REAL ESTATE MORTGAGE FOR FEB 11

Article 2124

DILAG v. HEIRS OF RESURRECCIONRepublic of the Philippines

SUPREME COURTManila

EN BANCG.R. No. 48941 May 6, 1946NORBERTO L. DILAG, as administrator of the intestate estate of Laureano Marquez, petitioner, vs.THE LEGAL HEIRS OF FORTUNATO RESURRECCION, ET AL., respondents.Vicente J. Francisco for petitioner.Magno S. Gatmaitan and Jose Borlongan for respondents.OZAETA, J.:This case is before us on certiorari to review a decision of the First Division of the Court of Appeals affirming, with modification, that of the Court of First Instance of Bulacan. The record as reconstituted by the parties consist only of the supplemental petition for certiorari; the brief for the petitioner, which contains as an appendix the decision of the Court of Appeals; the brief for the respondents; the memorandum for the petitioner in lieu of oral argument; and the reply memorandum for the respondents.The facts found by the Court of Appeals may be restated as follows:Before the year 1936 Laureano Marquez was indebted to Fortunato Resurreccion in the sum of P5,000 as the balance of the purchase price of a parcel of land which the former had bought and received from the latter. Fortunato Resurreccion in turn was indebted to the Luzon Surety Company in the same amount, which was secured by a mortgage on three parcels of land, one of which was that bought by Laureano Marquez from him. The formal deed of sale from Resurreccion to Marquez was to have been executed after Marquez shall have fully paid the purchase price and after Ressurreccion shall have secured the cancellation of the mortgage by the Luzon Surety Company.As early as 1933 Laureano Marquez had agreed to pay Fortunato Resurreccion's indebtedness of P5,000 to the Luzon Surety Company by way of satisfaction of his own indebtedness to Fortunato Resurreccion in the same amount (Exhibits O and Q). In Exhibit Q signed by Laureano Marquez on July 10, 1933, he bound himself as follows: "In the event an action is presented by the Luzon Surety Company against Fortunato Resurreccion for the recovery of the said indebtedness and the interests thereon, I, Laureano Marquez, obligate myself to indemnify Fortunato Resurreccion for all the damages he may suffer in case the parcels of land mortgaged to the Luzon Surety Company are sold at public auction, including the fees of the attorneys of Fortunato Resurreccion in the suit brought by the Luzon Surety Company as well as in the action that Fortunato Resurreccion may bring against me in relation to this agreement." .Laureano Marquez failed to pay the indebtedness of Fortunato Resurreccion to the Luzon Surety Company, and the latter foreclosed judicially the mortgage executed in its favor by Fortunato Resurreccion.On April 25, 1936, pending the foreclosure sale of the lands mortgaged by Resurreccion to the Luzon Surety Company, Laureano Marquez executed and delivered to Fortunato Resurreccion another document in the following terms:

Sepan todos los que la presente vieren:Que yo, Laureano Marquez, de 51 anos de edad, filipino, viudo, y vecino del barrio de Paco, municipio de Obando, Provincia de Bulacan, libre y voluntariamente hago constar y otorgo:Primero. — Que yo, Laureano Marquez, me comprometo y me obligo en pagar a la "Luzon Surety Co., Inc.," una corporacion domiciliada en la Ciudad de Manila, toda la deuda del Sr. Fortunato Resurreccion, con todos sus intereses vencidos y que en adelante vencieren, los honorarios de abogados, y todos los gastos de ejecucion y costas judiciales, segun estan especificados en la sentencia y orden de ejecucion de hipoteca en la causa civil No. 5037 del

Juzgado de Primeria Instancia de Bulacan, intitulado "Luzon Surety Company, Inc," demandante, contra Fortunato Resurreccion, cuyo pago hare efectivo antes de hacerse la subasta en el momento en que se haga la subasta de las tres (3) parcelas de terrenos convertidos en pesquerias constituidos en hipoteca por dicho demandado Fortunato Resurreccion a favor de dicha "Luzon Surety Co., Inc." con el fin de que dichas tres (3) parcelas de terrenos y cualquiera de ellas no puedan venderse en subasta publica en el dia senalado en el aviso del Sheriff Provincial de Bulacan.Segundo. — Que este compromiso y obligacion de pago arriba especificado se debe en consideracion al hecho de que el deudor y demandado Sr. Fortunato Resurreccion no ha podido pagar toda su deuda con sus intereses a la citada acreedora "Luzon Surety Co., Inc." porque yo, Laureano Marquez, no he pagado a mi vez al Sr. Fortunato Resurreccion mi deuda como parte del precio de venta a mi favor de una de las tres pesquerias objeto de hipoteca, y por efecto de mi morosidad, el Sr. Fortunato Resurreccion incurrio a su vez en morosidad en el pago de su deuda con sus intereses a la "Luzon Surety Co., Inc. "Tercero. — Que en el caso de que yo, Laureano Marquez, no pudiera pagar a la Luzon Surety Co., Inc., todas las obligaciones del demandado Fortunato Resurreccion especificadas en el parrafo Primero de esta escritura, y por dicha falta de pago de mi parte, se llevara a cabo y se efectuara la Subasta Publica de todas o cualquiera de las tres (3) parcelas de terrenos objeto de hipoteca a favor de la Luzon Surety Co., Inc., entonces y en tal caso, yo, Laureano Marquez, quedo obligado a pagar al Sr. Fortunato Resurreccion o a las personas que sean duenas de todas o cualquiera de dichas tres (3) parcelas de terrenos pesquerias, el valor real de todas o cualesquiera de dichas tres (3) pesquerias que se vendieran definitivamente en Subasta Publica, y pagare ademas la correspondiente indemnizacion a dicho Fortunato Resurreccion o a las personas que sean duenas de dichas tres (3) pesquerias, con los correspondientes honorarios de sus abogados, y costas judiciales, en caso de pleito.Cuarto. — Que en y como garantia de mi obligacion de pagar y de indemnizar al Sr. Fortunato Resurreccion, en consideracion a la suma de un peso (P1) y en consideracion ademas, a todo lo expuesto en el parrafo tercero de este documento, por la presente constituyo en segunda hipoteca a favor de dicho Sr. Fortunato Resurreccion, y sus cesionarios, las siguientes cinco (5) parcelas de terrenos de mi propiedad que se describen como sigue: .

1. Una parcela de terreno (lote No. 2569 of the S. M. de Pandi Estate, G. L. R. O. Reeord No. 8503), situated in the municipality of Bigaa, Province of Bulacan, Island of Luzon. Bounded on the north by lots Nos. 2567 and 2571, on the East by lot No. 2570, on the South by lots Nos. 2570 and 2568, and on the West by lot No. 2567, containing an area of thirty-two thousand eight hundred six (32,806) square meters, more or less. Transfer Certificate of Title No. 16561.2. A parcel of land (lot No. 2012 of the S. M. de Pandi Estate, G. L. R. O. Record No. 8503), situated in the municipality of Bigaa, Province of Bulacan, Island of Luzon. Bounded on the Northeast by lots Nos. 2827, 2826, 2825, 2824 and 2813, on the Southeast by lot No. 2811, on the Southwest by lot No. 2811, and on the Northwest by lot No. 2828. Containing an area of thirty-one thousand one hundred twenty-four (31,124) square meters, more or less. Transfer Certificate of Title No. 16563.3. A parcel of land (lot No. 2871 of the S. M. de Pandi Estate, G. L. R. O. Record No. 8503), situated in the municipality of Bigaa, Province of Bulacan, Island of Luzon. Bounded on the Northeast by lots Nos. 5090 and 2880, on the Southeast by lot No. 2870, on the Southwest by Manatal creek, and on the Northwest by lot No. 2872. Containing an area of nineteen thousand four hundred and one (19,401) square meters, more or less. Transfer Certificate of Title No. 16564.4. A parcel of land (lot No. 2873 of the S. M. de Pandi Estate, G. L. R. O. Record No. 8603), situated in the municipality of Bigaa, Province of Bulacan, Island of Luzon.

Bounded on the Northeast by lots Nos. 5089 and 2879, on the Southeast by lot No. 2872, on the Southwest by Manatal creek, and on the Northwest by lot No. 2874. Containing an area of nineteen thousand thirteen (19,013) square meters, more or less. Transfer Certificate of Title No. 16565.5. A parcel of land (lot No. 2880 of the S. M. de Pandi Estate, G. L. R. O. Record No.8503), situated in the municipality of Bigaa, Province of Bulacan, Island of Luzon. Bounded on the Northeast by lot No. 2883, on the Southeast by lot No. 2881, on the Southwest by lots Nos. 2870 and 2871, and on the Northwest by lots Nos. 5090 and 2879. Containing an area of twenty-two thousand one hundred fourteen (22,114) square meters, more or less. Transfer Certificate of Title No. 16566.' .

Quinto. — Que siendo el valor real de las cinco (5) parcelas de terrenos arriba descritos en el parrafo cuarto de este documento insuficientes para cubrir todas mis obligaciones y responsibilidades objeto de este documento a favor del Sr. Fortunato Resurreccion, constituyo tambien en garantia a favor del Sr. Fortunato Resurreccion y sus cesionarios cualesquiera bienes que hoy y en adelante tuviere, y cualesquiera derechos y acciones que hoy y en adelante tuviere.Sexto. — Que hoy he recibido del Sr. Fortunato Resurreccion el Certificado de Transferencia de Titulo No. 16562 sobre el terreno lote No. 2811 de mi propiedad, en Bigaa, Bulacan, con el objeto de vender dicha parcela de terreno, y su precio de venta se pagara tambien a la "Luzon Surety Co., Inc." para completar el pago total de las obligaciones del Sr. Fortunato Resurreccion conforme en que yo venda en venta absoluta dicho terreno lote No. 2811, aunque dicho terreno formaba parte de mi garantia a favor del citado Sr. Fortunato Resurreccion sobre mis obligaciones objeto de este documento.En testimonio de todo lo cual, firmo la presente en Malolos, Bulacan, hoy a 25 de abril de 1936.

(Fdo.) LAUREANO MARQUEZ.

Firmado en presencia de:(Fdo.) JOSE R. PLATON(Fdo.) ILEGIBLE (Exhibit A.)

Since Laureano Marquez did not fulfill his promise contained in the first clause of the instrument above quoted, with the result that the mortgaged properties were sold at public auction and were totally lost by Fortunato Resurreccion, the latter commenced the present action against Laureano Marquez upon the instrument above quoted (1) to recover the value of the lost properties amounting to P16,500, with legal interest thereon from the date of the filing of the complaint, plus P2,000 as indemnity for the rents of the lands sold and P1,000 as attorney's fees, and (2) to foreclose the mortgage embodied in said instrument.As we do not have the record on appeal before us, we have to rely entirely upon the statements found in the decision of the Court of Appeals as to the issues raised by the parties in the lower courts. The issues raised in the Court of First Instance were stated by the Court of Appeals in its decision as follows:.

El demandado, ademas de una negacion general, alego como defensa especial, hechos que en sintesis significan que el firmo el Exhibit A por acomodacion, reclamando en contrademanda la suma de P5,000 por danos y perjuicios y honorarios de abogados, contestacion que fue enmendada para incluir como partes contrademandados a Honorio Resurreccion y Emilia Resurreccion, y alega que de la suma de P8,397 que el debia al demandante ya habia pagado P8,103.29.El demadante tambien enmendo su demanda y su contestacion enmendada a la contrademanda enmendada, alegando entre otras cosas, que Honorio y Emilia Resurreccion no tomaron parte en la venta del terreno descrito en el certificado original de titulo No. 437, que el precio convenido era de P2,000 y no P1,500, y que el Exhibit A expresa la verdadera intencion de las partes, contestacion que volvio a enmendarse el 5 de agosto de 1940.

The questions discussed and decided by the Court of Appeals were the following:.1. La primera cuestion que suscita el demandado y apelante es la de que el demandante no tienie derecho de cobrar los danos y perjuicios, objetos de la demanda, porque las parcelas primera y tercera de las hipotecadas a la Luzon Surety Company, Inc., no le pertenecen, sino a Honorio Resurreccion y a los hijos del abogado Vicente Platon, segun la particion de los bienes del finado Arcadio Resurreccion. . .2. La siguiente cuestion es la de si el demandado tiene derecho a rescindir el contrato, porque el demandante no ha querido otorgar la escritura de venta a su favor. . .3. Dejaremos para mas tarde discutir los senalamientos de error 3.o y 4.o y pasemos al 5.o y 8.o. Segun estos el demandado firmo el Exhibit A por acomodacion. . . .4. En cuanto a la posesion del terreno, la conclusion del Juzgado de que la tenia el demandado esta sostenida por el testimonio de Vicente Platon, corroborado por el guardian o encargado de la pesqueria, Roman Sto. Tomas.5. En cuanto al 3. senalamiento de error, o sea, el precio por hectarea del terreno vendido, el Juzgado estimo que era el de P2,000 por hectarea. . . .

All these questions were decided favorably to the plaintiff, who had died in the meantime and who is now represented by the herein respondents. The dispositive part of the decision of the Court of Appeals reads as follows:

En resumen el demandado debe pagar a los hectaderos del demandante la suma de P16,500, por la unica que se reclama en la demanda, mas P1,246 por las rentas de dos de los terrenos vendidos por la Luzon Surety Company, Inc., y mas P1,000 por honorarios de abogados, pero con deduccion de la suma de P5,255.99 que dicho demandado habia pagado al demandante, con los intereses legales de la primera cantidad desde la interposicion de la demanda y las costas. En el caso de que el demandando dejara de verificar dicho pago dentro del plazo de 90 dias, se vendera en subasta publica los bienes hipotecados en el Exhibit A.

The petitioner makes the following assignment of errors alleged to have been committed by the Court of Appeals:

1. The Court of Appeals erred in not holding that the verbal sale agreement between Fortunato Resurreccion and Laureano Marquez covering the land under Title 437 which belonged to the estate of Arcadio Resurreccion and which was then under judicial administration, was void ab initio or nonexistent, because it was not consented to nor approved by the probate court taking cognizance of the settlement of the estate of said Arcadio Resurreccion.2. The Court of Appeals erred in not holding that the agreement purported to be contained by Exhibits O, Q and A, or any other agreement based upon the verbal agreement to sell the land under Title 437, was voidab initio or nonexistent due to absolute lack of consideration, because the said verbal agreement, being in itself void ab initio, cannot serve as consideration under the law.3. The Court of Appeals erred in denying the motion for reconsideration submitted by the herein petitioner as appellant to that court, and in declaring in its resolution of denial that the invalidity of Exhibit A may not be invoked by Laureano Marquez or his legal representative but only by the heirs of Arcadio Resurreccion.4. The Court of Appeals erred in holding that Fortunato Resurreccion had the right to enforce and foreclose Exhibit A as regards the damages caused by the loss of the lands under Titles 435 and 877, adjudicated, respectively, to Emiliana Resurreccion and the children of Vicente Platon under the project of partition, notwithstanding the fact that Fortunato Resurreccion did not, and his legal heirs now do not, claim any damages for the loss of the land under Title 437.5. The Court on Appeals erred in ordering (if it is the meaning of the decision) the sale in public auction of the five parcels of land mentioned in the complaint of Fortunato

Resurreccion (pages 10-12 of the bill of exceptions, accompanying the petition herein), which lands were not mortgaged in legal contemplation in favor of Fortunato Resurreccion under Exhibit A.

1 and 2. The main ground of this appeal by certiorari is contained in the first and second assignments of error. But all the argument adduced by the counsel in support thereof is premised upon alleged facts which do not appear in the decision of the Court of Appeals and which are disputed by the respondents herein. In truth, that decision does not even give any hint that any question pertaining to the supposed nullity of the sale agreement between Fortunato Resurreccion and Laureano Marquez and of Exhibit A upon which this action is based, was ever raised in the lower courts. According to the Court of Appeals the special defense alleged by the defendant was that he signed Exhibit A as an accommodation. In rejecting that defense the Court of Appeals stated that Exhibit A was not the only document executed by the defendant in favor of the plaintiff obligating himself to pay the latter's indebtedness to the Luzon Surety Company, but also Exhibit O and Q, dated March 9 and July 10, 1933, wherein said defendant declared that he was obligated to make said payment because he owned the plaintiff P5,000 as part of the purchase price of the land bought by him. The Court of Appeals further set forth the negotiations had by the defendant with the Luzon Surety Company to secure extensions of the time within which to pay the mortgage of the plaintiff. The Court of Appeals made no mention whatsoever of the facts involved in the first two errors now assigned by the petitioner before this Court.We find no factual basis upon which to consider and decide the questions raised in petitioner's first and second assignments of error. We cannot reverse the judgment of the Court of Appeals upon alleged facts different from, and even contradictory to, those found by that court.3. Neither can we pass upon the third assignment of error, first, because it is a mere sequence of the first two assignments of error and, second, because we do not even have before us petitioner's motion for reconsideration in the Court of Appeals and the latter's resolution thereon.4. Under his fourth assignment of error the petitioner contends that Fortunato Resurreccion had no right to enforce and foreclose Exhibit A as regards the damages caused by the loss of two of the three parcels of land mortgaged to the Luzon Surety Company because they did not belong to Fortunato Resurreccion but to Emiliana Resurreccion and the children of Vicente Platon. He contends that it was only the said owners of those lands who could have brought the present action.This contention runs counter to the provision of section 3 of Rule 3 of the Rules of Court, which says that "a party with whom or in whose name a contract has been made for the benefit of another . . . . may sue or be sued without joining the party for whose benefit the action is presented or defended."It will be noted that in the third clause of Exhibit A Laureano Marquez obligated himself to pay to Fortunato Resurreccion or to the persons who may be the owners of all or any of the three parcels of land, the real value thereof in case they were sold at public auction.In his memorandum in lieu of oral argument counsel for the petitioner says that at first glance section 3 of Rule 3 above cited would appear applicable against his contention. But he argues that it should not be applied because Exhibit A is a unilateral promise by Laureano Marquez to indemnify Fortunato Resurreccion or those who might become the owners of the lands in question; and that Fortunato Resurreccion was not a party to the contract Exhibit A, for as a matter of fact it was signed by Laureano Marquez only.We do not think that the word "contract" used in section 3 of Rule 3 refers exclusively to a bilateral contract. It obviously refers to any contract — bilateral or unilateral — enforcible in court. The rule in question refers to a suit by or against "a party with whom or in whose name a contract has been made for the benefit of another." Article 1254 of the Civil Code says that a contract exists from the moment one or more persons consent to be bound with respect to another or others to deliver something or to render some service. A deed of sale or mortgage is usually a unilateral contract in the sense that only the vendor or mortgagor signs it. Likewise a promissory note is a unilateral contract in the sense that only the promisor or maker signs it. But these do not mean that the signer

is the only party to that contract and the only one entitled to sue thereon. The obligee is as much a part to the contract as the obligor, for there can be no obligor without an obligee; and as a matter of course it is the obligee who has the right to sue on and enforce the obligation.In his supplemental petition for certiorari the petitioner expresses the fear that the decision of the Court of Appeals may not preclude Emiliana Resurreccion and the children of Vicente Platon from enforcing the pour autruistipulation in Exhibit A. We think such fear is unfounded. Once Exhibit A is enforced by the court under the authority of section 3 of Rule 3 above cited, at the instance of one of the parties thereto, there is no room for the apprehension that it may be enforced anew at the instance of any other party. In authorizing a suit by a trustee or a party in a representative capacity, said rule necessarily precludes the necessity and authority for the beneficiary to bring a separate suit on his own account upon the same cause of action; for the law does not countenance a multiplicity of suits, and much less an injustice.5. The fifth assignment of error assails the judgment of the Court of Appeals in so far as it authorizes the sale at public auction of five parcels of land mentioned in plaintiff's complaint but not specifically described in the mortgage deed Exhibit A. Those five parcels are said to have been acquired by Laureano Marquez subsequent to the execution of Exhibit A. In the fifth clause of said document Laureano Marquez stipulated that inasmuch as the five parcels of land described in the fourth clause were not sufficient to cover all his obligations in favor of Fortunato Resurreccion, he also constituted a mortgage in favor of the latter and his assignees on any other property he then might have and on those he might acquire in the future.Did such a stipulation constitute a valid mortgage on the five other parcels of land which Laureano Marquez subsequently acquired? We do not think so. In the first place, Laureano Marquez could not legally mortgage any property he did not yet own (see paragraph 2, article 1857, Civil Code). In the second place, in order that a mortgage may be validly constituted the instrument by which it is created must be recorded in the registry of deeds (article 1875, id.); and so far as the additional as parcels of land are concerned, the registration of Exhibit A did not affect and could not have affected them because they were not specifically described therein.The contention of the respondents that after the institution of the present action notice of lis pendens was filed in the registry of deeds affecting the said five additional parcels of land, merely serves to emphasize the fact that there was no mortgage thereon; otherwise there would have been no necessity for any notice of lis pendens.The fifth assignment of error is well taken and is therefore sustained.We observe that the Court of Appeals awarded to the plaintiff not only the value of the land, amounting to P16,500, which the plaintiff or his co-heirs lost as a result of the foreclosure sale made at the instance of the Luzon Surety Company, plus legal interest thereon from the date of the filing of the complaint but also the sum of P1,246 as rent or income of said land which the plaintiff failed to receive. We do not think the last-mentioned amount was included in Laureano Marquez' undertaking. In the third clause of Exhibit A he obligated himself, in the event said parcels of land were auctioned off, to pay their real value to Fortunato Resurreccion. If the plaintiff is entitled to indemnity for the land he lost, he is not entitled to the subsequent rent or income of that land. He is entitled only to the interest on the amount of the indemnity from the time he sues therefor to the time it is paid. We do not find in the decision of the Court of Appeals any basis for awarding the said rent or income of P1,246. To what period of time that rent or income was supposed to correspond, has not even been shown. If it was rent before the sale of said land at public auction, the defendant could not be held liable therefor; and if it was rent after the sale, neither could the defendant be held liable for it, since his undertaking was to pay for the value of the land as of the date of the sale, and once the owner is indemnified for the land, he is not entitled to the subsequent income therefrom.We consider that error plain enough to authorize us to notice it, although it was not specifically assigned by the petitioner, under section 5 of Rule 53. Moreover, the petitioner questions his entire liability under Exhibit A, and if he cannot be absolved entirely he may be absolved at least partially.

With the elimination of the item of P1,246 and with the understanding that the foreclosure sale shall be limited to the five parcels of land described in the mortgage deed Exhibit A that the judgment of the Court of Appeals is for the heirs of Vicente Platon, said judgment is affirmed, without any finding as to costs in this instance.Moran, C.J., Jaranilla, Feria, De Joya, Hilado and Bengzon, JJ., concur.Separate OpinionsBRIONES, M., concurrente y disidente:No cabe duda de que Laureano Marquez se obligo a pagar a la Luzon Surety Co. la deuda del Intestado de Arcadio Resurreccion montante a unos P10,000. Marquez asumio esta obligacion por haber comprado una de las 3 parcelas de terreno (pesquerias) hipotecadas a la Luzon Surety en garantia de dicha deuda. La parcela de terreno comprada tiene un poquito mis de 5 hectareas de extension y lleva el certificado de titulo Torrens No. 437. Habiendose fijado el precio de la compraventa a razon de P2,000 la hectarea, Marquez tenia que pagar por el terreno la suma total de unos P10,000, es decir, la misma cantidad de la deuda del Intestado de Resurreccion cuyo pago asumio a favor de Luzon Surety Co. Esto explica la naturaleza de la transaccion: Marquez, en lugar de pagar al contado el precio de la compraventa a Fortunato Resurreccion, administrador del Intestado, asumio la obligacion de pagar la deuda de este a favor de Luzon Surety.A mi juicio, es indiferente que Fortunato Resurreccion haya vendido la finca como propiedad suya personal, o como propiedad del Intestado. Los autos demuestran que, de todas maneras, el predio quedo finalmente adjudicado a dicho Fortunato en el decreto de particion expedido por el Juez de testamentarias. Esto vino a curar la compraventa de cualquier vicio de origen de que hubiera podido adolecer por haberse vendido una propiedadin custodia legis, sin previa aprobacion del Juzgado (De los Santos contra Antonio, R. G. No. 38014, promulgada el 11 de Octubre, 1933; Jakosalem contra Rafols, 73 Phil., 628).Pero disiento, en parte, de la opinion de la mayoria porque encuentro muy onerosa y pesada la sentencia dictada contra Marquez o sus herederos. En apoyo de una atenuacion de la responsabilidad del deudor se pueden tener en cuenta las siguientes circunstancias: (a) Segun la sentencia del Tribunal de Apelacion, Marquez ya habia pagado un poquito mas de la mitad del precio de la compraventa, esto es, la cantidad de P5,255.99. La mayoria confirma esta apreciacion en su opinion.(b) La escritura de hipoteca Exhibit A, que es la base de la presente accion, se firmo y otorgo por Marquez cinco (5) dias antes del dia de la subasta en que se vendieron las tres (3) parcelas de terreno hipotecadas a la LuzonSurety por morosidad del deudor. En vertud de dicho Exhibit A, Marquez se obligada dentro del plazo perentorio de cinco (5) dias a buscar el dinero necesario para pagar el credito hipotecario de Luzon Surety. Si fallaba, como fallo, tenia que pagar a los duenos de las fincas vendidas en la subasta una indemnizacion equivalente a su valor en plaza, y para asegurar esta obligacion constituia una hipoteca sobre cinco (5) parcelas de terreno, las unicas que tenia, y sobre bienes futuros. Es cierto que la mayoria elimina este ultimo, o sea la hipoteca sobre bienes futuros, pero, con todo, la obligacion es aun harto onerosa. Se trasluce en autos que Marquez firmo el contrato bajo la presion de las circunstancias y apremiado por unos acreedores que se sentian nerviosos e intranquilos ante la proximidad de la subasta. Es evidente que el plazo de cinco (5) dias era un plazo muy corto para buscar el dinero que se necesitaba.(c) Si bien se mira, el Exhibit A no es un contrato ordinario de hipoteca, sino que contiene una obligacion principal y, como aditamento, una clausula de indemnizacion que es practicamente una clausula penal. La obligacion principal era la de pagar el remanente de la deuda a la Luzon Surety--obligacion asumida por Marquez a cambio, como queda dicho, del precio no pagado de la parcela de terreno que dicho Marquez habia comprado de Fortunato Resurreccion; y la clausula penal consistia en que si, por falta de pago a la Luzon Surety, se siguiese la subasta y se rematasen las fincas hipotecadas, Marques indemnizaria a los duenos de estas de todo su valor real. _¨_Que quiere decir esto, traducido en cifras? Lo singuiente: el precio que tenia que pagar Marquez eran unos P10,000; deducidos los pagos parciales que, segun la sentencia, montaban a P5,255.99, quedaba un

remanente de un poquito menos de P5,000, y en esto consista la obligacion principal de Marquez. Como quiera que, segun la sentencia, el valor de las fincas rematadas se estima en P16,500; luego resulta que el importe de la indemnizacion proveniente de la clausula penal es tres veces mayor que la obligacion principal.(d) es verdad que el contrato, cuando en el concurren los requisitos exigidosw por la ley para su validez, es ley entre las partres, y los tribunales casi nunca estan autorizados para intervenir y mediatizar la libertad individual en materia de contratacion. Pero la ley misma establece ciertas limitaciones. El articulo 1255 del Codigo Civil dispone que "los contratantes pueden establecer los actos, clausulas y condiciones que tengan por conveniente, siempre que no sean contrarios a las leyes, a la moral, ni al orden publico." Y el articulo 1154 del mismo Codigo provee que "el Juez modificara equitativamente la pena cuando la obligacion principal hubiera sido en parte o irregularmente cumplida por el deudor."Es mi sentir que en el caso que nos ocupa hay algo repugnante a la conciencia, algo que choca con los principios aun de la moral al uso. Una penalidad que es mas del triple de la obligacion principal es cosa que moralmente no puede justificarse y autoriza la intervencion de los tribunales para mitigar sus efectos (Ibarra contra Aveyro y Pre, 37 Jur. Fil., 286). Esta intervencion queda tambien justificada bajo el articulo 1154 del Codigo Civil arriba citado, pues consta establecido en la misma sentencia que Marquez, el deudor, ya habia cumplido la obligacion principal en parte, pagando mas de la mitad del precio (Laureano contra Kilayco y Lizares de Kilayco, 32 Jur. Fil., 202).(e) Otra razon porque debemos intervenir para mitigar los efectos del contrato es que las parcelas rematadas en la subasta y por las cuales se condena a los herederos de Marquez a pagar indemnizacion (certificados de titulo Torrens Nos. 435 y 877) no debian de valer P16,500 cuando se efectuo la subasta. Dichas parcelas no formaban parte de la compra hecha por Marquez de Fortunato Resurreccion; por tanto, sus duenos tenian perfecta libertad para disponer de ellas y levantar el dinero necesario para satisfacer el credito hipotecario de la Luzon Surety Co. que despues de todo ya no llegaba a P10,000. Sin embargo, ni en la subasta ni fuera de ella hubo nadie que ofreciera por tales parcelas la citada cantidad de P16,500, ni mucho menos. En autos se trasluce que tanto ellas como la cubbierta por el titulo No. 437 se remataron por la misma Luzon Surety por la cantidad de su credito.Mi conclusion, pues, es que por equidad se debe reducir sustancialmente la cuantia de la indemnizacion. Teniendo en cuenta que la obligacion principal ya se habia cumplido en poco mas de la mitad, es decir, que tan solo unos P5,000 quedaban como parte no pagada del precio, estimo que, por lo menos, la indemnizacion se debe reducir a una cantidad igual, o sea P5,000, en vez de los P16,500 a que monta la sentencia. Esto, por una parte. Por otra, se debe relevar a los herederos de Resurreccion de la obligacion de develver a los herederos de Marquez la suma de P5,255.99 a que ascienden los pagos parciales hechos por este para satisfacer el precio, compensando dicha suma con el valor razonable del uso y disfrute de la finca vendida, pues en autos consta que Marquez tuvo la posesion de la misma.Bajo la formula de solucion que propongo se condena sencillamente a los herederos de Marquez a pagar una indemnizacion de P5,000 con intereses legales desde la interposicion de la demanda; y la hipoteca se limita a las cinco (5) parcelas actualmente poseidas por Marquez cuando se otorgo el Exhibit A, conforme propone la mayoria en su opinion. Sin pronunciamiento en cuanto a las costas.Pablo, Paras y Perfecto, MM, conforme.

PBCOM v MACADAEGFACTS:On September 30, 1950, respondents Pedro B. Bautista, Dativa Corrales Bautista, Inocencio C. Campos, and the Flash Taxi Company jointly and severally applied for and obtained a credit accommodation from the petitioner bank in the sum of P100,000.00, and as a security therefor executed in favor of the bank, in one single document, a real estate mortgage over four parcels of land, and a chattel mortgage on some movie equipment and thirty taxicabs. Respondents having failed to pay the total amount of P128,902.42 due on the credit accommodation referred to, the petitioner bank procured the extrajudicial foreclosure of the real estate mortgage in accordance with Act No. 3135, as amended, and at the foreclosure sale on January 9, 1956, the bank acquired the properties mortgaged as the highest bidder for the sum of P68,365.60.Claiming a balance of P62, 749.72 still due, the petitioner bank, instead of foreclosing respondents' chattel mortgage, filed against them on may 22, 1956, Civil Case No. 29752 for the collection of said balance. The lower court, on June 30, 1956, rendered judgment ordering defendants to pay the plaintiff bank, jointly and severally, the sum of P62, 749.72, with interest thereon at the rate of 7% per annum from May 22, 1956 until the said amount is fully paid.On September 18,1956, the court issued an order to execute said judgment; it does not appear, though, that plaintiff sought the enforcement of the writ of execution. On April 24, 1957, the court issued another order for the execution of the judgement, pursuant to which the sheriff of Manila published a "Notice of Sale," setting for sale at public auction on May 13, 1957 the rights, interest or participation of respondents on the certificate of public convenience registered in the name of the Flash Taxi Co. in cases Nos. 32578 of the Public Service Commission. On May 13, 1957, the sheriff sold the rights, interests, or participation of respondents in the certificate of public convenience in question to the plaintiff bank as the highest bidder for the amount of P60,371.25, and two days later, on May 15, the sheriff issued to plaintiff the corresponding certificate of sale. Respondents Pedro B. Bautista, et al., filed in the court below a "Petition To Set Aside Order dated June 8, 1957, Confirming Sheriffs Sale of may 15, 1957 and to Declare its Nullity," claiming, as grounds for the petitions, that they had other properties which they had pointed out to the plaintiff bank with which the judgement could be satisfied that the law grants to the judgement debtor the right to direct which of his properties should be sold in execution of a judgement; that the sale of the certificate of public convenience in question would mean irreparable damage to them and would prove of work about forth drivers employed in their taxicab business; and that defendants had no objection to bearing the expenses of the sale sought to be revoked and of any subsequent execution sales in satisfaction of the judgement.Plaintiff bank opposed the petition, contending that there was no showing that the sheriff's sale in question was irregular or not in accordance with law; that the subject of the execution sale being personal property, and a certificate of sale having already been delivered to it by the sheriff, the court could no longer set aside said sale ISSUE: W/N the sheriff’s sale was irregular and therefore null and void.HELD: The alleged nullity is claimed to arise from the fact that the real estate and chattel mortgage executed by respondents to secure their credit accommodation with the petitioner bank was indivisible, and that consequently, the bank had no legal right to extra judicially foreclose only the real estate mortgage and leave out the chattel mortgage, and then sue respondents for a supposed deficiency judgement; and for this reason, respondents assert that the judgement in the bank's favor for such deficiency in Civil Case No. 29752 is a nullity. The argument is fallacious because the mere embodiment of the real estate mortgage and the chattel mortgage in one document does not fuse both securities into an indivisible whole. Both remain distinct agreements, differing not only in the subject-matter of the contract but in the but in

the governing legal provisions. Petitioner bank, therefore, had every right to foreclose the real estate mortgage and waive the chattel mortgage, and maintain instead a personal action for the recovery of the unpaid balance of its credit (De la Rama vs. Sajo, 45 Phil., 703; Salomon vs. Dantees, 63 Phil., 522; Brancharch Motor Co. vs. Rangal, et al., 68 Phil., 287, 290). This petitioner did by filing civil Case No. 29752 for the collection of the unpaid balance of respondents' indebtedness; and the validity and correctness of the action was admitted by respondents themselves when they confessed judgement thereto. The court in fact decision pursuant to such confession of judgement, and the decision has long since been final and executory

PEOPLE’S BANK v. DAHICANRepublic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-17500 May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF MANILA, plaintiffs-appellants, vs.DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and CONNELL BROS. CO. (PHIL.), defendants-appellants.

Angel S. Gamboa for defendants-appellants.Laurel Law Offices for plaintiffs-appellants.

DIZON, J.:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company — hereinafter referred to as DALCO — for the total sum of $500,000.00, of which only the amount of $50,000.00 was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust Company — hereinafter referred to as the BANK — amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00 each, maturing on different dates, executed by both DALCO and the Dahican America Lumber Corporation, a foreign corporation and a stockholder of DALCO, — hereinafter referred to as DAMCO, all payable to the BANK or its order.

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK — the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C. — a deed of mortgage covering five parcels of land situated in the province of Camarines Norte together with all the buildings and other improvements existing thereon and all the personal properties of the mortgagor located in its place of business in the municipalities of Mambulao and Capalonga, Camarines Norte (Exhibit D). On the same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession amounting to the sum of $450,000.00 (Exhibit G). Both deeds contained the following provision extending the mortgage lien to properties to be subsequently acquired — referred to hereafter as "after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all buildings, machinery, fixtures, tools equipment and other property which the Mortgagor may hereafter acquire, construct, install, attach, or use in, to, upon, or in connection with the premises, shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now included therein, and the Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an accurate inventory of such substituted and subsequently acquired property.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to the Export-Import Bank of Washington D.C., and the latter assigned to the former its credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue promissory note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the BANK requested DALCO to submit complete lists of said properties but the latter failed to do so. In connection with these purchases, there appeared in the books of DALCO as due to Connell Bros. Company (Philippines) — a domestic corporation who was acting as the general purchasing agent of DALCO — thereinafter called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it. Thereafter, the corresponding agreements of rescission of sale were executed between DALCO and DAMCO, on the one hand and between DALCO and CONNELL, on the other.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12, 1953; ATLANTIC and the BANK, commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against DALCO and DAMCO. On the same date they filed an ex-parte application for the appointment of a Receiver and/or for the issuance of a writ of preliminary injunction to restrain DALCO from removing its properties. The court granted both remedies and appointed George H. Evans as Receiver. Upon defendants' motion, however, the court, in its order of February 21, 1953, discharged the Receiver.

On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging several affirmative defenses and a counterclaim.

On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the owner and possessor of some of the equipments, spare parts and supplies which DALCO had acquired subsequent to the execution of the mortgages sought to be foreclosed and which plaintiffs claimed were covered by the lien. In its order of March 18,1953 the Court granted the motion, as well as plaintiffs' motion to set aside the order discharging the Receiver. Consequently, Evans was reinstated.

On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and asserting affirmative defenses and a counterclaim.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue of the action to the Court of First Instance of Manila where it was docketed as Civil Case No. 20987.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries, equipment and supplies of DALCO, and the same were subsequently sold for a total consideration of P175,000.00 which was deposited in court pending final determination of the action. By a similar agreement one-half (P87,500.00) of this amount was considered as representing the proceeds obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL), and the other half as representing those obtained from the sale of the "after acquired properties".After due trial, the Court, on July 15, 1960, rendered judgment as follows:

IN VIEW WHEREFORE, the Court:

1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7% interest per annum from July 13, 1950, Plus another sum of P100,000.00 with 5% interest per annum from July 13, 1950; plus 10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4% interest per annum from July 3, 1950, plus 10% on both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and to pay unto Dahican American Lumber Co. the sum of P2,151,678.24 both with legal interest from the date of the filing of the respective answers of those parties, 10% of the principals as attorney's fees;

4. Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the recognized expenses, one-half thereof be adjudicated unto plaintiffs, the court no longer specifying the share of each because of that announced intention under the stipulation of facts to "pool their resources"; as to the other one-half, the same should be adjudicated unto both plaintiffs, and defendant Dahican American and Connell Bros. in the proportion already set forth on page 9, lines 21, 22 and 23 of the body of this decision; but with the understanding that whatever plaintiffs and Dahican American and Connell Bros. should receive from the P175,000.00 deposited in the Court shall be applied to the judgments particularly rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as to the debated properties shall be borne by People's Bank, Atlantic Gulf, Connell Bros., and Dahican American Lumber Co., pro-rata.

On the following day, the Court issued the following supplementary decision:

IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the following paragraph 6:

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders the sale at public auction of the lands object of the mortgages to satisfy the said mortgages and costs of foreclosure.

From the above-quoted decision, all the parties appealed.

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to the deeds of mortgage mentioned heretofore; that said properties were acquired from suppliers other than DAMCO and CONNELL; that even granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in favor of plaintiffs; that considering the foregoing, the proceeds obtained from the sale of the "after acquired properties" as well as those obtained from the sale of the "undebated properties" in the

total sum of P175,000.00 should have been awarded exclusively to plaintiffs by reason of the mortgage lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all of them being guilty of an attempt to defraud the former when they sought to rescind the sales already mentioned for the purpose of defeating their mortgage lien, and finally, that defendants should have been made to bear all the expenses of the receivership, costs and attorney's fees.

On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs had no cause of action against them because the promissory note sued upon was not yet due when the action to foreclose the mortgages was commenced; secondly, in not holding that the mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO because they were not registered in accordance with the Chattel Mortgage Law, the court erring, as a consequence, in holding that said properties were subject to the mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being that the mortgagor was willing to constitute a lien over such properties; fourthly, in not ruling that said stipulation was void as against DAMCO and CONNELL and in not awarding the proceeds obtained from the sale of the "after acquired properties" to the latter exclusively; fifthly, in appointing a Receiver and in holding that the damages suffered by DAMCO and CONNELL by reason of the depreciation or loss in value of the "after acquired properties" placed under receivership was damnum absque injuria and, consequently, in not awarding, to said parties the corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO and DAMCO to pay attorney's fees and in requiring DAMCO and CONNELL to pay the costs of the Receivership, instead of sentencing plaintiffs to pay attorney's fees.

Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit a total of seventeen. However, the multifarious issues thus before Us may be resolved, directly or indirectly, by deciding the following issues:

Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure?; secondly, assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid inspite of the fact that they were not registered in accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming again that the mortgages are valid and binding upon the "after acquired properties", what is the effect thereon, if any, of the rescission of sales entered into, on the one hand, between DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose the mortgages premature?

A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection with the premises — that is, its lumber concession — "shall immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used — thus becoming subject to the inevitable wear and tear — but with the understanding — express or implied — that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the

original value of the properties given as security. Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see to it that a similar provision is included in the contract.

B. But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the "after acquired properties" of DALCO, the same are void and ineffectual because they were not registered in accordance with the Chattel Mortgage Law. In support of this and of the proposition that, even if said mortgages were valid, they should not prejudice them, the defendants argue (1) that the deeds do not describe the mortgaged chattels specifically, nor were they registered in accordance with the Chattel Mortgage Law; (2) that the stipulation contained in the fourth paragraph thereof constitutes "mere executory agreements to give a lien" over the "after acquired properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after acquired properties" should not prejudice creditors and other third persons such as DAMCO and CONNELL.

The stipulation under consideration strongly belies defendants contention. As adverted to hereinbefore, it states that all property of every nature, building, machinery etc. taken in exchange or replacement by the mortgagor "shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now included therein". No clearer language could have been chosen.

Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel mortgage must be registered and must describe the mortgaged chattels or personal properties sufficiently to enable the parties and any other person to identify them, We say that such law does not apply to this case.

As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can be no doubt that the provisions of said code must govern their interpretation and the question of their validity. It happens however, that Articles 334 and 1877 of the old Civil Code are substantially reproduced in Articles 415 and 2127, respectively, of the new Civil Code. It is, therefore, immaterial in this case whether we take the former or the latter as guide in deciding the point under consideration.

Article 415 does not define real property but enumerates what are considered as such, among them being machinery, receptacles, instruments or replacements intended by owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the said industry or works.

On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject:

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old) gives the character of real property to machinery, liquid containers, instruments or replacements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry.

(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof .

It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the premises on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein — which were registered as such — did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties.

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after acquired properties" did not become immobilized because DALCO did not own the whole area of its lumber concession all over which said properties were scattered.

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the former, the Davao Sawmill Company, Inc., had repeatedly treated the machinery therein involved as personal property by executing chattel mortgages thereon in favor of third parties, while in the present case the parties had treated the "after acquired properties" as real properties by expressly and unequivocally agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by them. In the Davao Sawmill decision it was, in fact, stated that "the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined by the parties" (61 Phil. 112, emphasis supplied). In the present case, the characterization of the "after acquired properties" as real property was made not only by one but by both interested parties. There is, therefore, more reason to hold that such consensus impresses upon the properties the character determined by the parties who must now be held in estoppel to question it.

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225 U.S. 58) where it was held that while under the general law of Puerto Rico, machinery placed on property by a tenant does not become immobilized, yet, when the tenant places it there pursuant to contract that it shall belong to the owner, it then becomes immobilized as to that tenant and even as against his assignees and creditors who had sufficient notice of such stipulation. In the case at bar it is not disputed that DALCO purchased the "after acquired properties" to be placed on, and be used in the development of its lumber concession, and agreed further that the same shall become immediately subject to the lien constituted by the questioned mortgages. There is also abundant evidence in the record that DAMCO and CONNELL had full notice of such stipulation and had never thought of disputed validity until the present case was filed. Consequently all of them must be deemed barred from denying that the properties in question had become immobilized.

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in support their contention that the mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO and CONNELL.

Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired properties" superior to the mortgage lien constituted thereon in favor of plaintiffs. It is defendants' contention that in relation to said properties they are "unpaid sellers"; that as such they had not only a superior lien on the "after acquired properties" but also the right to rescind the sales thereof to DALCO.

This contention — it is obvious — would have validity only if it were true that DAMCO and CONNELL were the suppliers or vendors of the "after acquired properties". According to the record, plaintiffs did not know their exact identity and description prior to the filing of the case bar because DALCO, in violation of its obligation under the mortgages, had failed and refused theretofore to submit a complete list thereof. In the course of the proceedings, however, when defendants moved to dissolve the order of receivership and the writ of preliminary injunction issued by the lower court, they attached to their motion the lists marked as Exhibits 1, 2 and 3 describing the properties aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after acquire properties," and engaged the services of auditors to examine the books of DALCO so as to bring out the details thereof. The report of the auditors and its annexes (Exhibits V, V-1 — V4) show that neither DAMCO nor CONNELL had supplied any of the goods of which they respective claimed to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to be DAMCO or CONNELL that, in fact, CONNELL collected a 5% service charge on the net value of all items it claims to have sold to DALCO and which, in truth, it had purchased for DALCO as the latter's general agent; that CONNELL had to issue its own invoices in addition to those o f the real suppliers in order to collect and justify such service charge.

Taking into account the above circumstances together with the fact that DAMCO was a stockholder and CONNELL was not only a stockholder but the general agent of DALCO, their claim to be the suppliers of the "after acquired required properties" would seem to be preposterous. The most that can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still owes them any amount in this connection, it is clear that, as financiers, they can not claim any right over the "after acquired properties" superior to the lien constituted thereon by virtue of the deeds of mortgage under foreclosure. Indeed, the execution of the rescission of sales mentioned heretofore appears to be but a desperate attempt to better or improve DAMCO and CONNELL's position by enabling them to assume the role of "unpaid suppliers" and thus claim a vendor's lien over the "after acquired properties". The attempt, of course, is utterly ineffectual, not only because they are not the "unpaid sellers" they claim to be but also because there is abundant evidence in the record showing that both DAMCO and CONNELL had known and admitted from the beginning that the "after acquired properties" of DALCO were meant to be included in the first and second mortgages under foreclosure.

The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no consequence and does not make the rescission valid and legally effective. It must be stated clearly, however, in justice to Belden, that, as a member of the Board of Directors of DALCO, he opposed the resolution of December 15, 1952 passed by said Board and the subsequent rescission of the sales.

Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory note sued upon did not fall due until April 1 of the same year, concluding from this that, when the action was commenced, the plaintiffs had no cause of action. Upon this question the lower court says the following in the appealed judgment;

The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of grace, conceded an extension of time to pay up to 1 April, 1953 while the action was filed on 12 February, 1953, but, as to this, the Court taking it that there is absolutely no debate that Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should follow that the debtor thereby lost the benefit to the period.

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate, P1,200,000 excluding interest while the aggregate price of the "after-acquired" chattels claimed by Connell under the rescission contracts was P1,614,675.94, Exh. 1, Exh. V, report of auditors, and as a matter of fact, almost all the properties were sold afterwards for only P175,000.00, page 47, Vol. IV, and the Court understanding that when the law permits the debtor to enjoy the benefits of the period notwithstanding that he is insolvent by his giving a guaranty for the debt, that must mean a new and efficient guaranty, must concede that the causes of action for collection of the notes were not premature.

Very little need be added to the above. Defendants, however, contend that the lower court had no basis for finding that, when the action was commenced, DALCO was insolvent for purposes related to Article 1198, paragraph 1 of the Civil Code. We find, however, that the finding of the trial court is sufficiently supported by the evidence particularly the resolution marked as Exhibit K, which shows that on December 16, 1952 — in the words of the Chairman of the Board — DALCO was "without funds, neither does it expect to have any funds in the foreseeable future." (p. 64, record on appeal).

The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after acquired properties" should have been awarded exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law they should be distributed among said parties, whether or not the distribution should be pro-rata or otherwise; whether or not plaintiffs are entitled to damages; and, lastly, whether or not the expenses incidental to the Receivership should be borne by all the parties on a pro-rata basis or exclusively by one or some of them are of a secondary nature as they are already impliedly resolved by what has been said heretofore.

As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by the mortgages under foreclosure.

On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the New Civil Code) provides that creditors are protected in cases of contracts intended to defraud them; and that any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21 — which may be given retroactive effect (Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth promissory note upon its maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph of the mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court to protect their rights thus jeopardized. Defendants' liability for damages is therefore clear.

However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the difference between the alleged total obligation secured by the mortgages amounting to around P1,200,000.00, plus the stipulated interest and attorney's fees, on the one hand, and the proceeds obtained from the sale of "after acquired properties", and of those that were not claimed neither by DAMCO nor CONNELL, on the other. Considering that the sale of the real properties subject to the mortgages under foreclosure has not been effected, and considering further the lack of evidence showing that the true value of all the properties already sold was not realized because their sale was under stress, We feel that We do not have before Us the true elements or factors that should

determine the amount of damages that plaintiffs are entitled recover from defendants. It is, however, our considered opinion that, upon the facts established, all the expenses of the Receivership, which was deemed necessary to safeguard the rights of the plaintiffs, should be borne by the defendants, jointly and severally, in the same manner that all of them should pay to the plaintiffs, jointly a severally, attorney's fees awarded in the appealed judgment.

In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to recover from the defendants, the record of this case shall be remanded below for the corresponding proceedings.

Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

Article 2125

SAMANILLA v. CAJUCOM

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-13683 March 28, 1960

PAZ SAMANILLA, petitioner-appellee, vs.CENEN A. CAJUCOM, ET AL., respondents-appellants.

R. M. Ordiz de Guzman, L. P. de Guzman, Jr. and Lorenzo de Guzman, Sr. for appellee.Agustin C. Bagasao for appellants.

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

Appeal interposed by respondents Cenen A. Cajucom and Jose A. Cajucom from the order of the Court of First Instance of Nueva Ecija in Land Registration Case No. 210, G.L.R.O. Rec. No. N-6010, requiring them to surrender Original Certificate of Title No. O-966 within ten days either to the Register of Deeds or to the Court for the annotation of a mortgage executed by them in favor of petitioner Paz Samanilla.

The case arose out of a petition presented by appellee Samanilla in said registration case alleging that respondents Cajucom had executed in her favor, on December 20, 1955, a real estate mortgage over their rights and participation on the parcel of land covered by Original Certificate of Title No. O-966 to secure a loan of P10,000.00; that sometime in February, 1956, respondents borrowed the title from her on the excuse that they needed it to segregate from the land the portion claimed by other persons; and that thereafter, petitioner asked for the return of the title so that she could register her mortgage, but respondents refused. Attached to the petition were the deed of mortgage and the affidavits of petitioner and a certain Antonio G. Javier, who allegedly was the one who borrowed the title from petitioner in behalf of respondents.

Respondents opposed the petition, claiming that the mortgage in question was void ab initio for want of consideration, and that the issues should be litigated in an ordinary civil action. The opposition notwithstanding, the lower court entered an order on June 12, 1956 finding the petition well-taken and ordering respondents to surrender their title either to the Register of Deeds or to the Court. From this order, respondents appealed to the Court of Appeals, which forwarded the case to us for raising purely question of law.

The appeal has no merit. Appellants' sole objection to the registration of the deed of mortgage is that the same was executed without any consideration. But there is a legal presumption of sufficient cause or consideration supporting a contract, even if such cause is not stated therein (Art. 1354, New Civil Code; Rule 123, sec. 69 [r], Rules of Court). This presumption appellants cannot overcome by a simple assertion of lack of consideration. Especially may not the presumption be so lightly set aside when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities as in this case. As held by this Court.

Once a mortgage has been signed in due form, the mortgagee is entitled to its registration as a matter of right. By executing the mortgage the mortgagor is understood to have given his consent to its registration, and he cannot be permitted to revoke it unilaterally. The validity and fulfillment of contracts cannot be left to the will of one of the contracting parties (Article 1254 of the Civil Code)." (Gonzales vs. Basa, Jr., et al., 73 Phil., 704)

To overcome the presumption of consideration, appellants must show the alleged lack of consideration of the mortgage by preponderance of evidence in a proper action.

Appellants assert that they cannot be compelled to surrender their title for registration of the mortgage in question until they are given an opportunity to show its invalidity in an ordinary civil action, because registration is an essential element of a real estate mortgage and the surrender of their title would complete this requirement of registration. The argument is fallacious, for a mortgage, whether registered or not, is binding between the parties, registration being necessary only to make the same valid against third persons (Art. 2125, New Civil Code). In other words, registration only operates as a notice of the mortgage to others, but neither adds to its validity nor convert an invalid mortgage into a valid one between the parties. Appellants still have the right to show that the mortgage in question is invalid for lack of consideration in an ordinary action and there ask for the avoidance of the deed and the cancellation of its registration. But until such action is filed and decided, it would be too dangerous to the rights of the mortgagee to deny registration of her mortgage, because her rights can so easily be defeated by a transfer or conveyance of the mortgaged property to an innocent third person. In Gurbax Singh Pabla & Co., et al. vs. Reyes, et al., 92 Phil., 177; 48 Off. Gaz., 4365, this Court had the occasion to rule that "if the purpose of registration is merely to give notice, the questions regarding the effect or invalidity of instruments are expected to be decided after, not before, registration. It must follow as a necessary consequence that registration must first be allowed and validity or effect litigated afterwards".

Appellants cite the case of Government of the Philippine Islands vs. Payva, 44 Phil., 629. However, the appellee correctly points out that the same is inapplicable to this case because the only question raised and decide therein was whether an order of the registration court requiring the holder of a duplicate certificate of title for the purpose of annotating an attachment, lien, or adverse claim under sec. 72 of Act 496 is appealable or not, and we held that it was, because it resolves important questions as to the respective rights of the parties. It should be remembered that the Land Registration Court may summarily pass upon the validity of adverse claims sought to be registered under sections 72 and 110 of the Land Registration Act, if all the parties agree to submit the precise question to the court (see Gurbax Singh Pabla Co. vs. Reyes, supra); and when it is thus submitted, the losing party may appeal the court's ruling, as held in the Payva case. But appellants herein, by opposing appellee's petition on the ground that their defense of invalidity o the mortgage sought to be registered is contentious and should be litigated in a separate action, precisely refused to submit said question to the Land Registration Court. The court, then, acted correctly in ordering the recording without passing upon the validity of the mortgage in question.

The order appealed from is affirmed, without prejudice to appellants' right to bring a separate action to question the validity of the mortgage in question and ask for the cancellation of its registration. Costs against appellants.

Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.

MOBIL PHILIPPINES v DIOCARESFACTS:The parties Mobil and Diocares entered an agreement wherein on cash basis, Mobil will deliver minimum of 50k liters of petroleum a month. To secure this, diocares executed a Real Mortgage. Diocares failed to pay the balance of their indebtedness and Mobil filed an action for the collection of the balance of the purchase amount or that the Real Property mortgaged by Diocares be sold to a public auction and the proceeds be applied to the payment of the obligation. LC did not grant foreclosure on the ground that the mortgage was not validly executed (not registered).

ISSUE: WON failure to register the Real Mortgage would render it invalid

SC: NO!- If the instrument is not recorded, the mortgage is nevertheless binding between the parties. Its conclusion, however, is that what was thus created was merely a “personal obligation but did not establish a real estate mortgage.”- The mere fact that there is as yet no compliance with the requirement that it be recorded cannot be a bar to foreclosure

Article 2126

MCCULLOUGH v. VELOSOFACTS: 1) On March 23, 1920, the plaintiff McCullough & Co., sold to Mariano Veloso the "McCullough Building," and the land thereon, for the price of P700,000. Veloso paid P50,000 cash on account at the execution of the contract, leaving a balance of P650,000 to be paid.2) Veloso assumed also the obligation to insure the property for not less than P500,000, as well as to pay all legal taxes that might be imposed upon the property, and in the event of his failure to do so, the plaintiff should pay said taxes at the expense of Veloso, with the right to recover of him the amounts thus paid, with interest at 7 per cent per year. To secure the payment of these amounts, Veloso mortgaged the property purchased3) It was, also, stipulated that in case of failure on the part of Veloso to comply with any of the stipulations contained in the mortgage deed, all the installments with the interest thereon shall become due, and the creditor shall then have the right to bring the proper action for the collection of the unpaid part of the debt. 4) On August 21, 1920, Mariano Veloso, in turn, sold the property, with the improvements thereon for P100,00 to Joaquin Serna, who agreed to respect the mortgage of the property in favor of the plaintiff and to assume Mariano Veloso's obligation to pay the plaintiff the balance due of the price of the estate on the respective dates when payments should be made according to the contract between Mariano Veloso and the plaintiff.5) Veloso paid P50,000 on account of the P650,000, and Serna made several payments up to the total sum of P250,000. Subsequently, however, neither Veloso, nor Serna, made any payment upon the last installments, by virtue of which delay, the whole obligation became due, and Veloso lost the right to the installments stipulated in his contract with the plaintiff.6) Upon a liquidation of the debt of Mariano Veloso in favor of the plaintiff, including the interest due, with the result that Veloso owed exactly P510,047.34. Thus, the plaintiff brings this action to recover of the defendant the sum due of P510,047.34. The defendant contends however that having sold the property to Serna, and the latter having assumed the obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon the property, he no more obligation and it is upon Serna to pay the plaintiff. HELD: A) The mortgage is merely an encumbrance upon the property and does not extinguish the title of the debtor, who does not, therefore, lose his principal attribute as owner, that is, the right to dispose. the fact that the plaintiff recognized the efficaciousness of that sale cannot prejudice him, which sale the defendant had the right to make and the plaintiff cannot oppose and which, at all events, could not affect the mortgage, since it follows the property whoever the possessor may be. B) The Mortgage Law in force at the promulgation of the Civil Code and referred to in the latter, provided, among other things, that the debtor should not pay the debt upon its maturity after a judicial or notarial demand for payment has been made by the creditor upon him. Accordingly, the obligation of the new possessor to pay the debt originated only from the right of the creditor to demand payment of him, it being necessary that a demand for payment should have previously been made upon the debtor and the latter should have failed to pay. C) The Civil Code imposes the obligation of the debtor to pay the debt stand although the property mortgaged to secure the payment of said debt may have been transferred to a third person.

Santiago v. Dionisio, 92 Phil. 495

DOCTRINE: All persons having or claiming an interest in the mortgaged premises subordinate in right to that of the holder of the mortgage should be made defendants in the action for the foreclosure of the mortgage. Intervening as a subordinate lienholder in a foreclosure case merely to oppose the confirmation of the sale upon learning that such a sale had been made, is no the same as being a party to the suit to the extent of being bound by the judgement in the foreclosure suit.

The effect of the failure to implead a subordinate lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the unforeclosed equity of redemption

Republic of the PhilippinesSUPREME COURTManila

EN BANC

January 15, 1953

G.R. No. L-4008 January 15, 1953

APOLONIA SANTIAGO, applicant-appellee, vs.ANGELA DIONISIO, ET AL., oppositors;ANGELA DIONISIO, oppositor-appellant.

Vicente J. Francisco for appellant.Santos and Ignacio for appellee.

REYES, J.:

This is an appeal from a decision of the Court of First Instance of Bulacan, decreeing the registration of a parcel of land situated in Obando of said province in the name of Apolonia Santiago. The appeal has been indorsed to this court by the Court of Appeals on the ground that the questions raised are purely legal.

The application for registration was filed on January 9, 1936, and it was opposed by various persons, among them the appellant Angela Dionisio, who claimed title to the land as purchaser in a foreclosure sale. But the claim of the other oppositors need not be discussed since they have not appealed.

The evidence shows that the land in question was bought by the applicant in 1935 from its former owner, Roman San Diego, and the sale was recorded in the office of the register of deeds of Bulacan in accordance with section 194 of the Revised Administrative Code, as amended. It turned out, however, that prior to the sale Roman San Diego had already mortgaged the land to one Eulalia Resurreccion, and as the mortgage was also registered in accordance with the Administrative Code, it had precedence over the sale. As the mortgage debt was not paid, Eulalia Resurreccion had the mortgage foreclosed (civil case No. 5769, Court of First Instance of Bulacan) and the land was sold at public auction to satisfy the judgment and adjudicated to Angela Dionisio as the highest bidder.

On learning of the sale, Apolonia Santiago, who had not been made a party to the foreclosure proceedings, brought an action to annul the judgment rendered therein, including the sale made in favor of Angela Dionisio, and she also intervened in the proceeding for the confirmance of the sale and filed her opposition thereto. Taking the view that the oppositor's claim might well be determined in the action for annulment which she had already filed the court (Judge Pastor Endencia, presiding) confirmed the sale but without prejudice to whatever rights the oppositor might have. No appeal was taken from this resolution.

Thereafter the action for annulment was tried and decided by another judge of the same court, the Hon. Arsenio C. Roldan. The decision concludes:

In view of these considerations, the court finds that the judicial proceedings held in Civil case No. 5769 cannot affect the rights of Apolonia Santiago who was not a party therein and, therefore, any sale of her property or the property in question over which she has rights, in which she has not been a party litigant is null and void and therefore the sale of this property in question made by the sheriff is null and void in civil case No. 5769 with regards to the right of Apolonia Santiago over the same; the ownership acquired by Apolonia Santiago over the land in question in Exhibit A is subject to the mortgage in favor of Eulalia Resurreccion (Exhibit 2). The defendants are sentenced to pay the costs. So ordered.

No appeal appears to have been taken from this decision and the decision must have attained finality because counsel for the present appellant admitted in open court that a bill of cost had already been filed by the winning party.

Concurring in the opinion expressed in that decision Judge Potenciano Pecson, who subsequently heard the present case for registration, declared that the foreclosure sale did not affect the rights of the applicant Apolonia Santiago, who had not been made a party to the proceedings, and decreed the registration of the land in her favor. It is this decision that is now before us on appeal.

In the decision Judge Pecson makes the finding of fact that Apolonia Santiago was not impleaded in the foreclosure suit. And while it is true that her interest in the land in question was subordinate to that of the mortgagee, Eulalia Resurreccion, the rule of procedure in force at the time the foreclosure suit was instituted, which was section 255 of Act 190, required that in an action for foreclosure "all persons having or claiming an interest in the premises subordinate in right to that of the holder of the mortgage . . . be made defendants in the action." This rule applied not only to a subordinate lienholder (Sun Life Assurance Co. of Canada vs. Gonzales Diez, 52 Phil., 271), but also to a purchaser of real property already mortgaged to another (De la Paz, et al. vs. McCondray & Co., Inc., 66 Phil., 402), and the effect of the failure to implead a subordinate lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the "unforeclosed equity of redemption." But the foreclosure is valid as between the parties to the suit. (Ibid.; 2 Moran's Rules of Court, 3rd ed., p. 239.)

It is argued that Apolonia Santiago did in fact intervene in the foreclosure suit and was therefore bound by its results. But it appears that her intervention consisted merely in opposing the confirmation of the sale upon learning that such a sale had been made. This is not the same as being a party to the suit to the extent of being bound by the judgment. That judgment had already been rendered and was already in the process of execution when the intervention took place. In any event, though the sale was confirmed, the court took pains to specify that the confirmance was to be without prejudice to the rights of Apolonia Santiago.

There is much discussion in the briefs as to whether Judge Roldan's decision in the annulment case has been duly proved with the presentation of what purports to be a carbon copy thereof stamped as follows:

ES COPIA:

M. DE LOS SANTOSEscribano del Juzgado

Por:

(Fdo.) JOSE A. SANTOS Clerk

It appears that the original of the decision is no longer in the record, a great portion of this having been lost as a result of the last war. There is also dispute as to whether the decision, if there was one, has already become final, although it was admitted at the trial that the bill of costs had already been filed in court by the winning party. The appellee's apparent object in urging consideration of said decision is to give it the effect of res judicata on the question of whether the foreclosure sale should be regarded as void or not. But we see no useful purpose in pursuing inquiry in that direction. As we understand it, Judge Roldan did not declare the foreclosure sale entirely void. He did say that it was null and void "with regards to the rights of Apolonia Santiago," but this is only one way of saying that the foreclosure was ineffective as against her although it may be valid as between the parties to the suit. Given this interpretation, the decision accords with the pronouncements of this Court in the cases above cited and does not have the effect of completely nullifying the foreclosure sale in favor of Angela Dionisio. That sale is valid with respect to the parties to the foreclosure suit, though subject to Apolonia Santiago's unforeclosed equity of redemption.

This unforeclosed equity, which Judge Endencia saw fit to protect in his order confirming the foreclosure sale by means of a proviso that the said sale was to be without prejudice to the rights of Apolonia Santiago, still exists and must be recognized.

It has been suggested that one way of giving it recognition is to allow the land to be registered in the name of Apolonia Santiago but subject to the mortgage in favor of Eulalia Resurreccion. Another way is to register the land in the name of the oppositor Angela Dionisio subject to redemption by Apolonia Santiago. To keep to the beaten patch, our preference is for the second method, which has already received the sanction of this Court in the case of De la Paz, et al. vs. McCondray & Co., Inc., supra. In that case the purchaser of land sold at public auction to satisfy the judgment in a foreclosure suit applied for the registration of said land. The application for registration having been opposed by a married couple who had previously purchased the land from its owner but had not been impleaded in the foreclosure suit, a situation was presented similar to the one confronting us here. Deciding the case, this Court granted the registration applied for but subject to the prior purchasers' equitable right of redemption, for the exercise of which right they were given a period of three months from the date the decision should become final.

The only difference between that case and the present one is that there the applicant for registration was the purchaser at the foreclosure sale, whereas here the applicant is the previous purchaser. But in principle the two cases are identical and the same solution applies to both. It is not an obstacle to this solution that it is the previous purchaser, Apolonia Santiago, that has applied for the registration of the land. Both by statute and by jurisprudence, registration may be decreed in favor of an oppositor whose ownership has been established (Section 37, Act 496, as amended by

Section 2, Act 3621; Balme vs. Sales, 43 Off. Gaz., 3191, 3194; Garchitorena vs. Sotto,[[*]] 44 Off. Gaz., 3783), and the more so in the present case where the record shows that the opposition of Angela Dionisio in effect prays for the registration of the land in her favor by asking that she be substituted in place of Apolonia Santiago in the application for registration. Registration of the land in question in the name of Angela Dionisio, the herein oppositor, is thus legally feasible, subject, of course, to Apolonia Santiago's equitable right of redemption.

This, in fact, is the proper solution in the present case. For registration of the land in the name of Apolonia Santiago, who does not become its owner until she has exercised her right to redeem, would be subject to the objection that it is premature, if not altogether anomalous. Her equity of redemption is, of course, registerable, but only as an incumbrance on a registered title of ownership.

Wherefore, it is our decision that the judgment appealed from be revoked and another one entered decreeing the registration of the land in the name of Angela Dionisio, but subject to Apolonia Santiago's equitable right of redemption, which right should be exercised by her within three months from the date this decision becomes final, without special pronouncement as to costs. So ordered.

Paras, C.J., Pablo, Bengzon, Tuason, Bautista Angelo and Labrador, JJ., concur.

Footnotes

[[*]] 78 Phil., 432.

Article 2127

Phil. Sugar Estate v. Camps, 36 Phil. 85

Republic of the PhilippinesSUPREME COURTManila

EN BANC

March 27, 1916

G.R. No. 11607PHILIPPINE SUGAR ESTATES DEVELOPMENT COMPANY (LTD.), plaintiff-appellee, vs.ARMANDO CAMPS Y CAMPS, defendant-appellant.

Recaredo Ma. Calvo for appellant.Eusebio Orense for appellee.

JOHNSON, J.:

This is a motion to dismiss the appeal presented by the defendant and appellant. The original action was brought for the purpose of foreclosing a mortgage. A judgment in that action was rendered in favor of the plaintiff and against the defendant for the foreclosure of said mortgage. The judgment was rendered on the 23d of July, 1915. Upon said judgment, after the defendant had failed to deposit the amount due on said mortgage in the court in accordance with the order of the court, an order was issued directing the sale of the mortgaged property. Against said order of sale, the defendant presented an objection. Notwithstanding said objection, the property was sold and the sheriff made a report to the court of said sale, for confirmation. An objection was made to the petition for confirmation of said sale. Notwithstanding said objection, the lower court, on the 18th of November, 1915, issued an order confirming said sale. On the 24th of November, 1915, the defendant duly excepted to the order of the judge confirming said sale and on the 4th of December, 1915, presented his bill of exceptions. The record was received in the Supreme Court on the 21st of January, 1916. The present motion to dismiss the appeal was presented on the 20th of March, 1916.

The only question presented by said motion is whether or not there exists the right of appeal from an order of the trial court confirming the report of the sheriff of a sale of property in foreclosure proceedings.

Section 257 of Act No. 190 provides that the sale of property under foreclosure procedure must be confirmed by the court. Said section provides that a sale by the sheriff does not have the effect of transferring the property sold until the same is confirmed by a decree of the court. Thus it appears that the confirming of the sale is a very important order. The title of the property cannot pass to the purchaser until the sale is confirmed. The court may decline to confirm the sale, for good cause shown, and set the same aside and order a new sale. While the court may or may not confirm the sale within his discretion, we are of the opinion that, whatever his order is, the interested parties may appeal therefrom if they feel themselves aggrieved. (Warner, Barnes & Co. vs. Santos, 14 Phil. Rep., 446; Raymundo vs. Sunico, 25 Phil. Rep., 365.)

The defendant having the right to appeal from said order and having availed himself of that right within the time for the perfection of appeals, the motion to dismiss the appeal is hereby denied. So ordered.

Torres, Moreland, Trent, and Araullo, JJ., concur.

Afable v. Belando, 55 Phil. 64

Republic of the PhilippinesSUPREME COURTManila

EN BANC

October 20, 1930

G.R. No. 32154LADISLAO AFABLE, plaintiff-appellant, vs.CARMEN BELANDO, defendant. "LA URBANA," Mutual Building and Loan Association, intervenor-appellee.

Demetrio B. Encarnacion for appellant. Alfredo Chicote, Jose Arnaiz and Manuel Escudero for intervenor-appellee.

AVANCEÑA, C.J.:

On August 27,1928, the plaintiff, Ladislao Afable, brought an action against the defendant, Carmen Belando, for the payment of a promissory note in the amount of P1,249.27. In the course of this action the plaintiff, on September 4th of the same year, obtained a preliminary attachment against the defendant's property and certain rents on lands in Cavite leased to several persons. On January 18,1929, judgment was rendered requiring the defendant to pay the plaintiff P1.109.27 with interest at 12 per cent per annum and 12 per centum of this amount as penalty, and, in addition, P160 for certain expenses. In pursuance of the writ of execution, the rents on the lands aforementioned, which had been attached, were delivered to the plaintiff on April 3,1929.

A few days after the delivery of the rents to the plaintiff, the association La Urbana was admitted as intervenor in this case to recover said rents which had been delivered to the plaintiff. It appears that on August 5,1927, La Urbana brought suit against Carmen Belando for foreclosure of the mortgage, secured judgment in the Court of First Instance on January 14,1928, against the defendant for payment of P49,162.62, and upon failure to make payment within three months, the mortgaged property was decreed for sale in satisfaction of this amount. Upon appeal the judgment was affirmed by this court on March 27,1929.[[1]]

It also appears that the rents delivered to the plaintiff by virtue of his judgment against the defendant were those collected on the property mortgaged to La Urbana.

In deciding the intervention of La Urbana the court below, in its brief and well-founded decision, rendered on May 9,1929, ordered the sheriff to return the amount of P1,241.84 to the Bank of the Philippine Islands, the depository appointed in the case of La Urbana against the defendant. This sum is the total amount of the rents delivered to the plaintiff in pursuance of his judgment against the same defendant, Carmen Belando. It is from this decision that the instant appeal has been taken.

The only question invoked in this case is purely a legal one, namely, whether, according to article 1877 of the Civil Code and 111 of the Mortgage Law, the rents of the property mortgaged to La

Urbana could have been attached by the plaintiff in the course of his ordinary action against the defendant for the collection of a sum of money.

As we have said, when the plaintiff brought suit against the defendant on August 27,1928, and when on September 4,1928, a preliminary attachment of the rents of the defendant's property was granted, La Urbana had already brought an action against the same defendant for the foreclosure of the mortgage (August 5,1927), and had secured judgment therein (January 14,1928) which was affirmed by this court. Therefore, when the plaintiff attached these rents, the defendant's obligation to La Urbana had already fallen due. According to article 1877 of the Civil Code and 110 and 11 of the Mortgage Law, a mortgage includes all rents of the mortgaged property not collected when the obligation falls due, and all rents payable until the credit is satisfied. (Decision on motion for reconsideration in Hijos de I. de la Rama vs. Betia, 54 Phil., 991.) In accordance with this provision, when the rents were attached by the plaintiff, they were already liable for the mortgage in favor of La Urbana, and could not have legally been attached by the plaintiff.

It is immaterial that the judgment in favor of La Urbana contained no mention of the rents, but only of the property itself, for after all, under the law, every mortgage includes the rents. So also is the fact that the court below excluded the P575, which is a part of the amount of P1,241.84, from the deposit inasmuch as that sum also comprises rents included in the mortgage in favor of La Urbana.

On the other hand, we find no merit in the plaintiff's contention that La Urbana waived its right under the Civil Code and the Mortgage Law respecting the rents from the mortgaged property, in that being entitled, according to its contract with the defendant, to take possession of the property, it abstained from doing so, and brought an action for foreclosure instead. We fail to see how this implies a waiver.

For the foregoing considerations, the judgment appealed from is affirmed with costs against the appellant. So ordered.

Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

Footnote

[[1]] La Urbana vs. Belando, G. R. No. 30310, not reported.

Tady-Y v. PNB, 12 SCRA 19

Republic of the PhilippinesSUPREME COURTManila

EN BANC

September 28, 1964

G.R. No. L-18817ANTONIO G. TADY-Y, petitioner-appellant, vs.PHILIPPINE NATIONAL BANK, Binalbagan Branch, and PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, respondent-appellees.

Modesto Paras and Abraham D. Caña for petitioner-appellant.R. B. de los Reyes, E. A. Huelgas & A. F. Menez for respondent-appellees.

REGALA, J.:

This is an appeal from the decision of the Court of First Instance of Negros Occidental dismissing appellant's petition for mandamus in Civil Case No. 5251. Originally, the appeal was made to the Court of Appeals, but since no questions of fact are involved, the case was forwarded to us by resolution of that court dated July 25, 1961.

It appears that on February 2, 1951, Segundo Swansing acting for himself and as attorney-in-fact of Salvador Cabasaan and Rebecca Swansing, obtained an agricultural loan from the Philippine National Bank (called PNB, for short), in the sum of P840 and mortgaged to the latter Lot No. 1257, Pontevedra Cadastre, Negros Occidental. The mortgage deed was duly registered on the same date.

On April 30, 1955, Segundo Swansing, again as attorney-in-fact of Salvador Cabasaan and Rebecca Swansing, constituted a second mortgage on the abovementioned lot to one Marcelo G. Aguirre for P1,600 with interest at 12%, per annum and attorney's fee in the amount of P550 in case of default.

On December 5, 1957, Aguirre, the second mortgagee, assigned his rights and interests in the mortgage to Antonio G. Tady-Y, herein petitioner-appellant, in a deed which was registered on August 17, 1959.

As the mortgagors had defaulted in their obligation to the PNB, the latter extrajudicially foreclosed the first mortgage, so that on January 31, 1958, upon petition of the Bank, the Provincial Sheriff sold the mortgaged property at public auction. The same Bank was the purchaser for the price of P5,093.45.

On March 31, 1959, Antonio B. Tady-Y, the assignee of the mortgage rights of Aguirre, filed with the lower court a complaint for mandamus against the PNB and the Provincial Sheriff of Negros Occidental praying that defendants be ordered to deliver the amount of P2,868 to him, plus P800 for attorney's fees plus costs.

The complaint in substance, alleged that the purchase price of the property involved, in the sum of P5,093.45, is very much in excess of the registered credit of the PNB as first mortgagee, plus interest and attorney's fees; that deducting P1,759.60 — representing the total amount to which said PNB was entitled as of January 31, 1958 under the mortgage contract from the purchase price of P5,093.45 — would leave a balance of P3,279.85, which is more than enough to cover and satisfy the total credit under the second mortgage; that plaintiff demanded from the defendants the delivery to him of P2,868, the amount corresponding to his credit, from the surplus of the proceeds of the sale of the property involved, but they refused to deliver said amount; that by reason of defendants' unlawful refusal to comply with their clear duty under the law to deliver said amount to plaintiff, the latter was constrained to hire the legal services of a counsel to whom he had bound himself to pay P800 as attorney's fees.

In resisting the complaint, the defendants averred that the account secured by the first mortgage in favor of the PNB included not only the sum of P840 referred to in the mortgage contract, but also "those that the mortgagee may extend to the mortgagor, including interest and expenses or any other obligation owing to the mortgagee whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the mortgagee"; that as of January 31, 1959, the total unpaid obligation of the mortgagors to the defendant Bank was P9,579.08, representing the time loan account, sugar crop loan deficits for 1952-53, 1953-54 and 1954-55, and 1951-52 palay loan, plus interest and attorney's fees as of November 4, 1956, with the obvious result that the proceeds of the auction sale in the amount of P5,093.45 did not leave any surplus that may be applied to the second mortgage held by the plaintiff; that mandamus does not lie against the defendant Provincial Sheriff, because the complaint has not singled out the defendant possessing the alleged excess and, if it is with the defendant Bank, there can be no right of action against the defendant Provincial Sheriff; and that there is no law imposing upon the defendant Bank the specific duty of delivering the surplus of the proceeds from an extrajudicial foreclosure.

Issues having thus been joined, the case was submitted upon the stipulation of facts and memorandum from each of the parties. By decision dated February 27, 1966, the lower court, after going into the merits, dismissed the complaint. From that decision the petitioner has appealed.

It is contended by appellant that since only the sum of P840 plus interest appears in TCT 2417 (title to the land involved) as the mortgage debt of the Swansings to the PNB, only the amount resulting from this obligation should be paid out of the proceeds of the auction sale and that the other loans given out by the PNB which do not appear in the said transfer certificate of title do not affect the said property.

A scrutiny of the mortgage deed between the Swansings and the PNB, however, shows that the property therein mortgaged was to secure the payment of P840, "as well as those that the Mortgagee may extend to the Mortgagor, including interest and expenses or any other obligation owing to the Mortgagee whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee." Even the entry on the back of TCT No. 2417 admonishes that the mortgage secured the payment of P840 plus interest "plus other obligations arising thereunder." As aptly stated by the trial judge, this annotation should have caused any intending junior encumbrancer to be wary and to examine the provisions of the mortgage deed for complete details.

Indeed, the provision in the mortgage deed, including as part of the obligation future amounts that may be borrowed by the mortgagors-debtors from the Bank, is not improper. For this Court, in the case of Lim Julian v. Lutero, 49 Phil. 703, held that the amounts named as consideration in a contract

of mortgage 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.

The PNB had submitted copies of deeds of chattel mortgages in its favor, to prove that the outstanding account of the debtors-mortgagors as of January 31, 1958 appearing in its books and records was P9,579.08, very much more than the proceeds of P5,093.45 obtained from the extrajudicial foreclosure. There is no showing that the mortgagors had ever questioned the correctness of these figures.

Petitioner-appellant advances the argument that the latter loans should have also been noted on TCT 2417. But We believe there was no necessity for such a notation because it already appears in the said title that aside from the amount of P840 first borrowed by the mortgagors, Other obligations would also be secured by the mortgage. As already stated, it was incumbent upon any subsequent mortgagee or encumbrancer of the property in question to have examined the book or records of the PNB, as first mortgagee, the credit standing of the debtors. At any rate, the subsequent obligations incurred by the debtors-mortgagors, which are covered by chattel mortgages on standing crops, were each executed in a public instrument and registered with the Register of Deeds to give notice to third parties. There can be no doubt from these circumstances that the second mortgagee is charged with notice of the other obligations of the mortgagors to the PNB. And being charged with said notice, the petitioner-appellant as second mortgagee is only entitled to whatever surplus there is, if any, from the proceeds of the auction sale, after covering the mortgagors' obligations to the PNB.

PREMISES CONSIDERED, the decision appealed from is hereby affirmed. Costs against petitioner-appellant.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Makalintal, Bengson, J.P., and Zaldivar, JJ., concur.Barrera, J., took no part.

Velasco v. Court of Appeals, 95 SCRA 616

Facts: November 10, 1965, Alta Farms secured from the GSIS a Three Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00) loan and an additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to finance a piggery project. Alta Farms defaulted in the payment because of this that Alta Farms executed a Deed of Sale With Assumption of Mortgage with Asian Engineering Corporation on July 10, 1969 but without the previous consent or approval of the GSIS and in direct violation of the provisions of the mortgage contracts. Even without the approval of the Deed of Sale With Assumption of Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation, with the intention of converting the piggery farm into a subdivision. After developing the area, on December 4, 1969, Laigo entered into a contract with Amable Lumanlan, one of the petitioners, to construct for the home buyers, 20 houses on the subdivision. Petitioner Lumanlan allegedly constructed 20 houses for the home buyers and for which he claims a balance of P309,187.76 from the home buyers and Laigo. Out of his claim, petitioner Lumanlan admits that Mrs. Rhody Laigo paid him in several checks totalling P124,855.00 but which checks were all dishonoured. On December 29, 1969, Laigo entered into a contract with petitioner Pepito Velasco to construct houses for the home buyers who agreed with Velasco on the prices and the downpayment. Petitioner Velasco constructed houses for various home buyers, who individually agreed with Velasco, as to the prices and the downpayment to be paid by the individual home buyers.When neither Laigo nor the individual home buyers paid for the home constructed, Velasco wrote the GSIS to intercede for the unpaid accounts of the home buyers.Issue: W/N GSIS is liable to the petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses now owned by the GSIS?Ruling: Yes. GSIS should pay the petitioners. GSIS assumed ownership of the houses built by petitioners and was benefited by the same. Art. 2127, the mortgage extends to the natural accessions, to the improvements, growing fruits, rents.

Article 2128

Lopez v. Alvarez, 9 Phil. 28

Republic of the PhilippinesSUPREME COURTManila

EN BANC

October 12, 1907

G.R. No. 3438MANUEL LOPEZ Y VILLANUEVA, plaintiff-appellant,vs.EVARISTO ALVAREZ Y PEREZ, J. H. GRINDROD and JUAN THOMSON CASELLS, defendants-appellees.

M. Lopez, for appellant. R. Montinola, for appellees.

TORRES, J.:

On the 16th of March, 1905, counsel for the plaintiff, Manuel Lopez y Villanueva, filed an amended complaint with the Court of First Instance of Iloilo praying that judgment be entered in his favor in this case for the sum of P5,973, with interest thereon at the rate of 10 per cent per annum from the 5th of April, 1904; that a declaration be made that the defendants J. H. Grindrod and Juan Thomson Casells are partners in the credit claimed in the matter of Evaristo Alvarez y Perez; and that their right to the mortgage credit against the testate succession of the late Vicente Lopez y Alvarez is subsequent and secondary to that of the plaintiff, ordering the execution of the judgment on the mortgages estate denominated Bunglas, with costs.

The plaintiff, in support of his claim, alleged that on the 24th of April, 1901, Vicente Lopez y Alvarez executed a mortgage deed in favor of the defendant Evaristo Alvarez y Perez for the sum of 13,300 pesos and a fraction on his estate named Bunglas, situated in Concepcion, in the municipality of Sara, Iloilo, the area and boundaries of which are stated in the complaint, together with 20 castrated carabaos, 10 female carabaos, an 8-horsepower steam engine, and a furnace with fittings; that the term expired without the debt or any part thereof being paid, and Vicente Lopez y Alvarez died at Iloilo on the 2nd of August, 1901; that in order to secure the payment of the lease of the hacienda Estrella owned by the plaintiff, Manuel Lopez, the defendant Evaristo Alvarez mortgaged, by means of a public instrument executed on the 19th of October, 1901, the lien he held on the testate succession of the late Vicente Lopez; that by a deed dated April 5, 1904, the defendant Evaristo Alvarez assigned, conveyed, and transferred to the plaintiff part of his said lien on the aforesaid testate succession to the amount of P5,973 pesos, Mexican currency, total amount of his indebtedness to the plaintiff, for several sums received from him in cash, and on account of the lease of the said hacienda; that he further assigned to him all his rights and actions to and in the estate of the deceased, with power to ask for the judicial execution of the mortgage on the hacienda Bunglas, which debt had not yet been paid by the defendant, for which reason the latter further owed him the interest agreed upon at the rate of 10 per cent per annum from the 5th of April, 1904; that the other defendant, J. H. Grindrod, had claims on the lien, but that all of his interest thereon was and is subsequent to that of the plaintiff; that in consequence of the complaint filed, without any right

whatever, by the said J. H. Grindrod against Evaristo Alvarez, and notwithstanding the intervention by the plaintiff, Manuel Lopez, Grindrod pretended to dispose by public auction of the rights of the defendant Evaristo Alvarez over the hacienda Bunglas in favor of the other defendant, Juan Thomson Casells, on the 7th of October, 1904, although the rights which the latter had over said hacienda were subsequent and subject to those of the plaintiff, Manuel Lopez. It should be noticed that the defendants Grindrod and Casells were and are partners in the lien and judgment rendered in the case against Evaristo Alvarez, and in the purchase of the rights of the latter on the 7th of October aforesaid.

In his amended answer the defendant J. H. Grindrod asked that the complaint be dismissed with costs against the plaintiff, and to this end he denied all and each of the allegations contained in the amended complaint, with the exception of such as were admitted in his present answer, admitting in fact that the credit by reason of which Evaristo Alvarez was made defendant in case No. 503, together with the judgment rendered therein, belonged to the copartnership long before established at Iloilo between the said Juan Thomson Casells and J. H. Grindrod; that as a special defense he alleged that at the liquidation of accounts on the 26th of June, 1900, Evaristo Alvarez appeared as owing the defendant Grindrod a balance of P15,722.16, which he acknowledged and confessed under a deed dated July 7, 1900, in favor of the creditor, Grindrod, the debtor engaging to pay the said sum with interest thereon at the rate of 15 per cent per annum from the date of the deed by delivering all the sugar that could be produced by the hacienda Esperanza, which he had leased from its owner, Julita Villanueva, on condition that after the sugar was sold, deducting the expenses of delivery, freight, and commission of 1 per cent, the creditor, Grindrod, would pay one half of the proceeds over to Evaristo Alvarez, and the other half was to be credited to the latter's account until the same was settled in full; that for the purpose of operating the hacienda Esperanza he obtained money and goods from J. H. Grindrod to account of one-half of the value of the sugar without ever having covered the amounts so advanced, and that for said reason the debt of Evaristo Alvarez amounted on the 31st of March, 1904, to 34,510.81 pesos, Mexican currency, and that in view thereof Grindrod endeavored to protect his credit as the best he could under the law, inasmuch as he had noticed that the debtor had lost his zeal in working the hacienda and was greatly discouraged, for which reason the hacienda Esperanza yielded less sugar every year, and he was therefore obliged to file a complaint against the debtor, claiming payment of the same amount. He then obtained a preliminary attachment of all the property of the debtor, Alvarez which was executed on the 5th of August, 1904, and included all the rights which Alvarez had or might have over the hacienda Bunglas, especially over the mortgage of Vicente Lopez y Alvarez, with all the buildings, furnaces, machinery, labor animals, and other appurtenances and easements belonging thereto. Said attachment was duly recorded in the register of property of Iloilo on the 12th of August, 1904.

Evaristo Alvarez, the defendant, not having appeared in court, judgment was entered in the case on the 27th of the said month and year sentencing him to pay P32,867.44 and the costs of the proceedings.

In consequence of the foregoing decision all the rights which Alvarez had or might have over the hacienda Bunglas, particularly over the mortgage executed by Vicente Lopez on said hacienda, were sold at public auction in accordance with the law, and Juan Thomson Casells being the highest bidder they were adjudicated to him on the 7th of October, 1904, for the sum of P13,237, the same being recorded in the registry of property on the 29th of the said month of October, and inscribed therein on the 21st of March, 1905.

Evaristo Alvarez, having been summoned to appear as the executor of the estate of Vicente Lopez, and in reply to the original complaint of Manuel Lopez, stated that the facts therein set forth were true, particularly the assignment of part of the credit claimed by the plaintiff.

Evidence having been adduced by both parties, the judge rendered his decision on the 14th of November, 1905; holding that the plaintiff had failed to establish his right, and decided the case in favor of the defendant and to recover costs. Against this decision the plaintiff excepted and in order to sustain his appeal gave notice of his intention to file a bill of exceptions and in addition moved for a new trial on the ground that the weight of the evidence did not justify the judgment of the court and that the same was contrary to law; upon the denial of the motion for a new trial the plaintiff took exception and asked the approval of the bill of exceptions.

The action taken herein, though apparently an intervention based upon superior rights, is actually an intervention based upon ownership, because its purpose was to release the lien legally transferred to the plaintiff from the attachment levied upon request of a merely personal creditor, and thus avoid the sale and adjudication thereof in favor of some purchaser.

By virtue of the contract executed in a public instrument dated April 5, 1904 (Exhibit 2), the plaintiff, Manuel Lopez, acquired indisputable dominion over the credit for P5,973, and a fraction, transferred or assigned to him by its owner, Evaristo Alvarez y Perez, having the character of a mortgage according to the deed dated April 24, 1901, on the hacienda Bunglas pertaining to the estate of the late Vicente Lopez. The assignment or transfer of said portion of the credit is in accordance with the provisions of article 1878 of the Civil Code, which reads:

A mortgage credit may be alienated or assigned to a third person, wholly or partially, with the formalities required by law.

The fact that such assignment was not registered in the property register is no obstacle to the transfer of the dominion or ownership of said credit in the sum therein stated in favor of the plaintiff, Lopez, inasmuch as the assignment or alienation of a credit, made by the owner thereof in favor of another, is prior to the act of its registration, and entirely independent of such formality to such an extent that, if any question should arise over the contract between the assignor and the assignee, it would have to be decided according to common law without need of previous registration of the title, which shows that a credit secured by a mortgage may be assigned or alienated, and is a perfectly valid contract even if it were not registered.

Article 152 of the Mortgage Law requires that the alienation or assignment in favor of a third party of the whole or any part of a credit secured by mortgage shall be done by means of a public instrument, that the debtor be informed thereof, and that the same be recorded in the register, the assignee being subrogated to all the rights of the assignor; but in order that the transfer may be effective as against a third party it is indispensable that it be recorded in the registry of property, although the lack of such registration will not invalidate the assignment or transfer of the credit in favor of the assignee. Article 1526 of the Civil Code provides that —

The assignment of a credit, right, or action shall produce no effect against a third person but from the time the date is considered fixed, in accordance with articles 1218 and 1227.

If said assignment involves real property, from the date of its entry in the registry.

The assignment of the credit referred to was effected by means of a public instrument; therefore, in accordance with article 1218, it is evidence, even against a third person, of the facts which gave rise

to its execution and of the date of the latter; and the transfer of the credit must be held to be valid and efficient in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date when the transfer was made.

Notwithstanding the fact that the credit held by John Henry Grindrod, which amounted to 15,722 pesos, and 16 cents, Mexican currency, against the common debtor, Evaristo Alvarez, is of anterior date to the assignment of the credit for 5,973 pesos and a fraction, according to the deed of July 7, 1900, nevertheless, the right which Grindrod acquired by virtue of the said deed is merely a personal right with none of the characteristics of a mortgage, and for this reason the creditor, Grindrod, can not claim the rights of the third person referred to in article 27 of the Mortgage Law in connection with the contract of transfer or assignment of the credit made by the common debtor, Alvarez, in favor of the plaintiff, Manuel Lopez. In spite of the fact that John Henry Grindrod took no part in the contract or assignation of the said mortgage credit in favor of Lopez, and although the same was not recorded in the registry of property, Grindrod, the personal creditor, cannot be considered as a third person nor invoke in support of his right the provisions of article 27 of the Mortgage Law. This latter provision is for the purpose of securing the dominion over real property and rights in rem, such as that of the mortgage constituted thereon, and as the creditor is merely a personal one he has no right in rem over the credit assigned to the plaintiff, Lopez, by Alvarez, the common debtor.

The supreme court of Spain, applying provisions of law almost identical to those in force in these Islands to lawsuits pending in cassation, has, by a decision dated June 20, 1888, established the doctrine that he who does not possess a registered title can not be considered as a third person for the effects of the Mortgage Law, as would be the case with a mere bidder at a public sale for account and risk of his principal. The decision of the 25th of October, 1888, establishes the doctrine that —

Where the dominion over real property is concerned the creditor who obtained a preliminary attachment for the safety and security of his credit can not be considered as a third person, because article 44 of the Mortgage Law, in conformity with article 1923 of the Civil Code, grants him the right of preference only in respect to property recorded, and simply as regards subsequent credits.

In that of the 17th of May, 1898, the court says:

The third persons are only those whose respective title to property or rights under litigation have been previously recorded.

The attachment levied at the instance of Grindrod on the credit secured by the mortgage which the common debtor, Evaristo Alvarez, held upon the hacienda Bunglas, even if it had been recorded in the registry of property, would not confer on the creditor, J. H. Grindrod, any right in rem, at least over the credit for 5,973 pesos and a fraction which had already become the property of Manuel Lopez, nor did it improve his personal right to recover his credit, as regards the assignee, from a portion of the credit secured by mortgage, because when the attachment was carried out that part of the mortgage credit had already been alienated, and it no longer belonged to Evaristo Alvarez, the common debtor. Article 1923 of the Civil Code prescribes that —

With regard to determined real property and property rights of the debtor, the following are preferred:

x x x x x x x x x

4. Credits, of which a cautionary notice has been made in the registry of property by virtue of a judicial mandate, by reason of attachments, sequestrations, or execution of judgments, with regard to the property entered therein and only with regard to subsequent credits.

The plaintiff is not a mere personal creditor, but the owner of a credit secured by a mortgage which was lawfully transferred to him by the original owner thereof.

The supreme court of Spain in its decisions of March 20, 1874, and June 17, 1875, laid down the rule which has since become a settled doctrine:

The preliminary recording of an attachment, as the result of an order of court and intended only to secure the consequences of the action, does not create nor declare any right, nor alter the nature of the obligations or convert into real and hypothecary that which did not have this character previously, nor does it injure the rights in the property that may be claimed by others.

It is a fact, and has been admitted by appellee, that when the attached mortgage credit of Alvarez, the debtor, was sold on the 7th of October, 1904, Manuel Lopez had already filed his complaint in intervention on the 14th of September previous; therefore upon true principles of procedure, the sale should have been suspended, inasmuch as it was not a question of which of the creditors had a better right to recover, but whether the personal right of creditor J. H. Grindrod could prevail over the right of ownership of Manuel Lopez to a certain part of the mortgage credit legally transferred to him by its former owner.

When the sheriff undertook the sale of the said mortgage credit in its totality, a part of the same, to the value of 5,973 pesos, was no longer owned by the debtor, Evaristo Alvarez, but belonged to the assignee Manuel Lopez, and as the latter was not in any way obligated in favor of the said Grindrod, it is evident that a thing which belonged to another person was sold, and in respect to which the creditor, who asked for the sale, had no right. Hence, such a sale is null and void, and produced no effect with respect to that part of the credit owned by the plaintiff, Manuel Lopez, nor could it deprive him of his property by means of a process which, under no consideration, could have been based on any provision of law.

In its decision of the 12th of July, 1904, the same supreme court said that —

It has been repeatedly held by the supreme court that article 1280 of the Civil Code is not so far reaching as to require that, in order to prove dominion, the same should be set forth in a public instrument, because in accordance with article 1278 all contracts are binding, provided the essential conditions referred to in article 1261 exist, without prejudice to the right of the contracting parties to require the execution of a written instrument, as provided in article 1279; the absence thereof, however, can not be taken advantage of by either of the parties, and much less by a third person, to deny the existence and reality of a contract when it is substantiated by proof admissible in law. That the lack of registration of the documents with which the intervening party could justify his claim as the real owner of the subject-matter of intervention, is no obstacle to the acknowledgement of this right as opposed to that which corresponds to the defendant in the suit by reason of the preliminary attachment recorded, because this fact can only produce its logical consequences where the thing that has been attached belongs to the person against whom the attachment is levied.

It being conditional in attachments of all kinds that the thing attached must be the property of the debtor, from no provision of the Mortgage Law can a conclusion be derived contrary to such principle, simply because the name of the debtor appears in the registry as the owner of property

which does not actually belong to him, and much less when it happens that the entry in his name was made in order to record the attachment after the property was no longer owned by him.

Article 33 of the Mortgage Law provides that —

The record of instruments or contracts which are null in accordance with the law are not validated thereby.

If the sale of that part of the credit owned by Manuel Lopez is null and can not be sustained, the recording of the same in the registry of property can in no way validate it nor produce any effect against the real owner thereof who, contrary to law, was deprived of what pertained to him at the instance of a third person, with whom he was not in any manner connected, without being previously heard or defeated in an action at law, nor yet without due process of law, as provided in section 5 of the Philippine Bill.

Therefore, by virtue of the considerations set forth, it is our opinion, and we so hold, that the judgment appealed from should be reversed, that the credit secured by the mortgage upon the hacienda Bunglas, amounting to 5,973 pesos, to which the deed of the 5th of April, 1904 refers, is of the exclusive ownership of Manuel Lopez y Villanueva as assignee, and that the sale of such part of the credit is null and void and the plaintiff is entitled to recover from the proceeds of the sale of the said hacienda, in preference to the testate or intestate succession of J. H. Grindrod, the amount of his aforesaid credit together with the interest agreed upon, without prejudice to the subordinate rights of the said succession of the deceased creditor over the rest of the mortgage credit not assigned to the plaintiff. No special ruling is made as to costs in either instance. So ordered.

Arellano, C.J., Willard and Tracey, JJ., concur. Johnson, J., dissents.

Article 2129

BPI v. Concepcion, 53 Phil. 806

Facts: The Concepcions had a parcel of land mortgaged to BPI. Since they could not pay up the loan, they accepted the proposal of Elser to have the latter subrogated to their obligations to BPI, in exchange for getting the land. The bank exhibited neither approval nor disapproval of said agreement, but later moved for the inclusion of Elser as defendant in the foreclosure proceeding. The Concepcions contended that the case should be dismissed as to them. Elser contended that he could not be held liable for the debt because the agreement to subrogate himself in place of the Concepcions was never approved by the bank. BPI contended that both the Concepcions and Elser should be held solidarily liable for the debt. While the case was going on, Elser died. BPI moved for the substitution of Elser with Rosenstock, the administrator of his estate. This was granted by the court. The trial court absolved the Elser estate from any liability for the deficiency between the foreclosure price and the amount of debt, since the deficiency was not presented to the committee which processes claims against the estate. BPI filed a bill of exceptions with the Supreme Court. It contended that since it could not ascertain the deficiency of the proceeds of the mortgage sale and the actual debt before the foreclosure sale, it could not present the claim for deficiency with the committee which processes claims against the Elser estate.

Issue: Whether or not it is necessary that the foreclosure proceeding is already terminated for a mortgagee to claim a deficiency judgment against the estate.

Ruling: Negative. For a mortgagee to claim a deficiency judgment on the estate, he must file a claim for the deficiency within the period provided, even if the foreclosure proceedings have not yet been terminated. Until the foreclosure sale is made, the demand for the payment of deficiency is a contingent claim. The committee does not then pass upon the validity of the claim but reports it to the court. If the court from the report of the committee or from the proofs exhibited to it is satisfied that the contingent claim is valid, the executor or administrator may be required to retain in his possession sufficient assets to pay the claim when it becomes absolute, or enough to pay the creditor his proportionate share if the assets of the estate are insufficient to pay the debts. The bank could and should have presented its claim to the committee within the time prescribed by the law. But it did not, hence, it could not recover anymore from the estate.

Article 2130

LITONJUA v. L&R Corporation, 320 SCRA 405

FACTS:- Spouses Litonjua (P) obtained a loan from L & R Corporation (R) – Aug 6, 1974 (P200k) and

Mar 27, 1978 (P200k) – which are secured by a mortgage on 2 parcels of land owned by P- However, P sold to Phil White House Auto Supply (PWHAS) the subject parcels of land,

without prior written consent of R, pursuant to the Mortgage agreement that they have.- Upon default of P, R initiated an extrajudicial sale and won the bidding.- P later on filed for redemption of the property but R refused to do accept the payment

contending that P violated the contract- R informed the Sheriff and Register of Deeds, stating: (1) that the sale of the mortgaged

properties to PWHAS was without its consent, in contravention of their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties,

- Register of Deeds issued TCT in favor of R- A complaint for Quieting of Title, Annulment of Title and Damages with preliminary

injunction was filed by the spouses Litonjua and PWHAS against R - LC ruled in favor of R and affirmed by CA

ISSUE: WON paragraphs 8 and 9 of the Real Estate Mortgage are valid and enforceable;

SC: NO!- Art. 2130 – stipulation forbidding alienation of mortgaged property is VOID- A real mortgage is merely an encumbrance; it does not extinguish the title of the debtor,

whose right to dispose — a principal attribute of ownership — is not thereby lost. Thus, a mortgagor had every right to sell his mortgaged property, which right the mortgagee cannot oppose.

- Although the provision does not absolutely prohibit the mortgagor from selling his mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves.

- For all intents and purposes, the stipulation practically gives the mortgagee the sole prerogative to prevent any sale of the mortgaged property to a third party.

- The mortgagee can simply withhold its consent and thereby, prevent the mortgagor from selling the property. This creates an unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the owner to sell his mortgaged property. In other words, stipulations like those covered by paragraph 8 (requiring P to acquire prior consent of R before alienating the property) of the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article 2130 of the New Civil Code.

- Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon the parties.

Article 2131

LUCENA v. CA

SECOND DIVISION[G.R. No. L-77468. August 25, 1999]

EDUARDO LUCENA and NATIVIDAD PARALES, petitioners, vs. COURT OF APPEALS and RURAL BANK OF NAUJAN, INC., ROGELIO PINEDA, MARIANITO BAJA, PATRICIA ARAJA, BRAULIO BAGUS, REYNALDO MAMBIL and RAMON GARCIA, respondents.D E C I S I O NQUISUMBING, J.:

This is a petition for review of the Decision dated January 20, 1987 of the Court of Appeals in CA - G.R. CV No. 65526-R entitled Eduardo Lucena, et al. vs. Rural Bank of Naujan, Inc., et al. as well as its Resolution dated February 16, 1987 denying petitioners’ motion for reconsideration.[1] The assailed decision reversed the judgment of the then Court of First Instance of Oriental Mindoro in Civil Case No. R-3004, “Eduardo Lucena, et al. vs. Rural Bank of Naujan, et al. (Reconveyance with Damages)” and dismissed herein petitioners’ complaint.[2]

The factual antecedents are as follows:

Petitioners allege they are the registered owners of a parcel of land located at the barrio of Mag-asawang Tubig, Municipality of Naujan, Oriental Mindoro, covered by Transfer Certificate of Title No. T-41512 of the Registry of Deeds of Oriental Mindoro. On October 29, 1969, petitioner Eduardo Lucena obtained a loan from the private respondent Rural Bank of Naujan, Inc. in the amount of three-thousand pesos (P3,000.00) secured by a real estate mortgage constituted on said parcel of land. On October 1, 1970, after the loan had matured, petitioners paid to the Rural Bank of Naujan, Inc., the sum of two-thousand six pesos and ninety centavos (P2,006.90) in partial satisfaction of their debt, thereby leaving a balance of one-thousand pesos (P1,000.00) in its favor.

On May 7, 1974, after previous demand by the rural bank for the petitioners to settle the balance of their matured loan went unheeded, the subject property was extrajudicially foreclosed and sold at public auction where the rural bank as highest bidder acquired the property. Prior to the auction sale, notices of foreclosure were posted in at least three conspicuous public places in the municipality where the subject property was located, as indicated in the affidavit of posting dated May 6, 1974.[3] No notices were posted in the barrio where the property was located, nor were any published in a newspaper of general circulation. The Certificate of Sale dated May 7, 1974 issued by private respondent Deputy Sheriff Braulio Bagus was registered with the Registry of Deeds of Oriental Mindoro only on January 9, 1975.[4]

On June 26, 1975, an affidavit of consolidation of ownership was executed by the Rural Bank of Naujan through its manager, private respondent Rogelio P. Pineda. The affidavit of consolidation was subsequently registered by private respondent Reynaldo Mambil in his capacity as acting Register of Deeds on July 8, 1975, under Entry No. 134351. Transfer Certificate of Title No. T-41512 in the name of the petitioners was thus cancelled and Transfer Certificate of Title No. T-68547 of the Registry of Deeds of Oriental Mindoro was then issued in favor of the rural bank also on July 8, 1975. Thereafter, on July 14, 1975, a deed of sale was executed by the rural bank through its manager whereby the subject property was sold to private respondent spouses Marianito Baja and Patricia Araja, resulting in the cancellation of TCT No. T-68547 and the subsequent issuance of TCT No. T-68680 in the name of said respondents. Said deed of sale dated July 14, 1975 was accepted and

registered by private respondent Ramon G. Garcia, then acting Register of Deeds of Oriental Mindoro.[5]

On January 12, 1977, petitioners filed a complaint for reconveyance and damages against private respondents before the then Court of First Instance of Oriental Mindoro, to recover the subject property from private respondents and to compel the latter to compensate them for damages and losses suffered.[6] After trial, the court a quo promulgated its decision dated September 12, 1978, ruling in sum that there was no valid foreclosure sale of the subject property. The dispositive portion thereof reads:

“WHEREFORE, in view of the foregoing the Court believes and so holds that the preponderance of evidence militates in favor of the plaintiffs and against the defendants, and the Court renders judgment, to wit:

(1) Orders the defendants Marianito Baja and Patricia Araja to reconvey the parcel of land registered in their name under TCT No. T-68680 of the Register of Deeds of Oriental Mindoro in favor of herein plaintiffs Eduardo Lucena and Natividad Parales, free from all liens and encumbrances, except the remaining unpaid balance including accrued interest thereon in favor of the Rural Bank of Naujan, Inc.;

(2) Orders the Rural Bank of Naujan, Inc. and its manager Rogelio Pineda, jointly and severally, to pay the herein plaintiffs actual damages in the amount of P17,500.00 for unrealized rentals from subject property;

(3) Orders the Rural Bank of Naujan, Inc. and its manager Rogelio Pineda, jointly and severally, to pay herein plaintiffs moral damages in the amount of P10,000.00;

(4) Orders the Rural Bank of Naujan, Inc. and its manager Rogelio Pineda, jointly and severally, to pay plaintiffs attorney’s fees in the amount of P5,000.00, and to pay the costs of suit.

SO ORDERED.”[7]

Not satisfied with the judgement, both petitioners and private respondents elevated the case to the Court of Appeals. On January 20, 1987, the respondent court rendered its decision reversing and setting aside the trial court’s judgment. It ruled in sum that (a) posting of notices in the barrio where the property is situated is not required, as all the law requires is posting in the municipality or city where the property is located; (b) there is no need to publish the notice of auction sale in a newspaper of general circulation, because the balance of the loan was only one-thousand pesos (P1,000.00); (c) personal notice of the auction sale to the petitioners was not required; (d) the trial court was correct in holding that the date of registration of the sheriff’s certificate of sale and not the date of the sale itself was the reckoning point for the start of the one-year redemption period of the petitioners; and (e) the petitioners did not redeem their property within the one-year period from the date of registration of the certificate of sale, and having lost their right of redemption, cannot squirm their way out of their predicament by asking for reconveyance of the subject property.[8]

Petitioners now seek recourse through this petition. They assign the following errors:

“(1) ABSENCE OF POSTING OF NOTICES IN THE BARRIO OF MAGASAWANG TUBIG, WHERE THE LAND IS LOCATED, AS REQUIRED BY REPUBLIC ACT NO. 5939, RENDERED NULL AND VOID THE SALE IN QUESTION.

(2) PUBLICATION WAS A REQUISITE SINE QUA NON IN THIS CASE, BECAUSE THE AMOUNT OF THE LOAN WAS P3,000.00; HENCE, PARAGRAPH 3, SECTION 5 OF REPUBLIC ACT NO. 720, WAS NOT APPLICABLE, BECAUSE THE LAW DOES NOT SPEAK OF THE “BALANCE UNPAID” BUT THE “AMOUNT OF THE LOAN”.

(3) THE PREMATURE AND FRAUDULENT CONSOLIDATION OF OWNERSHIP AND MALICIOUS IMMEDIATE SALE OF THE LAND IN QUESTION IN FAVOR OF MARIANITO BAJA AND PATRICIA ARAJA BEFORE THE EXPIRATION OF THE PERIOD OF REDEMPTION CLOSED THE DOOR FOR LEGAL REDEMPTION; SO THAT AN ACTION FOR RECONVEYANCE BECAME THE PROPER REMEDY.

(4) THE AFFIDAVIT OF CONSOLIDATION OF OWNERSHIP HEREIN WAS NULL AND VOID FOR LACK OF NOTARIZATION.”[9]

We find that the pertinent issues to be resolved are: (1) whether or not a valid foreclosure sale of the subject property was conducted and (2) whether or not reconveyance and damages is the proper remedy available to petitioners.

With respect to the first issue, this Court has ruled that failure to comply with statutory requirements as to publication of notice of auction sale constitutes a jurisdictional defect which invalidates the sale.[10] Even slight deviations therefrom are not allowed.[11] Section 5 of Republic Act No. 720 as amended by Republic Act No. 5939 provides:[12]

“The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the publication in newspapers were the total amount of the loan, including interests due and unpaid, does not exceed three thousand pesos. It shall be sufficient publication in such cases if the notices of foreclosure are posted in at least three of the most conspicuous public places in the municipality and barrio were the land mortgaged is situated during the period of sixty days immediately preceding the public auction. Proof of publication as required herein shall be accomplished by affidavit of the sheriff or officer conducting the foreclosure sale and shall be attached with the records of the case: x x x.” (italics supplied)

In the case at bar, the affidavit of posting executed by the sheriff states that notices of the public auction sale were posted in three (3) conspicuous public places in the municipality such as (1) the bulletin board of the Municipal Building (2) the Public Market and (3) the Bus Station. There is no indication that notices were posted in the barrio where the subject property lies. Clearly, there was a failure to publish the notices of auction sale as required by law.

In Roxas vs. Court of Appeals,[13] this Court has ruled that the foreclosure and public auction sale of a parcel of land foreclosed by a rural bank were null and void when there was failure to post notices of auction sale in the barrio where the subject property was located. This Court finds that the same situation obtains in the case at bar. Further still, there was a failure on the part of private respondents to publish notices of foreclosure sale in a newspaper of general circulation. Section 5 of R.A. 720 as amended by R.A. 5939 provides that such foreclosures are exempt from the publication requirement when the total amount of the loan including interests due and unpaid does not exceed three-thousand pesos (P3,000.00). The law clearly refers to the total amount of the loan along with interests and not merely the balance thereof, as stressed by the use of the word “total.” At the time of foreclosure, the total amount of petitioners’ loan including interests due and unpaid was P3,006.90. Publication of notices of auction sale in a newspaper was thus necessary.

In light of private respondents’ failure to comply with the statutory requirements of notice and publication, we rule that the foreclosure and public auction sale of petitioners’ property are null and void. Hence, the Rural Bank of Naujan did not acquire valid title to the property in question. This reversal of the Court of Appeals disposes of the other errors assigned by petitioners.

Anent the second issue, the above conclusion requires a determination of whether or not petitioners are entitled to a reconveyance of their property. If the property has not yet passed to an innocent purchaser for value, an action for reconveyance is still available.[14] It is a condition sine qua non for an action for reconveyance to prosper that the property should not have passed to the hands of an innocent purchaser for value.[15] He is considered an innocent purchaser who acquired the property for a valuable consideration not knowing that the title of the vendor or grantor was null and void.[16] Good faith or its absence must thus be established on the part of spouses Marianito Baja and Patricia Araja at the time that they purchased the subject property from the Rural Bank of Naujan.

Good faith, or the lack of it, is in the last analysis a question of intention; but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined.[17] To determine whether or not the Baja spouses were in good faith at the time they purchased the subject property from the Rural Bank of Naujan thus entails a review of the evidence on record.

The trial court concluded that Marianito Baja and Patricia Araja were purchasers in bad faith. The trial court noted that when Marianito Baja verified the title of the subject property at the rural bank, he must have noticed that the certificate of sale was registered with the Office of the Register of Deeds only on January 9, 1975, so that he is presumed to know that the petitioners had at least one year from that date or up to January 8, 1976 to redeem the subject property.[18]

It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation.[19]

In the case at bar, Marianito Baja testified on cross-examination that Victor Atienza, Baja’s cousin and petitioners’ tenant on the subject property, informed him of the rural bank’s intention to sell the land in question.[20] He said that from the time this information was relayed to him until the execution of the deed of sale by the bank in favor of the Baja spouses on July 14, 1975, a period of about half a year elapsed.[21] He further stated that upon learning from Victor Atienza that the property was being sold, he immediately went to the rural bank to verify this information, as well as ascertain if the land was titled.[22] Baja also said that before the deed of sale was executed on July 14, 1975, he made his offer to buy the property from the bank about one month before said date.[23] On direct examination, however, Baja claimed that he verified the title to the subject property to be in the rural bank’s name before the sale was effected.[24]

From the records, it appears that title to the property was issued in the rural bank’s name only on July 8, 1975, when the bank’s affidavit of consolidation of ownership dated June 26, 1975 was registered with the Registry of Deeds of Oriental Mindoro.[25] Said registration was the operative act to prompt the Register of Deeds to cancel the title in the name of petitioners and to issue a new

one in the name of the rural bank. Hence, if Marianito Baja claims to have offered to buy the property one month before July 14 1975, or sometime in the middle of June of that year, he must have noticed that the title was not yet in the rural bank’s name. More so, he also would have noticed that the title was not yet in the bank’s name when he verified the status of the property and the title thereto immediately after Victor Atienza told him that the property was being sold, which, according to him, was about half a year before July 14, 1975.

What Baja should have noticed, if we follow his own chronological estimates, was that the title was still in the petitioners’ name when he verified the status of the land in question. Thus, he must have seen that the certificate of auction sale was registered only on January 9, 1975. As the trial court has said, he is presumed by law to know that the petitioners had one year from this date or until January 8, 1976 to redeem the subject property.

In addition, Baja was completely aware of the fact that Victor Atienza was a tenant of the petitioners. Hence, at the time the property in question was being sold to him by the rural bank, possession thereof was with the petitioners, exercised through their tenant Victor Atienza. In Santiago vs. Court of Appeals,[26] we cited De Guzman, Jr. vs. Court of Appeals (156 SCRA 701 [1987]):

“The failure of appellees to take the ordinary precautions which a prudent man would have taken under the circumstances, specially in buying a piece of land in the actual, visible and public possession of another person, other than the vendor, constitutes gross negligence amounting to bad faith.

“In this connection, it has been held that where, as in this case, the land sold is in the possession of a person other than the vendor, the purchaser is required to go beyond the certificate of title and ma[k]e inquiries concerning the rights of the actual possessor. (Incala vs. Mendoza, CA-G.R. No. 13677-R, November 9, 1965; De Jesus vs. Revilla, CA-G.R. No. 13562-R, October 5, 1965; Martelino vs. Manikan, CA-G.R. No. 32792-R, June 22, 1956])

x x x

One who purchases real property which is in the actual possession of another should, at least make some inquiry concerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors” (Conspecto vs. Fruto, 31 Phil. 144).”

x x x

Marianito Baja testified on cross-examination that he was working for about half a year in another area about a hundred meters away from the subject property before the same was offered to him for sale.[27] He thus had visual notice that petitioners’ tenant Victor Atienza was working on the land in question. He also learned from Atienza that petitioner Eduardo Lucena was the landlord of the former.[28] In fact, prior to the date that he acquired the property, Baja instructed Atienza to inform said petitioner that the rural bank was selling the property to him.[29] Baja, however, never communicated directly with petitioner Eduardo Lucena, nor did he receive any response coming from said petitioner.[30] He did learn, however, that Lucena scolded Victor Atienza when the latter went to see him, indicating that he was aware of said petitioner’s aversion to the sale of the property by the rural bank.[31]

All things considered, Marianito Baja did not make any reasonable inquiry regarding the status of the land in question, despite being aware that the property was still in the possession of the petitioners. He did not even make any effort to communicate directly with petitioner Eduardo Lucena. All he did was to instruct Victor Atienza to inform Lucena of the proposed sale of the property. He did not instruct Atienza, however, to make inquiries concerning the status of the property. Furthermore, Baja’s claim that he saw that title to the property was in the name of the rural bank prior to the sale is not credible. Granting arguendo that the title was in the name of the rural bank when he first saw it, he nonetheless had notice that possession of the property was with persons other than the vendors thereof. It was thus incumbent upon him to look beyond the title to the subject property and make the necessary inquiries. This he neglected to do.

When the Baja spouses purchased the subject property from the rural bank on July 14, 1975, they did so well within the one-year redemption period of petitioners. In doing so, not only did said respondents have notice of a defect in the title of the rural bank over the subject property, but by purchasing the latter, they also closed the door on the petitioners’ right to redeem it. Accordingly, we adopt the finding of the lower court that said respondents purchased the subject property in bad faith. We rule that petitioners are entitled to a reconveyance of the property as it has not yet passed to an innocent purchaser for value.

In their petition, petitioners also pray that this Court render a decision pursuant to their prayers as appellants in the Court of Appeals. Essentially, petitioners implored the respondent court to raise the amount of damages awarded them by the trial court and to find private respondents Braulio Bagus, Reynaldo Mambil and Ramon Garcia liable for damages as well. Petitioners also asked for the inclusion of exemplary damages and litigation fees in the award.

We find that there is no substantial reason to modify the trial court’s award of damages. There is no convincing proof to support petitioners’ allegations that private respondents Braulio Bagus, Reynaldo Mambil and Ramon Garcia performed their duties as Deputy Provincial Sheriff and Registers of Deeds with unlawful intent and in bad faith. Furthermore, petitioners’ allegations as to the amount of unrealized rentals due them as actual damages are mere assertions unsupported by factual evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.[32]

There is also no sound basis for increasing the award of moral damages. The well-entrenched rule is that the grant of moral damages depends upon the discretion of the court based on the circumstances of each case.[33] We find that the trial court exercised its sound discretion in awarding actual and moral damages as it did to the petitioners, as well as in not granting the exemplary damages for lack of sufficient basis.

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals dated January 20, 1987 is hereby SET ASIDE; and the decision of the CFI of Oriental Mindoro dated September 12, 1978, is hereby REINSTATED and AFFIRMED.

Costs against private respondents.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and Buena, JJ., concur.

Cristobal v. Court of Appeals, 328 SCRA 256

SECOND DIVISION

[G.R. No. 124372. March 16, 2000]

RENATO CRISTOBAL and MARCELINA CRISTOBAL, petitioners, vs. THE COURT OF APPEALS, RURAL BANK OF MALOLOS and ATTY. VICTORINO EVANGELISTA, respondents. Miä sedp

D E C I S I O N

QUISUMBING, J.:

This petition for review on certiorari seeks to reverse and set aside the Decision dated September 16, 1994, and the Resolution dated May 18, 1995, of the Court of Appeals in CA G.R. CV No. 39477. That decision set aside the Judgment of the Regional Trial Court of Malolos, Branch 72, in Civil Case No. 7887-M, (1) annulling the extrajudicial foreclosure of mortgage, the sale of the properties at public auction, and the issuance of titles to the properties in the name of respondent bank, and (2) ordering the reconveyance of the same properties to petitioners.

The facts of the case on record[1] are as follows:

Petitioners are engaged in the buying and selling of palay. To augment their capital, they applied and were granted a loan by the respondent bank in the amount of P30,000.00 payable in 270 days. The loan was secured by a mortgage over a parcel of land situated in Barrio Concepcion, Baliwag, Bulacan and covered by TCT No. T-64721. Because petitioners failed to pay their obligation on the date the loan fell due, the bank caused the mortgaged property, to be foreclosed extrajudicially. At the foreclosure sale on November 16, 1981, the bank was the sole and highest bidder. The sheriff of Bulacan, who conducted the sale, then executed a certificate of sale in the name of the bank. In turn the bank caused the registration of the sale in the Office of the Registry of Deeds of Bulacan (Exh. "17-a"). Petitioners failed to redeem the property, hence, the title was consolidated in the name of the bank. Thereafter, a new transfer certificate of title (TCT No. T-275695) was issued in the name of the bank. Misoedpâ

Through their attorney-in-fact Pacita Cristobal, petitioners were granted another loan by the bank in the amount of P70,000.00, secured by another real estate mortgage over four (4) parcels of land covered by TCT Nos. T-235811, T-174185, T-146185 and T-174186 payable in 180 days. When the obligation fell due without plaintiffs paying their indebtedness, the bank extrajudicially foreclosed the mortgage. As the highest bidder in the auction sale of subject parcels, titles were consolidated in its favor when petitioners failed to redeem the land. Consequently, new transfer certificates of title were issued in the bank's name.

On November 29, 1984, petitioners filed an action for annulment of extrajudicial foreclosure of mortgage and sale of property and for reconveyance with damages.

Petitioners, as plaintiffs below, impugned the validity of the extrajudicial foreclosure sales on the grounds that they were not furnished a copy of the application for foreclosure by the bank and a notice of the foreclosure sale; that the bank did not comply with the requirements of Act No. 3135 with respect to posting of the notice of sale and the publication of the sale in a newspaper of general

circulation; that they were not notified of the expiration of the period of redemption; and that the interest due on the principal obligation was bloated. Edpâ mis

The bank, as defendant below, claimed in its answer that it complied with the requirements of posting and publication required under Act 3135 and that it had not charged nor increased the interest rate of the principal obligations. It contended that the computation attached to the complaint was not the amount of redemption but the amount at which the bank may sell back, the property to the petitioners.

On January 24, 1985, the trial court issued a writ of preliminary injunction enjoining the bank from taking the possession of the property covered by TCT No. 64721.

After trial on the merits, the trial court rendered its decision on April 21, 1992, disposing as follows:

"WHEREFORE, in view of the foregoing, judgment is rendered by the Court as follows:

a) Declaring the annulment of the extrajudicial foreclosure of mortgages, the sale of the properties at public auction, the issuance of titles to the properties in the name of the defendant bank and the reconveyance of the same to the plaintiffs.

The following certificates of titles issued in the name of the defendant bank by the Registry of Deed, Malolos, Bulacan, is ordered cancelled by the Court:

Exhibit 19 - TCT No. T-275695

Exhibit 34 - TCT No. T-281827

Exhibit 34-A - TCT No. T-281825

Exhibit 34-B - TCT No. T-281828LEX

Exhibit 34-C - TCT No. T -281926

The Register of Deeds is hereby ordered to issue new certificates of titles to the subject properties in the name of the plaintiffs.

b) The Writ of Preliminary Injunction previously issued by the Court on January 7, 1985 in favor of the plaintiffs is hereby made permanent.

c) Ordering the defendant bank to pay the plaintiffs the following amounts:

P10,000.00 attorney's fees

costs of the suit

with 6% interest on all amounts due from the filing of this action on November 29, 1984 until said amounts have been fully paid.

d) Plaintiffs, in turn, are required to pay the following amounts to the defendant bank: Jjä sc

based on computation No. 1 – P 73,431.162

based on computation No. 2 – P171,930.066

P245,361.228

SO ORDERED."[2]

Finding the decision unacceptable, the bank timely appealed to respondent Court of Appeals. It subsequently reversed and set aside the judgment of the trial court. Petitioners filed a motion for reconsideration but it was denied in a Resolution dated May 18, 1995. Hence, this petition.

Petitioners now assign the following errors:

1. The public respondent erred when it held that private respondent has substantially complied with the publication requirement under the law.

2. Public respondent Court of Appeals erred when it relied only on the testimony of private respondent's witness. ScÓ jj

3. Public respondent Court of Appeals erred when it held that publication in the Mabuhay newspaper substantially complies with the law.

At issue is whether respondent Court of Appeals erred in finding that private respondents had complied substantially with Section 3 of Act 3135, which provides that:

"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city."

Non-compliance with the requirements of notice and publication in an extrajudicial foreclosure sale is a factual issue. The resolution thereof by the lower courts is binding and conclusive upon this Court.[3] However, this rule is subject to exceptions, as when the findings of trial court and the Court of Appeals are in conflict.[4] Also, it must be noted that non-compliance with the statutory requisites could constitute a jurisdictional defect that would invalidate the sale. Sjä cj

Petitioners claim that respondent Court of Appeals erred when it admitted the testimony of one Pedro Agustin, who evidently had no personal knowledge of the actual postings of the notice of sale. Following Section 36, Rule 130 of the Revised Rules of Court, such testimony could be hearsay. According to petitioners, it is not based on the personal knowledge of the witness but on the knowledge of some other person. Hearsay evidence, whether objected to or not, has no probative value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence rule. Petitioners argue that respondent bank not only failed to submit the certificate of posting but also failed to present before the court the Deputy Sheriff who allegedly did the postings. The bank merely presented its own employee, Pedro Agustin, who testified[5] that he was merely verbally notified by the Sheriff that a notice of sale was posted. Respondent bank responded that the Sheriff then in-charge of the matter was no longer available, and the records of the foreclosure proceedings were no longer available also, because of the length of time that had already elapsed.[6]

Moreover, in Bohanan vs. Court of Appeals, 256 SCRA 355, 360-61, (1996), we have ruled that non-presentation of a certificate of posting does not affect the intrinsic validity of the questioned foreclosure sale. As therein held, "a certificate of posting is not required, much less considered indispensable, for the validity of a foreclosure sale" under Act 3135. Supremeä

Further, as respondent bank asserts, a mortgagor who alleges absence of a requisite has the burden of establishing that fact. Petitioners failed in this regard. Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the petitioners.[7] As well said by the respondent appellate court:

"...Under the circumstances, there is a basis for presuming that official duty has been regularly performed by the sheriff. Being a disputable presumption, the same is valid unless controverted by evidence. The presumption has not been rebutted by any convincing and substantial evidence by the appellee who has the onus to present evidence that appellant has not complied with the posting requirement of the law. In the absence therefore of any proof to the contrary, the presumption that official duty has been regularly performed stays."[8]

Petitioners also claim that the Court of Appeals erred when it held that publication in the Mabuhay newspaper is a substantial compliance with the requirement of the law. However, the records show that the sheriff's notice of sale was published in the Mabuhay newspaper generally circulated in the Province of Bulacan. Petitioners do not dispute this fact. Affidavits of publication by Jose Pavia, Publisher/Editor of the Mabuhay Weekly newspaper, and newspaper clippings of Mabuhay containing the notice of sheriff’s sale in its October 12, 1981, November 1 & 8, 1981, September 26, 1982 and October 3 & 10, 1982 issues, were submitted by respondent bank. In our view, these pieces of evidence prove substantial compliance. Courtä

In Olizon vs. Court of Appeals, 236 SCRA 148, 156 (1994), we held that, the publication of the notice of sale in a newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirements of the law. Clearly, the respondent appellate court did not err in finding that respondent bank had substantially complied with those requirements.

ACCORDINGLY, the instant petition is DISMISSED. The decision of the Court of Appeals in CA-G.R. CV No. 39477 is AFFIRMED. No pronouncement as to costs.

SO ORDERED. Jä lexj

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

Metrobank v. Peñafiel, G.R. No. 173976, February 27, 2009

HIRD DIVISION METROPOLITAN BANK AND TRUST COMPANY, INC.,Petitioner, - versus - EUGENIO PEÑAFIEL, for himself and as Attorney-in-Fact of ERLINDA PEÑAFIEL,Respondents.G.R. No. 173976 Present: QUISUMBING,* J.,CARPIO,**CARPIO MORALES,***CHICO-NAZARIO,**** Acting Chairperson, andNACHURA, JJ. Promulgated: February 27, 2009 x------------------------------------------------------------------------------------x DECISION NACHURA, J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) dated July 29, 2005 and Resolution dated July 31, 2006. The assailed decision nullified the extrajudicial foreclosure sale of respondents’ properties because the notice of sale was published in a newspaper not of general circulation in the place where the properties were located. Respondent Erlinda Peñafiel and the late Romeo Peñafiel are the registered owners of two parcels of land covered by Transfer Certificate of Title (TCT) No. (350937) 6195 and TCT No. 0085, both issued by the Register of Deeds of Mandaluyong City. On August 1, 1991, the Peñafiel spouses mortgaged

their properties in favor of petitioner Metropolitan Bank and Trust Company, Inc. The mortgage deed was amended on various dates as the amount of the loan covered by said deed was increased. The spouses defaulted in the payment of their loan obligation. On July 14, 1999, petitioner instituted an extrajudicial foreclosure proceeding under Act No. 3135 through Diego A. Alleña, Jr., a notary public. Respondent Erlinda Peñafiel received the Notice of Sale, stating that the public auction was to be held on September 7, 1999 at ten o’clock in the morning, at the main entrance of the City Hall of Mandaluyong City. The Notice of Sale was published in Maharlika Pilipinas on August 5, 12 and 19, 1999, as attested to by its publisher in his Affidavit of Publication.[2] Copies of the said notice were also posted in three conspicuous places in Mandaluyong City.[3] At the auction sale, petitioner emerged as the sole and highest bidder. The subject lots were sold to petitioner for P6,144,000.00. A certificate of sale[4] was subsequently issued in its favor. On August 8, 2000, respondent Erlinda Peñafiel, through her attorney-in-fact, Eugenio Peñafiel, filed a Complaint[5] praying that the extrajudicial foreclosure of the properties be declared null and void. They likewise sought (a) to enjoin petitioner and the Register of Deeds from consolidating ownership, (b) to enjoin petitioner from taking possession of the properties, and (c) to be paid attorney’s fees. On June 30, 2003, the Regional Trial Court (RTC) rendered judgment in favor of petitioner: ACCORDINGLY, judgment is hereby rendered as follows: 1. The extrajudicial foreclosure of real estate mortgage instituted by defendants Metrobank and Notary Public Diego A. Alleña, Jr. over the two parcels of land covered by TCT Nos. (350937) 6195 and TCT No. 0085 is hereby declared VALID; and 2. The counterclaim of herein defendants are hereby DISMISSED for insufficiency of evidence. SO ORDERED.[6] Respondents appealed to the CA, raising, among others, the issue of whether petitioner complied with the publication requirement for an extrajudicial foreclosure sale under Act No. 3135. On this issue, the CA agreed with respondents. The CA noted that the law requires that publication be made in a newspaper of general circulation in the municipality or city where the property is situated. Based on the testimony of the publisher of Maharlika Pilipinas, it concluded that petitioner did not comply with this requirement, since the newspaper was not circulated in Mandaluyong City where the subject properties were located. Thus, in its Decision dated July 29, 2005, the CA reversed the RTC Decision, thus: WHEREFORE, the appealed decision is REVERSED and SET ASIDE. A new one is hereby entered declaring the extrajudicial foreclosure sale of the properties covered by TCT Nos. (350937) 6195 and 0085 NULL and VOID. SO ORDERED.[7] Petitioner filed a motion for reconsideration[8] of the decision which the CA denied on July 31, 2006.

Petitioner now brings before us this petition for review on certiorari, raising the following issues: I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED TO APPLY THE PROVISIONS ON THE PUBLICATION OF JUDICIAL NOTICES UNDER SECTION 1 OF P.D. NO. 1079 TO THE EXTRAJUDICIAL FORECLOSURE OF THE MORTGAGE BY NOTARY PUBLIC OVER THE PROPERTIES COVERED BY TCT NO. (350927) 6195 AND TCT NO. 0085. II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT “MAHARLIKA PILIPINAS” IS NOT A NEWSPAPER OF GENERAL CIRCULATION IN MANDALUYONG CITY. III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED AND SET ASIDE THE DECISION DATED JUNE 30, 2003 ISSUED BY THE REGIONAL TRIAL COURT OF MANDALUYONG CITY, BRANCH 208 AND DECLARED THE EXTRAJUDICIAL FORECLOSURE SALE OF THE PROPERTIES COVERED BY TCT NO. (350937) 6195 AND TCT NO. 0085 NULL AND VOID.[9] This controversy boils down to one simple issue: whether or not petitioner complied with the publication requirement under Section 3, Act No. 3135, which provides: SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.[10] We hold in the negative. Petitioner insists that Maharlika Pilipinas is a newspaper of general circulation since it is published for the dissemination of local news and general information, it has a bona fide subscription list of paying subscribers, and it is published at regular intervals. It asserts that the publisher’s Affidavit of Publication attesting that Maharlika Pilipinas is a newspaper of general circulation is sufficient evidence of such fact.[11] Further, the absence of subscribers in Mandaluyong City does not necessarily mean that Maharlika Pilipinas is not circulated therein; on the contrary, as testified to by its publisher, the said newspaper is in fact offered to persons other than its subscribers. Petitioner stresses that the publisher’s statement that Maharlika Pilipinas is also circulated in Rizal and Cavite was in response to the question as to where else the newspaper was circulated; hence, such testimony does not conclusively show that it is not circulated in Mandaluyong City.[12] Petitioner entreats the Court to consider the fact that, in an Order[13] dated April 27, 1998, the Executive Judge of the RTC of Mandaluyong City approved the application for accreditation of Maharlika Pilipinas as one of the newspapers authorized to participate in the raffle of judicial notices/orders effective March 2, 1998. Nonetheless, petitioner admits that this was raised for the first time only in its Motion for Reconsideration with the CA.[14] The accreditation of Maharlika Pilipinas by the Presiding Judge of the RTC is not decisive of whether it is a newspaper of general circulation in Mandaluyong City. This Court is not bound to adopt the Presiding Judge’s determination, in connection with the said accreditation, that Maharlika Pilipinas is

a newspaper of general circulation. The court before which a case is pending is bound to make a resolution of the issues based on the evidence on record. To prove that Maharlika Pilipinas was not a newspaper of general circulation in Mandaluyong City, respondents presented the following documents: (a) Certification[15] dated December 7, 2001 of Catherine de Leon Arce, Chief of the Business Permit and Licensing Office of Mandaluyong City, attesting that Maharlika Pilipinas did not have a business permit in Mandaluyong City; and (b) List of Subscribers[16] of Maharlika Pilipinas showing that there were no subscribers from Mandaluyong City. In addition, respondents also presented Mr. Raymundo Alvarez, publisher of Maharlika Pilipinas, as a witness. During direct examination, Mr. Alvarez testified as follows: Atty. Mendoza: And where is your principal place of business? Where you actually publish.Witness: At No. 80-A St. Mary Avenue, Provident Village, Marikina City. Atty. Mendoza: Do you have any other place where you actually publish Maharlika Pilipinas?Witness: At No. 37 Ermin Garcia Street, Cubao, Quezon City. Atty. Mendoza: And you have a mayor’s permit to operate?Witness: Yes. Atty. Mendoza: From what city?Witness: Originally, it was from Quezon City, but we did not change anymore our permit. Atty. Mendoza: And for the year 1996, what city issued you a permit?Witness: Quezon City. Atty. Mendoza: What about this current year?Witness: Still from Quezon City. Atty. Mendoza: So, you have no mayor’s permit from Marikina City?Witness: None, it’s only our residence there. Atty. Mendoza: What about for Mandaluyong City?Witness: We have no office in Mandaluyong City. Atty. Mendoza: Now, you said that you print and publish Maharlika Pilipinas in Marikina and Quezon City?Witness: Yes. Atty. Mendoza: Where else do you circulate your newspaper?Witness: In Rizal and in Cavite. Atty. Mendoza: In the subpoena[,] you were ordered to bring the list of subscribers.Witness: Yes. x x x x Atty. Mendoza: How do these subscribers listed here in this document became (sic) regular subscribers?

Witness: They are friends of our friends and I offered them to become subscribers. Atty. Mendoza: Other than this list of subscribers, you have no other subscribers?Witness: No more. Atty. Mendoza: Do you offer your newspaper to other persons other than the subscribers listed here?Witness: Yes, but we do not just offer it to anybody.[17] (Emphasis supplied.) It bears emphasis that, for the purpose of extrajudicial foreclosure of mortgage, the party alleging non-compliance with the requisite publication has the burden of proving the same.[18] Petitioner correctly points out that neither the publisher’s statement that Maharlika Pilipinas is being circulated in Rizal and Cavite, nor his admission that there are no subscribers in Mandaluyong City proves that said newspaper is not circulated in Mandaluyong City. Nonetheless, the publisher’s testimony that they “do not just offer [Maharlika Pilipinas] to anybody” implies that the newspaper is not available to the public in general. This statement, taken in conjunction with the fact that there are no subscribers in Mandaluyong City, convinces us that Maharlika Pilipinas is, in fact, not a newspaper of general circulation in Mandaluyong City. The object of a notice of sale is to inform the public of the nature and condition of the property to be sold, and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property.[19] The goal of the notice requirement is to achieve a “reasonably wide publicity” of the auction sale. This is why publication in a newspaper of general circulation is required. The Court has previously taken judicial notice of the “far-reaching effects” of publishing the notice of sale in a newspaper of general circulation.[20] True, to be a newspaper of general circulation, it is enough that it is published for the dissemination of local news and general information, that it has a bona fide subscription list of paying subscribers, and that it is published at regular intervals.[21] Over and above all these, the newspaper must be available to the public in general, and not just to a select few chosen by the publisher. Otherwise, the precise objective of publishing the notice of sale in the newspaper will not be realized. In fact, to ensure a wide readership of the newspaper, jurisprudence suggests that the newspaper must also be appealing to the public in general. The Court has, therefore, held in several cases that the newspaper must not be devoted solely to the interests, or published for the entertainment, of a particular class, profession, trade, calling, race, or religious denomination. The newspaper need not have the largest circulation so long as it is of general circulation.[22] Thus, the Court doubts that the publication of the notice of sale in Maharlika Pilipinas effectively caused widespread publicity of the foreclosure sale. Noticeably, in the Affidavit of Publication, Mr. Alvarez attested that he was the “Publisher of Maharlika Pilipinas, a newspaper of general circulation, published every Thursday.” Nowhere is it stated in the affidavit that Maharlika Pilipinas is in circulation in Mandaluyong City. To recall, Sec. 3 of Act No. 3135 does not only require that the newspaper must be of general circulation; it also requires that the newspaper be circulated in the municipality or city where the property is located. Indeed, in the cases[23] wherein the Court held that the affidavit of the publisher was sufficient proof of the required publication, the affidavit of the publisher therein distinctly stated that the newspaper was generally circulated in the place where the property was located.

Finally, petitioner argues that the CA, in effect, applied P.D. No. 1079[24] when it cited Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Company,[25] which involved an extrajudicial foreclosure sale by a sheriff. Petitioner avers that the general reference to “judicial notices” in P.D. No. 1079, particularly Section 2[26] thereof, clearly shows that the law applies only to extrajudicial foreclosure proceedings conducted by a sheriff, and not by a notary public.[27] P.D. No. 1079 allegedly applies only to notices and announcements that arise from court litigation.[28] The Court does not agree with petitioner that the CA applied P.D. 1079 to the present case. The appellate court cited Fortune Motors merely to emphasize that what is important is that the newspaper is actually in general circulation in the place where the properties to be foreclosed are located. In any case, petitioner’s concern that the CA may have applied P.D. 1079 to the present case is trifling. While P.D. No. 1079 requires the newspaper to be “published, edited and circulated in the same city and/or province where the requirement of general circulation applies,” the Court, in Fortune Motors, did not make a literal interpretation of the provision. Hence, it brushed aside the argument that New Record, the newspaper where the notice of sale was published, was not a newspaper of general circulation in Makati since it was not published and edited therein, thus: The application given by the trial court to the provisions of P.D. No. 1079 is, to our mind, too narrow and restricted and could not have been the intention of the said law. Were the interpretation of the trial court (sic) to be followed, even the leading dailies in the country like the “Manila Bulletin,” the “Philippine Daily Inquirer,” or “The Philippine Star” which all enjoy a wide circulation throughout the country, cannot publish legal notices that would be honored outside the place of their publication. But this is not the interpretation given by the courts. For what is important is that a paper should be in general circulation in the place where the properties to be foreclosed are located in order that publication may serve the purpose for which it was intended.[29] Therefore, as it stands, there is no distinction as to the publication requirement in extrajudicial foreclosure sales conducted by a sheriff or a notary public. The key element in both cases is still general circulation of the newspaper in the place where the property is located. WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated July 29, 2005 and Resolution dated July 31, 2006 in CA-G.R. CV No. 79862 are AFFIRMED. SO ORDERED.

PNB v. Nepomuceno, 394 SCRA 405

Philippine National Bank vs. Nepomuceno Productions, Inc.G.R. No. 139479, 394 SCRA 405, December 27, 2002

PHILIPPINE NATIONAL BANK, petitioner,vs.NEPOMUCENO PRODUCTIONS, INC., FILM ADVERTISING MEDIA EXHIBITIONS, INC. (FAME),LUIS NEPOMUCENO, AMPARO NEPOMUCENO, and JESUS NEPOMUCENO, respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 475001 affirming the decision of the Regional Trial Court of Pasig City (Branch 155) in Civil Case No. 28809 which set aside the foreclosure proceedings and auction sale of respondent’s properties and ordered petitioner to pay attorney’s fees.

The relevant facts of the case are undisputed.

On November 28, 1973, petitioner Philippine National Bank (PNB) granted respondents a 4 Million Pesos (P4,000,000.00) credit line to finance the filming of the movie "Pacific Connection."2 The loan was secured by mortgages on respondents’ real and personal properties, to wit: (1) a 7,623 square meters parcel of land located in Malugay Street, Makati (referred to as the Malugay property); (2) a 3,000 square meters parcel of land located in North Forbes Park, Makati (referred to as the Forbes property);3 and (3) several motion picture equipments.4 The credit line was later increased to 6 Million Pesos (P6,000,000.00) on January 14, 1974,5 and finally to 7.5 Million Pesos (P7,500,000.00) on September 8, 1974.6

Respondents defaulted in their obligation. Petitioner sought foreclosure of the mortgaged properties with the Sheriff’s Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the auction sale was re-scheduled several times without need of republication of the notice of sale, as stipulated in the Agreement to Postpone Sale,7 until finally, the auction sale proceeded on December 20, 1976, with petitioner as the highest bidder in the amount of P10,432,776.97.8

Aggrieved, respondents filed Civil Case No. 28809 with the Regional Trial Court of Pasig (Branch 155), an action for annulment of foreclosure sale and damages with injunction.9 Respondents contended that the foreclosure sale is null and void because: (1) the obligation is yet to mature as there were negotiations for an additional loan amount of P5,000,000.00; (2) lack of publication; (3) the purchase price was grossly inadequate and unconscionable; and (4) the foreclosure proceedings were initiated by petitioner in bad faith.10

In its Decision dated September 16, 1992, the court a quo ordered the annulment and setting aside of the foreclosure proceedings and auction sale held on December 20, 1976 on the ground that there was lack of publication of the notice of sale.11 The court a quo also ordered petitioner to pay P100,000.00 as attorney’s fees.12

Dissatisfied, petitioner elevated the case to the Court of Appeals.

During completion stage of the appeal, the appellate court issued a Resolution on January 31, 1996 dismissing petitioner’s appeal with regard to the Forbes Park property as the same was already the subject of a Deed of Reconveyance executed by petitioner in favor of respondents on November 22, 1994, as well as a Compromise Agreement dated September 13, 1994 between the same parties.13 Said Resolution having become final and executory on February 26, 1996, entry of judgment was made on March 27, 1996.14 Hence, resolution of the appeal in the Court of Appeals pertained only to the Malugay property.

On December 11, 1998, the appellate court rendered the assailed Decision, which affirmed in toto the decision of the court a quo.15

Hence, herein petition for review under Rule 45 of the Rules of Court.

Petitioner maintains that:

"I

"THE COURT OF APPEALS ERRED IN DECLARING PNB’S FORECLOSURE SALE OF RESPONDENTS’ PROPERTIES NULL AND VOID FOR LACK OF REPUBLICATION DESPITE THE PARTIES AGREEMENT TO WAIVE THE REPUBLICATION AND RESPOSTING OF SHERIFF’S SALE

"II

"THE COURT OF APPEALS ERRED IN NOT DECLARING THE RESPONDENTS IN ESTOPPEL TO ASSAIL THE VALIDITY OF THE FORECLOSURE SALE AFTER THEY INDUCED PNB TO EXECUTE THE AGREEMENT TO POSTPONE SALE WAIVING THE REPUBLICATION AND REPOSTING OF THE SHERIFF’S NOTICE OF SALE

"III

"THE COURT OF APPEALS ERRED IN SUSTAINING THAT RESPONDENTS ARE NOT THIRD PERSONS IN CONTEMPLATION OF THE LAW"16

The focal issue in this case is whether the parties to the mortgage can validly waive the posting and publication requirements mandated by Act No. 3135.

We answer in the negative.

Act. No. 3135, as amended, governing extrajudicial foreclosure of mortgages on real property is specific with regard to the posting and publication requirements of the notice of sale, to wit:

"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city."

On this score, it is well settled that what Act No. 3135 requires is: (1) the posting of notices of sale in three public places; and, (2) the publication of the same in a newspaper of general circulation.17 Failure to publish the notice of sale constitutes a jurisdictional defect, which invalidates the sale.18

Petitioner, however, insists that the posting and publication requirements can be dispensed with since the parties agreed in writing that the auction sale may proceed without need of re-publication and re-posting of the notice of sale.19

We are not convinced. Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135.

In People v. Donato,20 the Court expounded on what rights and privileges may be waived, viz.:

"x x x the doctrine of waiver extends to rights and privileges of any character, and, since the word 'waiver' covers every conceivable right, it is the general rule that a person may waive any matter which affects his property, and any alienable right or privilege of which he is the owner or which belongs to him or to which he is legally entitled, whether secured by contract, conferred with statute, or guaranteed by constitution, provided such rights and privileges rest in the individual, are intended for his sole benefit, do not infringe on the rights of others, and further provided the waiver of the right or privilege is not forbidden by law, and does not contravene public policy; and the principle is recognized that everyone has a right to waive, and agree to waive, the advantage of a law or role made solely for the benefit and protection of the individual in his private capacity, if it can be dispensed with and relinquished without infringing on any public right, and without detriment to the community at large x x x.

"Although the general rule is that any right or privilege conferred by statute or guaranteed by constitution may be waived, a waiver in derogation of a statutory right is not favored, and a waiver will be inoperative and void if it infringes on the rights of others, or would be against public policy or morals and the public interest may be waived.

"While it has been stated generally that all personal rights conferred by statute and guaranteed by constitution may be waived, it has also been said that constitutional provisions intended to protect property may be waived, and even some of the constitutional rights created to secure personal liberty are subjects of waiver."21While it is established that rights may be waived, Article 6 of the Civil Code explicitly provides that such waiver is subject to the condition that it is not contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.22

The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the mortgagor as to inform the public generally of the nature and condition of the property to be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and prevent a sacrifice of the property.23 Clearly, the statutory requirements of posting and publication are mandated, not for the mortgagor’s benefit, but for the public or third persons. In fact, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not even necessary, unless stipulated.24 As such, it is imbued with public policy considerations and any waiver thereon would be inconsistent with the intent and letter of Act No. 3135.

Moreover, statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with and slight deviations therefrom will invalidate the notice and render the sale at the very least voidable.25

"Where required by the statute or by the terms of the foreclosure decree, public notice of the place and time of the mortgage foreclosure sale must be given, a statute requiring it being held applicable to subsequent sales as well as to the first "advertised sale of the property. It has been held that failure to advertise a mortgage foreclosure sale in compliance with statutory requirements

constitutes a jurisdictional defect invalidating the sale and that a substantial error or omission in a notice of sale will render the notice insufficient and vitiate the sale."26

Thus, in the recent case of Development Bank of the Philippines v. Aguirre,27 the foreclosure sale held more than two (2) months after the published date of sale was considered void for lack of republication.28 Similarly, in the instant case, the lack of republication of the notice of the December 20, 1976 foreclosure sale renders it void.

The right of a bank to foreclose a mortgage upon the mortgagor’s failure to pay his obligation must be exercised according to its clear mandate, and every requirement of the law must be complied with, lest the valid exercise of the right would end.29 The exercise of a right ends when the right disappears, and it disappears when it is abused especially to the prejudice of others.30

We also cannot accept petitioner’s argument that respondents should be held in estoppel for inducing the former to re-schedule the sale without need of republication and reposting of the notice of sale.

Records show that respondents, indeed, requested for the postponement of the foreclosure sale.31 That, however, is all that respondents sought. Nowhere in the records was it shown that respondents purposely sought re-scheduling of the sale without need of republication and reposting of the notice of sale. To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another. Respondents, therefore, did not commit any act that would have estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135.

In addition, the "Agreement to Postpone Sale" signed by respondents was obviously prepared solely by petitioner.32 A scrutiny of the agreement discloses that it is in a ready-made form and the only participation of respondents is to affix or "adhere" their signature thereto. It therefore partakes of the nature of a contract of adhesion, i.e., one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify.33 One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation, and depriving the latter of the opportunity to bargain on equal footing.34 As such, their terms are construed strictly against the party who drafted it.35

Finally, while we rule that the appellate court did not commit any error in affirming the decision of the court a quo, we find the award of P100,000.00 as attorney's fees to be excessive. Article 2208 of the Civil Code allows the award of such fees when its claimant is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In view of petitioner's foreclosure of the property without complying with the statutory requirements,36 the award of attorney's fees of P25,000.00 is just, fair, and reasonable.

WHEREFORE, the Decision dated December 10, 1998 in CA-G.R. CV No. 47500 is hereby AFFIRMED with modification that the award of attorney’s fees is reduced to P25,000.00.

No pronouncement as to costs.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing, and Callejo, Sr., JJ., concur.

 DBP v. Aguirre, 364 SCRA 755

G.R. No. 144877 September 7, 2001

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,vs.VERONICA AGUIRRE and THE HONORABLE COURT OF APPEALS (Ninth Division), respondents.

MENDOZA, J.:

This is a petition for review of the decision,1 dated December 29, 1999, of the Court of Appeals, annulling the foreclosure proceedings undertaken by petitioner Development Bank of the Philippines (DBP).

The facts are as follows:

In 1980, petitioner DBP granted a loan to Veronica Aguirre in the amount of P99,500.00, with interest at 14% per annum, payable in 25 years at monthly installments of P1,147.92. To secure the loan, respondent Aguirre executed a mortgage over a 180-square meter lot in Parañaque and issued two promissory notes covering the amount of the loan. As respondent Aguirre defaulted, petitioner took steps in 1982 to foreclose the mortgage. Upon request of respondent Aguirre, petitioner offered to restructure her loan upon payment of P25,333.79, or, in the alternative, upon payment of at least 10% of the arrears coupled with the execution of additional collateral to cover the remaining obligation. Respondent was given seven days to accept or reject the offer. As respondent did not respond to the offer, petitioner proceeded with the foreclosure of the mortgage. Respondent Aguirre made two payments on September 24 and October 10, 1986 in the amounts of P9,000.00 and P22,000.00, respectively, which petitioner deducted from respondent's outstanding balance.

The notice for the foreclosure sale, to be held on September 25, 1985 in the municipal building of the Parañaque, was published in Mabuhay, a newspaper of general circulation in Bulacan and Metro Manila, in its issues of August 25, September 1, and 8, 1985. For some reason, however, the foreclosure sale scheduled on September 25, 1985 did not take place on the said date but on January 7, 1986, during which petitioner was the highest bidder for P99,300.00. As of the time of the sale, respondent Aguirre's total outstanding obligation was P247,740.70. The certificate of sale was registered in the Office of the Registrar of Parañaque on July 16, 1987.

As respondent Aguirre failed to redeem the property, DBP consolidated its title and advertised the sale of the foreclosed lot through a public auction scheduled on December 6, 1988. On the day of the bidding, respondent Aguirre brought suit against DBP in the Regional Trial Court, Branch 134, Makati City to enjoin the scheduled auction sale and to annul the extrajudicial sale of January 7, 1986. Respondent claimed that her loan was not yet due because it had been restructured and that she had not been personally notified of the foreclosure sale. The trial court issued a restraining order and, subsequently, a writ of preliminary injunction, to restrain the auction sale pending the resolution of the case.

Petitioner DBP denied respondent Aguirre's contention that the loan had been restructured and claimed that it had personally notified her of the sale. It contended that respondent Aguirre failed to redeem the property, for which reason it consolidated its title. As counterclaim, DBP sought payment of the deficiency claim in the amount of P241,658.39 computed as of December 30, 1988.

On May 9, 1996, the trial court rendered its decision. It found that DBP had complied with the publication requirement in the foreclosure of the mortgage in question and that respondent Aguirre failed to overcome the presumption of regularity of performance of official duty with regard to the posting of the notice of sale; that respondent had defaulted in the payment of its loan; and that although there were negotiations for the restructuring of respondent Aguirre's loan, no agreement was reached by the parties. On the other hand, the trial court found no merit in DBP's counterclaim. Consequently, it vacated the writ of preliminary injunction and dismissed respondent Aguirre's complaint as well as DBP's counterclaim.

Both petitioner and respondent Aguirre appealed to the Court of Appeals which, on December 29, 1999, reversed the decision of the trial court insofar as the appeal of respondent Aguirre was concerned and invalidated the foreclosure sale on the ground that petitioner's failure to present proof of posting of the notice of sale rendered the foreclosure proceedings invalid.

Hence this petition of DBP. Petitioner submits the following assignment of errors allegedly committed by the appeals court:

1. The Honorable Court of Appeals erred when it declared null and void the extra-judicial proceeding initiated by Petitioner DBP on the ground that it did not comply with the required proof of posting.

2. The Honorable Court of Appeals erred in not dismissing the appeal of respondent when it wrongfully applied the Supreme Court ruling in the Pulido vs. CA, 252 SCRA 673, instead of the ruling in the Olizon vs. CA, 236 SCRA 148, which squarely applies in the present case.

3. The Honorable Court of Appeals erred in denying DBP's claim for deficiency when it declared null and void the foreclosure proceedings initiated by Petitioner DBP.2

We find the petition to be without merit.

Under Act No. 3135, §3, 3 if the value of the property subject of the foreclosure is more than P400.00, the notice of sale must be posted and published. The failure to post a notice is not per se a ground for invalidating the sale provided that the notice thereof is duly published in a newspaper of general circulation. As this Court explained in Olizon v. Court of Appeals:4

[N]ewspaper publications have more far-reaching effects than posting on bulletin boards in public places. There is a greater probability that an announcement or notice published in a newspaper of general circulation, which is distributed nationwide, shall have a readership of more people than that posted in a public bulletin board, no matter how strategic its location may be, which caters only to a limited few. Hence. the publication of the notice of sale in the newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirement of the law. By such publication, a reasonably wide publicity had been effected such that those interested might attend the public sale, and the purpose of the law had been thereby subserved.

In this case, a notice of extrajudicial foreclosure sale was published on August 25, September 1, and 8, 1985 in a newspaper of general circulation in Metro Manila in accordance with §3. Said notice reads:

PURSUANT to the terms of the Deed of Real Estate Mortgage dated April 21, 1980 executed by Mortgagor Veronica Aguirre, in favor of the Mortgagee DEVELOPMENT BANK OF THE PHILIPPINES, to satisfy the mortgage indebtedness amounting to P194,375.52 PESOS, in Philippine currency as of

December 2, 1984, including interest, penalty, attorney's fees and other charges together with all lawful fees and expenses of foreclosure sale, the EXECUTIVE JUDGE of the Regional Trial Court of Makati, Metro Manila thru the undersigned Clerk of Court and Ex-Oficio Sheriff of Makati, Metro Manila, hereby announces that on Sept. 25, 1985 at 10:00 o'clock in the morning or soon thereafter, in front of the main Entrance of the Municipal Building of Parañaque, Metro Manila, he and/or the deputy sheriff incharge will sell at public auction to the highest bidder and for cash, in Philippine currency the following real property with all its improvements existing thereon, to wit:

TRANSFER CERTIFICATE OF TITLE NO. 4427755REGISTRY OF DEEDS OF PASAY CITY

"A parcel of land (Lot 40, Block 7 of the consolidation subdivision plan (LRC) Pcs-14155, being a portion of the consolidation of Psu-163344-D, Psu-166150 & Psu-172231-B, Lots 3491, 4628, 4645, 4646 & 4647, Parañaque Cadastre, LRC Rec. Nos. N-15340, N-14850, N-17130, N-27659, N-27451, N-26759, N-35586, N-26753 and N-19075), situated in the Barrio of San Dionisio, Municipality of Parañaque, Province of Rizal, Island of Luzon. Bounded on the SE., points 2 to 3 by Road Lot 11 of the consolidation subdivision plan; on the SW., points 3 to 4 by Lot 42; on the NW., points 4 to 5 by Lot 39; points 5 to 1 by Lot 37; and on the NE., points 1 to 2 by Lot 39, all of Block 7 of the consolidation subdivision plan. . . . Containing an area of ONE HUNDRED EIGHTY (180) SQUARE METERS, more or less."6

However, although the notice of foreclosure sale was duly published, the sale did not take place as scheduled on September 25, 1985. Instead, it was held more than two months after the published date of the sale or on January 7, 1986. This renders the sale void. As held in Masantol Rural Bank, Inc. v. Court of Appeals,7 in which the foreclosure sale likewise took place several months after the date indicated in the published notice of sale —

Act. No. 3135, as amended, which governs the extrajudicial foreclosure of mortgages on real property specifies the following publication requirements:

"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city."

[In this case, n]otice of the first auction sale scheduled for 20 October 1977 had been duly published as required by Section 3 of Act No. 3135, as amended. No auction sale, however, took place on that day. The auction sale during which Masantol Bank bought the property as sole bidder was conducted eight (8) months later, on 22 June 1978. Masantol Bank alleged that there was re-publication of the notice of the 22 June 1978 auction sale; Remedios B. Soriano contends otherwise.

The evidence submitted by Masantol Bank as tending to prove its compliance with the publication requirement in respect of the 22 June 1978 auction sale consisted simply of the testimony of Atty. Venancio Viray and a provisional receipt of payment of the alleged publication expenses signed by a stenographer of the newspaper Economic Monitor. Remedios Soriano, upon the other hand, presented a solicitor of the Economic Monitor — where the notice of auction sale was supposed to have been published — who testified that he had not seen from their records any document indicating that the notice of auction sale was in fact published.

It is settled doctrine that failure to publish the notice of auction sale as required by the statute constitutes a jurisdictional defect which invalidates the sale. The Court is not persuaded either that

the evidence presented by Masantol Bank sufficiently established its compliance with the statutory requirement of notice, or that the testimony of Remedios Soriano's witness showed non-compliance with such requirement.8

The foregoing ruling squarely applies in this case. Although the lack of republication of the notice of sale has not been raised in this case, this Court is possessed of ample power to look into a relevant issue, such as the lack of jurisdiction to hold the foreclosure sale.9

Considering that her loan remains unpaid, respondent Aguirre should be ordered to pay her outstanding obligation in the amount of P247,740.70 with interest at the rate stipulated in the contract of loan to be computed as of January 7, 1986, subject to the right of petitioner to foreclose the mortgage upon respondent Aguirre's failure to settle her obligation.

WHEREFORE, the decision of the Court of Appeals, dated December 29, 1999, is AFFIRMED with the MODIFICATION that private respondent Veronica Aguirre is ordered to pay petitioner the amount of P247,740.70 with interest as stipulated in the contract of loan, as of January 7, 1986, without prejudice to the right of petitioner to foreclose the real estate mortgage executed by respondent Aguirre on April 21, 1980 upon failure of respondent Aguirre to pay the said amount.

SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ ., concur.

 Piano v. Cayanong, 7 SCRA 397Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-18603 February 28, 1963

CANDIDA PIANO, petitioner, vs.GENEROSA CAYANONG, REGALADO BELLONES and FRANCISCO PILAPIL, respondents.

Lawrence A. Parawan for petitioner.Seno, Alforo & Seno for respondents.

BARRERA, J.:

This is a petition filed by Candida Piano for certiorari to review the decision of the Court of Appeals, affirming the order of the CFI of Leyte in Civil Case No. R-608 entitled "Generosa Cayanong & Regalado Bellones, plaintiffs-appellees versus Candida Piano, defendant-appellant, with Francisco P. Pilapil, oppositor-appellee (CA-G.R. No. 15831-R).

The facts are stated in the decision of the Court of Appeals as follows:

This is an appeal from the order of the Court of First Instance of Leyte dated Oct. 22, 1954, denying the defendant-appellant the right to redeem the property under litigation.

On March 17, 1952, the plaintiffs commenced an action to foreclose a mortgage executed by the defendant in favor of the plaintiffs upon a parcel of land situated at sitio Ipil, Margen, Ormoc City.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

On July 29, 1952, the parties-litigant submitted a compromise agreement on the strength of which the trial judge rendered the following decision:

Los demandantes y la demandaba han sometido la siguiente estipulacion:

Come now, the undersigned plaintiffs and defendant of the above entitled case and to this Honorable Court respectfully alleged:

1. That the defendant admits the debt as embodied in the contract in the amount of Two Thousand Pesos (P2,000.00), Philippine Currency;

x x x x x x x x x

3. That the defendant promises to pay the above amount within 30 days from promulgation of the judgment rendered by the Court based on this compromise agreement;

4. That the defendant agrees that failure to pay said amount within 30 days, places at the disposal of the court said security for the satisfaction of the judgment.

Wherefore, it is most respectfully prayed that judgment be rendered in accordance with the above mentioned agreement with costs.

En su virtud, el Juzgado dicta sentencia condenando a la demandada Candida Piano a pagar a los demandantes Generosa Cayanong y Regalado Bellones la suma de P2,000.00 come deuda, mas la cantidad de P400.00 como costas y honorarios de abogado dentro del plazo de noventa (90) dias a partir desde la fecha de este decision. Se dentro del referido plazo la demandada dejara de pagar la suma total de P2,400.00 mencionada, el Juzgado ordenara que la parcela de terreno hipotecada, conocida como Lote No. 6272 parte del Catastro de Ormoc, ubicada en el sitio de Ipil, barrio de Margen, Ciudad de Ormoc, colindante por el Norte con los herederos de Cirilo Cabahug y Nemesio Maglasang; por el Sur, con Lazaro Aying; y por el Oeste, con los herederos del finado Manuel Martinez, amillarada a nombre de Candida Piano, se venda en subasta publica y que con el producto de la venta se pague la cantidad de P2,400.00 a los demandantes.

The defendant failed to pay the obligation within the period set by the Court; so the property in question was sold at public auction on Jan. 30, 1952(should be 1953) per order of the court, by the deputy sheriff of Maasin, Leyte, to the plaintiffs, they being the only bidders for P2,475. The certificate of sheriff's sale contained the provision that the said property is subject "to redemption within one year from the date hereof in the manner provided by the law applicable to the case." On March 11, 1953, the plaintiffs filed a motion for the confirmation of the sale executed by the sheriff, which was unopposed by the defendant. The sale was confirmed by the Court on March 21, 1953. Thereafter, the plaintiffs filed a petition for writ of possession; by virtue of such petition the court adjudicated possession to the plaintiffs on Aug. 15, 1953. On Aug. 20, 1953, the deputy clerk issued the writ of possesion prayed for by the plaintiffs..

On Jan. 26, 1954, the defendant deposited with the court the sum of P2,783.93, P2,772 of which was in the concept of redemption deposit to be delivered to Generosa Cayanong and her husband, and P11.93 for consignation fees. On the same day, the defendant filed a motion asking the court to order the plaintiffs to make an accounting of all rents, and/or profits of the said property for the period of their possession. On February 14, 1954, the plaintiffs filed with the court the required verified accounting, and at the same time informed the court that on Jan. 27, 1954, in Albuera, Leyte, a junior encumbrancer, Francisco Pilapil, had redeemed the property by paying them the amount of P2,772, one day after the defendant deposited with the court her redemption money. The instrument of redemption is Exh. I, Redemption of a Lien Holder of a Foreclosed Mortgage. The oppositor Francisco Pilapil, on Feb. 11, 1954, filed an opposition to the defendants' motion of Jan. 26, 1954, claiming that the property, subject of foreclosure, having been sold at a judicial foreclosure sale, was not subject to redemption after the judicial sale was confirmed, title thereto having been fully vested and consolidated in favor of Cayanong and Bellones, their assignees and successors-in-interest.

A month later, the defendant filed another motion questioning the adequacy of the accounting filed by the plaintiff and reiterated her prayer for the reconveyance to her of the property in question; the oppositor and the plaintiffs, filed their respective oppositions to this motion. On Oct. 22, 1954, the court a quo issued an order denying the defendant the right to redeem the property in dispute.

The first question raised in this appeal is whether the decision of the lower court based on the compromise agreement of the parties, is a judgment rendered after trial within the contemplation of Section 2 of Rule 70 of the Rules of Court and the Constitution.

Petitioner argues that a judgment in a foreclosure of mortgage under said Section 2 of Rule 70 requires a trial on the merits before the property foreclosed shall be disposed by sale, but since the parties at bar submitted a compromise agreement upon which the trial court rendered its decision, the same does not satisfy the requirement of the Constitution for failure to state the law and the facts of the case.

The contention is devoid of merit. The court a quo had no necessity of making a finding of facts, the parties having entered into a compromise agreement in order to terminate the suit between them. The agreement had upon the parties the effect and authority of res judicata (Art. 2037, New Civil Code; Yboleon v. Sison, 59 Phil. 281, 290; Hernandez v. Barcelon, 23 Phil. 599, 607; De Jesus v. Go Quiolay, 65 Phil. 476, 482; Meneses v. De la Rosa, 77 Phil. 34, 38; Salazar v. Jarabe, 48 O.G. 2708, 2712; Morales v. Fontanos, 64 Phil. 19, 21), and the judgment rendered thereon had the authority of res judicata from the moment it was rendered (Meneses v. De la Rosa, supra; Morales v. Fontanos, supra). In the absence of an objection to the agreement, it was the duty of the trial court to render judgment strictly in accordance with the terms of the agreement (Cabrera v. Lacson, 71 Phil. 182), and such judgment is more than a mere contract binding the parties because having the sanction of the court, and entered as its determination of the controversy, it has all the force and effect of any other judgment, it being conclusive upon the parties and their privies (Marquez v. Marquez, 73 Phil. 74).

Petitioner, in further support of her contention cites the case of Samaniada v. Mata (49 O.G. 77) where this Court held that an agreement between the parties sanctioned by the court to adjust a litigation, does not have the effect of a final judgment or character of res judicata, because the court's approval of the agreement is considered mainly as an administrative recording of what has been agreed to between the parties.

The above cited case is not in point for the parties therein agreed "that the land to be taken by the plaintiff shall be segregated by a duly qualified surveyor" and this Court held that the "judgment was merely an interlocutory order because something had yet to be done, i.e., the segregation agreed upon, which together with the court's approval, will be the ones to give it finality". In the case at bar the decision of the lower court sentencing the petitioner to pay the amount she had agreed upon to pay was final and nothing else was to be done in order to make her liable for said payment. A judgment on a compromise is not appealable and is immediately executory unless a motion is filed to set aside the compromise on the ground of fraud, mistake, or duress in which event an appeal may be taken from the order denying the motion. (De los Reyes v. De Ugarte, 75 Phil. 505; Enriquez v. Padilla, 77 Phil. 373; Serrano v. Reyes, G.R. No. L-16153, December 29, 1960).

There being no motion to set aside the compromise agreement, we believe, and so hold, that inasmuch as the petitioner admitted her indebtedness and agreed to pay the attorney's fees and the entire obligation within 30 days from the promulgation of the judgment, and having further agreed that in case of default the security would be at the disposal of the court for the satisfaction of the judgment, the lower court did not have the necessity to make findings of fact, it being sufficient that the case was decided on the agreed compromise between the parties.

Petitioner next maintains that the decision of the trial court based upon the compromise agreement should be enforced by execution as an ordinary judgment under Rule 39 of the Rules of Court and not under Rule 70. It is argued that Article 2037 of the New Civil Code1 on compromise agreements

does not make any distinction between ordinary civil actions and foreclosure proceedings, and since the procedure under Rule 70 is strict, in that it grants only an equity of redemption of 90 days, whereas Rule 39 grants a one year period of redemption, the latter rule should prevail, the intention of the law apparently being to give clemency or leniency to the debtor who earnestly submits to a compromise and spares the court of a lengthy trial.

The contention is untenable. An examination of the complaint filed in the lower court will reveal that the action filed by the plaintiffs, respondents herein, is one for foreclosure of mortgage. It is a settled rule that the purpose of an action or suit and the law to govern it, including the period of prescription, are to be determined not by the claim of the party filing the action, made in his argument or brief, but rather by the complaint itself, its allegations and prayer for relief (Rone v. Claro. G.R. No. L-4472, May 8, 1952). The mere silence of Article 2037 (supra), as to whether the compromise refers to an ordinary civil action or a foreclosure proceedings, does not justify execution under Rule 39 when the case directly falls under Rule 70. No judgment rendered in an action for foreclosure of mortgage can be executed, otherwise than in the manner prescribed by the law on mortgages, for the reason that parties to an action are not authorized to change the procedure which it prescribes. (Diaz v. Mendezona, 43 Phil. 472, 478).

The petitioner also maintains that the appellate court erred in not considering the insertion made by the Sheriff in the certificate of sale providing for a one year period of redemption, as a permissible agreement between the parties who abide by said period, considering that the court a quo approved and confirmed the sale and respondents did not move to have said insertion stricken out.

The argument cannot be sustained. In a foreclosure of mortgage under Rule 70 of the Rules of Court, there is no right of redemption after the sale is confirmed (Benedicto v. Yulo, 26 Phil. 160, 166), although there is an equity of redemption in favor of the mortgagor or junior encumbrancer, consisting in the right to redeem the mortgaged property within the 90-day period (Sun Life Assurance Co. of Canada v. Gonzales Diez, 52 Phil. 271), or even thereafter, but before the confirmation of the sale (Anderson v. Reyes, 54 Phil. 944; Raymundo v. Sunico, 25 Phil. 365; Grimalt v. Velasquez, 36 Phil. 936; La Urbana v. Belando, 54 Phil. 930, 933). It is only in cases of foreclosures of mortgages in favor of banking and credit institutions (Sec. 76, General Banking Act [Rep. Act 337]), to the Philippine National Bank (Acts Nos. 2747, and 2938), and in extrajudicial foreclosures (Act 3135 as amended by Act 4118), where, by express provision, the law allows redemption. In all other foreclosure cases, there is no legal redemption. The sheriff, therefore, has no authority to grant or insert a period of redemption in the certificate of sale, when the same is conducted pursuant to Rule 70 and, wanting in said authority, any insertion therein has no validity and effect. Once the judicial sale is confirmed by the court, the rights are vested in the purchaser (Sec. 3, Rule 70). From all that appears on the record, the insertion referred to is, as the appellate court correctly declared, "a surplussage and must be disregarded".

The petitioner also maintains that the Court of Appeals erred in not declaring null and void the entire certificate of sheriff's sale upon finding that the sheriff had no authority to embody in his certificate what is not in the substance of the decision. Petitioner cites the decisions of this Court in Silvestre v. Torres (57 Phil. 885) and Velez v. Martinez (63 Phil. 23) wherein we held in effect that a writ of execution not warranted by the decision or judgment which gives it life or cause to exist, has no validity.

The cases cited are not in point because the writs of execution totally set aside there were against persons not parties to the action and hence the writs' invalidity is as a whole. The certificate of sale involved in this present appeal is in complete accordance with the judgment of the court and the writ of execution, the only defect being the unauthorized insertion of the period of redemption.

It is also petitioner's contention that the one year period of redemption in the certificate of sale duly approved by the trial court constituted a repeated assurance of the right of petitioner to redeem within the year and should have been considered as a "special circumstance" to allow the redemption beyond the period fixed by law, applying by analogy the doctrines in Lichauco v. Olegario (43 Phil. 540); Rivero v. Rivero (80 Phil. 802); Alberto v. De los Santos (81 Phil. 52); Facundo v. Provincial Sheriff of Mindoro (CA-G.R. No. 421-R, February 28, 1950); and Bautista v. Ago (CA-57 O.G. 4927).

The contention is untenable. The cases cited are not applicable. In Lichauco v. Olegario (supra), a period of redemption existed and was interrupted when the execution debtor wanted to prevent it by executing on the right to redeem, and this Court, considering the legal proceedings therein as special circumstance, extended the period of redemption. In the present case, being a judicial foreclosure of mortgage, there is no period of redemption, or legal proceedings or interruption thereof. On the other hand, the decisions in Rivero v. Rivero (supra), and Alberto v. De los Santos (supra), far from supporting petitioner's case militate against it, for in these two cases, this Court declared that the fundamental reason underlying statutes providing for the suspension or extension of the period of limitation is the legal or physical impossibility for the interested party to enforce or exercise in time his right of action. In the case at bar, the one year period of redemption erroneously included by the sheriff did not constitute a legal or physical impossibility for herein petitioner to pay the indebtedness and redeem the property before the confirmation of the sale, because the one year redemption period erroneously inserted in the certificate of sale would, if proper, commence to take effect only after the confirmation. Obviously this after effect could not be said to have impeded, legally or physically, what should have been accomplished before.

IN VIEW OF THE ABOVE CONCLUSIONS WE HAVE ARRIVED AT, we find it unnecessary to pass upon the other errors assigned by the parties in their brief.

Finding no error in the decision appealed from the same is hereby affirmed, with costs against petitioner. So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.

Footnotes

1A compromise agreement has upon the parties the effect and authority of res judicata; but there shall be no execution except in compliance with a judicial compromise.

 Union Bank v. Court of Appeals, 311 SCRA 795[G.R. No. 134699. December 23, 1999]

UNION BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and ALLIED BANK CORPORATION, respondents.D E C I S I O NKAPUNAN, J.:

Section 2 of the Law on Secrecy of Bank Deposits,[1] as amended, declares bank deposits to be “absolutely confidential” except:

(1) In an examination made in the course of a special or general examination of a bank that is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity,

(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank,

(3) Upon written permission of the depositor,

(4) In cases of impeachment,

(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or

(6) In cases where the money deposited or invested in the subject matter of the litigation.

Whether or not the case at bar falls under the last exception is the issue in the instant petition.

The facts are not disputed.

On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990 in the amount of One Million Pesos (P1,000,000.00) was drawn against Account No. 0111-01854-8 with private respondent Allied Bank payable to the order of one Jose Ch. Alvarez. The payee deposited the check with petitioner Union Bank who credited the P1,000,000.00 to the account of Mr. Alvarez. On May 21, 1990, petitioner sent the check for clearing through the Philippine Clearing House Corporation (PCHC). When the check was presented for payment, a clearing discrepancy was committed by Union Bank’s clearing staff when the amount of One Million Pesos (P1,000,000.00) was erroneously “under-encoded” to One Thousand Pesos (P1,000.00) only.

Petitioner only discovered the under-encoding almost a year later. Thus, on May 7, 1991, Union Bank Notified Allied Bank of the discrepancy by way of a charge slip for Nine Hundred Ninety-Nine Thousand Pesos (P999,000.00) for automatic debiting against the account of Allied Bank. The latter, however, refused to accept the charge slip “since [the] transaction was completed per your [Union Bank’s] original instruction and client’s account is now insufficiently funded.”

Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC Arbitration Committee (Arbicom), praying that:

… judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff:

1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00);

2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED EIGHTY AND 20/XX P361,480.20 as of October 9, 1991 representing reimbursements for opportunity losses and interest at the rate of 24% per annum arising from actual losses sustained by plaintiff as of May 21, 1990;

3. The amount for attorney’s fees at the rate of 25% of any and all sums due;

4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from May 22, 1990 until payment thereof.

5. Exemplary and punitive damages against the defendant in such amounts as may be awarded by this Tribunal in order to serve a lesson to all member-Banks under the PCHC umbrella to striclty comply with the provisions thereof;

6. The costs of suit which includes filing fee in addition to litigation expenses which shall be proven in the course of arbitration.

7. Such other damages thay may be awarded by this Tribunal.[2]

Thereafter, Union Bank filed in the Regional Trial court (RTC) of Makati a petition for the examination of Account No. 111-01854-8. Judgment on the arbitration case was held in abeyance pending the resolution of said petition.

Upon motion of private respondent, the RTC dismissed Union Bank’s petition. The RTC held that:

The case of the herein petitioner does not fall under any of the foregoing exceptions to warrant a disclosure of or inquiry into the ledgers/books of account of Allied Checking Account No. 111-01854-8. Needless to say, the complaint filed by herein petitioner against Allied Banking Corporation before the Philippine Clearing House Corporation (PCHC) Arbitration Committee and docketed therein as Arb[i]com Case No. 91-068 (Annex “A”, petition) is not one for bribery or dereliction of duty of public officials much less is there any showing that the subject matter thereof is the money deposited in the account in question. Petitioner’s complaint primarily hing[e]s on the alleged deliberate violation by Allied Bank Corporation of the provisions of the PCHC Rule Book, Sec. 25[.]3, and as principal reliefs, it seeks for [sic] the recovery of amounts of money as a consequence of an alleged under-coding of check amount to P1,000,000.00 and damage[s] by way of loss of interest income.[3]

The Court of Appeals affirmed the dismissal of the petition, ruling that the case was not one where the money deposited is the subject matter of the litigation.

Petitioner collecting bank itself in its complaint filed before the PCHC, Arbicom Case No. 91-068, clearly stated that its “cause of action against defendant arose from defendant’s deliberate violation of the provisions of the PCHC Rule Book, Sec. 25.3, specifically on Under-Encoding of check amouting to P1,000,000.00 drawn upon defendant’s Tondo Branch which was deposited with plaintiff herein on May 20, 1990, xxx which was erroneously encoded at P1,000.00 which defendant as the receiving bank thereof, never called nor notified the plaintiff of the error committed thus causing actual losses to plaintiff in the principal amount of P999,000.00 exclusive of opportunity losses and interest.”

Furthermore, a reading of petitioner collecting bank’s complaint in the Arbicom case shows that its thrust is directed against respondent drawee bank’s alleged failure to inform the former of the under-encoding when Sec. 25.3 of the PCHC Rule Book is clear that it is receiving bank’s (respondent drawee bank herein) duty and obligation to notify the erring bank (petitioner collecting bank herein) of any such under-encoding of any check amount submitted for clearing within the member banks of the PCHC not later than 10:00 a.m. of the following clearing day and prays that respondent drawee bank be held liable to petitioner collecting bank for penalties in view of the latter’s violation of the notification requirement.

Prescinding from the above, we see no cogent reason to depart from the time-honored general banking rule that all deposits of whatever nature with banks are considered of absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office and corollarily, that it is unlawful for any official or employee of a bank to disclose to any person any information concerning deposits.

Nowhere in petitioner collecting bank’s complaint filed before the PCHC does it mention of the amount it seeks to recover from Account No. 0111-018548 itself, but speaks of P999,000.00 only as an incident of its alleged opportunity losses and interest as a result of its own employee’s admitted error in encoding the check.

The money depositied in Account No. 0111-018548 is not the subject matter of the litigation in the Arbicom case for as clearly stated by petitioner itself, it is the alleged violation by respondent of the rules and regulations of the PCHC.[4]

Union Bank is now before this Court insisting that the money deposited in Account No. 0111-01854-8 is the subject matter of the litigation Petitioner cites the case of Mathay vs. Consolidated Bank and Trust Company,[5] where we defined “subject matter of the action,” thus:

xxx By the phrase “subject matter of the action” is meant “the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant.”

Petitioner contends that the Court of Appeals confuses the “cause of action” with the “subject of the action.” In Yusingco vs. Ong Hing Lian,[6] petitioner points out, this Court distinguished the two concepts.

xxx “The cause of action is the legal wrong threatened or committed, while the object of the action is to prevent or redress the wrong by obtaining some legal relief; but the subject of the action is neither of these since it is not the wrong or the relief demanded, the subject of the action is the matter or thing with respect to which the controversy has arisen, concerning which the wrong has been done, and this ordinarily is the property, or the contract and its subject matter, or the thing in dispute.”

The argument is well taken. We note with approval the difference between the “subject of the action” from the “cause of action.” We also find petitioner’s definition of the phrase “subject matter of the action” is consistent with the term “subject matter of the litigation,” as the latter is used in the Bank Deposits Secrecy Act.

In Mellon Bank, N.A. vs. Magsino,[7] where the petitioner bank inadvertently caused the transfer of the amount of US$1,000,000.00 instead of only US$1,000.00, the Court sanctioned the examination of the bank accounts where part of the money was subsequently caused to be deposited:

… Section 2 of [Republic Act No. 1405] allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the amount converted by the Javiers for their own benefit, necessarily, an inquiry into the wherabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition.

Clearly, Mellon Bank involved a case where the money deposited was the subject matter of the litigation since the money so deposited was the very thing in dispute. This, however, is not the case here.

Petitioner’s theory is that private respondent Allied Bank should have informed petitioner of the under-encoding pursuant to the provisions of Section 25.3.1 of the PCHC Handbook, which states:

25.3.1. The Receiving Bank should inform the erring Bank about the under-encoding of amount not later than 10:00 A.M. of the following clearing day.

Failing in that duty, petitioner holds private respondent directly liable for the P999,000.00 and other damages. It does not appear that petitioner is seeking reimbursement from the account of the drawer. This much is evident in petitioner’s complaint before the Arbicom.

xxx plaintiff’s cause of action against defendant arose from defendant’s deliberate violation of the provisions of the PCHC Rule Book, Sec. 25.3, specifically on Under-Encoding of check amounting to P1,000,000.00 drawn upon defendant’s Tondo Branch which was deposited with plaintiff herein sometime on May 20, 1990. From the check amount of P1,000,000.00, it was instead erroneously encoded at P1,000.00 which defendant as the receiving bank thereof, never called nor notified the plaintiff of the error committed thus causing actual losses to plaintiff in the principal amount of P999,000.00 exclusive of opportunity losses and interest thereon whatsoever. xxx[8]

Petitioner even requested private respondent’s Branch Manager for reimbursement from private respondent’s account through the automatic debiting system.

2.7. On May 6, 1991, plaintiff’s Senior Vice-President, Ms. ERLINDA V. VALENTON wrote defendant’s Tondo Branch Manager, Mr. RODOLFO JOSE on the incident and requested assistance in facilitating correction of the erroneous coding with request for reimbursement thru the industry’s automatic debiting of defendant’s account….[9]

Further, petitioner rejected private respondent’s proposal that the drawer issue postdated checks in favor of petitioner since the identity and credit standing of the depositor were unknown to petitioner.

2.9. On May 23, 1991, defendant’s Branch Manager, the same Mr. Rodolfo Jose wrote plaintiff’s Ms. Erlinda Valenton again insisting on the execution of the Quitclaim and Release in favor of defendant as the Branch has endeavored to negotiate with its client for the collection of such amount. Upon a reading of the terms of the Quitclaim and Release being proposed by defendant, the unmistakable fact lies that again defendant attempts for the second time to take advantage of plaintiff’s plight by indicating that the terms of the payment of the principal amount of P999,000.00

is by way of several personal postdated checks up to March 21, 1992 from a person whose identity is not even disclosed to plaintiff….

To an ordinary person aggrieved already by having been taken advantage of for 620 days more or less, the proposal of defendant could not be acceptable for the reason that aside from the interest lost already for the use of its money by another party, no assurance is made as to the actual collection thereof from a party whose credit standing, the recipient is not at all aware of….[10]

Petitioner also believed that it had no privity with the depositor:

2.12. Plaintiff then replied to defendant’s letter by requesting that in lieu of the post-dated checks from defendant’s client with whom plaintiff has no privity whatsoever, if the defendant could tender the full payment of the amount of P999,000.00 in defendant’s own Manager’s check and that plaintiff is willing to forego its further claims for interest and losses for a period of 620 days, more or less….[11]

The following argument adduced by petitioner in the Arbicom case leaves no doubt that petitioner is holding private respondent itself liable for the discrepancy:

Defendant by its acceptance thru the clearing exchange of the check deposit from its client cannot be said to be free from any liability for the unpaid portion of the check amount considering that defendant as the drawee bank, is remiss in its duty of verifying possible technicalities on the face of the check.

Since the provisions of the PCHC Rule Book has so imposed upon the defendant being the Receiving Bank of a discrepant check item to give that timely notification and defendant failing to comply with such requirement, then it can be said that defendant is guilty of negligence. He who is guilty of negligence in the performance of its [sic] duty is liable for damages. (Art. 1170, New Civil Code.)

Art. 1172 of the Civil Code provides that:

“Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.[”][12]

Petitioner points to its prayer in its complaint to show that it sought reimbursement from the drawer’s account. The prayer, however, does not specifically state that it was seeking recovery of the amount from the depositor’s account. Petitioner merely asked that “judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff: 1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00)….”[13]

On the other hand, the petition before this court reveals that the true purpose for the examination is to aid petitioner in proving the extent of Allied Bank’s liability:

Hence, the amount actually debited from the subject account becomes very material and germane to petitioner’s claim for reimbursement as it is only upon examination of subject account can it be proved that indeed a discrepancy in the amount credited to petitioner was committed, thereby, rendering respondent Allied Bank liable to petitioner for the deficiency. The money deposited in aforesaid account is undeniably the subject matter of the litigation since the issue in the Arbicom case is whether respondent Bank should be held liable to petitioner for reimbursement of the

amount of money constituting the difference between the amount of the check and the amount credited to petitioner, that is, P999,000.00, which has remained deposited in aforesaid account.

On top of the allegations in the complaint, which can be verified only by examining the subject bank account, the defense of respondent Allied Bank that the reimbursement cannot be made since client’s account is not sufficiently funded at the time petitioner sent its Charge Slip, bolsters petitioner’s contention that the money in subject account is the very subject matter of the pending Arbicom case.

Indeed, to prove the allegations in its Complaint before the PCHC Arbitration Committee, and to rebut private respondent’s defense on the matter, petitioner needs to determine:

1. how long respondent Allied Bank had willfully or negligently allowed the difference of P999,000.00 to be maintained in the subject account without remitting the same to petitioner;

2. whether indeed the subject account was no longer sufficiently funded when petitioner sent its charge slip for reimbursement to respondent bank on May 7, 1991; and

3. whether or not respondent Allied Bank’s actuations in refusing to immediately reimburse the discrepancy was attended by good or bad faith.

In other words, only a disclosure of the pertinent details and information relating to the transactions involving subject account will enable petitioner to prove its allegations in the pending Arbicom case. xxx[14]

In short, petitioner is fishing for information so it can determine the culpability of private respondent and the amount of damages it can recover from the latter. It does not seek recovery of the very money contained in the deposit. The subject matter of the dispute may be the amount of P999,000.00 that petitioner seeks from private respondent as a result of the latter’s alleged failure to inform the former of the discrepancy; but it is not the P999,000.00 deposited in the drawer’s account. By the terms of R.A. No. 1405, the “money deposited” itself should be the subject matter of the litigation.

That petitioner feels a need for such information in order to establish its case against private respondent does not, by itself, warrant the examination of the bank deposits. The necessity of the inquiry, or the lack thereof, is immaterial since the case does not come under any of the exceptions allowed by the Bank Deposits Secrecy Act.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

Cometa v. Court of Appeals, 351 SCRA 294

[G.R. No. 141855. February 6, 2001]

ZACARIAS COMETA and HERCO REALTY & AGRICULTURAL CORPORATION, petitioners, vs. COURT OF APPEALS and JOSE FRANCO, respondents.D E C I S I O NYNARES-SANTIAGO, J.:

Challenged in this petition for review under Rule 45 of the Rules of Court is the Decision of the Court of Appeals dated January 25, 1999[1] in CA-G.R. SP No. 48277, entitled “Zacarias Cometa, et al. v. Hon. Perfecto Laggui, et al.,” and the Resolution dated January 27, 2000[2] denying petitioner’s motion for reconsideration.

The pertinent factual antecedents are matters of record or are otherwise uncontroverted.

On July 2, 1976, the quondam Court of First Instance (CFI) of Rizal, Branch 15[3] at Makati rendered a Decision in Civil Case No. 17585 for Damages, entitled “Jose Franco v. Zacarias Cometa,” awarding to herein private respondent Jose Franco, the sum of P57,396.85.[4]

The judgment became final on March 9, 1978. Subsequently, a writ of execution was issued. Pursuant thereto, the sheriff levied on execution three (3) commercial lots of petitioner Zacarias Cometa[5] located at Guadalupe, Makati.

On October 17, 1978, two (2) of the lots were sold to respondent Franco at public auction for the amount of P57,396.85. The sheriff’s return was made on March 12, 1981.[6]

On November 17, 1981, petitioner Herco Realty & Agricultural Development Corporation (Herco) filed Civil Case No. 43846 with the same CFI Rizal, Branch 15, to annul the levy on execution and sale at public auction of the real properties.[7] The complaint alleged that the ownership of the lots had been transferred by Cometa to Herco before the execution sale. It assailed the validity of the levy and sale on the ground that the sheriff, in disregard of the proper procedural practice, immediately proceeded against Cometa’s real properties without first exhausting his personal properties; that the lots were sold en masse and not by parcel; and that the said properties which are commercial lots situated in Guadalupe, Makati, and are conservatively valued at P500,000.00, were sold only for P57,396.85, the amount of the judgment.[8]

Meanwhile, on March 22, 1982, the same court, now designated as Regional Trial Court, Branch 60, issued an order in Civil Case No. 17585 directing the Register of Deeds of Rizal to cancel petitioner Cometa’s certificates of title to the lots and to issue new ones in favor of respondent Franco. Cometa, who died during the pendency of the proceedings, was substituted by his heirs, who filed before this Court a petition for certiorari questioning the said order. The petition was, however, dismissed on February 28, 1983.[9]

On May 13, 1983, Franco filed with the Regional Trial Court of Makati, Branch 140, a motion for issuance of writ of possession. Cometa opposed the motion on the ground that there was pending before another Regional Trial Court an action for annulment of levy and sale of the properties in question.[10]

On August 12, 1983, the trial court issued an order granting the motion; but the same was reconsidered and set aside on November 18, 1983 on the ground that the issuance of the writ of

possession was premature,[11] considering that the RTC of Makati, Branch 60, had not yet decided the case filed by Herco and Cometa for the annulment of the levy and sale of the properties.

Franco then instituted a special civil action for certiorari with this Court on June 27, 1984, but the case was referred to the Intermediate Appellate Court, which subsequently reversed the ruling of the RTC, Branch 140, on October 4, 1984, and granted the issuance of the writ of possession in Franco’s favor.[12]

Cometa and Herco elevated their cause to this Court, where the same was docketed as G.R. No. L-69294 and entitled, “Zacarias Cometa and Herco Realty and Agricultural Development Corporation v. IAC and Jose Franco.” In a Decision dated June 30, 1987,[13] this Court reversed the appellate court and withheld the granting of the writ of possession pending the promulgation of the resolution of the RTC, Branch 60, on the issue of whether or not the levy and sale of Cometa’s properties are valid. In the said judgment, this Court said:

In the case at bar, the validity of the levy and sale of the properties is directly put in issue in another case by the petitioners. This Court finds it an issue which requires pre-emptive resolution. For if the respondent acquired no interest in the property by virtue of the levy and sale, then, he is not entitled to its possession.

The respondent appellate court’s emphasis on the failure of the petitioner to redeem the properties within the period required by law is misplaced because redemption, in this case, is inconsistent with petitioner’s claim of invalidity of levy and sale. Redemption is an implied admission of the regularity of the sale and would estop the petitioner from later impugning its validity on that ground.[14]

Moreover, equitable considerations constrain us to reverse the decision of respondent court. The fact is undisputed that the properties in question were sold at an unusually lower price than their true value. Properties worth at least P500,000.00 were sold for only P57,396.85. We do not comment on the consequences of the inadequacy because that is the very issue which confronts the court below in the pending case. It appearing, however, that the issuance of the writ of possession would and might work injustice because the petitioner might not be entitled thereto, we rule that it be withheld.

Thereafter, in Civil Case No. 43846, Branch 60 of the Makati RTC issued an order dated July 21, 1993 dismissing the case on the ground of “lack of interest in the prosecution of the complaint” for failure of the representatives of Cometa and Herco to appear.

The order of dismissal was affirmed by the Court of Appeals on July 16, 1996 and by this Court on January 20, 1997 in G.R. No. 126760. On February 26, 1997, this Court’s Resolution which, in effect, upheld the validity of the assailed levy and sale, became final and executory.

On May 2, 1997, Franco again filed, this time with Branch 60 of the RTC of Makati City, a motion for issuance of writ of possession and cancellation of lis pendens. The heirs of Cometa opposed the motion claiming that they intended to redeem the properties.

On December 4, 1997, Cometa’s heirs consigned with the Office of the Clerk of Court, RTC, Makati City, the sum of P38,761.05 as purchase price for the lots, plus interest of P78,762.69 and P1,175.25 as realty tax.

On June 8, 1998, Branch 60 of the Makati City RTC issued an order[15] which reads in part as follows:

6.2. With the dismissal of Civil Case No. 43846, did HERCO and the HEIRS still have the right to redeem?

x x x x x x x x x

11. What may be inferred from the aforesaid decisions (except Sumerariz v. DBP) is that the running of the period of redemption is suspended if the validity of the sale is questioned at any time within the said period of redemption.

12. When the validity of the sale is questioned after the period of redemption has expired, the rule that the filing of the action questioning such validity suspends the running of the period for redemption no longer applies. This is only logical – for there would no longer be any period to be suspended – it has already expired. Where the sale is declared void in such action, there would be no right of redemption to speak of thereafter, for legally speaking, there was no sale at all. A void sale would be inconsistent with a right of redemption. For in such case, the buyer has not acquired any right over the property sold to him. Hence, there is nothing that could be redeemed by the owner of the property.

13. The certificate of sale of the two (2) lots was registered and annotated in the corresponding certificates of title on January 25, 1980. The period of redemption expired twelve (12) months thereafter (Section 30, Rule 39, Rules of Court) – or on January 20, 1981. Civil Case No. 43846 was filed on November 27, 1981 – or more than ten (10) months after the period of redemption expired. Hence, when Civil Case No. 43846 was filed, there was no longer any period of redemption that could be suspended.

x x x x x x x x x

23.3 Accordingly:

23.3.1. The Officer-in-Charge [is ordered] to issue the corresponding writ of possession over the lots covered by Transfer Certificates of Title Nos. 113114 and 113115 in favor of JOSE FRANCO.

Dissatisfied, Cometa’s heirs and Herco filed a petition for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 48227, asserting that –

I

RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION IN DISREGARDING NO LESS THAN THE SUPREME COURT’S DECLARATION IN COMETA v. INTERMEDIATE APPELLATE COURT THAT COMETA STILL HAS A RIGHT TO REDEEM.

II

RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION IN DENYING COMETA’S REDEMPTION IN THAT EVEN ABSENT THE SUPREME COURT’S PRONOUNCEMENT IN COMETA v. INTERMEDIATE APPELLATE COURT, COMETA WOULD STILL HAVE THE RIGHT TO REDEEM UNDER SETTLED JURISPRUDENCE.

III

RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION IN DENYING COMETA’S REDEMPTION IN THAT AT THE VERY LEAST THE LAW RESOLVES ALL DOUBTS IN FAVOR OF THE RIGHT TO REDEEM.

The appellate court’s 10th Division thereafter promulgated a Decision dated January 25, 1999,[16] affirming the order of respondent presiding Judge of Branch 60, Makati City RTC, and denying due course to the petition.

A motion for reconsideration of the said decision was likewise denied by a Special Division of Five Justices.

Hence, this petition for review on the following grounds:

THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT HERETOFORE DECIDED BY THIS HONORABLE COURT OR HAS DECIDED IT NOT IN ACCORD WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT IN THAT:

A. COMETA v. INTERMEDIATE APPELLATE COURT HAS ALREADY DETERMINED THAT COMETA STILL HAS A RIGHT TO REDEEM

B. EVEN ABSENT THE PRONOUNCEMENT IN COMETA v. INTERMEDIATE APPELLATE COURT, COMETA WOULD STILL HAVE THE RIGHT TO REDEEM UNDER SETTLED JURISPRUDENCE

C. AT THE VERY LEAST, THE LAW RESOLVES ALL DOUBTS IN FAVOR OF THE RIGHT TO REDEEM.

Considering the pleadings filed by the parties, this Court resolved to dispense with the filing of memoranda, give due course to the petition and decide the same.

The questions raised by petitioners can be reduced to the primordial issue of whether or not petitioners can still redeem the properties subject of this litigation.

In ruling in the negative, the appellate court opined, among others, that –

Section 30, Rule 39 of the Revised Rules of Court is very explicit: “(t)he judgment debtor or redemptioner may redeem the property from the purchaser at any time within twelve (12) months after the sale, xxx.” (italics ours) In the case at bar, the sale took place on October 17, 1978. The Certificate of Sale was registered and annotated on the TCT Nos. S-79894 and 79895 on January 25, 1980. The Officer’s Final Deed of Sale was executed in favor of Franco on March 2, 1981. Petitioners questioned the validity of the sale only on November 27, 1981 or more than three (3) years after the said sale. We agree with respondent judge that “(w)hen the validity of the sale is questioned after the period of redemption has expired, the rule that the finding of the action questioning such validity suspends the running of the redemption period, no longer applies. This is only logical – for there would no longer be any period to be suspended – it has already expired.” We likewise agree that to still allow redemption “counted from February 26, 1997, when the Resolution in G.R. L-126760 became final and executory xxx would give rise to mischievous legal consequences. For this would be a device to revive a lost right of redemption. Under this theory, a party who lost the right of redemption could just file an action to set aside the sale on the ground that it was a nullity confident that if the action does not prosper, he would still be entitled to redeem thereafter. This could not be validly done.” xxx The failure of petitioners to redeem the properties after the expiration of the redemption period vests title over the property to private respondent.[17] The Supreme 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[18]

from the registration of the same xxx.”[19] In Juan Mateo vs. The Court of Appeals and Severino Alberto, 99 Phil. 1042 (unreported), the High Court categorically said that “(t)he right of redemption in execution sales being statutory, it must, to make it effective, be exercised in the mode prescribed by the statute.” We therefore find petitioners’ invocation of the liberal ruling of the Supreme Court on the exercise of the right to redemption to have neither factual nor legal basis. The Court has no alternative but to apply Section 35 of Rule 39 of the Rules of Court to the letter.[20]

We disagree.

Paraphrasing what we trenchantly pointed out in Hermoso v. CA,[21] we test a law by its result. A law should not be interpreted so as to cause an injustice. There are laws which are generally valid but may seem arbitrary when applied in a particular sense because of its peculiar circumstances. We are not bound to apply them in servile subservience to their language. More explicitly –

. . . we interpret and apply the law not independently of but in consonance with justice. Law and justice are inseparable, and we must keep them so. To be sure, there are some laws that, while generally valid, may seem arbitrary when applied in a particular case because of its peculiar circumstances. In such a situation, we are not bound, because only of our nature and functions, to apply them just the same, in slavish obedience to their language. What we do instead is find a balance between the word and the will, that justice may be done even as the law is obeyed.

As judges, we are not automatons. We do not and must not unfeelingly apply the law as it is worded, yielding like robots to the literal command without regard to its cause and consequence. “Courts are apt to err by sticking too closely to the words of the law,” so we were warned, by Justice Holmes again, “where these words import a policy that goes beyond them.”[22] While we admittedly may not legislate, we nevertheless have the power to interpret the law in such a way as to reflect the will of the legislature. While we may not read into the law a purpose that is not there, we nevertheless have the right to read out of it the reason for its enactment. In doing so, we defer not to “the letter that killeth” but to the “the spirit that vivifieth,” to give effect to the lawmaker’s will.

The spirit rather than the letter of the statute determines its construction, hence, a statute must be read according to its spirit or intent. For what is within the spirit is within the statute although it is not within the letter thereof, and that which is within the letter but not within the spirit is not within the statute. Stated differently, a thing which is within the intent of the lawmaker is as much within the statute as if within the letter; and a thing which is within the letter of the statute is not within the statute unless within the intent of the lawmakers.[23]

Stated differently, the legal perspective within which the right to redeem can still be availed of or not must be viewed in the light of the dictum that the policy of the law is to aid rather than defeat the right of redemption.[24] In short, the statute, being remedial, is to be construed liberally to effectuate the remedy and carry out its evident spirit and purpose.[25] Thus, the Court allowed parties in several cases to perfect their right of redemption even beyond the period prescribed therefor.[26] We can do no less vis-à-vis the prevailing facts of this case for the following reasons:

First, we are confronted with the grossly and patently iniquitous spectacle of petitioners being made to pay a money judgment amounting to P57,396.85 with their two (2) parcels of prime land conservatively valued at that time at P500,000.00, on account of the lapse of the period given for exercising their right – despite their apparent willingness and ability to pay the money judgment. Although this was the very fact in issue in the second case, the gross disparity of the money

judgment to the value of the levied real properties was not lost on the Court when, in Cometa v. IAC,[27] it said that –

Moreover, equitable considerations constrain us to reverse the decision of the respondent court (Intemediate Appellate Court). The fact is undisputed that the properties in question were sold at an unusually lower price than their true value. Properties worth at least P500,000.00 were sold for only P57,396.85. We do not comment on the consequences of the inadequacy because that is the very issue which confronts the court below in the pending case. It appearing, however, that the issuance of the writ of possession would and might work injustice because the petitioner might not be entitled thereto, we rule that it be withheld.

There is no question that petitioners were remiss in attending with dispatch to the protection of their interests as regards the subject lots, and for that reason the case in the lower court was dismissed on a technicality and no definitive pronouncement on the inadequacy of the price paid for the levied properties was ever made. In this regard, it bears stressing that procedural rules are not to be belittled or dismissed simply because their non-observance may have resulted in prejudice to a party’s substantive rights as in this case. Like all rules, they are required to be followed except only when for the most persuasive of reasons they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.[28]

Such compelling justifications for taking exception to the general rule are strewn all over the factual landscape of this case. Pertinently, in Dayag v. Canizares,[29] we said that –

…where a rigid application of the rule will result in a manifest failure or miscarriage of justice, technicalities may be disregarded in order to resolve the case. Litigations should, as much as possible, be decided on the merits and not on technicalities.[30] xxx Given the foregoing, it seems improper to nullify Young’s motion on a mere technicality. Petitioner’s averments should be given scant consideration to give way to the more substantial matter of equitably determining the rights and obligations of the parties. It need not be emphasized that rules of procedure must be interpreted in a manner that will help secure and not defeat justice.[31] (emphasis and italics supplied)

In short, since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial justice must always be avoided.[32] Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties.[33] It was thus towards this sacrosanct goal that this Court in the recent case of Paz Reyes Aguam v. CA, et al.[34] held:

. . .The law abhors technicalities that impede the cause of justice. The court’s primary duty is to render or dispense justice[35] “A litigation is not a game of technicalities.”[36] “Law suits unlike duels are not to be won by a rapier’s thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts.”[37] Litigations must be decided on their merits and not on technicality.[38] Every party litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities.[39]. . the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice.[40] It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a

false impression of speedy disposal of cases while actually resulting in more delay, if not miscarriage of justice. (emphasis and italics ours)

Second, while there is no dispute that mere inadequacy of the price per se will not set aside a judicial sale of real property, nevertheless, where the inadequacy of the price is purely shocking to the conscience,[41] such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be likely to consent to it,[42] the same will be set aside.[43] Thus, in one case,[44] the judicial sale of land worth P60,000.00 for P867.00 was considered shocking to the conscience. So also, the sale of properties at around 10% of their values, as when a radio worth P1,000.00 was sold for P100.00 and a matrimonial bed costing P500.00 was sold for P50.00, the price was held to be grossly inadequate.[45] How much more the judicial sale of two (2) prime commercial lots located in Guadalupe, Makati, conservatively valued at P500,000.00 in 1987, to satisfy a money judgment of P57,396.85?

Third, the questionable manner in which the said lots were levied upon and sold at public auction has, likewise, caught the attention of the Court. The manner of execution of money judgments is governed by Section 15, Rule 39 of the Rules of Court, which was then in force, thus:

SEC. 15. Execution of money judgments. – The officer must enforce an execution of a money judgment by levying on all the property, real and personal property of every name and nature whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such property, if there be sufficient, and selling the same, and paying to the judgment creditor or his attorney, so much of the proceeds as will satisfy the judgment. Any excess in the proceeds over the judgment and the accruing costs must be delivered to the judgment debtor, unless otherwise directed by the judgment or order of the court. When there is more property of the judgment debtor than is sufficient to satisfy the judgment and accruing costs, within the view of the officer, he must levy only on such part of the property as is amply sufficient to satisfy the judgment and costs. xxx (emphasis and italics supplied)

In relation to the foregoing, Section 21, also of Rule 39, provides that –

SEC. 21. How property sold on execution; Who may direct manner and order of sale. – All sales of property under execution must be made at public auction, to the highest bidder, between the hours of nine in the morning and five in the afternoon. After sufficient property has been sold to satisfy the execution, no more shall be sold. When the sale is of real property, consisting of several known lots, they must be sold separately; or, when a portion of such real property is claimed by a third person, he may require it to be sold separately. When the sale is of personal property capable of manual delivery, it must be sold within view of those attending the sale and in such parcels as are likely to bring the highest price. The judgment debtor, if present at the sale, may direct the order in which property, real or personal, shall be sold, when such property shall consist of several known lots or parcels which can be sold to advantage separately. Neither the officer holding the execution nor his deputy can become a purchaser, nor be interested directly or indirectly in any purchase at such sale. (emphasis and italics supplied)

In the case at bar, the subject lots were sold en masse, not separately as above provided. The unusually low price for which they were sold to the vendee, not to mention his vehement unwillingness to allow redemption therein, only serves to heighten the dubiousness of the transfer.

Fourth, with regard to the applicability of prescription and laches, there can be no question that they operate as a bar in equity. However, it must be pointed out that the question of prescription or

laches can not work to defeat justice or to perpetrate fraud and injustice.[46] As explicitly stated by this Court in Santiago v. Court of Appeals:[47]

As for laches, its essence is the failure or neglect, for an unreasonable and unexplained length of time to do that which, by the exercise of due diligence, could or should have been done earlier; it is the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.[48] But there is, to be sure, no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations. It cannot be worked to defeat justice or to perpetrate fraud and injustice.[49] In the case under consideration, it would not only be impractical but well-nigh unjust and patently iniquitous to apply laches against private respondent and vest ownership over a valuable piece of real property in favor of petitioners . . . It is the better rule that courts under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result.[50] (Emphasis provided)

Lastly, petitioners have demonstrated, albeit tardily, an earnest and sincere desire to redeem the subject properties when Cometa’s heirs, on December 4, 1997, consigned with the Office of the Clerk of Court, RTC Makati, the sum of P38,761.05 as purchase price for the lots, plus interest of P78,762.69 and P1,175.25 as realty tax. The rule on redemption is liberally construed in favor of the original owner of the property and the policy of the law is to aid rather than defeat him in the exercise of his right of redemption.[51] Thus, we allowed parties in several cases to perfect their right of redemption even beyond the period prescribed therefor.[52]

WHEREFORE, in view of all the foregoing, the challenged Decision of the Court of Appeals dated January 25, 1999, which affirmed the trial court’s denial of petitioners’ right of redemption, as well as the subsequent Resolution dated January 27, 2000, in CA-G.R. SP No. 48227 entitled “Zacarias Cometa, et al. v. Hon. Pedro Laggui, et al.,” are REVERSED and SET ASIDE; and another one hereby rendered ordering respondent Jose Franco to accept the tender of redemption made by petitioners and to deliver the proper certificate of redemption to the latter.

SO ORDERED.

Puno, Kapunan, and Pardo, JJ., concur.Davide, Jr., C.J. (Chairman), in the result.