Credit Transactions Cases
favor (Exhs. 6 and 7-Bank, and B).
Valmonte v. CA
THIRD DIVISION
[G.R. No. L-41621. February 18, 1999.]
PASTORA VALMONTE, JOSE DE LEON, AND JOAQUIN VALMONTE, Petitioners, v.
THE HON. COURT OF APPEALS, PHILIPPINE NATIONAL BANK, ARTEMIO VALENTON,
AND AREOPAGITA J. JOSON, Respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
seeking a review of the Decision 1 of the Court of Appeals which affirmed the decision of the
then Court of First Instance of Cabanatuan City, Branch III 2 in Civil Case No. 2950, entitled
"Pastora Valmonte, Jose de Leon and Joaquin Valmonte versus Philippine National Bank,
Artemio Valenton and Areopagita J . Joson", dismissing plaintiffs’ complaint as well as
defendants’ counterclaim.
As culled in the Decision of the Court of Appeals sought for review, the facts of the case that
matter are, as follows:jgc:chanrobles.com.ph
". . . On November 5, 1951, plaintiff-appellant Joaquin Valmonte sold to his daughter co-
appellant Pastora, three (3) parcels of land, situated in the Municipality of Jaen, Province of
Nueva Ecija, containing a total area of 70.6 hectares (Exhs. 31-Bank, 1-Valenton). A few
days later, or on Nov. 12, 1951, plaintiff-appellant Pastora obtained a crop loan of P16,000.00
from defendant-appellee Philippine National Bank and as security for payment thereof, she
executed a Real Estate Mortgage, dated November 12, 1951, in favor of appellee bank
involving the same parcels of land (Exh. J) as covered by Transfer Certificate of Title No. NT-
10423 in the name of said appellant Pastora (Exh. Q-1).
On September 19, 1952, appellant Pastora, then single, executed a Special Power of
Attorney in favor of one Virginia V. del Castelo for the purpose of borrowing money in the
amount of P5,000.00 from appellee bank with authority to mortgage the same parcels of land
hereinabove mentioned (Exh. A). As a result thereof, a loan of P5,000.00 payable on demand
was granted by appellee bank and Virginia Castelo executed a Real Estate Mortgage in its
On June 14, 1954, appellee bank sent a "Notice of Extra-Judicial Sale of Mortgaged
Properties" to the Provincial Sheriff of Nueva Ecija for publication (Exh. 39-Bank).
On June 20, 1954, appellant Pastora executed a Deed of Sale in favor of her father co-
appellant Joaquin Valmonte selling unto the latter the same three (3) parcels of land covered
by TCT No. NT-10423 with the following condition:jgc:chanrobles.com.ph
"These lands are at present mortgaged to the Philippine National Bank, and this obligation
shall be the subject of future arrangement between the vendor and vendee herein on the one
hand and the Philippine National Bank on the other before this deed of Sale shall be
operative." (Exh. 2-Valenton)
On July 19, 26 and August 2, 1954, the notice of extrajudicial sale on August 19, 1954 to be
held in the City Hall of Cabanatuan City, for the satisfaction of appellant Pastora’s debt of
P5,000.00 plus interests due thereon, was published in a newspaper called Nueva Era (Exh.
56-Bank). The same notice was posted in three (3) public and conspicuous places in the City
of Cabanatuan where the scheduled auction sale will take place and in three (3) public and
conspicuous places in the Municipality of Jaen, Nueva Ecija where the properties are located
(Exh. 38-Bank).
On August 19, 1954, the auction sale was conducted and appellee bank was the sole and
only bidder for P5,524.40. On the same date, the Provincial Sheriff Ex-Officio issued the
corresponding Minutes of Auction Sale and Certificate of Sale (Exh. C, 55 and 54-Bank).
The period of redemption expired on August 19, 1955 (Exh. 65-Bank). Appellee bank
received a letter-offer, dated August 31, 1955 from a certain Jose Talens to purchase the
properties in question for P27,000.00, P4,000.00 down and the balance payable in five (5)
yearly amortizations (Exh. 40-Bank). In a letter dated September 28, 1955, appellee Artemio
Valenton offered to purchase said properties for P35,000.00 payable upon execution of the
contract in his favor and deposited P1,000.00 as earnest money therefor (Exh. 41-Bank, 7-
Valenton). On October 10, 1955, appellant Joaquin Valmonte sent a letter-request to
appellee bank for additional time within which he may repurchase the properties in question
for P35,000.00 (Exh 33-Bank; 8-Valenton). In view thereof and by reason of the request of
Congressman Celestino C. Juan, appellants were given up to December 31, 1955 to
purchase in cash the properties concerned in the amount of the bank’s total claim. As of
September 7, 1955, the Bank’s total claims amounted to P26,926.38, including the
P16,000.00 loan obtained by appellant Pastora in 1951 (Exhs. 66-Bank and 9-Valenton; J;
43-Bank and 58-Valenton).
On December 7, 1955, appellant Pastora designated her father, co-appellant Joaquin
Valmonte as her attorney-in-fact for the purpose of repurchasing the land from the appellee
bank (Exh. H). Appellants failed to purchase the properties on or before December 31, 1955.
Hence, on January 3, 1956, appellee Valenton deposited the balance of P34,000.00 which
1
the bank accepted [Exhs 47-B (Bank) and 62-B (Valenton)]. On Jan. 4, 1956, appellee bank
executed the Deed of Absolute Sale in favor of appellee Valenton (Exhs. 47-Bank, 11-
Valenton and 47-C (Bank) as well as an Affidavit of Consolidation of Ownership (Exh. D-1).
To enable the registration of the properties in the name of appellee Valenton, appellee Bank,
as attorney-in-fact of the mortgagor under the Real Estate Mortgagor, dated September 30,
1952 (Exh. B), had to execute a Deed of Sale in its favor on January 5, 1956 (Exh. E). On
January 6, 1956, a "Deed of Confirmation of Sale" was executed by appellee bank for the
main purpose of asserting that the existing certificate of title covering the parcels of land in
question at that time was TCT No. - NT 18899 of the land registry of Nueva Ecija in the name
of appellee bank (Exh. F). Appellee Valenton obtained the cancellation of TCT No. NT 18899
and the issuance of the Registry of Deeds of Nueva Ecija of TCT No. NT-18901 in his name
(Exhs. S and S-1).
x x x NOT HOLD THAT, FROM THE VERY EXPRESS PROVISIONS OF THE TWO
. . . The present complaint was filed on August 1, 1958; and, after joining the issues and trial
on the merits, the complaint was dismissed on January 27, 1968." 3
The trial court of origin, as earlier alluded to, dismissed the entire case, disposing,
thus:jgc:chanrobles.com.ph
"PREMISES CONSIDERED, judgment is hereby rendered in favor of the defendants against
the plaintiffs, dismissing the complaint with costs against the said plaintiffs.
The counterclaims of the defendants are hereby dismissed.
SO ORDERED." 4
Therefrom, plaintiffs Pastora Valmonte, Jose de Leon and Joaquin Valmonte appealed to the
Court of Appeals, which came out with a judgment of affirmance promulgated on March 24,
1975.
Undaunted, the said plaintiffs found their way to this court via the present Petition, theorizing
that:chanrob1es virtual 1aw library
A PORTION OF THE MORTGAGE WAS NULL AND VOID BECAUSE OF FATAL DEFECTS
THIS IS AS CLEAR A CASE AS ANY WHERE PERSONS HAVE BEEN DEPRIVED OF
THEIR PROPERTY WITHOUT DUE PROCESS OF LAW.
B F
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT
HELD, AS DID THE TRIAL COURT, THAT THE TWO MORTGAGES (P16,000.00 AND
P5,000.00) WERE SEPARATE AND DISTINCT FROM ONE ANOTHER; WORSE STILL,
THAT ONE WAS "JUNIOR" AND THE OTHER WAS "SENIOR" ; THAT THE "MERGER"
CAME ABOUT AFTER THE FORECLOSURE OF THE P5,000.00 PORTION OF THE
MORTGAGE SUCH THAT THE PNB BECAME CREDITOR AND DEBTOR AT THE SAME
TIME.
C
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT DID
DOCUMENTS — THE P16,000.00 MORTGAGE, EXH. "J", AND THE P5,000.00
MORTGAGE, EXH. "B" — THE TWO MORTGAGES MUTUALLY AND IMMEDIATELY
MERGED INTO EACH OTHER AS SECURITY FOR THE SAME TOTALITY OF ALL OF
PETITIONERS’ OBLIGATIONS TO RESPONDENT PNB AT THE MOMENT THE LATER
DOCUMENT WAS EXECUTED ON SEPTEMBER 30, 1952, SO THAT THE RESULT WAS
AN INDIVISIBLE, INSEPARABLE, SINGLE MORTGAGE WHICH CANNOT BE
FORECLOSED PARTIALLY; HENCE FORECLOSURE OF THE P5,000.00 MORTGAGE
ALONE DID NOT VEST TITLE OVER THE PROPERTY IN THE PNB.
D
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT
GAVE ITS IMPRIMATUR TO THE TRANSFER FROM RESPONDENT PNB TO
RESPONDENTS VALENTON OF PASTORA’S PROPERTY WHICH HAD NOT BEEN
VALIDLY FORECLOSED.
E
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT
FAILED TO HOLD THAT THE EXTRA-JUDICIAL FORECLOSURE OF THE P5,000.00
IN THE PUBLICATION OF THE NOTICE OF FORECLOSURE, THE DAY OF THE
FORECLOSURE, THE PLACE OF THE FORECLOSURE, THE AUTHORITY OF THE
PERSON CONDUCTING FORECLOSURE, AND THE REALITY OF THE FORECLOSURE
SALE.
2

THE RESPONDENT COURT OF APPEALS ERRED IN UPHOLDING THE TRIAL COURT’S
DENIAL OF THE PETITIONERS MOTION FOR LEAVE TO AMEND COMPLAINT TO
CONFORM TO THE EVIDENCE AND FOR ADMISSION OF THIRD AMENDED
COMPLAINT.
The petition is not impressed with merit.
To begin with, succinct and unmistakable is the consistent pronouncement that the Supreme
Court is not a trier of facts. And well entrenched is the doctrine that pure questions of fact
may not be the proper subject of appeal by certiorari under Rule 45 of the Revised Rules of
Court, as this mode of appeal is generally confined to questions of law. 5
Anent the first error, petitioners theorize: (1) That there was insufficient publication of the
notice of sale; (2) That the posting of the notice was not in accordance with law; (3) That the
price obtained during the auction sale was unconscionably low; (4) That the Sheriff who
conducted the sale had no authority to do so; and (5) That the auction sale was void as it was
conducted on a declared holiday.
It is well-settled that non-compliance with the notice and publication requirements of an
extrajudicial foreclosure sale is a factual issue. Compliance with the statutory requirements is
a proven fact and not a matter of presumption. A mortgagor who alleges absence of any of
such requisites has the burden of establishing the factum probandum. 6
Following the ruling in Sadang v. GSIS 7 , the Court of Appeals upheld the validity of the
publication of the notice of extrajudicial foreclosure, holding that the customary affidavit of the
editor of a newspaper, duly introduced in evidence, is a prima facie proof of said fact. The
party alleging non-compliance with the requisite publication has the onus probandi. Absent
any proof to the contrary, lack of publication has not been substantiated. What is more, the
affidavit of the editor of Nueva Era, to the effect that the notice of sale had been published in
said newspaper of general circulation once a week for three (3) consecutive weeks, and what
Basilio Castro (letter carrier in the province of Nueva Ecija) and Eugenio de Guzman (former
Justice of the Peace and Mayor of Jaen) testified and attested to constitute enough evidence
of publication. 8
Petitioners’ reliance on the cases of Tan Ten Koc v. Republic 9; Tan Sen v. Republic 10 and
Tan Khe Shing v. Republic 11 is misplaced. In the said cases, in ruling that Nueva Era was
not shown to be a newspaper of general circulation, the Court considered the failure of the
applicants to come forward with positive evidence other than the editor’s affidavit. As they
were naturalization cases, the purpose of the publication requirement was to inform the
officers concerned and the public in general of the filing of subject petitions, to the end that
the Solicitor General or the Provincial Fiscal (now provincial prosecutor) could be furnished
whatever derogatory information and evidence there may be against the applicants or
petitioners. There is no such objective in the publication requirement for extrajudicial
foreclosures. Consequently, the petitioners here cannot rely on the aforecited cases of
different nature to buttress their stance.
The alleged failure to comply with the posting requirement in that: (1) it was not posted in
three (3) public conspicuous places, and (2) the posting was not in the municipality where the
properties involved or part thereof are located, was negated by the certificate of posting,
dated July 15, 1954, and the testimony of Deputy Sheriff Jose N. Mendoza. (Exh. 38-Bank;
pp. 561-563, t.s.n., Feb. 22, 1963) 12
On the issue of unconscionably low price paid by the bank for the mortgaged properties, the
purchase price of P5,524.40 was found by the respondent court to suffice. It is well settled
that when there is a right to redeem, inadequacy of price is of no moment for the reason that
the judgment debtor has always the chance to redeem and reacquire the property. In fact, the
property may be sold for less than its fair market value precisely because the lesser the price
the easier for the owner to effect a redemption. 13
Petitioners further theorized that the foreclosure sale in question should be invalidated since
it was conducted on a holiday. They rely on Section 31 of the Revised Administrative Code,
which provides that where the act required or permitted by law falls on a holiday, the act may
be done on the next succeeding business day. In the case under scrutiny, the auction sale
was made on August 19, 1954, which was declared a holiday by the late Pres. Ramon
Magsaysay. In upholding the validity of the sale, the Court of Appeals opined "that since the
law used the word ‘may’, it is merely discretionary and cannot be given a prohibitive
meaning." 14 The Court is of the same conclusion on the validity of the sale.
Said the court in the case of Rural Bank of Caloocan, Inc. v. Court of Appeals 15 , in holding
that Section 31 of the Revised Administrative Code is not applicable to auction
sales:jgc:chanrobles.com.ph
". . . The pretermission of a holiday applies only where the day or the last day for doing any
act required or permitted by law falls on a holiday, or when the last day of a given period for
doing an act falls on a holiday. It does not apply to a day fixed by an office or officer of the
government for an act to be done, as distinguished from a period of time within which an act
should be done, which may be on any day within that specified period. For example, if a party
is required by law to file his answer to a complaint within fifteen (15) days from receipt of the
summons and the last day falls on a holiday, the last day is deemed moved to the next
succeeding business day. But, if the court fixes the trial of a case on a certain day but the
said date is subsequently declared a public holiday, the trial thereof is not automatically
transferred to the next succeeding business day. Since April 10, 1961 was not the day or the
last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period, but
a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next
succeeding business day without the notices of the sale on that day being posted as
prescribed in Sec. 9, Act No. 3135." 16
Conformably, the extrajudicial foreclosure conducted on August 19, 1954 was valid,
notwithstanding the fact that the said date was declared a public holiday. Act 3135 merely
requires that sufficient publication and posting of the notice of sale be caused, as required by
3
law.
The issue concerning the authority of the sheriff to conduct the sale is factual. This Court is
bound by the findings by the trial court, and affirmed by the respondent court, that the signing
by the Provincial Sheriff of the Minutes of Auction Sale (Exh. 55-Bank) and the Certificate of
Sale evinced that the auction sale was conducted by the Deputy Sheriff under the direction of
the Provincial Sheriff. 17
Another basis for the Court to uphold the regularity of the extrajudicial foreclosure under
controversy is the equitable principle of estoppel. Petitioners’ admission that as mortgagors,
they had asked for an extension of time to redeem subject properties estopped them from
impugning the regularity of the conduct of the sale. It bears stressing that on October 10,
1955, appellant Joaquin Valmonte (one of the herein petitioners) sent a letter-request to the
appellee bank for additional time within which to exercise the right of redemption over the
properties at P35,000.00 (Exh. 33-Bank; 8-Valenton). In view of such request and of the
similar request from Congressman Celestino C. Juan, the Bank, through its Board of
Directors (BOD) Resolution No. 1096, extended the redemption period until December 31,
1955 for the appellants (the petitioners here) to purchase in cash their properties in the
amount of the total claim of the bank. 18
Did the aforesaid act of seeking an extension of the redemption period constitute an act of
ratification within legal contemplation, thus rendering the petitioners in estoppel? The answer
to this important and pertinent question is in the affirmative. If a party in interest enters into a
lawful agreement, stipulation, compromise or arrangement calculated to benefit him in
connection with a mortgage foreclosure sale, he inevitably affirms thereby the validity, force
and effect of the sale. Similarly, a party cannot later on rely upon the supposed defects of the
sale. 19 The act of plaintiffs in asking for an extension of time to redeem the foreclosed
properties estopped them from questioning the foreclosure sale thereafter. 20
Since the findings by the trial court are supported by the evidence and the law and the party
theorizing upon the alleged irregularities afflicting the extrajudicial foreclosure sale was
unable to prove their imputation; affirmance of the finding of respondent court is indicated.
Neither is there any sustainable basis for the second assignment of errors relied upon by
petitioners.
Petitioners contend that the respondent court erred in applying the principle of merger.
Mortgagors averred that the two loans should be considered as one mortgage credit
inasmuch as they were constituted between the same parties and on the same properties.
Being a single and indivisible obligation, the foreclosure sale in connection with the
P5,000.00 loan necessarily included the other loan of P16,000.00. Therefore, there was no
outstanding mortgage credit for the P16,000.00 loan, and PNB being the purchaser at the
auction sale, was not subrogated to answer for any encumbrance on subject properties.
The Court of Appeals erred not on the application of the principle of merger. Merger as one of
the means of extinguishing an obligation has the following elements: (1) the merger of the
characters of the creditor and debtor must be in the same person; (2) it must take place in the
person of either the principal creditor or the principal debtor; and (3) it must be complete and
definite.
As can be gleaned from the attendant facts and circumstances, there were two mortgages
constituted on subject properties by the appellants. The first mortgage was for a loan of
P16,000.00 and the second one was for a loan of P5,000.00, by and between petitioners and
the PNB. What the Bank did was to foreclose the second mortgage embodied in a separate
mortgage contract.
Under ordinary circumstances, if a person has a mortgage credit over a property which was
sold in an auction sale, the only right left to him was to collect its mortgage credit from the
purchaser thereof during the sale conducted. This is so because a mortgage directly and
immediately subjects the property on which it is constituted, whoever its possessor may be,
to the fulfillment of the obligation for the security of which it was created. 21 However, these
steps need not be taken in the present case because PNB was the purchaser of subject
properties and it did so with full knowledge that it had a mortgage thereon. Obligations are
extinguished by the merger of the rights of the creditor and debtor.
In the case under consideration, the merger took place in the person of PNB, the principal
creditor in the case. The merger was brought about when during the auction sale, PNB
purchased the properties on which it had another subsisting mortgage credit. This court is
bound by the finding of respondent court that the two loans referred to are separate and
distinct and the mere allegation by petitioners that said loans constitute a single indivisible
obligation should be stricken off as the said allegation is not supported by evidence. In effect,
the mortgage for the P16,000.00 loan was deemed extinguished. While it is true that there
was still an annotation on the Transfer Certificate of Title issued to respondent Artemio
Valenton, the said annotation or encumbrance was already discharged by operation of law.
Consequently, petitioners’ contention that the said title issued to Valenton was not valid by
reason of the said annotation, is devoid of any legal basis.
As aptly held by respondent court:jgc:chanrobles.com.ph
". . . The purchaser in the extrajudicial sale is appellee bank itself. As such purchaser, it
acquired the right to pay off the claim of the senior mortgage. However, the senior mortgagee
is also appellee bank. In such a case, Art. 1275 of the New Civil Code as invoked by
defendants-appellees in their respective briefs, to wit:jgc:chanrobles.com.ph
"ARTICLE 1275. The obligation is extinguished from the time the characters of creditor and
debtor are merged in the same person."cralaw virtua1aw library
applies. The rights pertaining to the personalities of the debtor (mortgagor) and of the creditor
(mortgagee) are merged and therefor, in case where the mortgagees of both the senior and
junior mortgages are one and the same (herein appellee bank), and especially where the
mortgagors of said encumbrances are also one and the same (herein appellant Pastora
Valmonte de Leon), the sale to appellee bank operated to divest the rights of the mortgagor
4
(appellant Pastora) of her rights and to the senior mortgage, in the purchaser (appellee
bank), subject to such rights of redemption as may be required by law. Records show
however that appellant mortgagor failed to redeem the property within the one-year period
provided by Act No. 3135, as amended." 22
With respect to the third assignment of errors, untenable is petitioners’ contention that the
failure of PNB to foreclose the first mortgage for the loan of P16,000.00 was in actuality a
pactum commissorium, which is prohibited by law, and the subsequent transfer by PNB to
Valenton of the said property is a nullity.
Pactum Commissorium takes place when in a mortgage contract, it is stipulated that the
ownership of the property would automatically pass to the vendee in case no redemption is
made within a given period, thus enabling the mortgagee to acquire ownership of the
mortgaged property without need of foreclosure. 23 It is not so in the present case where
there was foreclosure of the mortgage.
When PNB opted to foreclose only the second mortgage for the loan of P5,000.00, it was well
within its right to do so. The only condition the law requires in extrajudicial foreclosure is that
the loan is already due and demandable and there was failure on the part of the mortgagor to
pay the mortgage debt. The law does not prohibit a mortgagee from choosing which of the
mortgages in his favor to foreclose. It must be borne in mind that the power to decide whether
to foreclosure or not resides in the mortgagee. 24
The next pivotal issue to resolve is whether PNB could transfer a valid title to respondent
Artemio Valenton despite the existence of a duly annotated unforeclosed mortgage between
PNB and the appellants.
The court resolves this issue in the affirmative.
Since the appellants failed to redeem within the redemption period and during the extension
agreed upon, the effect of such failure to redeem was to vest absolute ownership over
subject properties purchased. 25 The annotation of the unforeclosed mortgage even if
appearing on the title of Artemio Valenton did not in any way affect the sale between the
latter and PNB. In fact, since there was merger on the part of PNB prior to the sale to said
Valenton, any lien which the petitioners were claiming as subsisting was already
extinguished.
Granting ex gratia argumenti that there was no merger and the unforeclosed mortgage
subsisted, PNB still had the right to sell subject properties and the party who purchased the
same shall only be subjected to the said encumbrance. Indubitably, petitioners are not the
proper parties to insist that there be a foreclosure because as earlier stated, the prerogative
to decide whether or not to foreclose is with the mortgagee and not with the mortgagor.
In light of the foregoing, it is decisively obvious that PNB did not acquire the mortgaged
properties by pactum commissorium, but for failure of the petitioners to redeem the same. As
to the lien which, they claim, should have hindered the transfer of the certificate of title to the
name of Artemio Valenton, the merger of rights on the part of PNB extinguished whatever
encumbrance there was over the properties deeded out and there is no more lien to speak of.
The transfer of the certificate of title to Artemio Valenton who was a purchaser for value was
valid and the petitioners cannot effectively defeat the title of Artemio Valenton by claiming
otherwise.
WHEREFORE, for lack of merit, the petition is DENIED and the decision of the Court of
Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Maglaque v. Planters Developmen Bank
FIRST DIVISION
[G.R. No. 109472. May 18, 1999.]
DAVID MAGLAQUE, JOSE MAGLAQUE, MAURO MAGLAQUE and PACITA
MAGLAQUE, Petitioners, v. PLANTERS DEVELOPMENT BANK, and SPOUSES ANGEL
S. BELTRAN AND ERLINDA C. BELTRAN, Respondents.
DECISION
PARDO, J.:
The case is an appeal via certiorari from a decision 1 of the Court of Appeals 2 affirming that
of the Regional Trial Court, Branch 22, Malolos, Bulacan, 3 dismissing the petitioners’
complaint 4 for revocation of sale and reconveyance of title, with damages, against
respondent bank, which had extra-judicially foreclosed the mortgage on the land owned by
petitioners’ predecessors in interest, for non-payment of a loan secured by such
mortgage.chanrobles law library
The facts may be related as follows:chanrob1es virtual 1aw library
The spouses Egmidio Maglaque and Sabina Payawal were the owners of a parcel of land,
situated in the municipality of San Miguel, province of Bulacan, with an area of Four Hundred
Sixty Four (464) square meters, more or less, and a residential house of strong materials
erected thereon, more particularly described as follows:jgc:chanrobles.com.ph
"A parcel of land (Lot No. 315-A of the subdivision plan Psd-20633 being a portion of Lot 315
5
of the Cad. Survey of San Miguel, G. L. R. O. Cadastral Record No. 696 situated in the
Municipality of San Miguel, Province of Bulacan, Island of Luzon, . . . containing an area of
FOUR HUNDRED SIXTY FOUR (464) SQUARE METERS, more or less and covered by
Transfer Certificate of Title No. 28303, assessed at P4,180.00 as per Tax Declaration No
250." 5
covered by Transfer Certificate of Title No. 28303 of the Registry of Deeds of Bulacan.
On March 19, 1974, the spouses Maglaque obtained a loan of two thousand (P2,000.00)
pesos from the Bulacan Development Bank 6 evidenced by a promissory note, payable on or
before March 19, 1975, in two installments, the first payment of P1,000.00, shall be due on
September 19, 1974, and the second payment of P1,000.00, shall be due on March 19, 1975,
with interest at 12% per annum. To secure the loan, the spouses executed a deed of real
estate mortgage on the above-described parcel of land, including its improvements.
On September 15, 1976, Sabina Payawal died. On December 22, 1977, Egmidio Maglaque
paid Planters Development Bank the amount of P2,000.00, which the bank
accepted.chanrobles law library : red
On April 9, 1979, Egmidio Maglaque died.
On September 15, 1978, for non-payment in full of the loan, the bank extra-judicially
foreclosed on the real estate mortgage, through the Provincial Sheriff of Bulacan, who
conducted a public auction sale of the mortgaged property pursuant to the authority provided
for in the deed of real estate mortgage. The bank was the highest bidder.
On March 24, 1980, after the lapse of the redemption period, the bank consolidated its title to
the property, and became its registered owner under Transfer Certificate of Title No. T-
259923 of the Registry of Deeds of Bulacan.
On September 4, 1980, David Maglaque, as heir of the deceased spouses Egmidio
Maglaque and Sabina Payawal, filed with the Court of First Instance of Bulacan, Branch 04,
Baliuag, Bulacan, a complaint for annulment of the sale conducted by the Provincial Sheriff of
Bulacan, reconveyance of title, with damages, and injunction.
On September 24, 1980, the bank sold the property to the spouses Angel S. Beltran and
Erlinda C. Beltran, for thirty thousand (P30,000.00) pesos.
The plaintiff amended the complaint twice to implead the other heirs of the spouses
Maglaque, and defendant Beltran spouses, the buyers of the property in
question.chanrobles.com.ph : virtual law library
On August 16, 1985, the parties submitted a joint stipulation of facts, as
follows:jgc:chanrobles.com.ph
"x x x
"1. The late Egmidio Maglaque and Sabina Payawal were the owners of a parcel of land
located in San Miguel, Province of Bulacan, the description of which appears in paragraph 2
of the amended complaint. The said parcel of land was covered by TCT No. 28303 issued by
the Register of Deeds of Bulacan;
"2. On March 19, 1974, said registered owners borrowed TWO THOUSAND PESOS
(P2,000.00) from Bulacan Development Bank pursuant to a promissory note with Loan No.
3423. The promissory note stipulated that the loan shall be paid on or before March 19, 1975
and the interest shall be 12% per annum; that the first payment of P1,000.00 shall be due on
March 19, 1975, and that the unpaid amortization shall bear interest at the rate of 12% per
annum; that in case a litigation is resorted to the borrowers shall pay attorney’s fees in
addition to the legal expenses;
"3. Present plaintiffs are the children of the spouses Egmidio Maglaque and Sabina Payawal.
David Maglaque has a Special Power of Attorney to prosecute the present complaint;
"4. The borrowers failed to pay any of the payment agreed upon in the promissory note and
the real estate mortgage due to the untimely death of Sabina Payawal;
"5. On December 22, 1977, a payment of P2,000.00 was made and accepted, which were
applied as shown by the Official Receipt No. 7662-8 dated December 22,
1977;chanroblesvirtual|awlibrary
"6. On September 15, 1978, the Provincial Sheriff of Bulacan conducted an extra-judicial
foreclosure sale of the property in question in accordance with the specific authority provided
for in the Deed of Real Estate Mortgage as authorized by law. The defendant-Bank contends
that the formalities provided for by law were duly observed while the plaintiff claims that there
was no such compliance. Hence, this will be the subject matter of evidence in Court;
"7. The one year period allowed by law within which the delinquent borrowers should have
exercised their right to redeem expired without any redemption by them. Consequently, on
March 24, 1980 the bank consolidated its title on the property and became the registered
owner of said property under TCT No. T-259923 issued by the Register of Deeds of Bulacan
on March 24, 1980;
"8. In September 24, 1980, defendant-Bank sold the property to the spouses Angel S. Beltran
and Erlinda Beltran in a Deed of Conditional Sale, . . .;
"9. The Register of Deeds wrote a letter dated September 8, 1980, informing the bank about
a notice of lis pendens. However, the records of the bank show that the letter was received
only on November 19, 1981. On March 16, 1984, Spouses Angel Beltran and Erlinda Beltran
registered an adverse claim on the property;
"10. The plaintiffs sought the help of prominent persons to arrange the case amicably,
namely, Dr. Sabino Santos, Vice-President of Planters Development Bank; Mr. Miguel Sison,
6
Jr. of the Malacañang Assistance Center; and, Minister Blas Ople of the Ministry of Labor and
Employment. However, no concrete result came out of these efforts to settle.;
"11. The property in question is located behind the parish Church of San Miguel, Bulacan and
adjacent to a Municipal Street of said municipality;" 7
Thereafter, the parties submitted the case for decision on the basis of their memoranda.
On February 28, 1989, the trial rendered decision dismissing the complaint for lack of merit or
insufficiency of evidence.chanroblesvirtual|awlibrary
On March 27, 1989, plaintiffs appealed the case to the Court of Appeals. 8
After due proceedings, on March 26, 1993, the Court of Appeals rendered decision affirming
the appealed decision in toto.
Hence, this petition for review. 9
On May 10, 1993, the Court required respondents to comment on the petition, within ten (10)
days from notice. 10
On July 23, 1993, respondents filed their comment. On January 19, 1994, petitioners filed a
reply to comment. 11
On February 2, 1994, the Court resolved to give due course to the petition and required the
parties to file their respective memoranda.
We now decide the case.
In this appeal, petitioners impute the following errors to the Court of Appeals,
namely:chanrob1es virtual 1aw library
1. The Honorable Court of Appeals erred in not finding that the Bank should have filed its
claim in the settlement of estate of the deceased mortgagors.
2. The Honorable Court of Appeals erred in not finding that there was no compliance as to
the mandatory requirements of extra-judicial foreclosure.
3. The Honorable Court of Appeals erred in not holding that the price of P4,202.70 realized
from the auction sale was palpably iniquitous and unconscionable.
4. The Honorable Court of Appeals erred in not finding that the appellee Bank is guilty of
estoppel.
5. The Honorable Court of Appeals erred in not holding that the Bank is guilty of usury.
6. The Honorable Court of Appeals erred in not holding that Sps. Angel Beltran and Erlinda
Beltran are buyers in bad faith.chanroblesvirtualawlibrary
Except for the first assigned error, the rest of the issues raised are factual, hence, not subject
to review by this Court. 12
As to the first assigned error, the rule is that a secured creditor holding a real estate
mortgage has three (3) options in case of death of the debtor. 13 These
are:jgc:chanrobles.com.ph
"(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim;
"(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
"(3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is barred by
prescription, without right to file a claim for any deficiency." 14
Obviously, respondent bank availed itself of the third option.chanrobles.com.ph : virtual law
library
WHEREFORE, the Court hereby AFFIRMS in full the appealed decision of the Court of
Appeals in CA-G. R. CV No. 22489.
No costs in all instances.
SO ORDERED.
Rizal Commercial Banking Corporation v. CA
SECOND DIVISION
[G.R. Nos. 128833. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS,
INC., respondents.
7
 [G.R. No. 128834. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs. COURT OF
APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP,
SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY
GO, respondents.
[G.R. No. 128866. April 20, 1998]
MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS, INC. respondent.
D EC I S I O N
MELO, J.:
The issues relevant to the herein three consolidated petitions revolve around the fire
loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance
Company, Inc. (MICO) in connection with the mortgage contracts entered into by and
between Rizal Commercial Banking Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
P74,040,518.58, plus 37% interest per annum commencing July 27, 1992. RCBC was
ordered to pay actual and compensatory damages in the amount of P5,000,000.00. MICO
and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages
and P1,500,000.00 for attorney’s fees. GOYU’s obligation to RCBC was fixed at
P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC and
MICO appealed separately but, in view of the common facts and issues involved, their
individual petitions were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy
Chun Bing and Eli D. Lao, recommended GOYU’s application for approval by RCBC’s
executive committee. A credit facility in the amount of P30 million was initially granted. Upon
GOYU’s application and Uy’s and Lao’s recommendation, RCBC’s executive committee
increased GOYU’s credit facility to P50 million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages
and two chattel mortgages in favor of RCBC, which were registered with the Registry of
Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an insurance company approved by
RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon
instructions of GOYU (Exhibits “1-Malayan” to “9-Malayan”).
On April 27, 1992, one of GOYU’s factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured
against. MICO denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts or that the
insurance proceeds were also claimed by other creditors of GOYU alleging better rights to
the proceeds than the insured. GOYU filed a complaint for specific performance and
damages which was docketed at the Regional Trial Court of the National Capital Judicial
Region (Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R. No.
128833 and 128866.
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the proceeds
of the insurance policies, but said claims were also denied for the same reasons that MICO
denied GOYU’s claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional
Trial Court of Manila (Branch 3), confirmed that GOYU’s other creditors, namely, Urban Bank,
Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of
attachments from various courts, covering an aggregate amount of P14,938,080.23, and
ordered that the proceeds of the ten insurance policies be deposited with the said court
minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO
deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by another Manila
RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit “22-Malayan”).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation,
ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58
less the amount of P50,000,000.00 which is deposited with this Court;
b. To pay the plaintiff damages by way of interest for the duration of the delay
since July 27, 1992 (ninety days after defendant insurer’s receipt of the
8
 required proof of loss and notice of loss) at the rate of twice the ceiling
prescribed by the Monetary Board, on the following amounts:
1) P50,000,000.00 — from July 27, 1992 up to the time said amount
was deposited with this Court on January 7, 1994;
2) P24,040,518.58 — from July 27, 1992 up to the time when the writs
of attachments were received by defendant Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the amount of
P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorney’s fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan
obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27,
1992, with interest thereon at the rate stipulated in the respective promissory notes
(without surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to
release immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court by
defendant Malayan, together with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was
unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial court’s
findings of liability on their part. The Court of Appeals partly granted GOYU’s appeal, but
sustained the findings of the trial court with respect to MICO and RCBC’s liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as
follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by
way of interest commencing July 27, 1992 until the time Goyu receives the said amount at
the rate of thirty-seven (37%) percent per annum which is twice the ceiling prescribed by the
Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:
a) To pay the plaintiff actual and compensatory damages in the amount of
P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL
BANKING CORPORATION, UY CHUN BING AND ELI D. LAO:
a) To pay the plaintiff jointly and severally the following amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as and for attorney’s fees.
4. And on RCBC’s Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately
release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285)
deposited with it by Malayan Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively,
seeking review and consequent reversal of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-
48376, which case, by virtue of the Court of Appeals’ resolution dated August 7, 1996, was
consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue in
said petition is RCBC’s right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor
of Sebastian.
After a careful review of the material facts as found by the two courts below in relation to
the pertinent and applicable laws, we find merit in the submissions of RCBC and MICO.
9
 The several causes of action pursued below by GOYU gave rise to several related
issues which are now submitted in the petitions before us. This Court, however, discerns one
primary and central issue, and this is, whether or not RCBC, as mortgagee, has any right
over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU,
the latter executed several mortgage contracts in favor of RCBC. It was expressly stipulated
in these mortgage contracts that GOYU shall insure the mortgaged property with any of the
insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged property
with MICO, an insurance company acceptable to RCBC. Based on their stipulations in the
mortgage contracts, GOYU was supposed to endorse these insurance policies in favor of,
and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO’s underwriter from
whom GOYU obtained the subject insurance policies, prepared the nine endorsements (see
Exh. “1-Malayan” to “9-Malayan”; also Exh. “51-RCBC” to “59-RCBC”), copies of which were
delivered to GOYU, RCBC, and MICO. However, because these endorsements do not bear
the signature of any officer of GOYU, the trial court, as well as the Court of Appeals,
concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the same
property for his own sole benefit. There is no question that GOYU could insure the
mortgaged property for its own exclusive benefit. In the present case, although it appears
that GOYU obtained the subject insurance policies naming itself as the sole payee, the
intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor
of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any
specific insurance policy in favor of any particular beneficiary or payee other than the insured
had not such named payee or beneficiary been specifically disclosed by the insured itself. It
is also significant that GOYU voluntarily and purposely took the insurance policies from
MICO, a sister company of RCBC, and not just from any other insurance company. Alchester
would not have found out that the subject pieces of property were mortgaged to RCBC had
not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU,
Alchester would not have known of GOYU’s intention of obtaining insurance coverage in
compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester
would not have endorsed the policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained
to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained
in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith
and justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable principles and the equities in the
case. It is designed to aid the law in the administration of justice where without its aid
injustice might result. It has been applied by this Court wherever and whenever special
circumstances of a case so demand.
(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain
Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement
documents for GOYU’s nine insurance policies in favor of RCBC. The original copies of
each of these nine endorsement documents were sent to GOYU, and the others were sent to
RCBC and MICO, while the fourth copies were retained for Alchester’s file (tsn, February 23,
pp. 7-8). GOYU has not denied having received from Alchester the originals of these
endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified
under the circumstances of the case. GOYU failed to seasonably repudiate the authority of
the person or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by
RCBC. After the occurrence of the loss insured against, it was too late for GOYU to disown
the endorsements for any imagined or contrived lack of authority of Alchester to prepare and
issue said endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU’s inaction in this case, GOYU is at the very least estopped
from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of
these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC
which believed in good faith that there was due endorsement pursuant to their mortgage
contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the peculiar
circumstances obtaining in this case, the Court is bound to recognize RCBC’s right to the
proceeds of the insurance policies if not for the actual endorsement of the policies, at least on
the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that
the proceeds of insurance shall exclusively apply to the interest of the person in whose name
or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant
case presents a justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the parties to designate RCBC
as the party for whose benefit the insurance policies were taken out. Consider thus the
following:
1. It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYU’s credit facilities from RCBC. The mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered
against any loss by an insurance company acceptable to RCBC.
10
2. GOYU voluntarily procured insurance policies to cover the mortgaged property Amount : P9,646,224.92
from MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC.

3. Endorsement documents were prepared by MICO’s underwriter, Alchester Insurance b. Policy Number : ACIA/F-174-07660 Exhibit “1-Malayan”
Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not
assail, until of late, the validity of said endorsements. Issue Date : January 18, 1992

4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
Expiry Date : February 9, 1993
facilities extended by RCBC which was conditioned upon the endorsement of the insurance
policies to be taken by GOYU to cover the mortgaged properties.
Amount : P4,307,217.54
This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence of its written conformity
thereto, obviously considered said endorsement to be sufficient compliance with its obligation
under the mortgage contracts since RCBC accordingly continued to extend the benefits of its c. Policy Number : ACIA/F-114-07661 Exhibit “2-Malayan”
credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of
the parties to constitute RCBC as the beneficiary of the various insurance policies obtained Issue Date : January 18, 1992
by GOYU. The intention of the parties will have to be given full force and effect in this
particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, Expiry Date : February 15, 1993
which under the factual circumstances of the case, is truly the person or entity for whose
benefit the policies were clearly intended.
Amount : P6,603,586.43
Moreover, the law’s evident intention to protect the interests of the mortgagee upon the
mortgaged property is expressed in Article 2127 of the Civil Code which states:

ART. 2127. The mortgage extends to the natural accessions, to the improvements, growing d. Policy Number : ACIA/F-114-07662 Exhibit “3-Malayan”
fruits, and the rents or income not yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor from the insurers of the property Issue Date : January 18, 1992
mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications
and limitations established by law, whether the estate remains in the possession of the
Expiry Date : (not legible)
mortgagor, or it passes into the hands of a third person.

Amount : P6,603,586.43
Significantly, the Court notes that out of the 10 insurance policies subject of this case,
only 8 of them appear to have been subject of the endorsements prepared and delivered by
Alchester for and upon instructions of GOYU as shown below:

INSURANCE POLICY PARTICULARS ENDORSEMENT e. Policy Number : ACIA/F-114-07663 Exhibit “4-Malayan”

a. Policy Number : F-114-07795 None Issue Date : January 18, 1992

Issue Date : March 18, 1992 Expiry Date : February 9, 1993

Expiry Date : April 5, 1993 Amount : P9,457,972.76

11
 j. Policy Number : F-114-07525 Exhibit “9-Malayan”

f. Policy Number : ACIA/F-114-07623 Exhibit “7-Malayan” Issue Date : November 20, 1991

Issue Date : January 13, 1992 Expiry Date : December 5, 1992

Expiry Date : January 13, 1993 Amount : P6,603,586.43

Amount : P24,750,000.00

(pp. 456-457, Record; Folder of Exhibits for

MICO.)
g. Policy Number : ACIA/F-174-07223 Exhibit “6-Malayan”
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted
Issue Date : May 29, 1991 by MICO’s witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows
no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the
endorsement documents, Exhibit “5-Malayan”, refers to a certain insurance policy number
Expiry Date : June 27, 1992
ACIA-F-07066, which is not among the insurance policies involved in the complaint.
Amount : P6,000,000.00 The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect of an endorsement
by GOYU itself, these 8 policies can not be attached by GOYU’s other creditors up to the
extent of the GOYU’s outstanding obligation in RCBC’s favor. Section 53 of the Insurance
h. Policy Number : CI/F-128-03341 None
Code ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In this case, to
Issue Date : May 3, 1991 the extent of GOYU’s obligation with RCBC, the interest of GOYU in the subject policies had
been transferred to RCBC effective as of the time of the endorsement. These policies may
Expiry Date : May 3, 1992 no longer be attached by the other creditors of GOYU, like Alfredo Sebastian in the present
G.R. No. 128834, which may nonetheless forthwith be dismissed for being moot and
Amount : P10,000,000.00 academic in view of the results reached herein. Only the two other policies amounting to
P19,646,224.92 may be validly attached, garnished, and levied upon by GOYU’s other
creditors. To the extent of GOYU’s outstanding obligation with RCBC, all the rest of the other
insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released
from attachment, garnishment, and levy by the other creditors of GOYU.
i. Policy Number : F-114-07402 Exhibit “8-Malayan”
This brings us to the next relevant issue to be resolved, which is, the extent of GOYU’s
Issue Date : September 16, 1991 outstanding obligation with RCBC which the proceeds of the 8 insurance policies will
discharge and liquidate, or put differently, the actual amount of GOYU’s liability to RCBC.
Expiry Date : October 19, 1992 The Court of Appeals simply echoed the declaration of the trial court finding that
GOYU’S total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus
Amount : P32,252,125.20 sanctioning the trial court’s exclusion of Promissory Note No. 421-92 (renewal of Promissory
Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91)
on the ground that their execution is highly questionable for not only are these dated after the

12
fire, but also because the signatures of either GOYU or any its representative are A: Yes, Your Honor.
conspicuously absent. Accordingly, the Court of Appeals speculated thusly:
(tsn, Jan. 14, 1994, p. 26.)
…Hence, this Court is inclined to conclude that said promissory notes were pre-signed by Furthermore, aside from its judicial admission of having received all the proceeds of the
plaintiff in blank terms, as averred by plaintiff, in contemplation of the speedy grant of future 29 promissory notes as hereinabove quoted, GOYU also offered and admitted to RCBC that
loans, for the same practice of procedure has always been adopted in its previous dealings its obligation be fixed at P116,301,992.60 as shown in its letter dated March 9, 1993, which
with the bank. pertinently reads:

(Rollo, pp. We wish to inform you, therefore that we are ready and willing to pay the current past due
181-182.) account of this company in the amount of P116,301,992.60 as of 21 January 1993, specified
in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the Urban case at
The fact that the promissory notes bear dates posterior to the fire does not necessarily Makati, Metro Manila and in the Zamboanga case at Zamboanga city, respectively, less the
mean that the documents are spurious, for it is presumed that the ordinary course of total of P8,851,519.71 paid from the Seaboard and Equitable insurance companies and other
business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., legitimate deductions. We accept and confirm this amount of P116,301,992.60 as stated as
222 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has the true and correct.
burden of proof of showing that he no longer owes the obligee any amount (Travel-On, Inc.
vs. Court of Appeals, 210 SCRA 351 [1992]). (Exhibit BB.)
Even casting aside the presumption of regularity of private transactions, receipt of the
loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as The Court of Appeals erred in placing much significance on the fact that the excluded
indicated in the testimony of Go Song Hiap when he answered the queries of the trial court: promissory notes are dated after the fire. It failed to consider that said notes had for their
origin transactions consummated prior to the fire. Thus, careful attention must be paid to the
ATTY. NATIVIDAD fact that Promissory Notes No. 420-92 and 421-92 are mererenewals of Promissory Notes
No. 908-91 and 952-91, loans already availed of by GOYU.
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the
amounts stated therein? The two courts below erred in failing to see that the promissory notes which they ruled
should be excluded for bearing dates which are after that of the fire, are mererenewals of
A: Yes, sir, I received the amount. previous ones. The proceeds of the loan represented by these promissory notes were
COURT admittedly received by GOYU. There is ample factual and legal basis for giving GOYU’s
judicial admission of liability in the amount of P116,301,992.60 full force and effect
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
It should, however, be quickly added that whatever amount RCBC may have recovered
WITNESS: from the other insurers of the mortgaged property will, nonetheless, have to be applied as
payment against GOYU’s obligation. But, contrary to the lower courts’ findings, payments
Yes, Your Honor, I received all the amounts.
effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments
COURT had obviously been duly considered by GOYU, in its aforequoted letter dated March 9, 1993,
wherein it admitted that its past due account totaled P116,301,992.60 as of January 21,
Indicated in the Promissory Notes? 1993.
WITNESS The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of
A. The promissory Notes they did not give to me but the amount I asked which is January 21, 1993, to wit:
correct, Your Honor.
Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60
COURT
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct? Broken down as follows

13
 Principal[1] Interest GOYU “to pay the principal amount of P68,785,069.04 without any interest, surcharges and
penalties” (Rollo, p. 200).
Regular 80,535,946.32 It is to be noted in this regard that even the trial court hedgingly and with much
uncertainty deleted the payment of additional interest, penalties, and charges, in this manner:
FDU 7,548,025.17
Regarding defendant RCBC’s commitment not to charge additional interest, penalties
____________ _____________ and surcharges, the same does not require that it be embodied in a document or some form
of writing to be binding and enforceable. The principle is well known that generally a verbal
Total: 108,083,971.49 8,218,021.11[2] agreement or contract is no less binding and effective than a written one. And the existence
of such a verbal agreement has been amply established by the evidence in this case. In any
LESS: event, regardless of the existence of such verbal agreement, it would still be unjust and
inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties
considering the latter’s pitiful situation. (Emphasis supplied.)
1) Proceeds from

(Record, p. 476)
Seaboard Eastern

The essence or rationale for the payment of interest or cost of money is separate and
Insurance Company: 6,095,145.81
distinct from that of surcharges and penalties. What may justify a court in not allowing the
creditor to charge surcharges and penalties despite express stipulation therefor in a valid
2) Proceeds from agreement, may not equally justify non-payment of interest. The charging of interest for
loans forms a very essential and fundamental element of the banking business, which may
Equitable Insurance truly be considered to be at the very core of its existence or being. It is inconceivable for a
bank to grant loans for which it will not charge any interest at all. We fail to find justification
Company: 2,756,373.00 for the Court of Appeals’ outright deletion of the payment of interest as agreed upon in the
respective promissory notes. This constitutes gross error.
3) Payment from For the computation of the interest due to be paid to RCBC, the following rules of thumb
laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals(234 SCRA 78
foreign department [1994]), shall apply, to wit:

negotiation: 203,584.89
9,055,104.70[3]
NET AMOUNT as of January 21, 1993: P 107,246,887.90
The need for the payment of interest due upon the principal amount of the obligation,
which is the cost of money to RCBC, the primary end and the ultimate reason for RCBC’s
existence and being, was duly recognized by the trial court when it ruled favorably on
RCBC’s counterclaim, ordering GOYU “to pay its loan obligation with RCBC in the amount of
P68,785,069.04, as of April 27,1992, with interest thereon at the rate stipulated in the
respective promissory notes (without surcharges and penalties) per computation, pp. 14-A,
14-B, 14-C” (Record, p. 479). Inexplicably, the Court of Appeals, without even laying down
the factual or legal justification for its ruling, modified the trial court’s ruling and ordered
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on “Damages” of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
14
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date of the judgment of the
court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2,
above, shall be 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on each specific
promissory note as summarized and tabulated by the trial court in its decision (pp.470 and
471, Record) such agreed interest rates must be followed. This is very clear from paragraph
II, sub-paragraph 1 quoted above.
On the issue of payment of surcharges and penalties, we partly agree that GOYU’s
pitiful situation must be taken into account. We do not agree, however, that payment of any
amount as surcharges and penalties should altogether be deleted. Even assuming that
RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may
have relayed its assurance for assistance to GOYU immediately after the occurrence of the
fire, we cannot accept the lower courts’ finding that RCBC had thereby ipso facto effectively
waived collection of any additional interests, surcharges, and penalties from
GOYU. Assurances of assistance are one thing, but waiver of additional interests,
surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default partake of
the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil
Code. Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be
equitably reduced if they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. It should be stressed that the Court will
not make any sweeping ruling that surcharges and penalties imposed by banks for non-
payment of the loans extended by them are generally iniquitous and unconscionable. What
may be iniquitous and unconscionable in one case, may be totally just and equitable in
another. This provision of law will have to be applied to the established facts of any given
case. Given the circumstances under which GOYU found itself after the occurrence of the
fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty
charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these
rates to 2% and 3%, respectively. Furthermore, in the light of GOYU’s offer to pay the
amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit “BB”), which RCBC
refused, we find it more in keeping with justice and equity for RCBC not to charge additional
interest, surcharges, and penalties from that time onward.
Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in
damages for denying or withholding the proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance
policies, RCBC has the right to claim the insurance proceeds, in substitution of the property
lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the
said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally
agreed, however, that an insurer may in good faith and honesty entertain a difference of
opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer
to pay a claim should not be inflicted unless the evidence and circumstances show that such
refusal was willful and without reasonable cause as the facts appear to a reasonable and
prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix
Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins.
Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO
wantonly and in bad faith delayed the release of the proceeds. The problem in the
determination of who is the actual beneficiary of the insurance policies, aggravated by the
claim of various creditors who wanted to partake of the insurance proceeds, not to mention
the importance of the endorsement to RCBC, to our mind, and as now borne out by the
outcome herein, justified MICO in withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC
cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid creditor,
one for specific performance and the other for foreclosure. In doing so, said the appellate
court, the second action is deemed barred, RCBC having split a single cause of action (Rollo,
pp. 195-199). The Court of Appeals was too accommodating in giving due consideration to
this argument of GOYU, for the foreclosure suit is still pending appeal before the same Court
of Appeals in CA G.R CV No. 46247, the case having been elevated by RCBC.
15
 In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of
Appeals pre-empted the resolution of said foreclosure case which is not before it. This is
plain reversible error if not grave abuse of discretion.
As held in Peña vs. Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to merely set aside the
questioned orders of the trial court for having been issued by the latter with grave abuse of
discretion. In likewise enjoining permanently herein petitioner “from entering in and
interfering with the use or occupation and enjoyment of petitioner’s (now private respondent)
residential house and compound,” the appellate court in effect, precipitately resolved with
finality the case for injunction that was yet to be heard on the merits by the lower
court. Elevated to the appellate court, it might be stressed, were mere incidents of the
principal case still pending with the trial court. In Municipality of Biñan, Laguna vs. Court of
Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have “no jurisdiction in
a certiorari proceeding involving an incident in a case to rule on the merits of the main case
itself which was not on appeal before it.”
(pp. 701-
702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga
Regional Trial Court, since it has been determined that RCBC has the right to the insurance
proceeds, the subject matter of intervention is rendered moot and academic. Respondent
Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance
policies. It is basic and fundamental that the first mortgagee has superior rights over junior
mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and
SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442
before Branch 3 of the Manila Regional Trial Court for lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking
Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per
report of adjuster Toplis & Harding (Far East), Inc., Exhibits “2” and “2-1”), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the
interests earned to Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective rates
stipulated in each promissory note from January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus
payments made by Malayan Insurance Company, Inc. and the proceeds of the amount
deposited with the trial court and its earned interest. The total amount due RCBC at the time
of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other
stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the respondent Court in
CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein
arrived at. Respondent Sebastian’s right as attaching creditor must yield to the preferential
rights of Rizal Commercial Banking Corporation over the Malayan insurance policies as first
mortgagee.
SO ORDERED.
Republic v. CA
SYNOPSIS
The Court of Appeals dismissed the petition filed by the Republic of the Philippines for
the annulment of a decision of the Regional Trial Court of Alaminos, Pangasinan, which
declared private respondents to be the absolute owners of a piece of land in Barangay
Malacapas, Dasol, Pangasinan. The appellate court held that the proceedings in the trial
court were in personam since petitioner State was not a party to the case, it is not a real
party-in-interest and therefore has no personality to bring the action for annulment of the
judgment rendered in that case. The Supreme Court ruled that the State has sufficient
interest to bring the action for annulment of judgment rendered in the foreclosure proceedings
although it was not a party in such proceedings. It is a settled rule, according to the Court,
that a person need not be a party to the judgment sought to be annulled. What is essential is
that he can prove his allegation that the judgment was obtain by the use of fraud and
collusion and he would be adversely affected thereby. In the case at bar, the State clearly
stands to be adversely affected by the trial court’s disposition of inalienable public land. The
land involved in this case was classified as public land suitable for fishpond development. In
controversies involving the disposition of public land, the burden of overcoming of
presumption of State ownership of lands of the public domain lies upon the private claimant.
The Court was not convinced that private respondents have discharged this burden.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; CIVIL ACTIONS; REAL PARTIES-IN-
INTEREST; A PERSON NEED NOT BE A PARTY TO THE JUDGMENT SOUGHT TO
16
 BE ANNULLED; WHAT IS ESSENTIAL IS THAT HE CAN PROVE HIS ALLEGATION recourse, if any, is to secure the annulment of the same before the BFAR and apply for a
THAT THE JUDGMENT WAS OBTAINED BY THE USE OF FRAUD AND new one in their favor, provided that they are qualified therefor. What they did, however,
COLLUSION AND HE WOULD BE ADVERSELY AFFECTED THEREBY.- The was not only to bring their action in the wrong forum but to ask to be declared owners of
appellate court, holding that the proceedings before the trial court were in the land in dispute.
personam, ruled that since petitioner was not a party to Civil Case No. A-1759, it is not a
real party-in-interest and, therefore, has no personality to bring the action for annulment
of the judgment rendered in that case. The appellate court is in error. In Islamic Da’wah
Council of the Phils. vs. Court of Appeals, this Court held that a party claiming ownership SECOND DIVISION
of a parcel of land which is the subject of foreclosure proceedings has a sufficient
interest to bring an action for annulment of the judgment rendered in the foreclosure
proceedings even though it was not a party in such proceedings. It was held: [A] person
need not be a party to the judgment sought to be annulled. What is essential is that he [G.R. No. 122269. September 30, 1999]
can prove his allegation that the judgment was obtained by the use of fraud and
collusion and he would be adversely affected thereby. In this present case it is true that
the heirs of Araneta are not parties to the foreclosure case. Neither are they principally
nor secondarily bound by the judgment rendered therein. However, in their petition filed REPUBLIC OF THE PHILIPPINES, represented by the SECRETARY OF
with the Court of Appeals they alleged fraud and connivance perpetuated by and AGRICULTURE, petitioner, vs. THE HON. COURT OF APPEALS, HON.
between the Da Silvas and the Council as would adversely affect them. This allegation, if VIVENCIO A. BANTUGAN, Presiding Judge of the Regional Trial Court, Branch
fully substantiated by preponderance of evidence, could be the basis for the annulment 55, Alaminos, Pangasinan, and HEIRS OF ZENAIDA BUSTRIA-TIGNO,
of Civil Case No. Q-43476. represented by CAMILO TIGNO, respondents.
2. CIVIL LAW; PRESIDENTIAL DECREE NO. 704; LANDS DECLARED FOR FISHERY
DECISION
PURPOSES ARE NOT ALIENABLE AND THEIR POSSESSION, NO MATTER HOW
LONG CONTINUED CANNOT RIPEN INTO OWNERSHIP; TRIAL COURTS HAVE NO MENDOZA, J.:
JURISDICTION TO MAKE A DISPOSITION OF INALIENABLE PUBLIC LAND.- The
State clearly stands to be adversely affected by the trial court’s disposition of inalienable For review is the decision[1] of the Court of Appeals, dated October 4, 1995, in CA-G.R.
public land. The land involved in this case was classified as public land suitable for SP No. 34013, dismissing a petition filed by the Republic of the Philippines for the annulment
fishpond development. In controversies involving the disposition of public land, the of the decision of the Regional Trial Court of Alaminos, Pangasinan, which declared private
burden of overcoming the presumption of state ownership of lands of the public domain respondents to be the absolute owners of a piece of land in Barangay Malacapas, Dasol,
lies upon the private claimant. Private respondents have not discharged this burden. The Pangasinan. The government, as petitioner, prays that the aforesaid decision of the trial
fact that the land in dispute was transformed into a “fully developed fishpond” does not court, rendered in Civil Case No. A-1759, be annulled.
mean that it has lost character as one declared “suitable for fishpond purposes” under
the decree. By applying for fishpond permit with the BFAR, Isidro Bautista admitted the The facts are stated in the following portion of the decision of the Court of Appeals:
character of the land as one suitable for fishpond development since the disposition of
such lands is vested in the BFAR. Consequently, private respondents, as his Sometime in 1957, one Matias Bustamante filed with the then CFI of Pangasinan an
successors-in-interest, are estopped from claiming otherwise. It is settled under the application for registration under Act No. 496, as amended, of a tract of land containing an
Public Land Law that alienable public land held by a possessor, personally or through area of 880,000 square meters, more or less, situated in Barangay Malacapas, Dasol,
his predecessor-in-interest, openly, continuously, and exclusively for 30 years is ipso Pangasinan.
jure converted to private property by the mere lapse of time. However, only public lands
classified as agricultural are alienable. Lands declared for fishery purposes are not
Both the Director of Forestry and the Director of Fisheries filed oppositions to the aforecited
alienable and their possession, no matter how long continued, cannot ripen into
application, alleging among others, that ‘said parcel of land, with the exception of 97,525
ownership. Since the disposition of lands declared suitable for fishpond purposes fall
square meters, is a part of the Timber Land Block “A” Land Classification Project 44, which is
within the jurisdiction of the BFAR, in accordance with P.D. No. 704, §4, the trial court’s
converted into fish ponds.’ Isidro Bustria [private respondents’ predecessor-in-interest] and
decision, dated December 17, 1991, is null and void. The trial court has no jurisdiction to
Julian Bustria, also opposed the said application for land registration, alleging that they ‘have
make a disposition of alienable public land. If, as claimed, Porforio Morado secured a
in the year 1943 occupied in good faith their respective portions having a total area of fifty
fishpond permit through fraud and misrepresentation, private respondents’ sole
17
(50) hectares, more or less x x x converted their respective portions into fish ponds x x x and
actually possessed and occupied their respective portions x x x exclusively against all
persons, except the Director of Forestry & Director of Fishery.’ After trial, the lower court
rendered a Decision in favor of applicant Bustamante.
On appeal to this Honorable Court, docketed as CA-G.R. No. 30058-R, it was found that
783,275 square meters of the land applied for were accretions added to applicant
Bustamante’s riceland of 9.7525 hectares, and that said accretion was caused by the sea on
the southward portion of said riceland. This Honorable Court then ruled:
This being so, the said accretion belongs – not to the riparian owner – but the State. All
lands thrown up by the sea and formed upon the shores, belong to the national domain and
are for public use, in accordance with the provisions of the Law on Waters of August 3, 1866
(Insular Government vs. Aldecoa, 19 Phil. 505) (p. 20, Decision, November 16, 1967).
Thus, modifying the judgment of the lower court, this Honorable Court rendered a Decision
on November 16, 1967, disposing:
IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby modified so that only
9.7525 of the land applied for is hereby adjudicated and ordered to be registered in the name
of the applicant, the remaining area being hereby declared land of the public domain
belonging to the Republic of the Philippines, without prejudice to whatever rights oppositors
Isidro Bustria and Julian Bustria may have acquired over portions of the area thus declared
as land of the public domain, with costs against applicant.
SO ORDERED.
When brought up on certiorari to the Supreme Court, the foregoing Judgment was affirmed in
toto in the Resolution in G.R. No. L-18605 dated February 29, 1968.
It is relevant to state at this point that the parcel of land that is presently the subject of the
dispute in the instant case, Lot No. 7764, CAD 624-D (Portion) [Psu-155696, Lot 3 (Portion)],
forms part of the above-mentioned parcel of land declared by this Honorable Court as
belonging to the public domain, classified/zonified land available for fishpond development,
per L.C. Map No. 3175, approved on June 24, 1984, under administrative Order No. 4-1829
(Annex ‘D’, Petition). The subject lot contains an area of 49,999 square meters, more or
less. This lot has been leased to Mr. Porfirio Morado by the [Republic of the Philippines],
represented by the Secretary of Agriculture, for a period of twenty-five (25) years, or up to
December 31, 2013, under Fishpond Lease Agreement No. 5132, dated August 17, 1989
(Annex ‘E’, Petition).
On July 6, 1988, however, the late Zenaida Bustria [daughter of Isidro Bustria] filed a
complaint against Porfirio Morado in the Regional Trial Court of Alaminos, Pangasinan,
Branch 55, for ownership and possession over the lot in question [docketed as Civil Case No.
A-1759]. Herein petitioner, the Republic of the Philippines, was not made a party to that suit.
In her complaint, Zenaida Bustria claimed absolute ownership and quiet and peaceful
possession of several lots under PSU-155696 surveyed in the name of her father, Isidro
Bustria. She further asserted that said Porfirio Morado maliciously applied for a fishpond
permit with the Bureau of Fisheries and Aquatic Resources over Lot 3 thereof (the subject
lot), well-knowing that said lot had always been occupied, possessed and worked by her and
her predecessors-in-interest.
Porfirio Morado denied the allegations in the complaint, claiming that the lot in question is
part of the public domain which he developed and converted into a fishpond. Due, however,
to Porfirio Morado’s and his counsel’s failure to appear at the pre-trial and subsequent court
hearings, the trial court subsequently declared Porfirio Morado ‘as in default.’
On December 17, 1991, respondent Judge rendered a decision, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered:
(a) Declaring the plaintiff as the exclusive and absolute owner of the land in
question stated in paragraph 4 of the Complaint and entitled to the exclusive and
quiet possession of the said land; and
(b) Ordering the defendant to pay the plaintiff the amount of P15,000.00 as
attorney’s fees and the sum of P500.00 per day of hearing of the counsel, plus
costs.
(Annex ‘A’, Petition)
On January 23, 1992, Porfirio Morado filed a Petition for Relief from Judgment which was
denied on July 21, 1992 for lack of merit.
On July 8, 1992, a writ of execution was issued, and it was implemented by Sheriffs Manuel
O. de Asis and Sheriff Cesar A. Gines. Spouses Porfirio Morado and Juliana Morado
thereafter filed with this Honorable Court a Petition for Certiorari with Writ of Preliminary
Injuction, docketed as CA-G.R. No. 28932. In a Resolution dated December 11, 1992, the
Petition was denied for lack of merit. The related Motion for Reconsideration was denied in
the Resolution dated February 18, 1993. (Rollo, pp. 107-112) (Underscoring omitted)[2]
April 19, 1994, petitioner, invoking §9 of B.P. Blg. 129,[3] filed with the Court of Appeals a
petition for the annulment of the trial court’s decision, dated December 17, 1991. Petitioner
alleged that the land in question is within the classified/zonified alienable and disposable land
for fishpond development, per L.C. Map No. 3175 approved on June 24, 1984, under
18
Administrative Order No. 4-1829 and that since the land formed part of the public domain, the
Bureau of Fisheries and Aquatic Resources (BFAR) has jurisdiction over its disposition in
accordance with P.D. No. 704, §4.
On October 4, 1995 the Court of Appeals rendered a decision dismissing the petition. [4]
Hence, this petition for review.
The judgment rendered in a case may be annulled on any of the following grounds: (a)
the judgment is void for want of jurisdiction or for lack of due process of law; or (b) it was
obtained through extrinsic fraud.[5] The question in this case is whether the decision of the
Regional Trial Court is void on any of these grounds. The preliminary question, however, is
whether the government can bring such action even though it was not a party to the action in
which the decision sought to be annulled was rendered.
We shall deal with these questions in inverse order.
First, is the question whether petitioner has personality to bring the action below. To
begin with, an action to recover a parcel of land is in personam. As such, it is binding only
between the parties thereto, as this Court explained in Ching v. Court of Appeals,[6] viz:
An action to redeem, or to recover title to or possession of, real property is not an action in
rem or an action against the whole world, like a land registration proceeding or the probate of
a will; it is an action in personam, so much so that a judgment therein is binding only upon the
parties properly impleaded and duly heard or given an opportunity to be heard. Actions in
personam and actions in rem differ in that the former are directed against specific persons
and seek personal judgments, while the latter are directed against the thing or property or
status of a person and seek judgments with respect thereto as against the whole world. An
action to recover a parcel of land is a real action but it is an action in personam, for it binds a
particular individual only although it concerns the right to a tangible thing.
The appellate court, holding that the proceedings before the trial court were in
personam, ruled that since petitioner was not a party to Civil Case No. A-1759, it is not a real
party-in-interest and, therefore, has no personality to bring the action for annulment of the
judgment rendered in that case. The appellate court said:
Private respondents are correct. Civil Case No. A-1759 was purely for “Ownership and
Possession”. The decision sought to be annulled is solely “between the private respondents
[the Bustrias] and Porfirio Morado” (Rollo, p. 142). Petitioner Republic was not a party in the
case and is not bound by the judgment rendered therein.
It is settled, a real party-in-interest is one who stands to be benefited or injured by the
judgment in the suit (Salonga vs. Warner Barnes & Co., Ltd., 88 Phil. 128; University of the
Philippines Board of Regents vs. Ligot-Telan, 227 SCRA 342; Tampingco vs. Intermediate
Appellate Court, 207 SCRA 652; Republic vs. Sandiganbayan, 203 SCRA 310; Travelwide
Associated Sales, Inc. vs. Court of appeals, 199 SCRA 205).
Petitioner Republic not being a party, and the judgment not being in rem, it does not stand to
be benefited or injured by the judgment sought. Petitioner Republic can on its own, and even
without resorting to this petition for annulment of judgment, institute the proper action to
assert its claim that the “subject lot is a land forming part of the public domain” (Rollo, p.
145). It need not seek the annulment of the subject judgment, in Civil Case No. A-1759 in
which it was not a party and involves merely a question of ownership and possession
between plaintiffs Zenaida B. Bustria and defendant Porfirio Morado and which decision is
not binding on it, to be able to assert its claim or interest in the property. It is clear for this
reason that petitioner is not a real party-in-interest (Section 2, Rule 3, Revised rules of
Court).[7]
The appellate court is in error. In Islamic Da’wah Council of the Phils. v. Court of
Appeals,[8] this Court held that a party claiming ownership of a parcel of land which is the
subject of foreclosure proceedings has a sufficient interest to bring an action for annulment of
the judgment rendered in the foreclosure proceedings even though it was not a party in such
proceedings. It was held:
[A] person need not be a party to the judgment sought to be annulled. What is essential is
that he can prove his allegation that the judgment was obtained by the use of fraud and
collusion and he would be adversely affected thereby.
In this present case it is true that the heirs of Araneta are not parties to the foreclosure
case. Neither are they principally nor secondarily bound by the judgment rendered
therein. However, in their petition filed with the Court of Appeals they alleged fraud and
connivance perpetuated by and between the Da Silvas and the Council as would adversely
affect them. This allegation, if fully substantiated by preponderance of evidence, could be the
basis for the annulment of Civil Case No. Q-43476.[9]
This ruling was reiterated in Top Management Programs Corp. v. Court of Appeals.[10]
The next question is whether the Regional Trial Court had jurisdiction to declare the land
in question to belong to private respondent. The government asserts that the lot is within the
“classified/zonified alienable and disposable land for fishpond development,” hence, it is part
of the public domain;[11] that under P.D. No. 704, §4, jurisdiction over its disposition is vested
in the BFAR; that unlike agricultural land, public lands which are declared suitable for
fishpond purposes may only be disposed of by way of license, concession, or lease; and that
possession thereof, no matter how long, cannot ripen into private ownership. [12]
On the other hand, private respondents do not deny that Isidro Bustria, to whom they
trace their ownership, previously filed a fishpond application with the BFAR over the disputed
land.[13] Neither do they deny that the disputed land formed part of the public domain. They
insist, however, that P.D. No. 704 applies only to “lands suitable for fishpond purposes” while
the land in dispute is already a “fully developed fishpond.” They assert ownership of the
subject lot through open and continuous possession of their predecessor-in-interest since the
Second World War.[14]
19
 We agree with petitioner. The State clearly stands to be adversely affected by the trial
court’s disposition of inalienable public land.
The land involved in this case was classified as public land suitable for fishpond
development.[15] In controversies involving the disposition of public land, the burden of
overcoming the presumption of state ownership of lands of the public domain lies upon the
private claimant.[16] Private respondents have not discharged this burden.
The fact that the land in dispute was transformed into a “fully developed fishpond” does
not mean that it has lost its character as one declared “suitable for fishpond purposes” under
the decree. By applying for a fishpond permit with BFAR, Isidro Bautista admitted the
character of the land as one suitable for fishpond development since the disposition of such
lands is vested in the BFAR. Consequently, private respondents, as his successors-in-
interests, are estopped from claiming otherwise.
It is settled under the Public Land Law[17] that alienable public land held by a possessor,
personally or through his predecessor-in-interest, openly, continuously, and exclusively for 30
years is ipso jure converted to private property by the mere lapse of time.[18] However, only
public lands classified as agricultural[19] are alienable. Lands declared for fishery purposes
are not alienable[20] and their possession, no matter how long continued, cannot ripen into
ownership.
Since the disposition of lands declared suitable for fishpond purposes fall within the
jurisdiction of the BFAR, in accordance with P.D. No 704, §4, [21] the trial court’s decision,
dated December 17, 1991, is null and void. The trial court has no jurisdiction to make a
disposition of inalienable public land. If, as claimed, Porfirio Morado secured a fishpond
permit through fraud and misrepresentation, private respondent’s sole recourse, if any, is to
secure the annulment of the same before the BFAR and apply for a new one in their favor,
provided that they are qualified therefor. What they did, however, was not only to bring their
action in the wrong forum but to ask to be declared owners of the land in dispute.
WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals, Ninth
Division, in CA-G.R. SP No. 34013, dated October 4, 1995, is REVERSED AND SET
ASIDE. The decision of Regional Trial Court of Alaminos, Pangasinan, Branch 55, in Civil
Case No. A-1759 is hereby declared NULL AND VOID.
SO ORDERED.
Prudential Bank v. Martinez
G.R. No. L-51768 September 14, 1990
PRUDENTIAL BANK, Plaintiff-Appellee, vs. RENATO M. MARTINEZ and VIRGINIA J.
MARTINEZ, Defendants-Appellants.
Magno & Associates for plaintiff-appellee.chanrobles virtual law library
Beltran, Beltran & Beltran for defendants-appellants.
MEDIALDEA, J.:
This case is certified to Us by the Court of Appeals in its Resolution dated August 30, 1979,
for the reason that only pure questions of law are involved.chanrobles virtual law library
The Court of Appeals adopted the findings of fact of the trial court as follows:
This is a case for sum of money filed by plaintiff Prudential Bank against defendants Renato
M. Martinez and Virginia J. Martinez, seeking to recover a deficiency of P25,775.10 with daily
interest thereon of P15.35.chanrobles virtual law library
The plaintiff in its complaint alleged that on January 27 and February 2, 1970 defendants
obtained a loan from the plaintiff in the total sum of P48,000.00 and in consideration thereof,
the said defendants executed on said dates promissory notes in favor of the plaintiff,
promising to pay jointly and severally, the sum of P48,000.00 on or before January 27, 1971
with interest thereon at 12% per annum, partially secured by a real estate mortgage on the
property covered by Transfer Certificate of Title No. 97467 of the Register of Deeds of
Manila; that the loan became due and defendant defaulted despite plaintiffs demand letters;
that as a consequence, the mortgage was extra-judicially foreclosed; that the plaintiff was the
highest and lone bidder at the auction sale, for the sum of P52,760.00; that after deducting
therefrom the attorney's fees, registration fees, sheriffs fees, and publication expense, there
still remained a balance of P25,775.10 due to plaintiff, which plaintiff now seeks to recover
plus interest and attorney's fees.chanrobles virtual law library
The defendants admit the allegations in the complaint, except paragraphs 8 and 9 thereof
and alleged that plaintiff has no cause of action and therefor not entitled to recover and pray
for P3,000.00 attorney's fees plus costs of litigation in the amount of P1,000.00.chanrobles
virtual law library
When the issues were joined a pre-trial was conducted and the Court issued the following
pre-trial order, to wit:
With the admission in the answer of paragraphs 1 to 5 of the complaint, the parties believed
that there are no controversies as to the facts. From the point of view of the defendants, they
will submit the case on the following issues: (1) Whether plaintiff can still collect the
deficiencies after the extra-judicial foreclosure of mortgage; (2) What should be the basis of
the computation of the attorney's fees? Should it be the principal or should the 10% be based
on the principal plus interest; and (3) Whether the plaintiff can still collect attorney's fees in its
effort to recover the deficiencies. However, plaintiff, counsel believes there is only one issue
20
and that is whether any deficiency amount can be collected after extra-judicial foreclosure of
mortgage.chanrobles virtual law library
WHEREFORE, it is hereby ordered that the parties be given a period of thirty (30) days from
today within which to file their respective memoranda simultaneously.chanrobles virtual law
library
SO ORDERED. (Rollo, pp. 30-32)
On July 8, 1977 the lower Court rendered a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, ordering the latter to pay the former, jointly and severally, the amounts of
P25,775.10 with daily interest thereon of P15.85 from September 10, 1976 until fully paid and
P2,500.00 for and as attorney's fees, plus costs of suit. (Records, p. 18)
Thereupon, defendants appealed to the Court of Appeals with these two assignments of
errors, namely -
I
THE LOWER COURT ERRED IN HOLDING THAT THE PLAINTIFF-APPELLEE 19
ENTITLED TO RECOVER THE DEFICIENCY IN THE SUM OF P 25,775.1 0 AFTER THE
EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE TO SATISFY THE INDEBTEDNESS,
AND AFTER THE MORTGAGED PROPERTY HAD BEEN CONVEYED TO THE PLAINTIFF-
APPELLEE IN SATISFACTION OF THE LOANS.chanrobles virtual law library
II
THE LOWER COURT ERRED IN AWARDING THE SUM OF P2,500.00 AS ATTORNEYS
FEES TO PLAINTIFF-APPELLEE. (Appellants' Brief, p. 9, Rollo)
Appellants argue that the Legislature never intended to grant to a mortgagee the right to
recover the deficiency arising from an extrajudicial foreclosure of mortgage inasmuch as such
recovery is not a natural right of the mortgagee, hence, the need to expressly grant the same
in a judicial foreclosure proceedings; that consequently, an express prohibition against such
claim would be quite superfluous and that besides, there is no need to enumerate negative
remedies or solutions in the law. Further, they aver that if mortgagees were allowed such
right, the debtors would be at the mercy of their creditors considering the summary nature of
extrajudicial foreclosure proceedings. They, likewise, point to the limited readership of auction
sale notices which lead to the sale of mortgaged properties for much less than their actual
value notwithstanding that the mortgage value of the said properties is higher than its fair
market value. Finally, appellants assail the award of attorney's fees in the sum of P2,500.00
as unconscionable. They claim that the computation of the attorney's fees should have been
based on the terms of promissory note which provided for a ten percent (10%) award of the
principal obligation; and that since the attorney's fees were already collected by the appellee
when it foreclosed the mortgage, such fees should no longer be awarded in this case.
(Appellants Brief, pp. 4-11, Rollo, p. 9)
We affirm.chanrobles virtual law library
We have already ruled in several cases that in extrajudicial foreclosure of mortgage, where
the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to
recover the deficiency from the debtor (Philippine Bank of Commerce v. De Vera, L-18816,
December 29, 1962, 6 SCRA 1026; Development Bank of the Philippines v. Vda. de Moll
L25802, January 31, 1972, 43 SCRA 82; Development Bank of the Philippines v. Murang, L-
29130, August 8,1975, 66 SCRA 141; Development Bank of the Philippines v. Zaragoza, L-
23493, August 23, 1978, 84 SCRA 668; and DBP v. Tomeldan, G.R. No. 51269, November
17,1980, 101 SCRA 171). A careful scrutiny of the arguments presented in the case at bar
yields no substantial and convincing reasons for Us to depart from Our previous ruling.
Appellants' arguments merely rehashed the objections already considered and overruled in
the aforementioned cases. Thus, in Philippine Bank of Commerce v. De Vera (supra), We
declared that:
A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure)
discloses nothing, it is true, as to the mortgagee's right to recover such deficiency. But neither
do we find any provision thereunder which expressly or impliedly prohibits such
recovery.chanrobles virtual law library
Article 2131 of the new Civil Code, on the contrary, expressly provides that 'The form, extent
and consequences of a mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in this Chapter, shall be governed by
the provisions of the Mortgage Law and of the Land Registration Law.' Under the Mortgage
Law, which is still in force, the mortgagee has the right to claim for the deficiency resulting
from the price obtained in the sale of the real property at public auction and the outstanding
obligation at the time of the foreclosure proceedings. (See Soriano v. Enriquez, 24 Phil. 584;
Banco de Islas Filipinos v. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53
Phil. 101). Under the Rules of Court (Sec. 6, Rule 70),"Upon the sale of any real property,
under an order for a sale to satisfy a mortgage or other incumbrance thereon, if there be a
balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion,
should render a judgment against the defendant for any such balance for which, by the
record of the case, he may be personally liable to the plaintiff, ..." It is true that this refers to a
judicial foreclosure, but the underlying principle is the same, that the mortgage is but a
security and not a satisfaction of indebtedness. ...chanrobles virtual law library
Let it be noted that when the legislature intends to foreclose the right of a creditor to sue for
any deficiency resulting from the foreclosure of the security given to guarantee the obligation,
21
it so expressly provides. Thus, in respect to pledges, Article 2115 of the new Civil Code
expressly states: ... If the price of the sale is less (than the amount of the principal obligation)
neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation
to the contrary. "Likewise in the event of the foreclosure of a chattel mortgage on the thing
sold in installments 'he (the vendor) shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to the contrary shall be void" (Article
1484, paragraph 3, Ibid). It is then clear that in the absence of a similar provision in Act No.
3135, as amended, it can not be concluded that the creditor loses his right given him under
the Mortgage Law and recognized in the Rules of Court, to take action for the recovery of any
unpaid balance on the principal obligation, simply because he has chosen to foreclose his
mortgage extra- judicially pursuant to a special power of attorney given him by the mortgagor
in the mortgage contract, (pp. 1029-1030)
Moreover, the fact that the mortgaged property is sold at an amount less than its actual
market value should not militate against the right to such recovery. We fail to see any
disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a
reduced price because he possesses the right of redemption. When there is the right to
redeem, inadequacy of price should not be material, because the judgment debtor may
reacquire the property or also sell his right to redeem and thus recover the loss he claims to
have suffered by the reason of the price obtained at the auction sale (De Leon v. Salvador, L-
30871, December 28, 1970 and Bernabe v. Cruz, et al., L-31603, December 28, 1970; 36
SCRA 567). Generally, in forced sales, low prices are usually offered and the mere
inadequacy of the price obtained at the sheriffs sale unless shocking to the conscience will
not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a
better price can be obtained (Ponce de Leon v. Rehabilitation Finance Corporation, L-24571,
December 18, 1970, 36 SCRA 289).chanrobles virtual law library
Lastly, We find that the award of attorney's fees is proper. It can not be disputed that the
proceedings in the extrajudicial foreclosure and the deficiency suit are altogether different.
The first is extrajudicial and summary in nature while the second is a court action. Hence, the
efforts exerted by the lawyer in these two separate courses of action should be recognized.
Besides, the basis of the extrajudicial foreclosure proceeding was the Deed of Real Estate
Mortgage, particularly condition No. 7 thereof, where the parties stipulated for a ten percent
(10%) attorney's fees to be collected in the event that the mortgage is foreclosed or a legal
action is taken to foreclose the mortgage (Appellee's Brief, Rollo, p. 9, italics supplied).
However, the proceeds in that sale were insufficient to pay the debt contained in the
appellant's promissory note. The appellee was, therefore, constrained to file a deficiency suit,
an eventuality not covered by the Deed of Real Estate Mortgage. Necessarily, the basis of
this case is the promissory note executed by the appellants. We find that the note itself
shows that appellants obligated themselves to pay the sum of ten percent as attorney's fees
whether incurred or not, exclusive of cost and other expenses of collection (Records, p. 7).
Clearly, the trial court's award of attorney's fees was not without basis. The amount of
P2,500.00 awarded as attorney's fees being less than ten percent (10%) of the deficiency
sued for is just and proper in the premises.chanrobles virtual law library
ACCORDINGLY, the decision appealed from is hereby AFFIRMED. Costs against the
appellants.chanrobles virtual law library
SO ORDERED.
DBP v. Zaragosa
SECOND DIVISION
[G.R. No. L-23493. August 23, 1978.]
DEVELOPMENT BANK OF THE PHILIPPINES, Plaintiff-Appellee, v. JOVENCIO A.
ZARAGOZA and AVELINA E. ZARAGOZA, Defendants-Appellants.
Jose R. Espique for Appellants.
Jesus A. Avenceña for Appellee.
SYNOPSIS
On December 10, 1952, appellee foreclosed extrajudicially the appellant’s mortgaged
property and the Sheriff posted the requisite notice of sale at public auction. The property
was sold at public auction on June 10, 1957 after numerous transfers made of the date of
sale upon requests of the appellants themselves. Because the proceeds of the sale were not
sufficient to satisfy the balance of appellant’s indebtedness, appellee sued the appellants for
the deficiency. The trial court found for appellee and ordered the appellants to pay the
deficiency, with interest thereon at the legal rate until fully paid plus the sum equivalent to
10% of the amount due as attorney’s fees and cost of suit.
The issues raised by appellants on appeal are: (a) whether or not the mortgage is entitled to
claim the deficiency in extrajudicial foreclosure of mortgage; and (b) whether or not additional
interests are properly chargeable on the balance of the indebtedness during the period from
notice of sale to actual sale.
The Supreme Court held: (a) that in extrajudicial foreclosure of mortgage, where the
proceeds of the sale is insufficient to cover the debt, the mortgagee is entitled to claim the
deficiency from the debtor; and (b) that since the delay in effecting the auction sale was due
to appellants’ numerous requests for transfer of the date of sale, they cannot take advantage
of the delay which was of their own making to the prejudice of the other party.
Judgment affirmed.
22

SYLLABUS
1. MORTGAGES; EXTRAJUDICIAL FORECLOSURE; CREDITOR ENTITLED TO
RECOVER DEFICIENCY. — In extrajudicial foreclosure of mortgage, where the proceeds of
the sale are insufficient to cover the debt, the mortgagee is entitled to claim the deficiency
from the debtor. While Act No. 3135, as amended (re extrajudicial foreclosure) discloses
nothing as to the mortgagee’s right to recover such deficiency, neither does it expressly or
impliedly prohibit such recovery. Article 2131 of the New Civil Code expressly provides that
the form, extent and consequences of a mortgage and as to other matters not included in the
Civil Code shall be governed by the provisions of the Mortgage Law and of the Land
Registration Law. And under the Mortgage Law, the mortgagee has the right to claim for the
deficiency resulting from the price obtained in the sale of the real property at public auction
and the outstanding obligation. Moreover, if the legislature intended to foreclose the right of a
creditor to sue for deficiency resulting from the foreclosure of the security to guarantee the
obligation, it so expressly provides.
2. ID.; ID.; CREDITOR ENTITLED TO RECOVER INTERESTS FROM DATE OF NOTICE
TO DATE OF SALE. — Where the sale of the mortgaged property in an extrajudicial
foreclosure proceedings had been held in abeyance for four years due to the numerous
transfers made of the date of sale upon requests of the mortgage debtors themselves, the
latter cannot take advantage of the delay which was of their own making, to the prejudice of
the other party, so that prior to the completion of the foreclosure, the mortgagor is liable for
the interest on the mortgage.
3. ID.; ID.; PROCEEDINGS IN JUDICIAL FORECLOSURE APPLICABLE TO
EXTRAJUDICIAL FORECLOSURE. — A foreclosure of mortgage means the termination of
all rights of the mortgagor in the property covered by the mortgage. It denotes the procedure
adopted by the mortgagee to terminate the rights of the mortgagor on the property and
includes the sale itself. In judicial foreclosures, the "foreclosure" is not complete until the
Sheriff’s Certificate executed, acknowledges and recorded. In the absence of a Certificate of
Sale, no title passes by the foreclosure proceedings to the vendee. It is only when the
foreclosure proceedings completed and the mortgaged property sold to the purchaser that all
interests of the mortgagor are cut off from the property.
DECISION
ANTONIO, J.:
This is an appeal from the judgment of the Court of First Instance of Manila in Civil Case No.
47325, sentencing defendants-appellants Jovencio A. Zaragoza and Avelina E. Zaragoza to
pay jointly and severally plaintiff-appellee Development Bank of the Philippines the sum of
P7,779.36, with interest thereon at a legal rate from July 10, 1957 until fully paid, plus the
sum equivalent to 10% of the amount due as attorney’s fees and costs of the suit.
The issues raised in this appeal are: (a) whether or not the mortgagee is entitled to claim the
deficiency in extrajudicial foreclosure of mortgage; and (b) whether or not additional interests
are properly chargeable on the balance of the indebtedness during the period from notice of
sale to actual sale.
The following facts are not disputed: Appellants obtained, on July 19, 1949, a loan of P30,000
from the appellee which was secured by a real estate mortgage. It was stipulated that upon
failure of appellants to pay the amortization due, according to the terms and conditions
thereof, appellee shall have the authority to foreclose extrajudicially the mortgaged property,
pursuant to Republic Act No. 3135, as amended. Conformably to this stipulation, upon breach
of the conditions of the mortgage, appellee foreclosed extrajudicially the mortgage on
December 10, 1952, and the Provincial Sheriff of Pangasinan posted the requisite notice of
the sale at public auction of the mortgaged property.
On June 10, 1957, the property was sold at public auction to the appellee, being the highest
bidder therein, for the sum of P21,035.00. After applying the proceeds of the sale to satisfy
the outstanding balance of the indebtedness in the amount of P28,914.36, it was found that
appellants still owed the appellee in the amount of P7,779.36. Suit for the deficiency with
preliminary attachment was filed by appellee against appellants on June 20, 1961. In their
answer, appellants averred that after an extrajudicial foreclosure of property, no deficiency
judgment would lie and that from the date of the foreclosure to the sale of said property, the
mortgagor is no longer liable for the interest on the loan. The aforesaid contentions of
appellants were overruled by the trial court, who thereupon rendered the aforesaid judgment
in favor of the appellee. Contending that the trial court erred in resolving those issues of law,
appellants appealed directly to this court.chanrobles law library : red
We find the appeal without merit.
The first issue had already been resolved in an earlier case. Thus, in Philippine Bank of
Commerce v. Tomas de Vera, 1 this Court ruled that in extrajudicial foreclosure of mortgage
where the proceeds of the sale is insufficient to cover the debt the mortgagee is entitled to
claim the deficiency from the debtor. Explaining the reasons for this rule, the Court
stated:jgc:chanrobles.com.ph
"The sole issue to be resolved in this case is whether the trial court acted correctly in holding
appellee Bank entitled to recover from appellant the sum of P99,033.20 as deficiency arising
after the extrajudicial foreclosure, under Act No. 3135, as amended, of mortgaged properties
in question. It is urged, on appellant’s part, that since Act No. 3135, as amended, is silent as
to the mortgagee’s right to recover deficiency arising after an extrajudicial foreclosure sale of
mortgage, he (mortgagee) may not recover the same.
23

A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure) discuss
nothing, it is true, as to the mortgagee’s right to recover such deficiency. But neither do we
find, provision thereunder which expressly or impliedly prohibits such recovery.
"Article 2131 of the new Civil Code, on the contrary, expressly provides that ‘The form, extent
and consequences of a mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in this Chapter, shall be governed by
the provisions of the Mortgage Law and of the Land Registration Law.’ Under the Mortgage
Law, which is still in force, the mortgagee has the right to claim for the deficiency resulting
from the price obtained in the sale of the real property at public auction and standing
obligation at the time of the foreclosure proceedings. (See Soriano v. Enriquez, 24 Phil. 584;
Banco de Islas Filipinas v. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53
Phil. 101). Under the Rules of Court (Sec. 6, Rule 70), ‘Upon the sale of any real property,
under an order for a sale to satisfy a mortgage or other incumbrance thereon, if there be a
balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion,
should render a judgment against the defendant for any such balance for which by the record
of the case, he may be personally liable to the plaintiff, . . . .’ It is true that this refers to a
judicial foreclosure, but the underlying principle is the same, that the mortgage is but a
security and not a satisfaction of indebtedness.
x x x
"Let it be noted that when the legislature intends to foreclose the right of a creditor to sue for
any deficiency resulting from the foreclosure of the security given to guarantee the obligation,
it so expressly provides. Thus, in respect to pledges, Article 2115 of the a: Civil Code
expressly states: ‘. . . . If the price of the sale is less (than the amount of the principal
obligation) neither shall creditor be entitled to recover the deficiency, notwithstanding
stipulation to the contrary.’ Likewise, in the event of a foreclosure of a chattel mortgage on
the thing sold in installments ‘he (the vendor shall have no further action against the
purchaser to recover an paid balance of the price. Any agreement to the contrary shall be
void.’ (Article 1484, paragraph 3, ibid.). It is then clear that absence of a similar provision in
Act No. 3135, as amended, it can not be concluded that the creditor loses his right given him
under the Mortgage Law and recognized in the Rules of Court, to take action for the recovery
of any unpaid balance on the principal obligation, simply because he has chosen to foreclose
his mortgage extrajudicially pursuant to a special power of attorney given him by the
mortgagor in the mortgage contract. As stated by this Court in Medina v. Philippine National
Bank (56 Phil. 651), a case analogous to the one at bar, the step taken by the mortgagee-
bank in resorting to extra-judicial foreclosure under Act 3135, was merely to find a proceeding
for the sale, and its action can not be taken to mean a waiver of its right to demand the
payment of the whole debt.’" (pp. 1028-1030).
This rule was reiterated in Development Bank of the Philippines v. Vda. de Moll. 2
In connection with the second issue, appellants argue that since the appellee held in
abeyance the sale of the property for a period of four (4) years, they alone should suffer the
consequences of such delay. It was further contended that the debtor’s liability in judicial
foreclosures is limited to the amount due at the time of the foreclosure and, therefore, such
should also apply to extrajudicial foreclosures. By way of refutation, appellee explained that
the seemingly long interval between the date of issuance of the Sheriff’s Notice of Sale and
the date of sale was due to the numerous transfers made of the date of the sale upon
requests of the appellants themselves. Each transfer is covered by a corresponding
agreement for postponement, executed jointly by appellants and appellee. Certainly, under
such circumstances, appellants cannot take advantage of the delay which was their own
making, to the prejudice of the other party. Apart from this consideration, it must be noted that
a foreclosure of mortgage means the termination of all rights of the mortgagor in the property
covered by the mortgage. It denotes the procedure adopted by the mortgagee to terminate
the rights of the mortgagor on the property and includes the sale itself. In judicial
foreclosures, the "foreclosure" is not complete until the Sheriff’s Certificate executed,
acknowledges and recorded. In the absence of a Certificate of Sale, no title passes by the
foreclosure proceedings to the vendee. 3 It is only when the foreclosure proceedings
completed and the mortgaged property sold to the purchaser that all interests of the
mortgagor are cut off from the property. This principle is applicable to extrajudicial
foreclosures. Consequently, in the case at bar, prior to the completion of foreclosure, the
mortgagor is, therefore, liable for the interest on the mortgage. 4
ACCORDINGLY, the judgment appealed from is hereby AFFIRMED. Costs against
appellants.
DBP v. Moll
EN BANC
G.R. No. L-25802 January 31, 1972
DEVELOPMENT BANK OF THE PHILIPPINES, Plaintiff-Appellee, vs. LEONOR R. VDA. DE
MOLL, SEBASTIAN MOLL, JR., BACILISO MOLL, ERIBERTO MOLL, ESTRELLA MOLL,
SALVADOR MOLL, SEGUNDO MOLL and AURORA MOLL, Defendants-Appellants.
Jesus A. Avancena and Benedicto C. Legaspi for plaintiff-appellee.
Cesario A. Fabicante for defendant Eriberto Moll.
Jose S. Sarte for defendants-appellants Leonor R. Vda. de Moll, et al.
24
 BARREDO, J.:
Appeal from the decision of the Court of First Instance of Manila in its Civil Case No. 56037
sentencing appellants to jointly and severally pay to the appellee Development Bank of the
Philippines the sum of P1,648,591.45, claimed by the said Bank to be the deficiency or
unpaid balance of appellants' overdue obligation under certain agricultural and industrial
loans it had granted to appellants after applying to the said loans the proceeds of the
extrajudicial foreclosure and public auction sale of the properties mortgaged to secure their
payment, plus attorney's fees and costs.chanroblesvirtualawlibrarychanrobles virtual law
library
It appears that on April 12, 1947 and December 15, 1947, the appellee Development Bank of
the Philippines (then known as the Rehabilitation Finance Corporation) granted agricultural
loans in the amounts of P120,000.00 and P22,000.00, respectively, in favor of one Sebastian
Moll, Sr. who, to secure the payment of said loans, mortgaged in favor of the appellee Bank
fourteen (14) parcels of land - comprising the property known as "Hacienda Moll" - covered
by certificates of title and tax declarations issued by the land registry of the province of
Camarines Sur. Said Sebastian Moll, Sr. having subsequently died, his heirs (appellants)
executed on May 14, 1949 an extrajudicial partition of his estate, including the properties
above-mentioned, adjudicating the same to themselves, albeit binding themselves, jointly and
severally, to assume payment of the indebtedness of the deceased with the appellee Bank;
and starting from the said date, appellants themselves applied for and were granted by the
appellee Bank new and additional loans, to wit: May 14, 1949 - an industrial loan of
P150,000.00; May 28, 1951 - an additional agricultural loan of P100,000.00; and May 31,
1951 - another industrial loan of P580,000.00. The additional agricultural loan was granted by
the appellee Bank on the security of the same properties already mortgaged to the appellee
Bank by appellants' predecessor in interest, earlier stated; while the new industrial loans were
secured by mortgages on machineries, equipment and some other real
estate.chanroblesvirtualawlibrarychanrobles virtual law library
Appellants thereafter failed to comply with the terms of the loan contracts as they fell due.
Consequently, the above-mentioned mortgages on their properties were extrajudicially
foreclosed under the provisions of Act 3135, as amended; and in the public auction sale
thereof subsequently conducted by the Provincial Sheriff of Camarines Sur on June 30, 1962,
the 14 parcels of land mortgaged to secure payment of the agricultural loans and the
machineries, equipment and other real estate mortgaged to secure payment of the industrial
loans were awarded in favor of the appellee Bank - as the sole and highest bidder - for the
amounts of P176,174.50 and P19,750.00, respectively, which were accordingly applied to the
payment of the corresponding portions of the said loans.chanroblesvirtualawlibrarychanrobles
virtual law library
As the proceeds of the foreclosure sales aforesaid were not sufficient to cover the loan
indebtedness of appellants, the appellee Bank then instituted the present case in the Court of
First Instance of Manila on January 23, 1964, for the purpose of recovering so the complaint
alleges, the sums of P173,117.55, on account of the agricultural loans, and P1,475,473.90,
on account of the industrial loans, which it claims to be the outstanding balances or
deficiencies under the two types of loans obtained by
appellants.chanroblesvirtualawlibrarychanrobles virtual law library
In their answer, appellants admit the existence of their indebtedness to the appellee Bank
under the loan contracts mentioned in the latter's complaint; but they deny and dispute,
among others, the deficiency claims of the appellee Bank, contending at the same time, by
way of affirmative and special defenses, that the extrajudicial foreclosure and public auction
sales of the properties mortgaged had been carried out by the sheriff irregularly and
improperly in violation of the pertinent provisions of Rule 39 of the Rules of Court and had
thus resulted in the sale for unconscionable prices of their mortgaged properties which,
according to appellants' own estimate, have a total actual value of not less than
P5,000,000.00.chanroblesvirtualawlibrarychanrobles virtual law library
It appears, further, that the corresponding deeds and certificates of sale issued in favor of the
appellee Bank in consequence of the disputed foreclosure proceeding and public auction
sales were registered with the Register of Deeds concerned only on November 11, 1964 and
December 7, 1964 - some ten (10) months later than the commencement of the present
action for collection of the deficiency claim of the appellee Bank.
.chanroblesvirtualawlibrarychanrobles virtual law library
After trial, the court below rendered the decision appealed from which, as stated earlier in the
opening paragraph hereof, sustains the above-mentioned deficiency claims of the appellee
Development Bank of the Philippines. .chanroblesvirtualawlibrarychanrobles virtual law library
In this appeal, appellants assail the said judgment thus: .
"I. THE HONORABLE COURT A QUO ERRED IN NOT SETTING ASIDE THE ALLEGED
AUCTION SALE ON JUNE 30,1962, OF THE MORTGAGED PROPERTIES BY THE
DEFENDANTS-APPELLANTS TO THE PLAINTIFF-APPELLEE, ON THE GROUND THAT
THE SELLING AUCTION PRICES OF SAID PROPERTIES WERE UNJUST,
DISPROPORTIONATE AND UNCONSCIONABLE IN THE LIGHT OF THE FAIR AND
CURRENT MARKET VALUE OF THE SAME PROPERTIES AT THE TIME OF SAID
AUCTION SALE. .chanroblesvirtualawlibrarychanrobles virtual law library
"II. THE HONORABLE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT AT
BAR FOR RECOVERY OF A DEFICIENCY CLAIM, ON THE GROUND THAT SAID
COMPLAINT WAS OR IS, PREMATURE, FOR THE REASON THAT IT HAD BEEN FILED
DURING THE PERIOD OF LEGAL REDEMPTION GRANTED BY LAW TO DEFENDANTS-
APPELLANTS AS MORTGAGE-DEBTORS." .
The thrust of appellants' argument in respect of the first assignment of error is to the effect
that if in 1947 and 1951 when the agricultural and industrial loans herein involved were
obtained by appellants, the appellee Bank, after due inspection and appraisal of the
25
securities they offered therefor, had granted them a total agricultural loan of P242,000.00
upon the security of the 14 parcels of land they mortgaged and a total industrial loan of
P770,000.00 upon the security of other lands and machineries and equipment they also
mortgaged, hence, it is inconceivable that after the lapse of more than ten years and the fast
and steadily increasing real estate values these past years, the same properties would
command, in the extrajudicial foreclosure sales conducted by the provincial sheriff of
Camarines Sur in 1962, only the measly sums of P176,174.50 and P19,750.00, respectively,
considering that pursuant to consistent banking practice, the aforesaid amounts of loans
granted would represent only 60% of the actual and current market value of the securities at
the time of the grant of said loans. In short, it is the position of appellants that the foreclosure
sales aforesaid should be set aside because "the total auction selling price of P195,924.50
for both the collateral securities to the agro-industrial loans, is so inadequate,
disproportionate and shocking to conscience." .chanroblesvirtualawlibrarychanrobles virtual
law library
It does appear that the purchase prices in question are considerably out of proportion to the
possible actual market value of appellants' securities. Considering, however, that the
impugned sales were made subject to appellants' right of redemption, the following ruling
in Ponce de Leon vs. Rehabilitation Finance Corporation, 1sufficiently disposes of their
contention: .
In support of their second assignment of error, the Sorianos maintain that the sum of
P10,000.00, for which the Parañaque property was sold to the RFC, is ridiculously
inadequate, considering that said property had been assessed at P59,647.05. This presense
is devoid of merit, for said property was subject to redemption and: chanrobles virtual law
library
... where there is the right to redeem ... - inadequacy of price should not be material, because
the judgment debtor may re-acquire the property or else sell his right to redeem and thus
recover any loss he claims to have suffered by reason of the price obtained at the execution
sale (Barrozo vs. Macaraig, 83 Phil. 378, 381, Emphasis Ours.) chanrobles virtual law library
Then, again, as the trial court had correctly observed: chanrobles virtual law library
But, mere inadequacy of the price obtained at the sheriff's sale unless shocking to the
conscience will not be sufficient to set aside the sale if there is no showing that, in the event
of a regular sale, a better price can be obtained. The reason is that, generally, and, in forced
sales, low prices are usually offered (1 Moran's Rules of Court, 834-835). Considering that in
Gov't. of P.I. vs. Soriano, G.R. No. 32196, wherein property worth P120,000.00 was sold for
only P15,000.00, in Philippine National Bank vs. Gonzales, 45 Phil. 693, wherein property
valued at P45,000.00 was sold for P15,000.00 and in Cu Unjieng & Sons v. Mabalacat Sugar
Co., 58 Phil. 439, property worth P300,000.00 to P400,000.00 was sold for P177,000.00, the
Court cannot consider the sale of the Bacolod properties, the Taft Avenue house and lot and
the Parañaque property of the Sorianos null and void for having been sold at inadequate
prices shocking to the conscience and there being no showing that in the event of a resale,
better prices can be obtained.'
This ruling was reiterated in the more recent case of De Leon vs. Salvador, et al., 2
... (w)hile in ordinary sales for reasons of equity a transaction may be invalidated on the
ground of inadequacy of price, or when such inadequacy shocks one's conscience as to
justify the courts to interfere, such does not follow when the law gives to the owner the right
to redeem, as when a sale is made at public auction, upon the theory that the lesser the price
the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is
the right to redeem, inadequacy of price should not be material, because the judgment debtor
may reacquire the property or also sell his right to redeem and thus recover the loss he
claims to have suffered by reason of the price obtained at the auction sale.
At this juncture, it may not be amiss to make it clear that appellants' period to redeem the
properties sold in the extrajudicial foreclosure sales in question is one year, "computed from
the date of the registration of the certificates of sales of the mortgaged properties," since
registered lands are involved in this case, and, as explained lately by this Court in Quimson,
et al. vs. Philippine National Bank, 3 "this Court has uniformly ruled that redemption from
execution sales under ordinary judgments pursuant to Section 30, Rule 39 of the Rules of
Court should be made within twelve (12) months from the registration of the same and We
have uniformly applied the same rule to sales upon extrajudicial foreclosure of registered
lands.".chanroblesvirtualawlibrarychanrobles virtual law library
On the other hand, it may also be stressed that actions seeking to set aside auction sales do
not toll the running of the period of redemption; and this We have to emphasize now, if only to
forestall the possibility of the parties' coming up here in the future and praying for a definite
ruling on the matter. This question was resolved in Sumerariz vs. Development Bank of the
Philippines, L-23764, December 26, 1967, 21 SCRA 1374, thus: .
Under the second assignment of error, plaintiffs maintain that the period of one (1) year to
redeem the property in question was suspended by the institution of Case No. 29306
(commenced by Sumerariz and his wife against the DBP and the Sheriff of Manila to set
aside the foreclosure sale involved therein) on March 26, 1956, or three (3) days before the
expiration of said period. We have not found, however, any statute or decision in support of
this pretense. Moreover, up to now plaintiffs have not exercised the right of redemption.
Indeed, although they have intimated their wish to redeem the property in question, they have
not deposited the amount necessary therefor. It may not be amiss to note that, unlike Section
30 of Rule 39 of the Rules of Court, which permits the extension of the period of redemption
of mortgaged properties, (Enage vs. Vda. e Hijas de F. Escano, 38 Phil. 657) Section 3 of
Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs
the redemption of property mortgaged to the Bank, does not contain a similar provision
(Nepomuceno vs. Rehabilitation Finance Corporation, L-14897, November 23, 1960). Again
this question has been definitely settled by the decision in the previous case declaring that
26
plaintiffs' right of redemption has already been extinguished in view of their failure to exercise
it within the statutory period.
Perforce then We must hold that the foreclosure sales here involved cannot be set aside on
the ground, vigorously alleged by appellants, that the prices obtained therein are grossly
inadequate and unconscionable. Corollarily, We do not deem it necessary to discuss further
and rule upon appellants' claim that the foreclosure sales referred to were improperly and
irregularly conducted by the provincial sheriff of Camarines Sur because the latter sold the
mortgaged properties here involved in mass and within a single day, although the record
appears to be bereft of any concrete showing, other than appellants' claim that better prices
could had been obtained for the said mortgaged securities had the above-mentioned
provincial sheriff conducted the sales in question otherwise. 4chanrobles virtual law library
Anent appellants' second assignment of error to the effect that the present case was
prematurely instituted on the ground that an action for recovery of an alleged deficiency claim
cannot be legally entertained during the period of redemption, appellants argue in their brief
(pp. 16-18), as follows: .
In the case at bar, the suit to recover deficiency claim was instituted on January 23, 1964,
(page 1 Record on Appeal), but, the Certificate of Sale by the Provincial Sheriff of Camarines
Sur in connection with the auction sale of the collateral securities on the industrial loans was
registered in the Office of the Register of Deeds of said province on November 11, 1964, and,
the Certificate of Sale of said provincial sheriff in connection with the auction sale of the
collateral securities on the agricultural loans, was registered in the same office on December
7, 1964. Therefore, the present action for recovery of deficiency claim was filed even before
the registration of both Certificates of Sale, as shown by Exhibit '2' for appellants (pp. 33-34,
Record on Appeal). As the running of the period of one year of the right of redemption
commenced from the date and/or dates of registration of the Certificate of Sale, it is too clear
and unassailable that the filing of the case at bar on January 23, 1964, was improper and
premature. For indeed, the filing of a suit for recovery of a deficiency claim before the
commencement or, during the period of the right of redemption, constitutes a clever
anticipation that the auction sale arising from the effects of extrajudicial foreclosure had been
conducted with all the earmarks of validity, even if it were not. Suppose an auction sale were
declared illegal due to irregularities and violation of the mandate of the law, what would be
the effect of such pronouncement in an action for deficiency claim when such action has no
legal basis? If a suit for recovery of a deficiency judgment or deficiency claim is a legal
consequence of an auction sale arising from judicial or extrajudicial foreclosure, then such
suit should await for the expiration period of the right of redemption within which period,
precisely, the redemptioner may ordinarily institute an action to assail the manner with which
the auction sale was conducted. ... .
In the case of Philippine Bank of Commerce vs. De Vera, 5We held:
.chanroblesvirtualawlibrarychanrobles virtual law library
"A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure)
discloses nothing, it is true, as to the mortgagee's right to recover such deficiency. But neither
do we find any provision thereunder which expressly or impliedly prohibits such recovery. .
Article 2131 of the new Civil Code, on the contrary, expressly provides that "The form, extent
and consequences of a mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in this Chapter, shall be governed by
the provisions of the Mortgage Law and of the Land Registration Law." Under the Mortgage
Law, which is still in force, the mortgagee has the right to claim for the deficiency resulting
from the price obtained in the sale of the real property at public auction and the outstanding
obligation at the time of the foreclosure proceedings. (See Soriano vs. Enriquez, 24 Phil. 584;
Banco de Islas Filipinas v. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53
Phil. 101). Under the Rules of Court (Sec. 6, Rule 70), "Upon the sale of any real property,
under an order for a sale to satisfy a mortgage or other incumbrance thereon, if there be a
balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion,
should render a judgment against the defendant for any such balance for which, by the
record of the case, he may be personally liable to the plaintiff,... ." It is true that this refers to a
judicial foreclosure, but the underlying principle is the same, that the mortgage is but a
security and not a satisfaction of indebtedness. ... .
Under the provisions of section 6 of Rule 70 - now section 6 of Rule 68 of the revised Rules
of Court - above-cited, it is expressly provided that "if there be a balance due to the plaintiff
after applying the proceeds of the sale, the court, upon motion, shall render judgment against
the defendant for any such balance for which, by the record of the case, he may be
personally liable to the plaintiff, upon which execution may issue immediately if the balance is
all due at the time of the rendition of the judgment." Said provisions are equivalent to those of
section 260 of the old Code of Civil Procedure, under which it was held in a case, 6"that in
order that a decree for any balance for which the mortgagor may be personally liable to the
mortgagee may be issued, it is necessary that the sale of the mortgaged real property has
been made according to the decree for said sale to satisfy the judgment; that there has
remained a balance due the mortgagee after applying the proceeds of the sale to the debt;
(and) that the mortgagee presents a motion for the issuance of a decree for said balance",
while in another case, 7 it was said that "Section 260 requires the rendition and entry of a
judgment for the deficiency against the defendant, who shall be personally liable to the
plaintiff, and execution may issue on said judgment at once." We believe it is apparent from
the provisions and decisions above-quoted that once the auction sale of the mortgaged
property is effected and the resulting deficiency in the mortgage debt is ascertained, the
mortgagee-creditor is then and there entitled to secure a deficiency judgment which may
immediately be executed, whether or not the mortgagor is still entitled to redeem the property
sold. We hold then that appellants' right to redeem their auctioned properties could not be a
bar to the present action of appellee to recover the deficiencies which it claims to have
resulted after applying the proceeds of the foreclosure sales here involved in payment of
appellants' mortgage debt. .chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.
27

PBCOM v. CA
THIRD DIVISION
[G.R. No. 118552. February 5, 1996.]
PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, v. COURT OF APPEALS and
THE SPOUSES ALEJANDRO and AMPARO CASAFRANCA, Respondents.
Rolando M. Lim and Manuel Pastrana for Petitioner.
Julius Z. Neri for Private Respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; SPECIAL CONTRACTS; MORTGAGE; AN ACTION TO
FORECLOSE A MORTGAGE MUST BE LIMITED TO THE AMOUNT MENTIONED IN THE
MORTGAGE. — The Court is unconvinced for the cases relied upon by the petitioner are
inapplicable. The doctrine first laid down in Lim Julian v. Lutero (49 Phil. 703 [1926]) pertains
only to mortgages securing future advancements. The petitioner would not have been misled
into thinking otherwise had it properly quoted Mojica in its petition. The following explanation
is helpful to distinguish future advancements from the loan in the case at bench: It is not
uncommon that persons enter into a contract whereby they draw sums of money from their
creditors, usually banks, from time to time, and as security therefor execute a mortgage on
their property. Such contracts are sometimes executed for an account smaller or larger than
that actually borrowed. Thus, it may appear in the contract that the loan secured by the
mortgage is only for P10,000 when by reason of advancements made by the creditor to the
debtor the amount ultimately drawn and borrowed is P20,000. Under these circumstances it
is inequitable to consider that the mortgage can be foreclosed only for the amount of
P10,000. Indeed, no bank or creditor would be willing to make such advancements which are
in excess of the amount stipulated if the payment thereof is not secured. . . . The obligation in
this case was not a series of indeterminate sums incurred over a period of time, but two
specific amounts procured in a single instance. Thus, the inapplicability of Lim Julian.
Instead, what applies here is the general rule that "an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage."cralaw virtua1aw library
2. ID.; ID.; ID.; "DRAGNET" CLAUSE; DEFINED. — The mortgage provision relied upon by
the petitioner is known in American jurisprudence as a "dragnet" clause, which is specifically
phrased to subsume all debts of past or future origin. Such clauses are "carefully scrutinized
and strictly construed."cralaw virtua1aw library
3. ID.; ID.; ID.; A CONTRACT OF ADHESION SUCH AS THE MORTGAGE CONTRACT IN
CASE AT BAR SHOULD BE STRICTLY CONSTRUED AGAINST THE PARTY WHO
PREPARED THE AGREEMENT. — The mortgage contract is also one of adhesion as it was
prepared solely by the petitioner and the only participation of the other party was the affixing
of his signature or "adhesion" thereto. Being a contract of adhesion, the mortgage is to be
strictly construed against the petitioner, the party which prepared the agreement.
4. ID.; ID.; ID.; ANY AMBIGUITY IN A CONTRACT WHOSE TERMS ARE SUSCEPTIBLE
OF DIFFERENT INTERPRETATIONS MUST BE READ AGAINST THE PARTY WHO
DRAFTED IT. — There is also sufficient authority to declare that any ambiguity in a contract
whose terms are susceptible of different interpretations must be read against the party who
drafted it. A mortgage and a note secured by it are deemed parts of one transaction and are
construed together, thus, an ambiguity is created when the notes provide for the payment of
a penalty but the mortgage contract does not. Construing the ambiguity against the petitioner,
it follows that no penalty was intended to be covered by the mortgage. The mortgage contract
consisted of three pages with no less than seventeen conditions in fine print; it included
provisions for interest and attorney’s fees similar to those in the promissory notes; and it even
provided for the payment of taxes and insurance charges. Plainly, the petitioner can be as
specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in
the promissory notes would be secured by the mortgage. This can then only be interpreted to
mean that the petitioner had no design of including the penalty in the amount secured.
5. RULES OF STATUTORY CONSTRUCTION; EJUSDEM GENERIS; APPLICATION IN
CASE AT BAR. — A reading, not only of the earlier quoted provision, but of the entire
mortgage contract yields no mention of penalty charges. Construing this silence strictly
against the petitioner, it can fairly be concluded that the petitioner did not intend to include the
penalties on the promissory notes in the secured amount. This explains the finding by the trial
court, as affirmed by the Court of Appeals, that "penalties and charges are not due for want of
stipulation in the mortgage contract." Indeed, a mortgage must sufficiently describe the debt
sought to be secured, which description must not be such as to mislead or deceive, and an
obligation is not secured by a mortgage unless is comes fairly within the terms of the
mortgage. In this case, the mortgage contract provides that it secures notes and other
evidences of indebtedness. Under the rule of ejusdem generis, where a description of things
of a particular class or kind is "accompanied by words of a generic character, the generic
words will usually be limited to things of a kindred nature with those particularly enumerated .
. ." A penalty charge does not belong to the species of obligations enumerated in the
mortgage, hence, the said contract cannot be understood to secure the penalty.
DECISION
28

DAVIDE, JR., J.:
This petition for review on certiorari seeks: (1) a modification of the decision of 29 April 1994
of the Court of Appeals in CA-G. R. CV No. 38332 1 affirming in toto the 20 April 1992 ruling
of the Regional Trial Court (RTC) of Cebu, Branch 16, in Civil Case No. CEB-6779; 2 and (2)
a review of the appellate court’s resolution of 4 January 1995 3 denying the petitioner’s
Motion for partial Reconsideration 4 of the aforementioned decision.
The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the
penalties stipulated in two promissory notes secured by the mortgage may be charged
against the mortgagors as part of the sums secured, although the mortgage contract does not
mention the said penalties.
The Court of Appeals adopted the trial court’s findings of facts, to wit:chanrob1es virtual 1aw
library
The following antecedental facts are supported by the pleadings and evidence on record:
Plaintiff spouses Alejandro and Amparo Casafranca, used to be the owners of Lot 802-B-2-B-
2-F-l of the subdivision plan Psd- 698545, located in Cebu City and covered by TCT No.
32769 (Exh A). On 3 December 1976 they sold the lot to Carlos Po) who paid part of the
agreed price. The latter, after securing a title in his name (TCT No. 66446), mortgaged the lot
to the Philippine Bank of Communications (PBCom for short) to secure a loan of P330,000
(Exh B). It appears that in a civil action that ensued between them, plaintiff spouses obtained
a favorable judgment against Carlos Po (Exh C). Later, in an auction sale to satisfy Carlos
Po’s judgment obligation, plaintiff spouses acquired the aforesaid lot and a Certificate of Sale
was executed in their favor (Exh D).
Meanwhile, under date of 9 September 1980 PBCom applied for extrajudicial foreclosure of
the mortgage executed by Carlos Po (Exh E), and in the succeeding auction sale held on 4
November 1980, it acquired the lot at its winning bid of P1,006,540.56. The corresponding
Certificate of Sale was then executed in its favor (Exh F). It appears further that sometime in
1981 plaintiff Amparo Casafranca who had stepped into the shoe-; of mortgagor Carlos Po by
virtue of the auction sale in her favor (Exh D) offered to redeem the property from PBCom by
tendering to its manager, Isidore Falek, a check in the amount of P500,000 which, in her
estimate, would be sufficient to settle the account of Carlos Po. PBCom did not accept the
check as it insisted that any such redemption should be at the price it acquired the lot in the
auction sale. In reaction, plaintiffs filed against PBCom Civil Case No. R-21700 in the RTC of
Cebu for nullification of the foreclosure and auction sale (Exh M). In a judgment which
became final and executory on 17 September 1986 (Exh H) the Court set aside the
extrajudicial foreclosure and auction sale and declared that the obligation secured by the
mortgage executed by Carlos Po was only P330,000 plus stipulated interest and charges
(Exh G). Subsequently, in a letter dated 4 December 1986 PBCom advised plaintiff spouses
to pay the sum of P884,281.38 purportedly representing Carlos Po’s principal account of
P330,000, interest and charges thereon, attorney’s fee[s] and realty taxes which it paid for
the lot (Exh. I). Plaintiffs, however, did not agree with said Statement of Account and since
the account remained unpaid, PBCom again applied for extrajudicial foreclosure of mortgage
(Exh J), which culminated in an auction sale of the lot on 2 April 1987, during which it was
sold to Natalie Limchio for P1,184,000 (Exh L).
On 6 April 1988 plaintiffs commenced the present action to nullify the auction sale in favor of
Natalie Limchio. It is alleged in the complaint that the second foreclosure was void as it was
based on a bloated account. Plaintiffs further alleged that PBCom refused to turn over the
correct amount of residue after paying off the mortgage and costs of the sale. Upon plaintiffs’
application, .the Court issued on 7 April 1988 a TRO enjoining defendant sheriffs from
transferring the title of the lot in favor of defendant Natalie Limchio and the latter, from taking
possession of the lot. This was followed by a preliminary injunctive writ which was issued
after hearing and upon plaintiffs’ filing of a bond. However, before the pre-trial conference
could be held, plaintiffs signified their intention to pursue only their alternative demand for the
residue or balance of the proceeds of the auction sale less the correct outstanding account
which was secured by the mortgage. For this purpose they filed an amended complaint only
against PBCom (pp. 296-305, rollo) which was admitted, in which they pray for recovery of
the sum of P625,724.90 as residue after paying off the outstanding account [to] the tune of
P558,275.00, realty taxes paid by PBCom and costs of the foreclosure proceeding. Hence,
what is left for the Court to ascertain is the true or correct account of Carlos Po as of the
auction sale on 2 April 1987 after which. the determination of the residue would follow. . . . 5
As to the amounts due the parties, the trial court computed them as follows:chanrob1es
virtual 1aw library
The mortgage contract (Exh B) explicitly provides for interest of "Twelve per cent (12%) per
annum or at such higher rate or rates as My be fixed by the MORTGAGEE from time to time,
and shall be payable at the end of every month or otherwise, as the MORTGAGEE may elect
and, if not so paid, shall be added to, and become part of, the principal and shall earn interest
at the same rate as the principal." It is then evident that the parties agreed to capitalize the
interest due and unpaid, which as added principal, shall earn new interest. Herein lies the
discrepancy in the computation respectively submitted by plaintiffs (pp. 190-191; ‘04-209,
rollo) and PBCom (pp. 181-183, rollo), for while the former assessed only conventional or
simple interest, the latter computed compound interest conformable to the mortgage contract.
In this connection, the Court finds PBCom’s computation of interest to be in accordance with
the contractual stipulations of the parties. It may be stressed that the increase in the rate of
interest from 12% to 14% as of 1 December 1979 is authorized in the mortgage contract itself
as sanctioned by CB Circular No. 705 dated 1 December 1979. PBCom is further entitled to
reimbursement for realty taxes it paid for the lot. But of course, penalties and charges are not
due for want of stipulation in the mortgage contract.
To recapitulate, the principal loan obtained by Carlos Po (now succeeded by plaintiffs) on 15
December 1976 was P330,000. Interest thereon for the first year at 12% per annum was
retained or deducted from the proceeds of the loan. For the next two (2) years or from 25
December 1977 to 30 November 1979, compound interests earned at the same rate reached
29
P77,660. And then from 1 December 1979 to 2 April 1987 (date of auction sale) the rate of
interest was raised to 14% per annum as authorized in the mortgage contract. At such rate,
compound interests for said period would be in the sum of P343,805. Adding both interest
earnings to the principal obligation, the total account would then be P751,465. Additionally,
the mortgage contract . provides for attorney’s fee[s] equivalent to 10% of the amounts due.
Hence, the sum of P75,146.50 in the concept of attorney’s fee[s] would raise the account to
P826,611.50. Finally, the amount of P83,028.18 representing realty taxes paid by PBCom for
the lot, inclusive. of interest, which must be reimbursed, will bring the grand total of the
account to P909,639.68.
On the other hand, the publication and other expenses incurred in the foreclosure and
auction sale [to] the tune of P707 should be deducted from the amount of P1,184,000 which
Natalie Limchio paid for the lot, leaving net proceeds of P1,183,293. Subtracting therefrom
the total account due to PBCom, the residue would be P273,653.32, which must be delivered
to plaintiffs. 6
In the light of the above, the trial court thus ruled:chanrob1es virtual 1aw library
WHEREFORE, foregoing premises considered, judgment is hereby rendered in favor of
plaintiffs Alejandro and Amparo Casafranca for the sum of P273,653.32 representing the
residue or balance of the proceeds of the auction sale conducted on 2 April 1987 after
deducting therefrom publication expenses and paying off the total account due to defendant
Philippine Bank of Communications, and ordering the latter to pay unto plaintiffs the aforesaid
amount.
SO ORDERED. 7
Both parties appealed from the above judgment to the court of Appeals. The petitioner
questioned the lower court’s failure to include in its computation the penalty stipulated in the
aforementioned promissory notes. On the other hand, the private respondents advanced that:
(1) the interest on the sum due to the petitioner should have stopped running on 31 July
1981; (2) the lower court should have allowed twelve percent (12%) interest per annum on
the amount awarded to the private respondents from 3 April 1987 until the obligation was fully
paid; and (3) the lower court should have awarded the private respondents moral and
exemplary damages, attorney’s fees, and litigation expenses.
The Court of Appeals affirmed the decision of the trial court in toto and subsequently denied
the parties’ separate motions for reconsideration.
The petitioner and the private respondents then instituted with this Court separate petitions
for certiorariunder Rule 45 of the Rules of Court. While that of the petitioner was docketed as
G.R. No. 11855 (this case), that of the private respondents was docketed as G.R. No.
118809 and assigned to the Second Division. However, the two actions were not
consolidated.
The private respondents in this case filed their Comment 8 to petition as required in the
resolution of 8 February 1995. 9
On 13 March 1995, the, Second Division issued a resolution which dismissed G.R. No.
118809, thus:chanrob1es virtual 1aw library
[F]or failure to persuasively demonstrate any reversible error in the challenged judgment of
the Fourth Division of the Court of Appeals promulgated on April 29, 1994 — affirming in toto
that of the Regional Trial Court of Cebu rendered by Judge (now Court of Appeals Justice)
Godardo A. Jacinto on April 20, 1992 (Civil Case No. CEB-6779) — it appearing on the
contrary, that both judgments correctly appreciated the evidence and applied the relevant
legal provisions in ruling, essentially, that there had been no valid tender of payment by
petitioners of the amount of the mortgage liability burdening the property in question, and that
the computation of the amount rightly due said petitioner s had been correctly made in
accordance with the law applicable to the case (Act No. 3135, as amended). Moreover, the
record discloses no important and special reason for the exercise by this Court of its
discretionary power of review in this case. 10
On 9 May 1995, this Court received the private respondents’ Manifestation 11 drawing our
attention to this resolution.
On 23 August 1995, we gave due course to the petition 12 and required the parties to submit
their respective memoranda, which they subsequently did. The private respondents
contended that" [a]ctually there are no more issues left for this Honorable Court to decide
because all the issues in controversy in this case has [sic] already been decided with finality
by the Second Division of the Supreme Court in G.R. No. 118809." 13 To which, petitioner
replied 14 that the G.R. No. 118809 resolution dispensed with only those issues raised
therein by the private respondents and did not touch on the questions raised in this case.
The petition is not impressed with merit.
The two promissory notes in question, signed by Carlos Po, 15 are similarly worded and their
pertinent provisions read:chanrob1es virtual 1aw library
For value received, I/we jointly and severally, promise to pay the Philippine Bank of
Communications, at its office in the City of Cebu, Philippines the sum of THREE HUNDRED
THOUSAND PESOS (P300,000.00), Philippine Currency, together with interest thereon at
the rate of TWELVE % per annum until paid, which interest rate the Bank may at any time
without notice, raise within the limits allowed by law, and I/we also agree to pay, jointly and
solidarily 12% per annum penalty charge, by way of liquidated damages should this note be
unpaid or is not renewed on due date.
x x x
Should it become necessary to collect this note through an attorney-at-law, I/we hereby
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expressly agree to pay, jointly and severally, ten per cent (10%) of the total amount due on
this note as attorney’s fees which in no case shall be less than P100.00 exclusive of all costs
and fees allowed by law stipulated in the contract of real estate mortgage if any there be.
while the mortgage contract provides in part: 16
This mortgage is given as security for the payment to the MORTGAGEE on demand or at
maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of
exchange, drafts, overdrafts and all other obligations of every kind already incurred or which
hereafter may be incurred by the MORTGAGOR(S) and Po’s All Electrical Supply either as
principal debtor(s) or as surety(ies) or in any other capacity, including discounts of Chinese
and other drafts, bills of exchange, promissory notes, even without any further endorsements
by the Mortgagor(s), said property or properties to stand security for the payment of the said
obligations to the fullest extent and for all that it is (or they are) worth, to the extent of THREE
HUNDRED THIRTY THOUSAND PESOS (P330,003.00) Philippine Currency.
x x x
This mortgage shall be subject to the following conditions, to wit:chanrob1es virtual 1aw
library
FIRST: The interest on the obligations secured by this mortgage shall be computed at the
rate of Twelve per cent (12%) per annum or at such other or higher rate or rates as may be
fixed by the MORTGAGEE from time to time, and shall be payable at the end of every month
or otherwise, as the MORTGAGEE may elect and if not so paid, shall be added to, and
become part of, the principal and shall earn interest at the same rate as the principal.
x x x To bolster its argument, the petitioner relies on the cases represented by Mojica v. Court of
EIGHT: The MORTGAGOR(S) shall, during the existence of this mortgage, promptly pay
when due all taxes or assessments of every kind that may be levied upon the property or
properties hereby mortgaged and deliver the corresponding tax receipts to the
MORTGAGEE, . . . In case of failure on the part of the MORTGAGOR(S) to comply with the
provisions of this condition, the MORTGAGEE may and is hereby authorized to pay such
taxes or assessments and to have the buildings insured; and any sum or sums so spent by
the MORTGAGEE shall be fully secured hereby and be subject to the terms hereof . . .
x x x advancements. The petitioner would not have been misled into thinking otherwise had it
ELEVENTH: The expenses incurred in the drafting, acknowledgment and the registration of
this mortgage and of its cancellation, shall be for the account of, and shall be paid by, the
MORTGAGOR(S).
TWELFTH: Should the MORTGAGEE find it necessary to resort to the courts in order to
collect any amount which may be due, the interest thereon or the expenses incurred on
account of the matters enumerated in the previous paragraphs, or should the MORTGAGEE
in any manner and for any reason be involved in Litigation on account of the property or
properties mortgaged, or should foreclosure proceedings be instituted in accordance with the
fourth condition hereof or should the MORTGAGOR(S) encumber the property or properties
hereby mortgaged with a second mortgage without the written consent of the MORTGAGEE,
the MORTGAGEE shall be allowed a sum equivalent to Ten Per Centum (10%) of all the
amounts due, but in no case Less than THIRTY THREE THOUSAND PESOS as attorney’s
fees, said amount to be considered part of the principal sum hereby secured, this mortgage
answering for its payment accordingly.
We immediately discern that the mortgage contract does not at all mention the penalties
stipulated in the promissory notes. However, the petitioner insists that the penalties are
covered by the following provision of the mortgage contract:chanrob1es virtual 1aw library
This mortgage is given as security for the payment to the MORTGAGEE on demand or at
maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of
exchange, drafts, overdrafts and all other obligations of every kind already incurred or which
hereafter may be incurred. . . .
The petitioner’s :insistence is based on the supposed rule:chanrob1es virtual 1aw library
[T]hat the determination of the mortgage debt would not be limited on the mortgage contract
itself if from the face thereof, it is apparent that other obligations are also intended to be
secured.
Appeals 17 which held:chanrob1es virtual 1aw library
It has long been settled by a long line of decisions that mortgages to secure future
advancements are valid and legal contracts; that the amounts named as consideration in said
contract do not limit the amount for which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other indebtedness can be gathered.
18
The Court is unconvinced for the cases relied upon by the petitioner are inapplicable. The
doctrine first laid down in Lim Julian v. Lutero 19 pertains only to mortgages securing future
properly quoted Mojica in its petition. The following explanation is helpful to distinguish future
advancements from the loan in the case at bench:chanrob1es virtual 1aw library
It is not uncommon that persons enter into a contract whereby they draw sums of money from
their creditors, usually banks, from time to time, and as security therefor execute a mortgage
on their property. Such contracts are sometimes executed for an account smaller or larger
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than that actually borrower. Thus, it may appear in the contract that the loan secured by the
mortgage is only for P10,000 when by reason of advancements made by the creditor to the
debtor the amount ultimately drawn and borrowed is P20,000 Under these circumstances it is
inequitable to consider that the mortgage can be foreclosed only for the amount of P10,000.
Indeed, no bank or creditor would be willing to make such advancements which are in excess
of the amount stipulated if the payment thereof is not secured . . . 20
The obligation in this case was not a series of indeterminate sums incurred over a period of
time, but two specific amounts procured in a single instance. Thus, the inapplicability of Lim
Julian . Instead, what applies here is the general rule that "an action to foreclose a mortgage
must be limited to the amount mentioned in the mortgage." 21
Aside from the foregoing, other factors militate against the petitioner’s stance.
The mortgage provision relied upon by the petitioner is known in American jurisprudence as a
"dragnet" clause, which is specifically phrased to subsume all debts of past or future origin.
Such clauses are "carefully scrutinized and strictly construed." 22
The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and
the only participation of the other party was the affixing of his signature or "adhesion" thereto.
Being a contract against the petitioner, the party which prepared the agreement. 23
A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields
no mention of penalty charges. 24 Construing this silence strictly against the petitioner, it can
fairly be concluded that the petitioner did not intend to include the penalties on the promissory
notes in the secured amount. This explains the finding by the trial court, as affirmed by the
Court of Appeals, that "penalties and charges are not due for want of stipulation in the
mortgage contract."25cralaw:red
Indeed, a mortgage must sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is not secured by a
mortgage unless it comes fairly within the terms of the mortgage. 26 In this case, the
mortgage contract provides that it secures notes and other evidence of indebtedness. Under
the rule of ejusdem generis, 27 where a description of things of a particular class or kind is
"accompanied by words of a generic character, the generic words will usually be limited to
things of a kindred nature with those particularly enumerated. . . ." 28 A penalty charge does
not belong to the species of obligations enumerated in the mortgage, hence, the said contract
cannot be understood to secure the penalty.
There is also sufficient authority to declare that any ambiguity in a contract whose terms are
susceptible of different interpretations most be read against the party who drafted it. 29
A mortgage and a note secured by it are deemed parts of one transaction and reconstrued
together, 30 thus, an ambiguity is created when the notes provide for the payment of a
penalty but the mortgage contract does not. Construing the ambiguity against the petitioner, it
follows that no penalty was intended to be covered by the mortgage. The mortgage contract
consisted of three pages with no less than seventeen conditions in fine print; it included
provisions for interest and attorney’s fees similar to those in the promissory notes; and it even
provided for the payment of taxes and insurance charges. Plainly, the petitioner can be as
specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in
.the promissory notes would be secured by the mortgage. This can then only be interpreted
to mean that the petitioner had no design of including the penalty in the amount secured.
It should also be noted that the private respondents consistently excluded penalty charges in
their computation of the amount due to the petitioner, 31 while the petitioner seemed
indecisive in including the said charges.
In its Manifestation 32 of 14 May 1988 before the trial court, the petitioner computed the
penalty charge as follows:chanrob1es virtual 1aw library
Penalty charge on the principal
amount of P330.000.00 from
Dec. 25, 1977 to April 2, 1987
at the rate of 8% per annum (P)248,233.33
The promissory notes provided for a 12% per annum penalty, 33 not eight percent (8%). The
petitioner explained this discrepancy in its Memorandum 34 submitted to the trial court,
claiming:chanrob1es virtual 1aw library
On the contrary, the bank’s computation of the actual amount of the mortgage debt should be
upheld. In fact, the bank was lenient on the spouses in computing the amount of the debt. For
instance, the rate of charges stipulated is 12% per annum . . . Yet the bank computed the
charges at a much lesser rate . . . thereby lessening the actual amount of the mortgage debt.
35 The petitioner, however, included in its Offer of Exhibits: 36
14. EXHIBIT "14" — Promissory Note No. 3838
dated 25 October 1977.
14-A — Stipulation on penalty/bank charges.
PURPOSE:chanrob1es virtual 1aw library
. . . 3) It is stipulated that PBCom could impose penalty charges of 12% per annum; and 4)
PBCom was liberal on plaintiffs as it did not impose the full extent of the stipulated charges.
Far then from being a display of lenience or liberality, the above circumstances evince the
petitioner’s uncertainty as to whether penalty charges were actually due it. In fact, in a
statement of account 37 signed by the petitioner’s Senior Vice- President, Isidore Falek, there
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was no mention of a penalty charge, although there was an entry stating:chanrob1es virtual
1aw library

Interest

x x x

8% Bank charges P 248,233.33

Furthermore, the promissory notes are clear that the penalty shall be at 12% per annum,
neither more nor less. Thus, when the petitioner claims that under the same notes it could
impose, as in fact it did, the lower penalty of 8% — contrary to what was covenanted — the
petitioner only reveals that it is wont to stipulate what it does not mean. The private
respondent then should not be faulted for the petitioner’s imperfection, and the latter must
bear the consequences of its failings.

It is interesting to note that the petition in this case did not include a computation of the sum
due as penalty which is the very matter in dispute. The petitioner merely pegged its claim at
"12% per annum on the principal amount of P330,000.00 computed from 1977," 38 which
was likewise a departure from the 8% interest rate which it insisted upon during trial.

After interpreting the mortgage contract strictly against the petitioner, considering the
intention of the parties as evidenced by their various pleadings and assertions, the
inescapable conclusion is that the mortgage contract did not authorize the petitioner to
include in the secured amount the penalty stipulated in the promissory notes. The mortgage
contract did not contain a trace of the said penalty and, proceeding by the rule that "an action
to foreclose a mortgage must be limited to the amount mentioned in the mortgage," such
penalty can not be recovered on the foreclosure of the mortgage.

WHEREFORE, finding no reversible error on the part of respondent Court of Appeals, its
challenged decision of 29 April 1994 in CA-G.R. CV No. 38332 is hereby AFFIRMED in toto.

Costs against the petitioner.

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