIRMED.
SO ORDERED.
8
 Additionally and by way
of MODIFICATION, Producers Bank is hereby
ordered to pay Allied and Metrobank the
aforementioned amounts. The liabilities of the
parties are concurrent and independent of each
other.

SO ORDERED.

9
 THIRD DIVISION
[G.R. No. 156940. December 14, 2004]
ASSOCIATED BANK (Now WESTMONT
BANK), petitioner, vs. VICENTE HENRY
TAN, respondent.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to
debit the value of a dishonored check from a
depositors account, they must do so with the highest
degree of care, so as not to prejudice the depositor
unduly.
The Case
Before us is a Petition for Review[1] under Rule
45 of the Rules of Court, assailing the January 27,
2003 Decision[2] of the Court of Appeals (CA) in CA-
GR CV No. 56292. The CA disposed as follows:
WHEREFORE, premises considered, the Decision
dated December 3, 1996, of
the Regional Trial Court of Cabanatuan City, Third
Judicial Region, Branch 26, in Civil Case No. 892-
AF is hereby AFFIRMED. Costs against the
[petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a
businessman and a regular depositor-creditor of
the Associated Bank (hereinafter referred to as the
BANK). Sometime in September 1990, he deposited
a postdated UCPB check with the said BANK in the
amount of P101,000.00 issued to him by a certain
Willy Cheng from Tarlac. The check was duly
entered in his bank record thereby making his
balance in the amount of P297,000.00, as of October
1, 1990, from his original deposit
of P196,000.00. Allegedly, upon advice and
instruction of the BANK that the P101,000.00 check
was already cleared and backed up by sufficient
funds, TAN, on the same date, withdrew the sum
of P240,000.00, leaving a balance of P57,793.45. A
day after, TAN deposited the amount of P50,000.00
making his existing balance in the amount
of P107,793.45, because he has issued several
checks to his business partners, to wit:
10
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went
back to him alleging that the checks he issued
bounced for insufficiency of funds. Thereafter,
TAN, thru his lawyer, informed the BANK to take
positive steps regarding the matter for he has
adequate and sufficient funds to pay the amount of
the subject checks. Nonetheless, the BANK did not
bother nor offer any apology regarding the
incident. Consequently, TAN, as plaintiff, filed a
Complaint for Damages on December 19, 1990,
with the Regional Trial Court of Cabanatuan City,
Third Judicial Region, docketed as Civil Case No.
892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he
ha[d] sufficient funds to pay the subject checks and
alleged that his suppliers decreased in number for
lack of trust. As he has been in the business
community for quite a time and has established a
good record of reputation and probity, plaintiff
claimed that he suffered embarrassment,
humiliation, besmirched reputation, mental
anxieties and sleepless nights because of the said
unfortunate incident. [Respondent] further averred
that he continuously lost profits in the amount
of P250,000.00. [Respondent] therefore prayed for
exemplary damages and that [petitioner] be
ordered to pay him the sum of P1,000,000.00 by
way of moral damages, P250,000.00 as lost
profits, P50,000.00 as attorneys fees plus 25% of the
amount claimed including P1,000.00 per court
appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss
on February 7, 1991, but the same was denied for
lack of merit in an Order dated March 7,
1991. Thereafter, [petitioner] BANK on March 20,
1991 filed its Answer denying, among others, the
allegations of [respondent] and alleged that no
banking institution would give an assurance to any
of its client/depositor that the check deposited by
him had already been cleared and backed up by
sufficient funds but it could only presume that the
same has been honored by the drawee bank in view
of the lapse of time that ordinarily takes for a check
to be cleared. For its part, [petitioner] alleged that
on October 2, 1990, it gave notice to the
[respondent] as to the return of his UCPB check
deposit in the amount of P101,000.00, hence, on
even date, [respondent] deposited the amount Ruling of the Court of Appeals
of P50,000.00 to cover the returned check.
Affirming the trial court, the CA ruled that the
By way of affirmative defense, [petitioner] averred
bank should not have authorized the withdrawal of
that [respondent] had no cause of action against it
the value of the deposited check prior to its
and argued that it has all the right to debit the
clearing. Having done so, contrary to its obligation
account of the [respondent] by reason of the
to treat respondents account with meticulous care,
dishonor of the check deposited by the
the bank violated its own policy. It thereby took
[respondent] which was withdrawn by him prior to
upon itself the obligation to officially inform
its clearing. [Petitioner] further averred that it has
respondent of the status of his account before
no liability with respect to the clearing of deposited
unilaterally debiting the amount
checks as the clearing is being undertaken by the
of P101,000. Without such notice, it is estopped from
Central Bank and in accepting [the] check deposit,
blaming him for failing to fund his account.
it merely obligates itself as depositors collecting
agent subject to actual payment by the drawee The CA opined that, had the P101,000 not been
bank. [Petitioner] therefore prayed that debited, respondent would have had sufficient
[respondent] be ordered to pay it the amount funds for the postdated checks he had issued. Thus,
of P1,000,000.00 by way of loss of the supposed accommodation accorded by
goodwill, P7,000.00 as acceptance fee plus P500.00 petitioner to him is the proximate cause of his
per appearance and by way of attorneys fees. business woes and shame, for which it is liable for
damages.
Considering that Westmont Bank has taken over
Because of the banks negligence, the CA
the management of the affairs/properties of the
awarded respondent moral damages of P100,000. It
BANK, [respondent] on October 10, 1996, filed an
also granted him exemplary damages of P75,000
Amended Complaint reiterating substantially his
and attorneys fees of P25,000.
allegations in the original complaint, except that
the name of the previous defendant ASSOCIATED Hence this Petition.[5]
BANK is now WESTMONT BANK.

Trial ensured and thereafter, the court rendered its Issue

Decision dated December 3, 1996 in favor of the
[respondent] and against the [petitioner], ordering
the latter to pay the [respondent] the sum In its Memorandum, petitioner raises the sole
of P100,000.00 by way of moral issue of whether or not the petitioner, which is
damages, P75,000.00 as exemplary acting as a collecting bank, has the right to debit the
damages, P25,000.00 as attorneys fees, plus the account of its client for a check deposit which was
costs of this suit. In making said ruling, it was dishonored by the drawee bank.[6]
shown that [respondent] was not officially
informed about the debiting of the P101,000.00
[from] his existing balance and that the BANK The Courts Ruling
merely allowed the [respondent] to use the fund
prior to clearing merely for accommodation The Petition has no merit.
because the BANK considered him as one of its
valued clients. The trial court ruled that the bank
manager was negligent in handling the particular
Sole Issue:
checking account of the [respondent] stating that
Debit of Depositors Account
such lapses caused all the inconveniences to the
[respondent]. The trial court also took into
consideration that [respondents] mother was Petitioner-bank contends that its rights and
originally maintaining with the x x x BANK [a] obligations under the present set of facts were
current account as well as [a] time deposit, but [o]n misappreciated by the CA. It insists that its right to
one occasion, although his mother made a deposit, debit the amount of the dishonored check from the
the same was not credited in her favor but in the account of respondent is clear and
name of another.[4] unmistakable. Even assuming that it did not give
him notice that the check had been dishonored, such
Petitioner appealed to the CA on the issues of right remains immediately enforceable.
whether it was within its rights, as collecting bank,
In particular, petitioner argues that the check
to debit the account of its client for a dishonored
deposit slip accomplished by respondent
check; and whether it had informed respondent
on September 17, 1990, expressly stipulated that the
about the dishonor prior to debiting his account.
bank was obligating itself merely as the depositors

11
collecting agent and -- until such time as actual
payment would be made to it -- it was reserving the
right to charge against the depositors account any
amount previously credited. Respondent was
allowed to withdraw the amount of the check prior
to clearing, merely as an act of accommodation, it
added.
At the outset, we stress that the trial courts
factual findings that were affirmed by the CA are not
subject to review by this Court.[7] As petitioner itself
takes no issue with those findings, we need only to
determine the legal consequence, based on the
established facts.
Right of Setoff
A bank generally has a right of setoff over the
deposits therein for the payment of any withdrawals
on the part of a depositor.[8] The right of a collecting
bank to debit a clients account for the value of a
dishonored check that has previously been credited
has fairly been established by jurisprudence. To
begin with, Article 1980 of the Civil Code provides
that [f]ixed, savings, and current deposits of money
in banks and similar institutions shall be governed
by the provisions concerning simple loan.
Hence, the relationship between banks and
depositors has been held to be that of creditor and
debtor.[9] Thus, legal compensation under Article
1278[10] of the Civil Code may take place when all the
requisites mentioned in Article 1279 are
present,[11] as follows:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of
money, or if the things due are
consumable, they be of the same kind, and
also of the same quality if the latter has
been stated;
(3) That the two debts be due;
(4) That they be liquidated and
demandable;
(5) That over neither of them there be any retention
or controversy, commenced by third persons and
communicated in due time to the debtor.[12]
Nonetheless, the real issue here is not so much
the right of petitioner to debit respondents account
but, rather, the manner in which it exercised such
right. The Court has held that even while the right
of setoff is conceded, separate is the question of
whether that remedy has properly been exercised.[13]
The liability of petitioner in this case ultimately
revolves around the issue of whether it properly
exercised its right of setoff. The determination
12
thereof hinges, in turn, on the banks role and
obligations, first, as respondents depositary bank;
and second, as collecting agent for the check in
question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has
emphasized that the banking business is impressed
with public interest. Consequently, the highest
degree of diligence is expected, and high standards
of integrity and performance are even required of
it. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with
meticulous care.[15]
Also affirming this long standing
doctrine, Philippine Bank of Commerce v. Court of
Appeals[16] has held that the degree of diligence
required of banks is more than that of a good father
of a family where the fiduciary nature of their
relationship with their depositors is
concerned. Indeed, the banking business is vested
[17]
with the trust and confidence of the public; hence
the appropriate standard of diligence must be very
high, if not the highest, degree of diligence.[18] The
standard applies, regardless of whether the account
consists of only a few hundred pesos or of
millions.[19]
The fiduciary nature of banking, previously
imposed by case law,[20] is now enshrined in
Republic Act No. 8791 or the General Banking Law
of 2000. Section 2 of the law specifically says that the
State recognizes the fiduciary nature of banking that
requires high standards of integrity and
performance.
Did petitioner treat respondents account with
the highest degree of care? From all indications, it
did not.
It is undisputed -- nay, even admitted -- that
purportedly as an act of accommodation to a valued
client, petitioner allowed the withdrawal of the face
value of the deposited check prior to its
clearing. That act certainly disregarded the
clearance requirement of the banking system. Such
a practice is unusual, because a check is not legal
tender or money;[21] and its value can properly be
transferred to a depositors account only after the
check has been cleared by the drawee bank.[22]
Under ordinary banking practice, after
receiving a check deposit, a bank either immediately
credit the amount to a depositors account; or infuse
value to that account only after the drawee bank
shall have paid such amount.[23] Before the check
shall have been cleared for deposit, the collecting
bank can only assume at its own risk -- as herein
petitioner did -- that the check would be cleared and
paid out.
Reasonable business practice and prudence,
moreover, dictated that petitioner should not have
authorized the withdrawal by respondent
of P240,000 on October 1, 1990, as this amount was
over and above his outstanding cleared balance
of P196,793.45.[24] Hence, the lower courts correctly
appreciated the evidence in his favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this
reservation:
In receiving items on deposit, this Bank obligates
itself only as the Depositors Collecting agent,
assuming no responsibility beyond carefulness in
selecting correspondents, and until such time as
actual payments shall have come to its possession,
this Bank reserves the right to charge back to the
Depositors account any amounts previously
credited whether or not the deposited item is
returned. x x x."[25]
However, this reservation is not enough to
insulate the bank from any liability. In the past, we
have expressed doubt about the binding force of
such conditions unilaterally imposed by a bank
without the consent of the depositor.[26] It is indeed
arguable that in signing the deposit slip, the
depositor does so only to identify himself and not to
agree to the conditions set forth at the back of the
deposit slip.[27]
Further, by the express terms of the stipulation,
petitioner took upon itself certain obligations as
respondents agent, consonant with the well-settled
rule that the relationship between the payee or
holder of a commercial paper and the collecting
bank is that of principal and agent.[28] Under Article
1909[29] of the Civil Code, such bank could be held
liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the
wrongful or tortuous acts and declarations of its
officers or agents within the course and scope of
their employment.[30] Due to the very nature of their
business, banks are expected to exercise the highest
degree of diligence in the selection and supervision
of their employees.[31] Jurisprudence has established
that the lack of diligence of a servant is imputed to
the negligence of the employer, when the negligent
or wrongful act of the former proximately results in
an injury to a third person;[32] in this case, the
depositor.
The manager of the banks Cabanatuan branch,
Consorcia Santiago, categorically admitted that she
13
and the employees under her control had breached
bank policies. They admittedly breached those
policies when, without clearance from the drawee
bank in Baguio, they allowed respondent to
withdraw on October 1, 1990, the amount of the
check deposited. Santiagotestified that respondent
was not officially informed about the debiting of
the P101,000 from his existing balance of P170,000
on October 2, 1990 x x x.[33]
Being the branch manager, Santiago clearly
acted within the scope of her authority in
authorizing the withdrawal and the subsequent
debiting without notice. Accordingly, what remains
to be determined is whether her actions proximately
caused respondents injury. Proximate cause is that
which -- in a natural and continuous sequence,
unbroken by any efficient intervening cause --
produces the injury, and without which the result
would not have occurred.[34]
Let us go back to the facts as they unfolded. It is
undeniable that the banks premature authorization
of the withdrawal by respondent on October 1, 1990,
triggered -- in rapid succession and in a natural
sequence -- the debiting of his account, the fall of his
account balance to insufficient levels, and the
subsequent dishonor of his own checks for lack of
funds. The CA correctly noted thus:
x x x [T]he depositor x x x withdrew his money
upon the advice by [petitioner] that his money was
already cleared. Without such advice, [respondent]
would not have withdrawn the sum
of P240,000.00.Therefore, it cannot be denied that it
was [petitioners] fault which allowed [respondent]
to withdraw a huge sum which he believed was
already his.
To emphasize, it is beyond cavil that [respondent]
had sufficient funds for the check. Had
the P101,000.00 not [been] debited, the subject
checks would not have been dishonored. Hence,
we can say that [respondents] injury arose from the
dishonor of his well-funded checks. x x x.[35]
Aggravating matters, petitioner failed to show
that it had immediately and duly informed
respondent of the debiting of his
account. Nonetheless, it argues that the giving of
notice was discernible from his act of
depositing P50,000 on October 2, 1990, to augment
his account and allow the debiting. This argument
deserves short shrift.
First, notice was proper and ought to be
expected. By the bank managers account,
respondent was considered a valued client whose
checks had always been sufficiently funded from
1987 to 1990,[36] until the October imbroglio. Thus,
he deserved nothing less than an official notice of the
precarious condition of his account.
 Second, under the provisions of the Negotiable
Instruments Law regarding the liability of a general
indorser[37] and the procedure for a notice of
dishonor,[38] it was incumbent on the bank to give
proper notice to respondent. In Gullas v. National
Bank,[39] the Court emphasized:

x x x [A] general indorser of a negotiable

instrument engages that if the instrument the check
in this case is dishonored and the necessary
proceedings for its dishonor are duly taken, he will
pay the amount thereof to the holder (Sec. 66) It has
been held by a long line of authorities that notice of
dishonor is necessary to charge an indorser and
that the right of action against him does not accrue
until the notice is given.

x x x. The fact we believe is undeniable that prior to

the mailing of notice of dishonor, and without
waiting for any action by Gullas, the bank made
use of the money standing in his account to make
good for the treasury warrant. At this point recall
that Gullas was merely an indorser and had issued
checks in good faith. As to a depositor who has funds
sufficient to meet payment of a check drawn by him in
favor of a third party, it has been held that he has a right
of action against the bank for its refusal to pay such a
check in the absence of notice to him that the bank has
applied the funds so deposited in extinguishment of past
due claims held against him. (Callahan vs. Bank of
Anderson [1904], 2 Ann. Cas., 203.) However this
may be, as to an indorser the situation is different, and
notice should actually have been given him in order that
he might protect his interests.[40]

Third, regarding the deposit of P50,000 made by

respondent on October 2, 1990, we fully subscribe to
the CAs observations that it was not unusual for a
well-reputed businessman like him, who ordinarily
takes note of the amount of money he takes and
releases, to immediately deposit money in his
current account to answer for the postdated checks
he had issued.[41]

Damages

Inasmuch as petitioner does not contest the

basis for the award of damages and attorneys fees,
we will no longer address these matters.

WHEREFORE, the Petition is DENIED and the

assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.

14
 FIRST DIVISION
[G.R. No. 153571. September 18, 2003]
BENGUET MANAGEMENT
CORPORATION, petitioner, vs. COURT
OF APPEALS, KEPPEL BANK
PHILIPPINES, INC., as Trustee for
METROPOLITAN BANK AND TRUST
COMPANY, UNITED COCONUT
PLANTERS BANK, RIZAL
COMMERCIAL BANKING
CORPORATION, FAR EAST BANK AND
TRUST COMPANY and BANK OF THE
PHILIPPINE ISLANDS under the
Mortgage Trust Indenture, and THE
REGISTER OF DEEDS OF
CALAMBA, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for certiorari under Rule
65 of the Revised Rules of Court is the Resolution of
the Court of Appeals in CA-G.R. SP No. 69503 dated
April 5, 2002,[1] which denied petitioners application
for the issuance of a temporary restraining order, as
well as its May 28, 2002[2] Resolution denying the
motion for reconsideration.
The antecedent facts reveal that on November
29, 1994, petitioner Benguet Management
Corporation (BMC) and Keppel Bank Philippines,
Inc. (KBPI),[3] acting as trustee of the other
respondent banks, entered into a Loan Agreement
and Mortgage Trust Indenture (MTI) whereby BMC,
in consideration of the syndicated loan of
P190,000,000.00, constituted in favor of KBPI a
mortgage on several lots located in Alaminos,
Laguna and Iba, Zambales.
On September 28, 2001, for failure of BMC to
pay in full the installments due on the Loan
Agreement and Mortgage Trust Indenture, KBPI
filed an application[4] for extra-judicial foreclosure of
mortgage before the Office of the Clerk of Court of
the Regional Trial Court of Iba, Zambales. On
October 29, 2001, a similar application[5] for extra-
judicial foreclosure of mortgage was filed by KBPI
with the Office of the Clerk of Court of the Regional
Trial Court of San Pablo City, docketed as EJF No.
Sp-2546 (01). Accompanying the latter application
was a certification[6] from the Clerk of Court of the
Regional Trial Court of Iba, Zambales, stating that
KBPI had paid the corresponding foreclosure fees
covering BMCs properties situated in Zambales and
Laguna.
15
On October 31, 2001, BMC filed with the Office
of the Executive Judge of the Regional Trial Court of
San Pablo City a Request Not To Give Due Course
To The Application for Extra-Judicial
Foreclosure in EJF No. Sp-2546 (01). BMC claimed
[7]
that the application should be denied because it is
insufficient in form and substance and there is no
need to proceed with the foreclosure of its properties
situated in Laguna because it was willing to execute
a dacion en pago in place of the mortgaged
properties. Subsequently, BMC filed a Compliance
and Supplementary Grounds to Disapprove
Application for Extra-judicial Foreclosure of Real
Estate Mortgage[8] and a Memorandum.[9] BMC
contended that the application for foreclosure
should be denied because KBPI included
unauthorized penalties in the statement of accounts
and it did not comply with its obligation to give
BMC a 60-day grace period. BMC further claimed
that the MTI securing the principal loan of P190
Million cannot be foreclosed because it was not
registered with the Register of Deeds.
KBPI opposed the letter-request of BMC on the
ground, inter alia, of wrong remedy and forum
shopping.[10]
Meanwhile, on November 7, 2001, BMC filed
with the Regional Trial Court of Iba, Zambales,
Branch 70, a complaint for damages, accounting and
nullification of foreclosure of its properties in
Zambales, with prayer for the issuance of a
temporary restraining order, docketed as Civil Case
No. RTC-1852-I.[11] BMC averred that the foreclosure
of its properties should be annulled because KBPI
imposed unauthorized penalties, interest and
charges. Assuming that the amount claimed is due
and demandable, BMC maintained that the same
cannot be enforced because KBPI did not comply
with the 60-day grace period. BMC added
that dacion en pago should be preferred over the
foreclosure of the collaterals because the other
respondent banks are agreeable to such proposal.
On the same date, the Regional Trial Court of
Iba, Zambales issued a temporary restraining order
enjoining the sale at public auction of BMCs
properties in Zambales.[12]
On February 6, 2002, KBPIs application for
extrajudicial foreclosure of mortgage was found to
be sufficient in form and substance, and was
granted.[13] BMC filed a motion for reconsideration,
which was denied on March 4, 2002.[14]
Hence, BMC filed a petition for certiorari with
the Court of Appeals,[15] reiterating its arguments in
EJF No. Sp-2546 (01) and assailing the validity of the
foreclosure of its properties in Laguna. It prayed for
the issuance of a preliminary injunction and/or
temporary restraining order to enjoin the scheduled
sale of its properties in Laguna on March 19, 2002 at
10:00 pm.Since no injunction or restraining order
was issued by the Court of Appeals, the auction sale the unauthorized insertion of the Register of Deeds
proceeded as scheduled with KBPI as the highest of Laguna to the Courts Notice of Resolution of
bidder. March 22, 2002.
To restrain the registration of the certificate of
SO ORDERED.[21]
sale,[16]BMC filed a Supplemental Petition[17] which
was favorably acted upon by the Court of Appeals
BMC filed a motion for reconsideration
on March 22, 2002.[18] On the same day, a temporary
claiming, among others, that Section 47 of the
restraining order enjoining the registration of the
General Banking Act (Republic Act No. 8791), which
certificate of sale was issued by the appellate court,
reduced the period of redemption for extra-
albeit, late as the certificate was already registered at
judicially foreclosed properties of juridical persons
2:15 p.m. of March 22, 2002.
from one year to until, but not after, the registration
Subsequently, BMC filed with the appellate of the certificate of foreclosure salewhich in no case
court an Amended Supplemental shall be more than three (3) months after foreclosure,
Petition,[19] followed by an Urgent whichever is earlier, is unduly discriminatory and
Manifestation praying for the issuance of a writ of
[20] therefore unconstitutional.
preliminary injunction and/or temporary
On May 28, 2002, the Court of Appeals denied
restraining order to enjoin the consolidation of titles
BMCs motion for reconsideration.[22] Hence, BMC
over the foreclosed properties in the name of
filed the instant petition, contending that
respondent banks. BMC contended that the
foreclosure sale should be annulled because (1) the I
bid price was grossly inadequate; (2) the sale was
conducted in violation of Sections 2 and 3 of Act No. THE COURT OF APPEALS ACTED WITH GRAVE
3135 on the requirements of place of sale and posting ABUSE OF DISCRETION IN DENYING
of notice; and (3) the other creditor banks are PETITIONERS APPLICATION FOR TRO TO
amenable to the proposed dacion en pago instead of RESTRAIN THE CONSOLIDATION OF TITLES
the foreclosure. AFTER IT HAD EARLIER RESTRAINED, ALBEIT
TOO LATE, THE REGISTRATION OF THE
In its Resolution dated April 5, 2002, the Court
SHERIFFS CERTIFICATE OF SALE,
of Appeals denied BMCs prayer to restrain the
DEMONSTRATIVELY HAVING BEEN
consolidation of title in the name of KBPI, thus:
CONVINCED OF THE MERIT OF THE LEGAL
GROUNDS RAISED BY THE PETITIONER IN
The petitioners filing of an Amended Supplemental
SUPPORT OF THE APPLICATION FOR
Petition dated March 25, 2002, and an Urgent
TEMPORARY RESTRAINING ORDER.
Manifestation dated March 27, 2002 is hereby
noted.
II
However, we see no justifiable reason to grant an
THE NEW LAW (GENRAL BANKING LAW OF
injunctive relief at this point in time, since the acts
2000) ABROGATING THE RIGHT TO ONE YEAR
sought to be restrained or enjoined are positive
REDEMPTION PERIOD OF CORPORATE
rights of a buyer in a foreclosure sale. Unless the
MORTGAGORS IS UNCONSTITUTIONAL.
petitioner could prove the nullity of such sale, there
is no reason to stop the Register of Deeds
III
concerned from performing its ministerial duty
under the law.
ASSUMING THAT THE NEW LAW IS
CONSTITUTIONAL, IT SHOULD BE GIVEN
WHEREFORE, the application for temporary
PROSPECTIVE APPLICATION.
restraining order in the Amended Supplemental
Petition is hereby DENIED.
IV
The respondents are directed to also file their
THE BID PRICE OF ONLY P162,354,329.46 FOR
comment thereto within ten (10) days from notice
THE FOUNDRY PROJECT WITH A FAIR
hereof. Should the parties prefer, the case shall be
MARKET VALUE OF P444,184,000.00, SOUND
set for hearing to enable the parties to prove their
VALUE OF P493,732,000.00 COST OF
respective positions as to issues in the petition as
REPRODUCTION OF P989,605,000.00 IS SO
well as subsequent Supplemental Petition and
GROSSLY INADEQUATE AS TO RENDER THE
Amended Supplemental Petition.
SALE NULL AND VOID IN LAW AND IN
EQUITY.
In the meantime, the Chief of the Mailing Section is
directed to investigate and report to us within
V
fifteen (15) days from notice, how and who made
16
THE AUCTION SALE CONDUCTED IN SAN
PABLO CITY IS NULL AND VOID FOR BEING IN
VIOLATION OF SECTION 2 OF ACT 3135, AS
AMENDED AND THE EXPRESS PROVISION OF
THE MORTGAGE TRUST INDENTURE THAT: IN
ANY EXTRA-JUDICIAL FORECLOSURE UNDER
ACT 3135, AS AMENDEDTHE AUCTION SALE
SHALL TAKE PLACE IN THE CITY OR CAPITAL
OF THE PROVINCE WHERE THE COLLATERAL
IS SITUATED.
VI
THE REQUIREMENTS OF SECTION 3 OF ACT
3135, AS AMENDED, FOR POSTING OF NOTICES
WERE NOT COMPLIED WITH IN THE
FORECLOSURE PROCEEDINGS IN QUESTION.
VII
THE INTEREST BASED ON THE FLOATING
RATE STIPULATED IN THE PROMISSORY
NOTES IS NULL AND VOID FOR BEING
POTESTATIVE IN CHARACTER AND FOR
BEING VIOLATIVE OF THE PRINCIPLE OF
MUTUALITY OF CONTRACT, HENCE THE
FORECLOSURE MAY PROCEED ONLY ONCE
THE CORRECT LEGAL AMOUNT OF THE LOAN
IS DETERMINED AND ONLY IF THE
MORTGAGOR CANNOT PAY FOLLOWING
THAT DETERMINATION.[23]
On June 26, 2002, a status quo order was issued
enjoining the cancellation of titles over the
mortgaged properties in the name of BMC as well as
the issuance of new titles and the consolidation
thereof in the name of private respondent banks[24]
We deem it proper to resolve the issue of forum
shopping raised by private respondents.
Under the Procedure on Extra-Judicial
Foreclosure of Mortgage (A.M. No. 99-10-05-
0),[25] the applicant in an extra-judicial foreclosure
covering properties located in different provinces is
required to pay only one filing fee regardless of the
number of properties to be foreclosed so long as the
application covers only one transaction or
indebtedness. The venue, however, of the extra-
judicial foreclosure proceedings is the place where
each of the mortgaged property is located. Pertinent
portion thereof states
Where the application concerns the extrajudicial
foreclosure of mortgages of real estates and/or
chattels in different locations covering one
indebtedness, only one filing fee corresponding to
such indebtedness shall be collected. The collecting
Clerk of Court shall, apart from the official receipt
of the fees, issue a certificate of payment indicating
the amount of indebtedness, the filing fees
collected, the mortgages sought to be foreclosed,
17
the real estates and/or chattels mortgaged and
their respective locations, which certificate shall
serve the purpose of having the application
docketed with the Clerks of Court of the places
where the other properties are located and of
allowing the extrajudicial foreclosures to proceed
thereat.
In Spouses Caviles v. Court of Appeals,[26] we
recognized the predicament that confronts a
mortgagor seeking to restrain the extra-judicial
foreclosure of mortgages arising from a single
transaction but concerning properties found in
different provinces. Thus
[W]e find it necessary to dwell on the issue of
whether or not the act of petitioners in filing three
civil actions - one with the RTC of Makati, another
with the RTC of Bian, Laguna (Branch 24) and the
third one, with the Bian Assisting Court, constitutes
forum shopping.
The problem of petitioners is an off-shoot of the
express provisions of B.P. Blg. 129, to wit:
Sec. 21. Original jurisdiction in other cases. -
Regional Trial Courts shall exercise original
jurisdiction:
(1) In the issuance of writs of certiorari, prohibition,
mandamus, quo warranto, habeas corpus
and injunction which may be enforced in any part
of their respective regions; (Emphasis, supplied)
and Section 3, Rule 2 of the Rules of Court which
provides that a party may not institute more than
one suit for a single cause of action. (Emphasis
supplied)
In the said case, the mortgagors filed separate
actions for breach of mortgage contract with
injunction to restrain the extra-judicial foreclosure
proceedings commenced by the mortgagee in
Makati and Bian, Laguna where the properties were
situated. The Court did not find the mortgagors
guilty of forum shopping insofar as the cases filed
with the Makati and Bian, Laguna (Branch 24) courts
were concerned. The obvious reason is that since
injunction is enforceable only within the territorial
limits of the trial court, the mortgagor is left without
remedy as to the properties located outside the
jurisdiction of the issuing court, unless an
application for injunction is made with another
court which has jurisdiction over the latter
properties.
In the case at bar, BMC is not guilty of forum
shopping precisely because the remedy available to
them under the law was the filing of separate
injunction suits. It is mandated to file only one case
for a single cause of action, e.g., breach of mortgage
contract, yet, it cannot enforce any injunctive writ latter may consider its consolidation with CA-G.R.
issued by the court to protect its properties situated SP No. 69503 if warranted.
outside the jurisdiction of said court. Besides, BMC
No pronouncement as to costs.
was honest enough to inform the Zambales court in
the certification[27] of its complaint that it has a SO ORDERED.
pending request not to give due course to the
foreclosure proceedings with the San Pablo court, in
the same manner that its petition for certiorari with
the Court of Appeals notified the appellate court of
the pendency of its complaint with the Zambales
court.[28] It would therefore be unfair to dismiss the
cases filed by BMC on the ground of forum
shopping where under the circumstances the law
gives it no other remedy.
The issues involved in the instant petition
for certiorari are not only limited to the propriety of
the Court of Appeals denial of BMCs prayer to
enjoin the consolidation of title of the foreclosed
properties in the name of private respondents. There
are likewise raised factual issues, i.e., the validity of
the foreclosure and the sale at public auction of its
properties, which are yet to be resolved by the Court
of Appeals. Since this Court is not a trier of facts, the
remand of this case to the appellate court is
necessary.
Anent the constitutional issue raised by BMC,
we have repeatedly held that the constitutionality of
a law may be passed upon by the Court, where there
is an actual case and that the resolution of the
constitutional question must be necessary in
deciding the controversy.[29] In this case, the
resolution of the constitutionality of Section 47 of the
General Banking Act (Republic Act No. 8791) which
reduced the period of redemption of extra-judicially
foreclosed properties of juridical persons is not the
very lis mota of the controversy. BMC is not
asserting a legal right for which it is entitled to a
judicial determination at this time inasmuch as it
may not even be entitled to redeem the foreclosed
properties. Until an actual controversy is brought to
test the constitutionality of Republic Act No. 8791,
the presumption of validity, which inheres in every
statute, must be accorded to it.
WHEREFORE, in view of all the foregoing, the
petition is PARTLY GRANTED. The Resolutions of
the Court of Appeals dated April 5, 2002 and May
28, 2002, in CA-G.R. SP No. 69503, insofar as they
denied BMCs application for temporary restraining
order, are REVERSED and SET ASIDE. The status
quo order issued by the Court on June 26, 2002 shall
stand until further order of the Court, and the
instant case is REMANDED to the Court of Appeals
for determination of the case on its merits. Petitioner
BMC is ordered to inform the appellate court of the
present status of Civil Case No. RTC-1852-I, then
pending with the Regional Trial Court of Iba,
Zambales, Branch 70, and if it had been decided and
the decision is on appeal in the Court of Appeals, the

18
THIRD DIVISION separate promissory notes executed by Federico R.
Mendoza and Anastacio E. de Vera. To secure
SAN FERNANDO RURAL G.R. No. 168088 payment of the loans, respondent PODC executed a
BANK, INC., real estate mortgage over the subject lot in favor of
Petitioner, Present:
YNARES-SANTIAGO, J., the creditor banks.[6] The contract provided that in
Chairperson, case of failure or refusal of the mortgagor to pay the
- versus - AUSTRIA-MARTINEZ, obligation secured thereby, the real estate mortgage
CALLEJO, SR.,
CHICO-NAZARIO, and may be extrajudicially foreclosed in accordance with
PAMPANGA OMNIBUS NACHURA, JJ. Act No. 3135, as amended.[7]
DEVELOPMENT
CORPORATION and Promulgated:
DOMINIC G. AQUINO, Eliza M. Garbes (PODC President and daughter of
Respondents. April 3, 2007 Federico Mendoza), together with her husband
Aristedes Garbes, secured a P950,000.00 loan from
x--------------------------------------
------------x petitioner on March 27, 1992. The loan was to
mature after 180 days or on September 23,
DECISION 1992.[8] Mendoza signed as co-borrower in the
promissory note executed by the spouses. The
CALLEJO, SR., J.: spouses also executed a chattel mortgage over their
personal property as security for the payment of
Before the Court is a Petition for Review under Rule their loan account.[9]
45 of the Rules of Court, assailing the Decision[1] of
the Court of Appeals (CA) in CA-G.R. SP No. 75787 Upon respondent PODCs failure to pay its loan to
as well as the Resolution[2] which denied the motion petitioner, the latter filed a petition for extrajudicial
for reconsideration thereof. The appellate court set foreclosure of real estate mortgage and
aside the Order[3] of the Regional Trial Court at the auction on April 23, 2001, petitioner emerged
(RTC), San Fernando, Pampanga, Branch 44, in LRC as the winning bidder for P1,245,982.05. The Ex-
No. 890, which in turn had granted the petition of Officio Sheriff executed a Certificate of
San Fernando Rural Bank, Inc. (petitioner) for the Sale[10] on May 9, 2001 which stated that the period
issuance of a writ of possession. of redemption of the property shall expire one (1)
year after registration in the Register of Deeds. The
certificate was annotated at the dorsal portion of
TCT No. 275745-R on June 7, 2001. Petitioner did not
The Antecedents
file a petition for a writ of possession during the
redemption period.
Pampanga Omnibus Development Corporation
(respondent PODC) was the registered owner of a
On May 11, 2002, petitioner, through Eliza Garbes
parcel of land in San Fernando, Pampanga (now San
(with the authority of petitioners board of
Fernando City). The 61,579-square-meter lot was
directors),[11] executed a notarized deed of
covered by Transfer Certificate of Title (TCT) No.
assignment[12] in favor of respondent Dominic G.
275745-R.
Aquino over its right to redeem the
property. On May 29, 2002, respondent Aquino
Respondent PODC secured two loans from
offered to redeem the property for P1,588,094.28, but
petitioner and Masantol Rural Bank, Inc. (MRBI) at
petitioner rejected the offer and demanded the
an annual interest of 24%: P750,000.00 on April 20,
payment of P16,805,414.71 (including the loan of the
1989, to mature on April 15, 1990;[4] and
spouses Garbes)[13] as redemption
another P750,000.00 on May 3, 1989, payable
on April 28, 1990.[5] The loans were evidenced by
19
money. Respondent Aquino rejected the demand of
petitioner.
On May 30, 2002, respondent
remitted Cashiers Check
0000202756[14] for P1,588,094.28 to
Officio Sheriff as redemption money for the property
for which he was issued Receipt No. 15582906
dated May 31, 2002.[15]
In a letter[16] dated June 4, 2002, the Ex-
Officio Sheriff informed petitioner that the property
had been redeemed by respondent
for P1,588,094.28. She requested petitioner for the
computation of the correct redemption price before
the lapse of the reglementary period to redeem the
property. Petitioner then submitted a statement of
account indicating that the redemption price
was P9,052,309.23, and including the loan of the
spouses Garbes (P7,753,105.48), a total
of P16,805,414.71.[17] Thereafter, the Ex-OfficioSheriff
computed the redemption price (based on the
General Banking Act [R.A. No. 8791], and The Rural
Bank Act of 1992 R.A. No. 7353)
be P5,194,742.50.[18] When respondent Aquino was
apprised of this, he remitted on June 7, 2002 a
cashiers check for P3,606,648.52, representing the
difference between the redemption price computed
by the Ex-Officio Sheriff (P5,194,742.50) and the
amount he had earlier paid (P1,588,094.28). The Ex-
Officio Sheriff issued Official Receipt No. 15582907
to respondent Aquino, and on June 7, 2002, a
Certificate of Redemption.[19] The certificate reads in
part:
WHEREAS, before the expiration of
the one (1) year period to redeem, by
virtue of the Deed of Assignment
executed by the President of the
Pampanga Omnibus Devt. Corp., Mr.
DOMINIC G. AQUINO redeemed
the said property in the total amount
of FIVE MILLION ONE HUNDRED
NINETY-FOUR THOUSAND
SEVEN HUNDRED FORTY-TWO
and 50/100 (P5,194,742.50) paid
under Official Receipts Nos.
15582906 and 15582907 dated May
31, 2002 and June 7, 2002,
respectively, and have issued this
CERTIFICATE OF REDEMPTION
under the guarantees prescribed by
law.
Aquino City of San Fernando (P), June 7,
2002.[20]
No.
the Ex-
On the same day, petitioners representative
Elvin Reyes went to the office of the Ex-
Officio Sheriff and inquired how the amount
of P5,194,742.50 was arrived at. The Ex-
Officio Sheriff explained to him that she had
accepted the redemption price in accordance with
the provisions of
Aquino
R.A. Nos. 8791 and 7353. She further explained that
she had furnished petitioner with a copy of the
Certificate of Redemption she had earlier executed;
however, Reyes refused to receive a copy of the
Certificate of Redemption.[21]
On June 10, 2002, petitioner, through its
president Rogelio D. Reyes, executed an Affidavit of
Consolidation[22] over the property. It was alleged
therein that respondent PODC or any other
person/entity with the right of redemption did not
to
exercise their right to repurchase within one year
from June 7, 2001. The affidavit was filed with the
Office of the Register of Deeds on the same day. The
penultimate paragraph reads:
That the aforesaid Mortgagors nor
any other persons or entity entitled
with the right of redemption did not
exercise their right of repurchase and
a period of more than one (1) year
from June 7, 2001 has already elapsed
and by reason thereof, the San
Fernando Rural Bank, Inc. do hereby
request the Registry of Deeds of the
province of Pampanga, after the
payment of the lawful fees of this
office to cancel Transfer Certificate of
Title No. 275745-R and to issue a new
Certificate of Title in favor of the San
Fernando Rural Bank, Inc.[23]
The affidavit was entered in the Registry
Book in the Office of the Register of Deeds as Entry
No. 784. However, no new title was issued in favor
of petitioner.
20
In a letter[24] dated June 10, 2002, the Ex-
Officio Sheriff informed petitioner that respondent
Aquino had redeemed the property and requested
petitioner, through its president, to turn over the
owners duplicate of TCT No. 275745-R before the
redemption price of P5,194,742.50 would be
remitted. She appended to the letter a copy of the
Certificate of Redemption she had executed in favor
of respondent Aquino. However, petitioner refused
to do so.
Meanwhile, the Ex-Officio Sheriff fell ill and
failed to report for work up to June 14, 2002. She
then wrote petitioner, reiterating her request for the
delivery of TCT No. 275745-R. She, however, failed
to file the Certificate of Redemption with the
Register of Deeds.[25]
When respondent Aquino learned that
petitioner had filed an Affidavit of Consolidation, he
sent a letter[26] dated June 14, 2002 to the Register of
Deeds, informing the latter that he was the assignee
under the Deed of Assignment executed by
respondent PODC, and that as shown by the
appended Certificate of Redemption he had
redeemed the property on June 7, 2002. He also
insisted that he had redeemed the property within
the period therefor, and requested the Register of
Deeds not to register the Affidavit of Consolidation
and to cancel TCT No. 275745-R.[27]
On June 17, 2002, respondent Aquino filed
the Certificate of Redemption executed by the Ex-
Officio Sheriff with the Office of the Register of
Deeds. The Register of Deeds entered the Certificate
of Redemption in the Primary Entry Book of Entries
under Entry No. 1205.[28] On even date, the Register
of Deeds entered the deed of assignment executed
by respondent PODC in favor of Aquino in the
Primary Book of Entries as Entry No. 1208.
Meanwhile, the Registrar of Deeds was in a
quandary; he was not certain whether it was proper
for him to issue a new title to petitioner. In a
letter[29] dated June 18, 2002, he requested the
Administrator of the Land Registration Authority
21
(LRA), by way of consulta, to issue an opinion on
whether a new title should be issued to petitioner, or
the Certificate of Redemption in favor of respondent
Aquino should be annotated at the dorsal portion of
TCT No. 275745-R.
On October 15, 2002, petitioner filed a Petition for a
Writ of Possession in the RTC of
Pampanga. Petitioner alleged that it had purchased
the property at public auction as evidenced by the
Certificate of Sale appended thereto; the Certificate
of Sale was annotated at the dorsal portion of TCT
No. 275745-R on June 7, 2001; as far as he was
concerned, the right of respondent PODC to redeem
the property had already expired; and under Act
No. 3135, as amended, it is entitled to the possession
of the property during or even after the redemption
period. It prayed that the corresponding writ of
possession over the property be issued in its favor
upon the filing of the requisite bond in an amount
equivalent to the market value of the property or in
an amount as the court may direct.[30] Petitioner
appended to its petition a certified true copy of the
Certificate of Sale executed by the Ex-Officio Sheriff
in its favor over the property. The case was docketed
as LRC No. 890.
The court set the hearing of the petition at 8:30
a.m. on November 28, 2002 and sent the
corresponding notices to respondent PODC. [31]
During the hearing, respondent PODC
opposed the petition on the following grounds:
petitioner deliberately concealed the fact that the
property had been redeemed on June 7, 2002;
respondent Aquino had paid P5,194,742.00 as
redemption money based on the computation of
petitioner; the Ex-Officio Sheriff had executed a
Certificate of Redemption in favor of respondent
Aquino on June 7, 2002, a copy of which petitioner
refused to receive; respondent Aquino, as assignee,
had offered to redeem the property on May 29, 2002
and tendered the amount of P1,588,094.28, but
petitioner insisted that the redemption price
was P16,805,414.71, including the loan account of
the spouses Garbes; that since respondent Aquino
had redeemed the property from the Ex-
Officio Sheriff on June 7, 2002 within the one-year
period after paying the total amount
of P5,194,742.50, it was respondent Aquino, and not
petitioner, who is entitled to a writ
possession;[32] and that besides, he was already in
possession of the property.[33] It insisted that
petitioner filed its petition to preempt the resolution
of the LRA on the consulta of the Register of
Deeds. The oppositor prayed that the petition be
denied and that it be granted such other relief and
remedies just and equitable under the premises.
In its Reply, petitioner averred that since respondent
Aquino had offered an amount short of the
redemption price of P16,805,414.71, under Section
47 of R.A. No. 8791 there was no valid redemption
of the property. The loan of the spouses Garbes was
intended for respondent PODC
borrower. Petitioner alleged that it would have been
foolhardy for it to grant a P950,000.00 loan to the
spouses without any security. Hence, unless the
entire loan account of respondent PODC and the
spouses Garbes (P16,805,414.71) was paid, the
mortgage persisted.[34] It further posited that, since
respondent PODC had already assigned its right to
redeem the property, the oppositor had no more
right or interest over the property; it was thus not
the proper party as oppositor.
By way of rejoinder, respondent PODC averred that
the Certificate of Redemption executed by the Ex-
Officio Sheriff is presumed valid and legal; the RTC,
acting as a Land Registration Court, had no
jurisdiction to pass upon the validity of the
Certificate of Redemption;[35] upon the execution of
the Deed of Assignment in favor of respondent
Aquino and the payment of redemption money, the
latter had taken actual possession of the property;
based on the Certificate of Redemption, he had
developed the property and introduced a lot of
improvements; and since a third party was in
possession of the property, possession could no
longer be given to petitioner via a writ of
possession. Respondent PODC maintained that
petitioner was not entitled to a writ of possession
until the title was consolidated in its name.
On December 12, 2002, the LRA resolved
the consulta of the Register of Deeds as follows:
of While it is clear from the records that
an agent of the assignee tried to
redeem the property within the one
(1) year period of redemption and, in
fact, the Certificate of Redemption
was executed by the Clerk of Court
and Ex-Officio Sheriff of the Regional
Trial Court of San Fernando City,
Pampanga on the last day of the
redemption period, the same was not
registered before the Registry of
Deeds within the one (1) year period
of redemption. Borne by the records
is the receipt before the registry of the
Certificate of Redemption and other
related documents on June 17,
2002 for annotation. Hence, the same
was not registered within the
aforesaid one (1) year redemption
as period.
Considering that the document first
presented and entered in the Primary
Entry Book of the registry is the
Affidavit of Consolidation in favor of
the creditors, the mortgagee bank
and not the Certificate of
Redemption in favor of the assignee
of the debtor-mortgagor, although
admittedly, the latter instrument was
executed on the last day of the
redemption period but not, in fact,
registered within the same period,
under the premises, the
consolidating mortgagee is
possessed with a superior right than
the redemptioner. Under the law, the
first in registration is the first in
law.[36]
The dispositive portion of the Resolution of the LRA
Administrator reads:
WHEREFORE, premises considered,
this Authority is of the opinion and
so holds that the Affidavit of
Consolidation is superior over the
Certificate of Redemption, hence,
registrable on TCT No. 275745-R.
SO ORDERED.[37]
Respondents filed a motion for reconsideration of
the Resolution of the LRA Administrator.
22
On December 20, 2002, the court in LRC No. 890
issued an Order granting the petition and ordered
the issuance of a writ of possession, on a bond
equivalent to the market value of the property. It
ruled that petitioner, as purchaser at the foreclosure
sale, was entitled to a writ of possession. The
question of the validity of the redemption made by
respondent Aquino, to whom respondent PODC
had assigned its right to redeem the property, as
well as the registrability of the Affidavit of
Consolidation executed by petitioner, through its
president, and the validity of the Certificate of
Redemption executed by the clerk of court and Ex-
Officio Sheriff of the RTC cannot be raised as a
justification for opposing the petition. It declared
that the proceedings for the issuance of a writ of
possession were ex-parte and it was the courts
ministerial duty to issue the writ.
Furthermore, the court held that petitioners
right to the possession of the foreclosed property is
bolstered by the fact that no third party was actually
holding the property adverse to respondent
PODC. Respondent Aquino, as assignee
respondent PODCs right to redeem could not be
considered a party holding the property adversely
to respondent PODC. Neither was there any
pending civil case involving the rights of third
parties. Consequently, it was the ministerial duty of
the RTC to issue a writ of possession in favor of
petitioner, as the winning bidder in the public
auction.
The court declared that the purpose of the law in
requiring the filing of a bond is to answer for the
reasonable rental for a period of twelve months for
the use of the property during the period of
redemption. Since the period of redemption had
already expired, a bond was no
necessary. Nevertheless, the court granted
petitioners prayer to put up a bond in the amount
equivalent to the market value of the property. The
court ruled that petitioner was entitled to the
possession of the property, together
improvements existing thereon, as a mere incident
of its right of ownership.[38]
Respondents filed a motion for reconsideration of
the order, contending that petitioner was entitled to
a writ of possession after the lapse of the period for
redemption only if a Torrens title had been issued in
its favor. Since the one-year redemption period had
lapsed without petitioner having been issued
any Torrens title, the court erred when it granted the
petition for a writ of possession. It also pointed out
that petitioner had failed to present any title under
its name.
For its part, petitioner stated in its
Opposition to respondents motion for
reconsideration, that it was not necessary that a
buyer in a public auction be issued a title in its name
before it could be entitled to a writ of possession
upon the expiration of the redemption period. The
title is merely an evidence of ownership; it is the
Certificate of Sale that vests ownership in the buyer
over the property sold. It insisted that the purchaser
was entitled to the possession of the property even
after the lapse of the redemption period.[39]
of
On February 18, 2003, the court issued an
Order denying the motion for reconsideration of
respondents. The court ruled that petitioner, as
purchaser at public auction, acquired the right to
possess the property, and the right of the mortgagor
from the time it purchased the property and not
from the issuance of the title over the property in its
name.[40]
On March 6, 2003, respondents filed a
Petition for Certiorari with the CA, assailing the
orders of the RTC as follows:
I. Public respondent committed
grave abuse of discretion
longer amounting to lack or excess of
jurisdiction when it granted
private respondents prayer for
an issuance of writ of possession
in its favor when serious issues
affecting private respondents
with right to possess the subject lot is
still pending determination by
the Land Registration Authority.
23
 II. Public respondent committed The CA failed to resolve the plea of respondents for
grave abuse of discretion
amounting to lack or excess of a temporary restraining order. Petitioner filed a
jurisdiction when it allowed motion for execution of the December 20,
private respondent to post a 2002 Order of the trial court in LRC No. 890. The
redemption bond beyond the
redemption period.[41] RTC granted the motion and issued a writ of
possession on May 14, 2003.[45] The Sheriff
implemented the writ and placed petitioner in
They averred that the RTC should have denied the
possession of the property.
petition for a writ of possession pending the
On September 4, 2003, petitioner filed a
resolution of the consulta by the LRA. They asserted
Complaint[46] against respondents and the Ex-
that the issues before the RTC were substantial,
Officio Sheriff in the RTC of Pampanga, for the
namely: (a) whether
nullification of the Deed of Assignment executed by
respondent Aquino, as the assignee of the right of
PODC in favor of Aquino and of the Certificate of
respondent PODC to redeem the property, had the
Redemption executed by the Ex-Officio Sheriff, and
right to do so; (b) whether he had redeemed the
for damages with a plea for injunctive
property as evidenced by the Certificate of
relief. Petitioner filed an Amended/Supplemental
Redemption executed by the Ex-Officio Sheriff; and
Complaint and prayed that judgment be rendered in
(c) the redemption price. They insisted that the
its favor, thus:
obligation of the RTC to issue the writ of possession
ceased to be ministerial.
WHEREFORE, it is prayed that a
judgment be rendered in favor of the
Respondents maintained that they had the plaintiff and against the defendants:
right to redeem the property. Since there were grave
a) Annulling the Deed of Assignment
doubts about the parties contentions as to who had dated May 11, 2002 executed by and
the right to possess the property, the RTC should between defendants PODC and
have dismissed the petition for a writ of possession AQUINO.

pending determination of the substantial issues by b) Declaring the Certificate of

the LRA. The trial court should have relied on the Redemption dated June 7,
rulings of this Court in Rivero de Ortega v. 2001 issued by the defendant Clerk of
Court and Ex-Officio Sheriff as null
Natividad,[42] Barican v. Intermediate Appellate
and void ab initio.
Court,[43] and Sulit v. Court of
Appeals.[44] Respondents asserted that petitioner was c) Ordering the defendants, jointly
and severally, to pay the plaintiff the
not entitled to a writ of possession because contrary
amount of:
to Section 7 of Act No. 3135, it posted a bond beyond
the period for redemption. The case was docketed as A. P100,000.00 as and
for moral
CA-G.R. SP No. 75787.
damages.
B. P100,000.00 as and
In its Comment on the petition, petitioner insisted for exemplary
damages.
on its right to a writ of possession and that the trial
C. P50,000.00 as and
court acted in accordance with law and the facts of for attorneys
the case. Moreover, it averred that the RTC, sitting fees plus the
as a land registration court, had jurisdiction over the costs of suit.

petition for a writ of possession; thus, the remedy of OTHER RELIEF and remedies just
respondents was to appeal the assailed order and equitable are also prayed for.[47]
not to file a petition for certiorari in the CA. The case was docketed as Civil Case No.
12785.

24
Meanwhile, the LRA Administrator issued a
Resolution recalling the Resolution dated December
12, 2002 and declared that the Certificate of
Redemption executed by the Ex-Officio Sheriff was
superior to the Affidavit of Consolidation filed by
petitioner. Based on the June 14, 2002 letter of
the Ex-Officio Sheriff and the Certificate
Redemption, respondent Aquino, who was the
assignee of respondent PODC, had redeemed the
property on June 7, 2002. Petitioner was already
aware as early as June 7, 2002 of the redemption of
the property by respondent Aquino; hence, the date
of registration of the Certificate of Redemption
on June 17, 2002 was of no legal consequence.
Accordingly, on September 10, 2003, respondents
filed (in LRC No. 890) a Joint Motion to quash the
writ of possession issued by the trial court and for
the issuance of a new TCT. They averred that the
LRA Administrator finally resolved that the
Certificate of Redemption issued by the Ex-
Officio Sheriff was superior to the Affidavit of
Consolidation of petitioner. On the basis of the LRA
Order, the Register of Deeds issued TCT No. 544978-
A over the property in the name of respondent
Aquino as the registered owner.
The court denied the joint motion
on November 10, 2003, holding that respondent
Aquino, as the registered owner of the subject
property, should initiate the appropriate action in
the proper court in order to exclude petitioner or any
other person from the physical possession of his
property.[48] The court ruled that after placing
petitioner in possession of the property, the court
had lost jurisdiction over the case.
On November 27, 2003, respondents filed before the
CA their Joint Notice of Appeal[49] from
the November 10, 2003 Order of the RTC in LRC No.
890. The appeal was docketed as CA-G.R. CV No.
81607.
On November 28, 2003, petitioner filed
Manifestation,[50] stating that under Section 47 of
R.A. No. 8791, the period to exercise the right to
redeem shall be until but not after the registration of
the Certificate of Foreclosure Sale with the Register
of Deeds which is in no case shall be more than three
(3) months after the foreclosure, whichever is
earlier.[51] The Certificate of Foreclosure Sale was
registered on June 7, 2001 and since respondent
PODC had assigned/transferred the right to redeem
of the property to respondent Aquino only on May 11,
2002, the redemption period had already lapsed.
On December 18, 2003, the CA rendered judgment
in CA-G.R. SP No. 75787 granting the petition of
respondents and setting aside the assailed orders of
the trial court. The falloof the decision reads:
WHEREFORE, the petition is
GRANTED and the orders
dated December 20, 200[2]
and February 18, 2003 of respondent
judge are VACATED and SET
ASIDE.
SO ORDERED.[52]
The appellate court ruled that the December 20,
2002 Order of the RTC granting the petition for a
writ of possession was interlocutory and not final;
hence, it may be questioned only via petition
for certiorari under Rule 65 of the Rules of Court, not
by appeal. The CA cited the ruling of this Court
in City of Manila v. Serrano.[53]
The CA further held that the RTC committed grave
abuse of discretion amounting to excess or lack of
jurisdiction when it granted the application of
petitioner for a writ of possession. Respondent
Aquino, as successor-in-interest of respondent
PODC, had redeemed the property on June 7,
2002 in accordance with Section 6 of Act No. 3135, as
amended, and in relation to Section 27(a), Rule 39 of
the Rules of Court. Thus, although the Certificate of
Redemption was not registered before the Register
of Deeds, he was entitled to the possession thereof;
the registration of the Certificate of Redemption in
the Office of the Register of Deeds is merely required
a to bind third persons. According to the CA,
petitioner may not refuse the redemption by
respondent Aquino because the right of petitioner
over the property was merely inchoate until after the
25
redemption period had lapsed without the right
being exercised by those allowed by law.
Petitioner moved for the reconsideration of
its decision on the ground that, under Section 47 of
R.A. No. 8791, respondent PODC had only up to the
registration of the Certificate of Foreclosure Sale
(June 7, 2001) but not more than three (3) months
from the public auction, whichever is earlier, within
which to redeem the property; respondent PODC,
on the other hand, assigned its right to redeem the
property on May 11, 2002, long after the redemption
period had expired; hence, respondent PODC had
no more right to assign it to respondent
Aquino. Consequently, the latter had no right to
redeem the property, and the Certificate of
Redemption executed by the Ex-Officio Sheriff was
null and void. Moreover, respondent Aquino failed
to pay the correct amount of the redemption
price. Petitioner claimed that it acted in good faith
when it had its Affidavit of Consolidation registered
in the Register of Deeds. In sum, petitioner ascribes
error on the part of the CA in nullifying the order of
the RTC.
However, the CA denied the motion of
petitioner on the ground that by invoking Section 47
of R.A. No. 8791, it thereby changed its theory on
appeal which, as held by this Court in Dalumpines v.
Court of Appeals,[54] is prohibited.[55]
Petitioner SFRBI then filed a petition for review
on certiorari with this Court for the reversal of the
Decision and Resolution of the CA, and raised the
following issues:
I from filing a petition for certiorari in the CA since the
Whether or not the Court of Appeals
seriously erred when it sanctioned
the Respondents resort
to Certiorari under Rule 65 of the
Revised Rules of Court, questioning
a final order and not an interlocutory
order of the RTC.
II
Whether or not the respondents are
guilty of forum shopping by taking
both the remedy of appeal
26
and certiorari on the same issues and
substantially the same set of facts.
III
Whether or not the Court of Appeals
committed serious error when it
ruled on a matter that was not and
could not have been submitted for its
adjudication.
IV
Whether or not the Honorable Court
is precluded from reviewing the
factual findings of the Court of
Appeals.
V
Whether or not the petitioner SAFER
Bank, as well as the Honorable Court,
is precluded from applying the
governing law, under which the
redemption period had clearly
expired.[56]
On the first issue, petitioner avers that the
December 20, 2002 Order of the RTC granting the
writ of possession in its favor was final; hence, the
remedy of respondents herein, as oppositors below,
was to appeal to the CA and not to file a special civil
action for certiorari. In fact, petitioner asserts, the
writ of possession issued by the RTC had already
been implemented when respondents filed their
petition in the CA on December 10, 2003.
Petitioner also claims that the assailed order
of the RTC was in accordance with the law and the
Rules of Court; even if it is merely an error of
judgment and not a jurisdictional error, resort to a
petition for certiorari was
inappropriate. Respondents were, thus, proscribed
appeal was an adequate and speedy remedy in the
ordinary course of law and, indeed, they appealed
the November 10, 2003 Order of the RTC in LRC No.
890 to the CA in CA-G.R. CV No. 81607. It had also
posted a bond in the RTC to answer for any
damages. The ruling of this Court in City of Manila v.
Serrano[57] is, therefore, not applicable.
Petitioner further avers that the CA erred in
applying Act No. 3135, as amended, instead of
Section 47 of R.A. No. 8791, the General Banking Act
of 2000. Respondent PODC had the right to redeem
the property not later than June 7,
2001. Undisputably, respondent PODC failed to
redeem the property before the registration of the
Certificate of Sale; hence, when respondent PODC
executed the deed of assignment on May 11, 2002 in
favor of respondent Aquino, it had no more right to
redeem the property.
Thus, it could not have assigned the right to redeem
the property to respondent Aquino. The latter
redeemed the property only on June 7, 2002, long
after the Certificate of Sale was registered on June 7,
2001. Since there was no valid redemption of the
property by respondent Aquino, petitioner claimed
that it was entitled to the writ of possession of the
property. It further insisted that the RTC, acting as
a Land Registration Court, had limited jurisdiction;
it had no jurisdiction to resolve the issues on the
validity of the deed of assignment and the legality of
respondent Aquinos redemption of the property, as
well as its ownership. Only the RTC in the exercise
of its general jurisdiction in Civil Case No. 12765
(where petitioner assailed the deed of assignment
and the Certificate of Redemption executed by
the Ex-Officio Sheriff) was vested with jurisdiction to
resolve these issues. In resolving these issues, the
CA thereby preempted the RTC in Civil Case No.
12765 and deprived it of due process. In any event,
according to petitioner, the pronouncement of the
CA on the validity of the Deed of Assignment and
Certificate of Redemption was merely an obiter
dictum.
Petitioner posits that the CAs reliance on the rulings
of this Court in Rivero and Barican was erroneous
because the right of third parties holding the
property adverse to respondent PODC was not
involved. Neither was the pendency of
the consulta of the Register of Deeds in the LRA a bar
to the issuance of a writ of possession in its favor by
the RTC acting as a land registration court. It was the
ministerial duty of the RTC to issue a writ of
possession over the property to petitioner as
purchaser at the foreclosure sale during and after
the redemption period.
27
Petitioner further maintains that respondents filed
their petition for certiorari in the CA and delineated
the issues to be resolved. It did not change its theory
in the CA when it filed its motion for reconsideration
of the CA decision. Citing the ruling in Rivera v.
Court of Appeals,[58] petitioner
avers that a theory of the case is that which refers to
the facts on which the cause of action is based. The
facts are those alleged in the complaint and
satisfactorily proven at the trial. It insists that it did
not change the set of facts that it submitted and
presented to the CA. It was not estopped from citing
Section 47 of R.A. No. 8791. It had posited in the RTC
that respondents failed to redeem the property
before the expiration of the redemption
period. Besides, as held by this Court in Lianga
Lumber Company v. Lianga Timber Co., Inc.,[59] a party
may change his theory on appeal when the factual
basis thereof would not require presentation of any
further evidence by the adverse party to enable it to
properly meet the issue raised in the new
theory. The failure of a party to invoke an applicable
law in a given case does not create a vested right,
and an erroneous interpretation does not give rise to
estoppel. Even if petitioner did not invoke R.A. No.
8791, it behooved the CA to apply the law before it,
prescinding from the theory advocated by the
parties. Neither may respondents invoke
estoppel. They were aware of the provisions of the
law as well as the facts and circumstances
warranting the application thereof.
Petitioner also imputes forum shopping to
respondents because the latter raised the issue of
possession in both CA-G.R. SP No. 75787 and CA-
G.R. CV No. 81607.Petitioner also accuses
respondents of using the decision in CA-G.R. SP No.
75787 to support their contention in CA-G.R. CV No.
81607. It further contends that the writ of possession
issued by the RTC was void.
For their part, respondents aver that the RTC
committed grave abuse of its discretion in issuing
the December 20, 2002 and February 18,
2003 Orders. Hence, the decision of the CA was in
accord with the law and the Rules of Court. They
assert that given the circumstances obtaining in this
case, their petition for certiorari was
proper. Although they had the right to appeal the
orders of the RTC, the same was not a speedy and
adequate
remedy. They insist that they were not guilty of
forum shopping because the only issue in CA-G.R.
CV No. 81607 was the validity of the Order of the
RTC dated November 10, 2003, which denied their
motion to quash the writ of possession. On the other
hand, challenged in CA-G.R. SP No. 75787 was the
Order of the RTC granting the petition for a writ of
possession. Since the Ex-Officio Sheriff declared in
the Certificate of Redemption that respondent
Aquino redeemed the property within the one-year
period, petitioner was estopped from relying on
Section 47 of R.A. No. 8791. Respondents point out
that in the RTC and the CA, petitioner had insisted
that respondent Aquino had one (1) year from June
7, 2001 within which to redeem the property as
provided in Act No. 3135, as amended; thus,
petitioner was proscribed from changing the theory
it pursued in the RTC and the CA. Moreover, under
Section 71 of R.A. No. 8791, redemption by entities
of property mortgaged is governed by R.A. No.
7353, under which the period of redemption is one
year from the registration of the Certificate of Sale.
The Ruling of the Court
The petition is meritorious.
The CA erred in holding that the Order of the RTC
granting the petition for a writ of possession was
merely interlocutory. Interlocutory orders are those
that determine incidental matters and which do not
touch on the merits of the case or put an end to the
proceedings. A petition for certiorari under Rule 65
of the Rules of Court is the proper remedy to
question an improvident interlocutory order.[60] On
the other hand, a final order is one that disposes of
the whole matter or terminates the particular
proceedings or action leaving nothing to be done but
to enforce by execution what has been
determined. It is one that finally disposes of the
pending action so that nothing more can be done
28
with it in the lower court.[61] The remedy to question
a final order is appeal under Rule 41 of the Rules of
Court.
We agree with petitioners contention that
the December 20, 2002 Order of the RTC granting
the petition for a writ of possession is final. The
remedy of respondents was to appeal to the CA by
filing their notice of appeal within the period
therefor.[62] Indeed, when the RTC denied
on November 10, 2003 the motion of respondents to
quash the writ the court had earlier issued,
respondents appealed to the CA under Rule 41 of
the Rules of Court. The appeal was docketed as CA-
G.R. CV No. 81607. Respondents did not file a
supplemental petition in CA-G.R. SP No. 75787.
The reliance of the CA in City of Manila v.
Serrano[63] is misplaced. In that case, the trial court
issued the writ of possession in connection with a
complaint for expropriation under Rule 67 of the
Rules of Court. Such a writ is interlocutory in
nature.[64] On the other hand, an order granting a
writ of possession under Act No. 3135, as amended,
is of a different species. The latter order is final,
hence, appealable.[65] Even if the trial court erred in
granting a petition for a writ of possession, such an
error is merely an error of judgment correctible by
ordinary appeal and not by a petition for a writ
of certiorari.[66] Such writ cannot be legally used for
any other purpose.
Certiorari is a remedy narrow in its scope and
inflexible in character. It is not a general utility tool
in the legal workshop.[67] Certiorari will issue only to
correct errors of jurisdiction and not to correct errors
of judgment. An error of judgment is one which the
court may commit in the exercise of its jurisdiction,
and which error is reviewable only by an
appeal. Error of jurisdiction is one where the act
complained of was issued by the court
without or in excess of jurisdiction and which error
is correctible only by the extraordinary writ
of certiorari. As long as the court acts within its
jurisdiction, any alleged errors committed in the
exercise of its discretion will amount to nothing
more than mere errors of judgment, correctible by
an appeal if the aggrieved party raised factual and
legal issues; or a petition for review under Rule 45 of
the Rules of Court if only questions of law are
involved.[68]
A cert writ may be issued if the court or
quasi-judicial body issues an order with grave abuse
of discretion amounting to excess or lack of
jurisdiction. Grave abuse of discretion implies such
capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction or, in other words,
where the power is exercised in an arbitrary manner
by reason of passion, prejudice, or personal hostility,
and it must be so patent or gross as to amount to an
evasion of a positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in
contemplation of law.[69] Mere abuse of discretion is
not enough. Moreover, a party is entitled to a writ
of certiorari only if there is no appeal nor any plain,
speedy or adequate relief in the ordinary course of
law.
The raison detre for the rule is that when a court
exercises its jurisdiction, an error committed while
so engaged does not deprive it of the jurisdiction
being exercised when the error was committed. If it
did, every error committed by a court would
deprive it of its jurisdiction and every erroneous
judgment would be a void judgment. In such a
situation, the administration of justice would not
survive. Hence, where the issue or question
involved affects the wisdom or legal soundness of
the decision not the jurisdiction of the court to
render said decision the same is beyond the
province of a special civil action for certiorari.
Under Section 8, Act No. 3135, as amended, the
debtor-mortgagor may file a motion to set aside a
writ of execution:
Section 8. Setting aside of sale and writ
of possession. The debtor may, in the
proceedings in which possession was
requested, but not later than thirty
days after the purchaser was given
possession, petition that the sale be set
aside and the writ of possession cancelled,
29
specifying the damages suffered by
him, because the mortgage was not
violated or the sale was not made in
accordance with the provisions
hereof, and the court shall take
cognizance of this petition in
accordance with the summary
procedure provided for in section
one hundred and twelve of Act
Numbered Four hundred and
ninety-six; and if it finds the
complaint of the debtor justified, it
shall dispose in his favor of all or part
of the bond furnished by the person
who obtained possession. Either of
the parties may appeal from the
order of the judge in accordance with
section fourteen of Act Numbered
Four hundred and ninety-six; but the
order of possession shall continue in
effect during the pendency of the
appeal.
The purchaser may appeal the order to the CA if his
petition is denied by the RTC. However, during the
pendency of the appeal, the purchaser must be
placed in possession of the property, such
possession being predicated on the right of
ownership.[70]
The threshold issue between petitioner and
respondents in the RTC was the correct amount of
redemption money under Section 47 of R.A. No.
8791. Respondent Aquino had the right to file an
action against petitioner in the RTC in the exercise
of its general jurisdiction to enforce redemption
within the redemption period to preserve its right to
redeem the foreclosed property.[71] It bears stressing
that the controversy between the parties relates to
the precise amount of redemption: petitioner
contended that, under the real estate mortgage
executed by respondent PODC in its favor, the loan
account of the spouses Garbes was secured by the
property covered by said deed; on the other hand,
respondents averred that only the loan account of
respondent PODC was secured by the mortgage of
its property. Indeed, the parties could have raised
the issue of the redemption period under the second
paragraph of Section 47 of R.A. No. 8791. The
provision reads:
Notwithstanding Act 3135, juridical
persons whose property is being sold
 pursuant to an extrajudicial SO ORDERED.
foreclosure, shall have the right to
redeem the property in accordance
with this provision until, but not
after, the registration of the certificate
of foreclosure sale with the
applicable Register of Deeds which in
no case shall be more than three (3)
months after foreclosure, whichever
is earlier. Owners of property that
has been sold in a foreclosure sale
prior to the effectivity of this Act shall
retain their redemption rights until
their expiration.

The ministerial duty of the RTC to issue a writ of

possession does not become discretionary simply
because the Register of Deeds had elevated
in consulta to the LRA the question of whether the
Torrens title should be issued in favor of petitioner
whose Affidavit of Consolidation was registered in
the Office of the Register of Deeds, or in favor of
respondent Aquino who claimed to have redeemed
the property on June 7, 2002 as gleaned from the
Certificate of Redemption of the Ex-Officio Sheriff
but registered only on June 17, 2002. Respondent
Aquino claimed to have redeemed the property with
the correct redemption price and within the one year
period of redemption. The LRA himself admitted
that the issue of whether respondent Aquino had
remitted the correct redemption price is a matter
that should be resolved by the regular courts.[72] The
LRA was vested with jurisdiction to resolve only the
registrability of the Affidavit of Consolidation
executed by petitioner and the Certificate of
Redemption executed by the Ex-Officio Sheriff.

We need not rule on the issue of whether respondent

Aquino had lawfully redeemed the property as
provided in Section 47 of R.A. No. 8791. This issue
shall be passed upon by the RTC in Civil Case No.
12785 after the parties present their testimonial and
documentary evidence.

IN LIGHT OF ALL THE FOREGOING, the petition

is GRANTED. The Decision of the Court of Appeals
is SET ASIDE AND REVERSED.

30