SPOUSES ADELINAS. CUYCOG.R. No. 168736and FELICIANO U. CUYCO,

DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the Decision[1] of the Court of Appeals (CA) in CA G.R. CV No. 62352 dated November 5, 2003 which modified the Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well as the Resolution[3] dated June 28, 2005 denying the motion for reconsideration thereof. The facts of the case are as follows: Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per annum, and secured by a Real Estate Mortgage[4] over a parcel of land with improvements thereon situated in Cubao, Quezon City covered by TCT No. RT-43723 (188321).[5] Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993.[6] Petitioners made payments amounting to P291,700.00,[7] but failed to settle their outstanding loan obligations. Thus, on September 10, 1997, respondents filed a complaint[8] for foreclosure of mortgage with the RTC of Quezon City, which was docketed as Civil Case No. Q-97-32130. They alleged that petitioners loans were secured by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners refusal to settle the same entitles the respondents to foreclose the real estate mortgage. Petitioners filed a motion to dismiss[9] on the ground that the complaint states no cause of action which was denied by the RTC[10] for lack of merit. In their answer,[11] petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly. On January 27, 1999, the RTC rendered judgment[12] in favor of the respondents, the dispositive portion of which reads: WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of P6,332,019.84, plus interest until fully paid, P25,000.00 as attorneys fees, and costs of suit, within a period of one hundred and twenty (120) days from the entry of judgment, and in case of default of such payment and upon proper motion, the property shall be ordered sold at public auction to satisfy the judgment. Further, defendants[] counterclaim is dismissed. SO ORDERED.[13] Petitioners appealed to the CA reiterating their previous claim that only the amount of P1,500,000.00 was secured by the real estate mortgage.[14] They also contended that the RTC erred in ordering the foreclosure of the real estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of January 10, 1999, plus interest until fully paid, and in imposing legal interest of 12% per annum on the stipulated interest of 18% from the filing of the case until fully paid.[15] On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estate mortgage. It held that by express intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. The Court of Appeals also found that the trial court properly imposed 12% legal interest on the stipulated interest from the date of filing of the complaint. The dispositive portion of the Decision reads: WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130 is hereby MODIFIED to read: WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of P2,149,113.92[,] representing the total outstanding principal loan of the said defendants, plus the stipulated interest at the rate of 18% per annum accruing thereon until fully paid, within a period of one hundred and twenty days from the entry of judgment, and in case of default of such payment and upon motion, the property, subject of the real estate mortgage contract, shall be ordered sold at public auction in satisfaction of the mortgage debts. Defendants are further, ordered to pay the plaintiffs the following: 1. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum, computed from the filing of the complaint until fully paid; 2. the sum of P25,000.00 as and for attorneys fees; and 3. the costs of suit. SO ORDERED.[16] Hence, the instant petition for review on the sole issue: WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE FILING OF THE COMPLAINT UNTIL FULL PAID.[17] Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest of 18% per annum computed from the filing of the complaint until fully paid was not provided in the real estate mortgage contract, thus, the same has no legal basis. We are not persuaded. While a contract is the law between the parties,[18] it is also settled that an existing law enters into and forms part of a valid contract without the need for the parties expressly making reference to it.[19] Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest on the stipulated interest due. It reads: Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] to wit: 1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied) In the case at bar, the evidence shows that petitioners obtained several loans from the respondent, some of which as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default thereof, respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule stated in paragraph 1. Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the Courts Decision. Such interest is not due to stipulation but due to the mandate of the law[21] as embodied in Article 2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied.[22] Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no longer be true upon the finality of this Courts decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of Appeals, we derive the following formula[23] for the RTCs guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made Interest = principal x 18 % per annum x no. of years from due date until finality of judgment Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12% x no. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,[24] this Court held that the total amount due on the contracts of loan may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties. As regards what loans were secured by the real estate mortgage, respondents contended that all five additional loans were intended by the parties to be secured by the real estate mortgage. Thus, the CA erred in ruling that only two of the five additional loans were secured by the real estate mortgage when the documents evidencing said loans would show at least three loans were secured by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31, 1992; (2) P150,000.00 obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992.[25] In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the interest due, thus, by not filing their own petition for review, respondents waived their privilege to bring matters for the Courts review that do not deal with the sole issue raised. Procedurally, the appellate court in deciding the case shall consider only the assigned errors, however, it is equally settled that the Court is clothed with ample authority to review matters not assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just disposition of the case.[26] Moreover, as an exception to the rule that findings of facts of the CA are conclusive and binding on the Court,[27] an independent evaluation of facts may be done by it when the findings of facts are conflicting,[28] as in this case. The RTC held that all the additional loans were secured by the real estate mortgage, thus: There is, therefore, a preponderance of evidence to show that the parties agreed that the additional loans would be against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh. B) was not amended and thereafter annotated at the back of the title (Exh. C) because under Article 2125 of the Civil Code, if the instrument of mortgage is not recorded, the mortgage is nevertheless binding between the parties. It is extremely difficult for the court to perceive that the plaintiffs required the defendants to execute a mortgage on the first loan and thereafter fail to do so on the succeeding loans. Such contrary behavior is unlikely.[29] The CA modified the RTC decision holding that: However, the real estate mortgage contract was supplemented by the express intention of the mortgagors (defendants-appellants) to secure the subsequent loans they obtained from the mortgagees (plaintiffs-appellees), on 01 July 1992, in the amount of P150,000.00, and on 05 September 1992, in the amount of P500,000.00. The mortgagors (defendants-appellants) intention to secure a larger amount than that stated in the real estate mortgage contract was unmistakable in the acknowledgment receipts they issued on the said loans. The acknowledgment receipts read: July 1, [1]992 Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150,000.00 July 1/92 as additional loan against mortgaged property TCT No. RT-43723 (188321) Q.C. (SGD) Adelina S. Cuyco Sept. 05/92 Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PCIB Ck # 468657 as additional loan from mortgage property TCT RT-43723. (SGD) Adelina S. Cuyco In such case, the specific amount mentioned in the real estate mortgage contract no longer controls. By express intention of the mortgagors (defendants-appellants) the real estate mortgage contract, as supplemented, secures the P1,500,000.00 loan obtained on 25 November 1991; the P150,000.00 loan obtained on 01 July 1992; and the P500,000.00 loan obtained on 05 September 1992. All these loans are subject to stipulated interest of 18% per annum provided in the real estate mortgage contract. With respect to the other subsequent loans of the defendants-appellants in the amount of P150,000.00, obtained on 31 May 1992; in the amount of P200,000.00, obtained on 29 October 1992; and, in the amount of P250,000.00, obtained on 13 January 1993, nothing in the records remotely suggests that the mortgagor (defendants-appellants), likewise, intended the said loans to be secured by the real estate mortgage contract. Consequently, we rule that the trial court did err in declaring said loans to be secured by the real estate mortgage contract.[30] As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract.[31] However, 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. This stipulation is valid and binding between the parties and is known in American Jurisprudence as the blanket mortgage clause, also known as a dragnet clause. [32] A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.[33] While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage contract.[34] The pertinent provisions of the November 26, 1991 real estate mortgage reads: That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE THOUSAND PESOS (sic) (1,500,000.00) Philippine Currency, receipt whereof is hereby acknowledged and confessed, payable within a period of one year, with interest at the rate of eighteen percent (18%) per annum; That for and in consideration of said indebtedness, the MORTGAGOR does hereby convey and deliver by way of MORTGAGE unto said MORTGAGEE, the latters heirs and assigns, the following realty together with all the improvements thereon and situated at Cubao, Quezon City, and described as follows: x x x x PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto the MORTGAGEE or his heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the agreed interest thereon, within the agreed term of one year on a monthly basis then this MORTGAGE shall be discharged, and rendered of no force and effect, otherwise it shall subsist and be subject to foreclosure in the manner and form provided by law. It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the mortgaged realty shall also secure future loans and advancements. Thus, what applies is the general rule above stated. Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be secured by the same real estate mortgage, as shown in the acknowledgement receipts, it is not sufficient in law to bind the realty for it was not made substantially in the form prescribed by law. In order to constitute a legal mortgage, it must be executed in a public document, besides being recorded. A provision in a private document, although denominating the agreement as one of mortgage, cannot be considered as it is not susceptible of inscription in the property registry. A mortgage in legal form is not constituted by a private document, even if such mortgage be accompanied with delivery of possession of the mortgage property.[35] Besides, by express provisions of Section 127 of Act No. 496, a mortgage affecting land, whether registered under said Act or not registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or bind the land unless made substantially in the form therein prescribed. It is required, among other things, that the document be signed by the mortgagor executing the same, in the presence of two witnesses, and acknowledged as his free act and deed before a notary public. A mortgage constituted by means of a private document obviously does not comply with such legal requirements.[36] What the parties could have done in order to bind the realty for the additional loans was to execute a new real estate mortgage or to amend the old mortgage conformably with the form prescribed by the law. Failing to do so, the realty cannot be bound by such additional loans, which may be recovered by the respondents in an ordinary action for collection of sums of money. Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the stipulated interest of 18% per annum is sufficient as the mortgage document does not contain a stipulation that the legal interest on the stipulated interest due, attorneys fees, and costs of suit must be paid first before the same may be discharged.[37] We do not agree. Section 2, Rule 68 of the Rules of Court provides: SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. (Emphasis added) Indeed, the above provision of the Rules of Court provides that the mortgaged property may be charged not only for the mortgage debt or obligation but also for the interest, other charges and costs approved by the court. Thus, to discharge the real estate mortgage, petitioners must pay the respondents (1) the total amount due, as computed in accordance with the formula indicated above, that is, the principal loan of P1,500,000.00, the stipulated interest of 18%, the interest on the stipulated interest due of 12% computed from the filing of the complaint until finality of the decision less partial payments made, (2) the 12% legal interest on the total amount due from finality until fully satisfied, (3) the reasonable attorneys fees of P25,000.00 and (4) the costs of suit, within the period specified by the Rules. Should the petitioners default in the payment thereof, the property shall be sold at public auction to satisfy the judgment. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No. 62352 dated November 5, 2003, which modified the Decision of the Regional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130, is AFFIRMED with the MODIFICATIONS that petitioners are ordered to pay the respondents (1) the total amount due, as computed by the RTC in accordance with the formula specified above, (2) the legal interest of 12% per annum on the total amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorneys fees, and (4) the costs of suit, within a period of not less than 90 days nor more than 120 days from the entry of judgment, and in case of default of such payment the property shall be sold at public auction to satisfy the judgment. SO ORDERED.

SPOUSESSANTIAGOandG.R. No. 164510

RUFINA TANCHAN,

D E C I S I O NAUSTRIA-MARTINEZ,J.:By way of Petition for Review underRule 45 of the Rules of Court, spouses Santiago andRufinaTanchan(petitioners) seek the modification of the June 15, 2004 Decision[1]of the Court of Appeals (CA)which affirmed the August 3, 2001 Decision[2]and August 8, 2002 Order[3]of Branch 137,Regional Trial Court(RTC),Makatiin Civil Case No. 98-2468.[4]The relevant facts are of record.For value received,CebuForemost Construction, Inc. (Foremost), through its Chairman and President HenryTanchan(Henry) and his spouse, Vice-President and Treasurer Ma. Julie AnnTanchan(Ma. Julie Ann) executed and delivered to Allied Banking Corporation (respondent) sevenUS$ promissory notes,[5]including Promissory Note No. 0051-97-03696[6](Exhibit G)for US$379,000.00, at 9.50% interest rate per annum, due on February 9, 1998.Foremost also issued to respondent several Philippine peso promissory notes[7]covering various loans in the aggregate amount of Php28,900,000.00, including Promissory Note No. 0051-97-03688(Exhibit H)forPhpP16,500,000.00, at an interest rate of 14.5% per annum, due on February 9, 1998.[8]All the foregoing promissory notes are secured by two Continuing Guaranty/Comprehensive Surety Agreements (CG/CSA) executed in the personal capacities ofspouses Henry and Ma. Julie Ann (SpousesTanchan) andHenrys brother,herein petitioner SantiagoTanchan(Santiago),[9]for himself and as attorney-in-fact of his wife and co-petitionerRufinaTanchan(Rufina) under a Special Power of Attorney, dated April 30, 1993, which grants Santiago authority to:xxxborrow and/or contract debts and obligations involving, affecting or creating a charge or liability on, or which may involve, affect or create a liability on the Property and/or my interest therein, whether or not such debt/s or obligation/s contracted or to be contracted will benefit me or the family, and to sign, execute and deliver in my name to or in favor of any party, under such terms and conditions as my attorney-in-fact may deem necessary, appropriate or convenient, any and all documents instruments or contract/s (including without limitations, promissory notes, loan agreements, assignments, surety or guaranty undertakings, security agreements) involving, affecting or creating a charge or liability on the Property.[10]The liability of the sureties under both CG/CSAsis limited to Php150,000,000.00.[11]Exhibit Gand all the Philippine peso promissory notes, includingExhibit H, are secured not only by the two CG/CSAsbut also by a Real Estate Mortgage executed on February 14, 1997 by Henry, for himself and as the legal guardian of the minors Henry Paul L.Tanchanand Don Henry L.Tanchan; his wife Ma. Julie Ann; and Spouses Pablo and Milagros Lim, over real properties registered in their names under Transfer Certificates of Title No. 115804, No. 111149, No. 110672 and No. 3815, all located inCebuCity.[12]In separate final demand letters, both dated May 14, 1998, respondent sought from Foremost payment of US$1,054,000.00, as the outstanding principal balance, exclusive of interest and charges, of its obligations underthe seven US$ promissory notes,and PhP28,900,000.00 under its Philippine peso promissory notes.[13]Separate demands for payment were also made upon SpousesTanchan[14]andthepetitioners[15]as sureties.In a letter datedApril 6, 1998,Foremostoffered to cede to respondent, by way ofdacionenpago, the mortgaged real properties in full payment of its loan obligations.[16]OnAugust 3, 1998, respondent instituted the extra-judicial foreclosure of the real estate mortgage to satisfy its claim against Foremost in the aggregate amount of Php55,578,826.77, inclusive of interest, other charges and attorney's fees, equivalent to 10% of the total amount due as ofMay 3, 1998, plus the costs and expenses of foreclosure.[17]At the public auction sale,respondentsbid of only Php37,745,283.67for all the mortgaged properties, including the buildings and improvements thereon,[18]was adjudged the sole and highest bid.On October 13, 1998, respondent filed with the RTC a Complaint for Collection of Sum of Money with Petition for Issuance of Writ of Preliminary Injunction against Foremost, SpousesTanchanand herein petitioners (collectively referred to as Foremost, et al.), praying thattheybe ordered to pay, jointly and severally, the following amounts:[19]Promissory NoteAmount

0051-96-09495US$80,000.00plus interest at the rate of 11.4% per annum fromDecember 29, 1997until fully paid and a penalty charge on the unpaid interest at the rate of 1% per month reckoned fromDecember 29, 1997until fully paid and a penalty charge on the unpaid principal reckoned fromMay 28, 1998until fully paid.

0051-96-17617US$110,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month, all reckoned fromDecember 29, 1997until fully paid.

0051-96-19008US$250,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromNovember 30, 1997until fully paid.

0051-96-24801US$115,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromDecember 29, 1997until fully paid.

0051-96-00603US$75,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromDecember 29, 1997until fully paid.

0051-97-02444US$45,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromDecember 29, 1997until fully paid.

0051-97-03696(Exhibit G)US$379,000.00plus interest at the rate of 11.4% per annum reckoned fromJanuary 8, 1998until fully paid and a penalty charge at the rate of 1% per month fromFebruary 9, 1998until fully paid.

0051-97-03688(Exhibit H)PhpP7,466,795.67plus interest at the rate of 20% per annum and a penalty charge at the rate of 3% per month fromAugust 10, 1998.(Emphasis supplied)

Respondent also prayed for payment of attorney's fees equivalent to 25% of the total amount due, expenses and costs of suit,In support of its application for issuance of a writ of preliminary attachment, respondent submitted an Affidavit executed by ElmerElumbaring(Elumbaring), Branch Cashier/Loans Supervisor,Cebu,JakosalemBranch, stating that:4.Defendants [Foremost, et al.] committed fraud in contracting the obligations upon which the action is brought in that: a) to induce plaintiff [respondent] to grant the credit accommodation they represented to the plaintiff [respondent] that they were in a financial position to pay their obligations on maturity date in consideration of which plaintiff [respondent] granted the credit accommodations. It turned out, however, that they were not in such financial position when they failed to pay their obligations on maturity date; b) they falsely represented that the proceeds of the Loan would be used as additional working capital in consideration of which, plaintiff[respondent]granted the loans but when defendants[Foremost, et al.]received the said proceeds, they diverted the same to a purpose other than that for which they were intended as shown by the fact that defendants [Foremost, et al.] were not able to fully pay the obligations at its maturity date;5.There is no security whatsoever for the claim plaintiff [respondent] seeks to enforce by this action, and only by the issuance of a writ of preliminary attachment can its interest be protected.[20]The application for writ of preliminary attachment was granted by the RTC in an Order datedNovember 3, 1998, to wit:WHEREFORE, finding plaintiff's [respondent's] application for the issuance of a writ of preliminary attachment sufficient in form and substance, and the ground set forth therein being among those allowed by the Rules (Rule 57, Sec. 1 [e]), let a Writ of Preliminary Attachment issue against the properties of defendantsCebuForemost Construction, Incorporated, SantiagoTanchan, Jr.,RufinaC.Tanchan, HenryTanchanand Ma. Julie Ann T.Tanchan, upon plaintiff's [respondent's] filing of a bond in the amount of FIFTY-FOUR MILLION (P54,000,000.00) PESOS, conditioned to answer for whatever damage that the said defendants [Foremost, et al.] may suffer by reason of the issuance of said writ should the Court finally adjudge that plaintiff [respondent] was not entitled thereto.SO ORDERED.[21]Thus, armed with a writ of attachment,[22]the sheriff levied several parcels of land registered in the name of Foremost, et al.[23]In their Amended Answer with Counterclaim,[24]Foremost, et al. acknowledged the authenticity and due execution of the promissory notes but denied liability for the amounts alleged in the Complaint, the computation of which they dispute due to the arbitrariness of the imposition of new interest rates.Theyimpugned the cause of action of respondent to collect the amount due underExhibit GandExhibit Hin view of the bank's prior extra-judicial foreclosure of the securities thereon, which recourse bars collection of the amounts due on the same promissory notes.[25]Foremost, et al. questioned the inclusion ofRufinaas aparty-defendant even when she was not bound by the CG/CSAswhich her husband Santiago signed in excess of his authority under the special power of attorney to contract loans for the family butnot to guarantee loans obtained by third persons.[26]The issuance of the writ of preliminary attachment was likewise objected to by Foremoston the ground thatit contracted the loans in good faith but was prevented from paying the same only because of the economic crisis that beset the country.On the part of SpousesTanchanand herein petitioners, they claim that they had no personal participation or influence in the loan transactions except to ensure its payment; hence, they could not have practiced fraud upon respondent because they did not personally contract the loans with it.[27]Thus, each sought payment of Php100,000,000.00 as moral damages for the emotional and mental vexation visited upon them byrespondentin causing the unwarranted preliminary attachment of their properties.[28]At the pre-trial, respondent submitted an Amended Pre-trial Brief where it admitted thatForemost'sExhibit G and Exhibit Hwere among those secured by the real estate mortgage[29]that it earlierforeclosed, but the proceeds of the foreclosure sale satisfied only part of the amounts due on said promissory notes and left a deficiency which is now the subject of their complaint.[30]The RTC issued a Pre-trial Order which limited the issues to be resolved to the following:1.Does the [respondent] have a cause of action with respect to the promissory notes marked as [Exhibits] G[31]and H[32]?2.Is [petitioner]RufinaC.Tanchanliable on the basis of the Continuing Guaranty/Comprehensive Surety Agreements because of her authority from[sic]SantiagoTanchan, Jr. was limited to borrow money only for the benefit of the family?3.Is the unilateral increase of the interest rate of [respondent] valid?4.What is the amount and nature of the damages that should be adjudged against the losing party in favor of the prevailing party?[33]As directed by the RTC in its Pre-trial Order, both parties presented affidavits in lieu of direct examination of their witnesses.For respondent,FresnidoBandilla(Bandilla), Manager, Legal Department, testified that the obligations of Foremost which were secured by the real estate mortgage had amounted to Php61,155,339.36 as of the date of the foreclosure sale, and that withrespondent's bid of only Php37,745,283.67 being adjudged the lone and highest bid, there remained an unpaid balance of Php23,415,115.69.[34]ElumbaringcorroboratedBandilla'stestimony.[35]On the other hand, Henry averred that even in the wake of the Asian financial crisis,Foremost struggled to meet interest payments on its loan obligations with respondent, but the point came when there were no more construction jobs to be had, andForemost was constrained to default on its obligations.[36]Santiagotestified thathe and his spousecould not have defrauded respondent because they did not directly contract the loans with it but merely acted as sureties.Thus, the issuance of the writ of attachment against their properties was arbitrary, and brought upon themsocial humiliation and emotional torment.[37]After the parties submitted their respective memoranda,[38]theRTCrendered itsAugust 31, 2001Decision, thedispositiveportion of which reads:WHEREFORE, judgment is hereby rendered ordering defendantsCebuForemost Construction, Inc., SantiagoTanchan, Jr.,RufinaC.Tanchan, HenryTanchanand Ma. Julie AnnTanchan,solidarily,[to]pay plaintiff Allied Banking Corporation the following amounts: (1) US $80,000.00, plus 8.75 % interest per annum from 7 June 1996 to 6 May 1997, 9.5% interest per annum from 7 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date and until fully paid; (2) US $110,00.00, plus 8.75% interest per annum from 24 September to 29 May 1997, 9.5% interest per annum from 30 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (3) US $570,000.00, plus 8.75% interest per annum from 8 October 1996 to 29 May 1997, 9.5% interest per annum from 30 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (4) US $115,000.00 plus 9.5% interest per month from 12 December 1996 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (5) US $75,000.00, plus 9.5% interest per annum from 7 January 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (7) US $379,000.00, plus 9.5% interest per annum from 12 February 1997 to 8 December 1997, 11.4% interest per annum from 9 December 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (8)P7,582,945.85, plus 28.5% interest per annum, and 3% penalty per month, from the foreclosure sale on 10 August 1998 until fully paid; (9) attorney's fees equivalent to 10% of the amount due plaintiff.However, the liability of defendants' SantiagoTanchan, Jr.,RufinaC.Tanchan, HenryTanchanand Ma.Julie Ann T.Tanchanis limited toP150,00,000.00only.Defendants' counterclaims are dismissed for lack of sufficient merit.SO ORDERED.[39]Foremost, et al.filed a Motion for Partial Reconsideration of Decision on the ground that respondent failed to state a cause of action for the payment of any deficiency account underExhibit G andExhibitH.Its Complaint does not contain any allegation regarding a deficiency account; nor even an allusion to the foreclosure sale conducted in partial satisfaction of said promissory notes.Although in its Amended Pre-trial Brief, respondent mentioned that a deficiency account remained after the foreclosure of the real estate mortgage, such statement did not have the effect of amending the Complaint itself.Neither did the testimonies ofBandillaandElumbaringabout a deficiency account take the place of a specific allegation of such cause of action in the Complaint.Thus,in the absence of anallegation in the Complaint of a cause of action for the payment of a deficiency account,the RTC hadno factual or legal basis to grant such claim.[40]SpousesTanchanand herein petitioners also filed a Motion to Lift the Writ of Preliminary Attachment.[41]The RTC denied the Motion to Lift the Writ of Attachment in anOrder[42]datedSeptember 25, 2001,and the Motion for Partial Reconsideration, in an Order[43]datedAugust 8, 2002.Foremost, et al. appealedto the CA under the following assignment of errors:1.The lower court erred in not holding that having opted to extra-judicially foreclose the real estate mortgage which was executed to secure the promissory notes marked as Exhibits G and H, the [respondent] is barred from filing an action for collection of the same;2.The lower court erred in not holding thatRufinaTanchandid not authorize her husband, Santiago J.Tanchan, Jr. to sign the Continuing Guaranty/Comprehensive Surety Agreement marked as Exhibit I; and3.The lower court erred in not lifting the writ of preliminary attachment and granting the claim for damages of the individual defendants by virtue of the wrongful issuance of the writ of preliminary attachment.[44]The CA dismissed the appeal in theJune 15, 2004Decision assailed herein.Only petitioners took the present recourse to raise the following issues:I.Whether or not the petitioners as mere sureties of the loans obtained byCebuForemost Construction, Inc.were guilty of fraud in incurring the obligations so that a writ of preliminary attachment may be issued against them?II.Whether or not the respondent may claim for deficiency judgment on its seventh and eight causes of action, not having alleged in its complaint that said loans were secured by a real estate mortgage and after the foreclosure there was a deficiency as in fact in its complaint, the respondent sought full recovery of the promissory notes subject of its seventh and eighth cause of action?III.Whether or not the lower court and the Court of Appeals erred in not awarding petitioners damages for the wrongful issuance of a writ of preliminary attachment against them?[45]Being interrelated, the first and third issues will be resolved jointly.The issues involve the validity of the writ of preliminary attachment as against the properties of petitioners only, but notas against the properties of Foremost and SpousesTanchan, neither of whom appealed before the Court.The discussion that follows, therefore, shall pertainonly to the effect of the writon petitioners.Oneof the grounds cited by the CA in refusing to discharge the writ of attachment is that it is now too late for [petitioners] to question the validity of the writ because they waited three long years to have it lifted or discharged.[46]Under Section 13, Rule 57 of the Rules of Court, a party whose property has been ordered attached may file a motion with the court in which the action is pending for the discharge of the attachment on the ground that it has been improperly issued or enforced.In addition, said party may file, under Section 20, Rule 57, aclaim for damages on account of improper attachment within the following periods:Sec. 20.Claim for damages on account of improper, irregular or excessive attachment.-An application for damages on account of improper, irregular or excessive attachmentmust be filed before the trial or before appeal is perfected or before the judgment becomesexecutory, with due notice to the attachingobligeeor his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such damages may be awarded only after proper hearing and shall be included in the judgment on the main case.If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must claim damages sustained during thependencyof the appeal by filing an application in the appellate court with notice to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate court becomesexecutory. The appellate court may allow the application to be heard and decided by the trial court.[47](Emphasis supplied)Records reveal that the RTC issued the writ of preliminary attachment onNovember 3, 1998,[48]and as early asMarch 23, 1999, in their Amended Answer with Counterclaim, petitioners already sought the discharge of the writ.[49]Moreover, after the RTC rendered its Decision onAugust 3, 2001but before appealtherefromwas perfected, petitioners filed onAugust 23, 2001a Motion to Lift the Writ of Preliminary Attachment, reiterating their objection to the writ and seeking payment of damages for its wrongful issuance.[50]Clearly, petitioners' opposition to the writ was timely.The question now is whether petitioner has a valid reason to have the writ discharged and to claim damages.It should be borne in mind that the questioned writ of preliminary attachment was issued by the RTC under Section 1(d), Rule 57 of the Rules of Court, to wit-Sec. 1.Grounds upon which attachment may issue.- A plaintiff or any proper party may, at the commencement of the action or at any time thereafter, have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in the following cases:xxxx(d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought;xxxx.and on the basis solely of respondent's allegations in its Complaint that defendants [Foremost, et al.] failed to pay their obligations on maturity dates, with the amount of US$1,054,000.00 and Php7,466795.69remaining unpaid; that defendants are disposing/concealing their properties with intent to defraud the plaintiff and/or are guilty of fraud in the performance of their obligations; and that there is no security whatsoever for the claim sought to be enforced.[51]Petitioners argue that the foregoing allegations are not sufficient to justify issuance of the writ, especially in the absence of findings that they, as sureties,participated in specific fraudulent acts in the execution and performance of the loan agreements with respondent.[52]In refusing to lift the writ, the RTC held that the lack of a specific factual finding of fraud in its decision is not among the grounds provided under Sections 12 and 13, Rule 57 of the Rules of Court for the discharge of the writ.[53]The CA agreed for the reason that theRTC'saffirmative action on the complaint filed by respondent signifies its agreement with the allegations found therein that Foremost, et al., including herein petitioners, committed fraudulent acts in procuringloans from respondent.[54]Both courts are in error.The present case fits perfectly into the mold ofAllied Banking Corporation v.South Pacific Sugar Corporation,[55]where a writ of preliminary attachment issued in favor of Allied Banking Corporation was discharged by the lower courts for lack of evidence of fraud.In sustaining the discharge of the writ, the Court held:Moreover, even a cursory examination of the banks complaint will reveal that it citedno factual circumstance to show fraud on the part of respondents. The complaint only had a general statement in the Prayer for the Issuance of a Writ of Preliminary Attachment, reproduced in the attached affidavit of petitioners witnessGowho stated as follows:xxxx4.Defendants committed fraud in contracting the obligations upon which the present action is based and in the performance thereof. Among others, defendants induced plaintiff to grant the subject loans to defendant corporation by willfully and deliberately misrepresenting that, one, the proceeds of the loans would be used as additional working capital and, two, they would be in a financial position to pay, and would most certainly pay, the loan obligations on their maturity dates. In truth, defendants hadno intention of honoring their commitments as shown by the fact that upon their receipt of the proceeds of the loans, they diverted the same to illegitimate purposes and then brazenly ignored and resisted plaintiffs lawful demands for them to settle their past due loan obligationsxxxxSuch general averment will not suffice to support the issuance of the writ of preliminary attachment. It is necessary to recite in what particular manner an applicant for the writ of attachment was defraudedxxx.Likewise, written contracts are presumed to have been entered into voluntarily and for a sufficient consideration. Section 1, Rule 131 of the Rules of Court instructs that each party must prove his own affirmative allegations. To repeat, in this jurisdiction, fraud is never presumed. Moreover, written contracts such as the documents executed by the parties in the presentcase,are presumed to have been entered into for a sufficient consideration.(Citations omitted)In theaforecitedcase -- as in the present case--the bank presented the testimony of itsaccount officerwho processed the loan application, but the Court discarded her testimony for itdid not detail how the corporation induced or deceived the bank into granting the loans.[56]AlsoaproposisNg Wee v.Tankiansee[57]where the appellate court was questioned for discharging a writ of preliminary attachment to the extent that it affected the properties of respondentTankiansee, a corporate officer ofWincorp,bothdefendants in the complaint for damages which petitionerNgWee had filed with the trial court.In holding that the appellate court correctly spared respondentTankianseefrom the writ of preliminary attachment, the Court cited the following basis:In the instant case, petitioners October 12, 2000 Affidavit is bereft of any factual statement that respondent committed a fraud. The affidavit narrated only the alleged fraudulent transaction betweenWincorpandVirataand/or Power Merge, which, by the way, explains why this Court, inG.R.No. 162928, affirmed the writ of attachment issued against the latter.As to the participation of respondent in the said transaction, the affidavit merely states that respondent, an officer and director ofWincorp, connived with the other defendants in the civil case to defraud petitioner of his money placements.No other factual averment or circumstance details how respondent committed a fraud or how he connived with the other defendants to commit a fraud in the transaction sued upon. In other words, petitioner has not shown any specific act or deed to support the allegation that respondent is guilty of fraud.The affidavit, being the foundation of the writ, must contain such particulars as to how the fraud imputed to respondent was committed for the court to decide whether or not to issue the writ. Absent any statement of other factual circumstances to show that respondent, at the time of contracting the obligation, had a preconceived plan or intention not to pay, or without any showing of how respondent committed the alleged fraud, the general averment in the affidavit that respondent is an officer and director ofWincorpwho allegedly connived with the other defendants to commit a fraud, is insufficient to support the issuance of a writ of preliminary attachment xxx.Verily, the mere fact that respondent is an officer and director of the company does not necessarily give rise to the inference that he committed a fraud or that he connived with the other defendants to commit a fraud. While under certain circumstances, courts may treat a corporation as a mereaggroupmentof persons, to whom liability will directly attach, this is only done when the wrongdoing has been clearly and convincingly established. (Emphasis supplied)Indeed,awrit of preliminary attachment is too harsh a provisional remedy tobeissued based on mere abstractions of fraud.[58]Rather, the rules require that for the writto issue, there must be a recitation of clear and concrete factual circumstances manifesting that the debtor practiced fraud upon the creditor at the time of the execution of their agreement in that said debtor had a pre-conceived plan or intention not to pay the creditor.[59]Being a state of mind, fraud cannot be merely inferred from a bare allegation of non-payment of debt or non-performance of obligation.[60]As shown inNg Wee, the requirement becomes all the more stringent when the application for preliminary attachment is directed against a defendant officer of a defendant corporation, for it will not be inferred from the affiliation of one to the other that the officer participated in or facilitated in any fraudulent practice attributed to the corporation.There must be evidence clear and convincing that the officer committed a fraud or connived with the corporation to commit a fraud; only then may the properties of said officer, along with thoseof the corporation, be held under a writ of preliminary attachment.There is every reason to extend the foregoing rule, by analogy, to a mere surety of the defendant.A surety's involvement is marginal to the principal agreement between the defendant and the plaintiff; hence, in order for the surety to be subject to a proceeding for issuance of a writ of preliminary attachment, it must be shown that said surety participated in or facilitated the fraudulent practice of the defendant, such as by offering a security solely to induce the plaintiff to enter into the agreement with the defendant.There is neither allegation nor innuendo in the Complaint of respondent or the Affidavit ofElumbaringthat petitioners as sureties or officers of Foremost participated in or facilitated the commission of fraud by Foremost, et al. against respondent.In fact, there is no mention of petitioners, much less a recital of their role or influence in the execution of the loan agreements.The RTC cited an allegation that petitionersare disposing/concealing their properties with intent to defraud respondent, but thereisno hint of such scheme in the five paragraphs of the Complaint[61]or in the four corners of the Affidavit ofElumbaring.[62]All that is alleged is that Foremost obtained loans from respondent but failed to pay the same, but as the Court has repeatedly held, no fraud can be inferred from a mere failure to pay a loan.[63]In fine, there was no factual basis for the issuance of a writ of preliminary attachment against the properties of petitioners.The immediate dissolution ofthewrit is called for.In so ruling, however, the Court does not go so far as to grant petitioners' claim for moral damages.A wrongful attachment may give rise to liability for moral damages but evidence must be adduced not only of the torment and humiliation brought upon the defendant by the attaching party but also of the latter's bad faith or malice in causing the wrongful attachment,[64]such as evidence that the latter deliberately made false statements in its application for attachment.[65]Absent such evidence of malice, the attaching party cannot be held liable for moral damages.[66]In the present case, petitioners cite the allegations made by respondent in its application for attachment as evidence of bad faith.However, the allegations in question contain nothing but the stark truth thatForemostobtained loans and that it failed to pay.The Court fails to see any malice in such bare allegations as would make respondent liable to petitionersformoral damages.To recapitulate, the Court partly dissolves the writ of preliminary attachment for having wrongfully issued against the properties of petitioners who were not shown to have committed fraud in the execution of the loan agreements between Foremost and respondent, but declines to award moral damages to petitioners in the absence of evidence that respondent acted with malice in causing the wrongful issuance of the writ.The second issue involves that portion of the August 3, 2001 RTC Decision awarding respondent (7) US $379,000.00, plus 9.5% interest per annum from 12 February 1997 to 8 December 1997, 11.4% interest per annum from 9 December 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid under Promissory Note No. 0051-97-03696, and (8)P7,582,945.85, plus 28.5% interest per annum, and 3% penalty per month, from the foreclosure sale on 10 August 1998 until fully paid under Promissory Note No. 0051-97-03688.Petitioners argue that respondent is barred from claiming any amount underthePromissory Notes,Exhibits G and H,because it had already elected to foreclose on the mortgage security, and it failed to allege in its pleadings that a deficiency remained after the public auction sale of the securities and that what it is seeking is the payment of such deficiency.[67]There is no question that a mortgage creditor has a single cause of action against a mortgagor debtor, which is to recover the debt; but it has the option of either filing a personal action for collection of sum of money or instituting a real action to foreclose on the mortgage security.[68]An election of the first bars recourse to the second;otherwise,there would be multiplicity of suits in which the debtor would be tossed from one venue to another, depending on the location of the mortgaged properties and the residence of the parties.[69]On the other hand, a creditor who elects to foreclose on the mortgage may yet file an independent civil action for recovery of whatever deficiency may remain in the outstanding obligation of the debtor, after deducting the price obtained in the sale of the mortgaged properties at public auction.[70]The complaint,though,must specifically allege that what is being sought is the recovery of the deficiency,[71]or that in the pre-trial, such claim be raised as an issue.[72]Contrary to petitioners' argument, it is clear from the allegations in the Complaint that what respondent sought was the payment of the deficiency amount under the subject promissory notes.In particular, whilethePromissory Note, Exhibit H,is for the amount of Php16,500,000.00, what respondent sought to recover was only Php7,582,945.85, consistent with the fact that part of said promissory note has been satisfied from the proceeds of the extra-judicial foreclosure. While theexactphrase deficiency account is not employed in the Complaint, the intention of respondent to recover the same is borne out by its allegations.More importantly, in the Pre-trial Order issued by the RTC, the right of respondent to recover the deficiency account under the subject promissory notes was raised as a specific issue.WHEREFORE, the petition isPARTLYGRANTED.The June 15, 2004 Decisionof the Court of Appeals isMODIFIEDto the effect that the November 3, 1998 Writ of Preliminary Attachment isLIFTEDandDISSOLVEDinsofar as it affects the properties ofpetitionersSpouses Santiago andRufinaTanchan.No costs.SO ORDERED.

METROPOLITAN BANK ANDG.R. No. 163744TRUST CO.,

D E C I S I O N VELASCO, JR., J.: Respondent Nicholson Pascual and Florencia Nevalga were married on January 19, 1985. During the union, Florencia bought from spouses Clarito and Belen Sering a 250-square meter lot with a three-door apartment standing thereon located in Makati City. Subsequently, Transfer Certificate of Title (TCT) No. S-101473/T-510 covering the purchased lot was canceled and, in lieu thereof, TCT No. 156283[1] of the Registry of Deeds of Makati City was issued in the name of Florencia, married to Nelson Pascual a.k.a. Nicholson Pascual. In 1994, Florencia filed a suit for the declaration of nullity of marriage under Article 36 of the Family Code, docketed as Civil Case No. Q-95-23533. After trial, the Regional Trial Court (RTC), Branch 94 in Quezon City rendered, on July 31, 1995, a Decision,[2] declaring the marriage of Nicholson and Florencia null and void on the ground of psychological incapacity on the part of Nicholson. In the same decision, the RTC, inter alia, ordered the dissolution and liquidation of the ex-spouses conjugal partnership of gains. Subsequent events saw the couple going their separate ways without liquidating their conjugal partnership. On April 30, 1997, Florencia, together with spouses Norberto and Elvira Oliveros, obtained a PhP 58 million loan from petitioner Metropolitan Bank and Trust Co. (Metrobank). To secure the obligation, Florencia and the spouses Oliveros executed several real estate mortgages (REMs) on their properties, including one involving the lot covered by TCT No. 156283. Among the documents Florencia submitted to procure the loan were a copy of TCT No. 156283, a photocopy of the marriage-nullifying RTC decision, and a document denominated as Waiver that Nicholson purportedly executed on April 9, 1995. The waiver, made in favor of Florencia, covered the conjugal properties of the ex-spouses listed therein, but did not incidentally include the lot in question. Due to the failure of Florencia and the spouses Oliveros to pay their loan obligation when it fell due, Metrobank, on November 29, 1999, initiated foreclosure proceedings under Act No. 3135, as amended, before the Office of the Notary Public of Makati City. Subsequently, Metrobank caused the publication of the notice of sale on three issues of Remate.[3] At the auction sale on January 21, 2000, Metrobank emerged as the highest bidder. Getting wind of the foreclosure proceedings, Nicholson filed on June 28, 2000, before the RTC in Makati City, a Complaint to declare the nullity of the mortgage of the disputed property, docketed as Civil Case No. 00-789 and eventually raffled to Branch 65 of the court. In it, Nicholson alleged that the property, which is still conjugal property, was mortgaged without his consent. Metrobank, in its Answer with Counterclaim and Cross-Claim,[4] alleged that the disputed lot, being registered in Florencias name, was paraphernal. Metrobank also asserted having approved the mortgage in good faith. Florencia did not file an answer within the reglementary period and, hence, was subsequently declared in default. The RTC Declared the REM Invalid After trial on the merits, the RTC rendered, on September 24, 2001, judgment finding for Nicholson. The fallo reads: PREMISES CONSIDERED, the Court renders judgment declaring the real estate mortgage on the property covered by [TCT] No. 156283 of the Registry of Deeds for the City of Makati as well as all proceedings thereon null and void. The Court further orders defendants [Metrobank and Florencia] jointly and severally to pay plaintiff [Nicholson]: 1. PhP100,000.00 by way of moral damages;2. PhP75,000.00 by way of attorneys fees; and3. The costs. SO ORDERED.[5] Even as it declared the invalidity of the mortgage, the trial court found the said lot to be conjugal, the same having been acquired during the existence of the marriage of Nicholson and Florencia. In so ruling, the RTC invoked Art. 116 of the Family Code, providing that all property acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved. To the trial court, Metrobank had not overcome the presumptive conjugal nature of the lot. And being conjugal, the RTC concluded that the disputed property may not be validly encumbered by Florencia without Nicholsons consent. The RTC also found the deed of waiver Florencia submitted to Metrobank to be fatally defective. For let alone the fact that Nicholson denied executing the same and that the signature of the notarizing officer was a forgery, the waiver document was allegedly executed on April 9, 1995 or a little over three months before the issuance of the RTC decision declaring the nullity of marriage between Nicholson and Florencia. The trial court also declared Metrobank as a mortgagee in bad faith on account of negligence, stating the observation that certain data appeared in the supporting contract documents, which, if properly scrutinized, would have put the bank on guard against approving the mortgage. Among the data referred to was the date of execution of the deed of waiver. The RTC dismissed Metrobanks counterclaim and cross-claim against the ex-spouses. Metrobanks motion for reconsideration was denied. Undeterred, Metrobank appealed to the Court of Appeals (CA), the appeal docketed as CA-G.R. CV No. 74874. The CA Affirmed with Modification the RTCs Decision On January 28, 2004, the CA rendered a Decision affirmatory of that of the RTC, except for the award therein of moral damages and attorneys fees which the CA ordered deleted. The dispositive portion of the CAs Decision reads: WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED WITH MODIFICATION with respect to the award of moral damages and attorneys fees which is hereby DELETED. SO ORDERED.[6] Like the RTC earlier held, the CA ruled that Metrobank failed to overthrow the presumption established in Art. 116 of the Family Code. And also decreed as going against Metrobank was Florencias failure to comply with the prescriptions of the succeeding Art. 124 of the Code on the disposition of conjugal partnership property. Art. 124 states: Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to recourse to the court by the wife for proper remedy x x x. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. As to the deletion of the award of moral damages and attorneys fees, the CA, in gist, held that Metrobank did not enter into the mortgage contract out of ill-will or for some fraudulent purpose, moral obliquity, or like dishonest considerations as to justify damages. Metrobank moved but was denied reconsideration by the CA. Thus, Metrobank filed this Petition for Review on Certiorari under Rule 45, raising the following issues for consideration: a. Whether or not the [CA] erred in declaring subject property as conjugal by applying Article 116 of the Family Code. b. Whether or not the [CA] erred in not holding that the declaration of nullity of marriage between the respondent Nicholson Pascual and Florencia Nevalga ipso facto dissolved the regime of community of property of the spouses. c. Whether or not the [CA] erred in ruling that the petitioner is an innocent purchaser for value.[7] Our Ruling A modification of the CAs Decision is in order. The Disputed Property is Conjugal It is Metrobanks threshold posture that Art. 160 of the Civil Code providing that [a]ll property of the marriage is presumed to belong to the conjugal partnership, unless it be prove[n] that it pertains exclusively to the husband or to the wife, applies. To Metrobank, Art. 116 of the Family Code could not be of governing application inasmuch as Nicholson and Florencia contracted marriage before the effectivity of the Family Code on August 3, 1988. Citing Manongsong v. Estimo,[8] Metrobank asserts that the presumption of conjugal ownership under Art. 160 of the Civil Code applies when there is proof that the property was acquired during the marriage. Metrobank adds, however, that for the presumption of conjugal ownership to operate, evidence must be adduced to prove that not only was the property acquired during the marriage but that conjugal funds were used for the acquisition, a burden Nicholson allegedly failed to discharge. To bolster its thesis on the paraphernal nature of the disputed property, Metrobank cites Francisco v. Court of Appeals[9] and Jocson v. Court of Appeals,[10] among other cases, where this Court held that a property registered in the name of a certain person with a description of being married is no proof that the property was acquired during the spouses marriage. On the other hand, Nicholson, banking on De Leon v. Rehabilitation Finance Corporation[11] and Wong v. IAC,[12] contends that Metrobank failed to overcome the legal presumption that the disputed property is conjugal. He asserts that Metrobanks arguments on the matter of presumption are misleading as only one postulate needs to be shown for the presumption in favor of conjugal ownership to arise, that is, the fact of acquisition during marriage. Nicholson dismisses, as inapplicable, Francisco and Jocson, noting that they are relevant only when there is no indication as to the exact date of acquisition of the property alleged to be conjugal. As a final point, Nicholson invites attention to the fact that Metrobank had virtually recognized the conjugal nature of the property in at least three instances. The first was when the bank lumped him with Florencia in Civil Case No. 00-789 as co-mortgagors and when they were referred to as spouses in the petition for extrajudicial foreclosure of mortgage. Then came the published notice of foreclosure sale where Nicholson was again designated as co-mortgagor. And third, in its demand-letter[13] to vacate the disputed lot, Metrobank addressed Nicholson and Florencia as spouses, albeit the finality of the decree of nullity of marriage between them had long set in. We find for Nicholson. First, while Metrobank is correct in saying that Art. 160 of the Civil Code, not Art. 116 of the Family Code, is the applicable legal provision since the property was acquired prior to the enactment of the Family Code, it errs in its theory that, before conjugal ownership could be legally presumed, there must be a showing that the property was acquired during marriage using conjugal funds. Contrary to Metrobanks submission, the Court did not, in Manongsong,[14] add the matter of the use of conjugal funds as an essential requirement for the presumption of conjugal ownership to arise. Nicholson is correct in pointing out that only proof of acquisition during the marriage is needed to raise the presumption that the property is conjugal. Indeed, if proof on the use of conjugal is still required as a necessary condition before the presumption can arise, then the legal presumption set forth in the law would veritably be a superfluity. As we stressed in Castro v. Miat: Petitioners also overlook Article 160 of the New Civil Code. It provides that all property of the marriage is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to the husband or to the wife. This article does not require proof that the property was acquired with funds of the partnership. The presumption applies even when the manner in which the property was acquired does not appear.[15] (Emphasis supplied.) Second, Francisco and Jocson do not reinforce Metrobanks theory. Metrobank would thrust on the Court, invoking the two cases, the argument that the registration of the property in the name of Florencia Nevalga, married to Nelson Pascual operates to describe only the marital status of the title holder, but not as proof that the property was acquired during the existence of the marriage. Metrobank is wrong. As Nicholson aptly points out, if proof obtains on the acquisition of the property during the existence of the marriage, then the presumption of conjugal ownership applies. The correct lesson of Francisco and Jocson is that proof of acquisition during the marital coverture is a condition sine qua non for the operation of the presumption in favor of conjugal ownership. When there is no showing as to when the property was acquired by the spouse, the fact that a title is in the name of the spouse is an indication that the property belongs exclusively to said spouse.[16] The Court, to be sure, has taken stock of Nicholsons arguments regarding Metrobank having implicitly acknowledged, thus being in virtual estoppel to question, the conjugal ownership of the disputed lot, the bank having named the former in the foreclosure proceedings below as either the spouse of Florencia or her co-mortgagor. It is felt, however, that there is no compelling reason to delve into the matter of estoppel, the same having been raised only for the first time in this petition. Besides, however Nicholson was designated below does not really change, one way or another, the classification of the lot in question. Termination of Conjugal Property Regime doesnot ipso facto End the Nature of Conjugal Ownership Metrobank next maintains that, contrary to the CAs holding, Art. 129 of the Family Code is inapplicable. Art. 129 in part reads: Art. 129. Upon the dissolution of the conjugal partnership regime, the following procedure shall apply: x x x x (7) The net remainder of the conjugal partnership properties shall constitute the profits, which shall be divided equally between husband and wife, unless a different proportion or division was agreed upon in the marriage settlements or unless there has been a voluntary waiver or forfeiture of such share as provided in this Code. Apropos the aforequoted provision, Metrobank asserts that the waiver executed by Nicholson, effected as it were before the dissolution of the conjugal property regime, vested on Florencia full ownership of all the properties acquired during the marriage. Nicholson counters that the mere declaration of nullity of marriage, without more, does not automatically result in a regime of complete separation when it is shown that there was no liquidation of the conjugal assets. We again find for Nicholson. While the declared nullity of marriage of Nicholson and Florencia severed their marital bond and dissolved the conjugal partnership, the character of the properties acquired before such declaration continues to subsist as conjugal properties until and after the liquidation and partition of the partnership. This conclusion holds true whether we apply Art. 129 of the Family Code on liquidation of the conjugal partnerships assets and liabilities which is generally prospective in application, or Section 7, Chapter 4, Title IV, Book I (Arts. 179 to 185) of the Civil Code on the subject, Conjugal Partnership of Gains. For, the relevant provisions of both Codes first require the liquidation of the conjugal properties before a regime of separation of property reigns. In Dael v. Intermediate Appellate Court, we ruled that pending its liquidation following its dissolution, the conjugal partnership of gains is converted into an implied ordinary co-ownership among the surviving spouse and the other heirs of the deceased.[17] In this pre-liquidation scenario, Art. 493 of the Civil Code shall govern the property relationship between the former spouses, where: Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. (Emphasis supplied.) In the case at bar, Florencia constituted the mortgage on the disputed lot on April 30, 1997, or a little less than two years after the dissolution of the conjugal partnership on July 31, 1995, but before the liquidation of the partnership. Be that as it may, what governed the property relations of the former spouses when the mortgage was given is the aforequoted Art. 493. Under it, Florencia has the right to mortgage or even sell her one-half (1/2) undivided interest in the disputed property even without the consent of Nicholson. However, the rights of Metrobank, as mortgagee, are limited only to the 1/2 undivided portion that Florencia owned. Accordingly, the mortgage contract insofar as it covered the remaining 1/2 undivided portion of the lot is null and void, Nicholson not having consented to the mortgage of his undivided half. The conclusion would have, however, been different if Nicholson indeed duly waived his share in the conjugal partnership. But, as found by the courts a quo, the April 9, 1995 deed of waiver allegedly executed by Nicholson three months prior to the dissolution of the marriage and the conjugal partnership of gains on July 31, 1995 bore his forged signature, not to mention that of the notarizing officer. A spurious deed of waiver does not transfer any right at all, albeit it may become the root of a valid title in the hands of an innocent buyer for value. Upon the foregoing perspective, Metrobanks right, as mortgagee and as the successful bidder at the auction of the lot, is confined only to the 1/2 undivided portion thereof heretofore pertaining in ownership to Florencia. The other undivided half belongs to Nicholson. As owner pro indiviso of a portion of the lot in question, Metrobank may ask for the partition of the lot and its property rights shall be limited to the portion which may be allotted to [the bank] in the division upon the termination of the co-ownership.[18] This disposition is in line with the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do soquando res non valet ut ago, valeat quantum valere potest.[19] In view of our resolution on the validity of the auction of the lot in favor of Metrobank, there is hardly a need to discuss at length whether or not Metrobank was a mortgagee in good faith. Suffice it to state for the nonce that where the mortgagee is a banking institution, the general rule that a purchaser or mortgagee of the land need not look beyond the four corners of the title is inapplicable.[20] Unlike private individuals, it behooves banks to exercise greater care and due diligence before entering into a mortgage contract. The ascertainment of the status or condition of the property offered as security and the validity of the mortgagors title must be standard and indispensable part of the banks operation.[21] A bank that failed to observe due diligence cannot be accorded the status of a bona fide mortgagee,[22] as here. But as found by the CA, however, Metrobanks failure to comply with the due diligence requirement was not the result of a dishonest purpose, some moral obliquity or breach of a known duty for some interest or ill-will that partakes of fraud that would justify damages. WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision of the CA dated January 28, 2004, upholding with modification the Decision of the RTC, Branch 65 in Makati City, in Civil Case No. 00-789, is AFFIRMED with the MODIFICATION that the REM over the lot covered by TCT No. 156283 of the Registry of Deeds of Makati City is hereby declared valid only insofar as the pro indiviso share of Florencia thereon is concerned. As modified, the Decision of the RTC shall read: PREMISES CONSIDERED, the real estate mortgage on the property covered by TCT No. 156283 of the Registry of Deeds of Makati City and all proceedings thereon are NULL and VOID with respect to the undivided 1/2 portion of the disputed property owned by Nicholson, but VALID with respect to the other undivided 1/2 portion belonging to Florencia. The claims of Nicholson for moral damages and attorneys fees are DENIED for lack of merit. No pronouncement as to costs. SO ORDERED.

ROBERTS VS PAPIO GR NO 166714

D E C I S I O N CALLEJO, SR., J.: Assailed in this petition for review on certiorari is the Decision[1] of the Court of Appeals (CA), in CA-G.R. CV No. 69034 which reversed and set aside the Decision[2] of the Regional Trial Court (RTC), Branch 150, Makati City, in Civil Case No. 01-431. The RTC ruling had affirmed with modification the Decision[3] of the Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil Case No. 66847. The petition likewise assails the Resolution of the CA denying the motion for reconsideration of its decision.

The Antecedents The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot located in Makati (now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-44980.[4] In order to secure a P59,000.00 loan from the Amparo Investments Corporation, they executed a real estate mortgage on the property. Upon Papios failure to pay the loan, the corporation filed a petition for the extrajudicial foreclosure of the mortgage. Since the couple needed money to redeem the property and to prevent the foreclosure of the real estate mortgage, they executed a Deed of Absolute Sale over the property on April 13, 1982 in favor of Martin Papios cousin, Amelia Roberts. Of the P85,000.00 purchase price, P59,000.00 was paid to the Amparo Investments Corporation, while the P26,000.00 difference was retained by the spouses.[5] As soon as the spouses had settled their obligation, the corporation returned the owners duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts. Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-year contract of lease dated April 15, 1982, effective May 1, 1982. The contract was subject to renewal or extension for a like period at the option of the lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee was obliged to pay monthly rentals of P800.00 to be deposited in the lessors account at the Bank of America, Makati City branch.[6] On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name of Amelia Roberts as owner.[7] Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another year.[8] He then failed to pay rentals, but he and his family nevertheless remained in possession of the property for a period of almost thirteen (13) years. In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to pay the monthly rental of P2,500.00 from January 1, 1986 to December 31, 1997, and P10,000.00 from January 1, 1998 to May 31, 1998; thus, his total liability was P410,000.00. She demanded that Papio vacate the property within 15 days from receipt of the letter in case he failed to settle the amount.[9] Because he refused to pay, Papio received another letter from Roberts on April 22, 1999, demanding, for the last time, that he and his family vacate the property.[10] Again, Papio refused to leave the premises. On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a Complaint[11] for unlawful detainer and damages against Martin Papio before the MeTC, Branch 64, Makati City. She alleged the following in her complaint: Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated at No. 1046 Teresa St., Brgy. Valenzuela, Makati City.[12] Upon Papios pleas to continue staying in the property, they executed a two-year lease contract[13] which commenced on May 1, 1982. The monthly rental was P800.00. Thereafter, TCT No. 114478[14] was issued in her favor and she paid all the realty taxes due on the property. When the term of the lease expired, she still allowed Papio and his family to continue leasing the property. However, he took advantage of her absence and stopped payment beginning January 1986, and refused to pay despite repeated demands. In June 1998, she sent a demand letter[15] through counsel requiring Papio to pay rentals from January 1986 up to May 1998 and to vacate the leased property. The accumulated arrears in rental are as follows: (a) P360,000.00 from January 1, 1986 to December 31, 1997 at P2,500.00 per month; and (b) P50,000.00, from January 1, 1998 to May 31, 1998 at P10,000.00 per month.[16] She came to the Philippines but all efforts at an amicable settlement proved futile. Thus, in April 1999, she sent the final demand letter to defendant directing him and his family to pay and immediately vacate the leased premises.[17] Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April 15, 1982 Contract of Lease, and TCT No. 114478. In his Answer with counterclaim, Papio alleged the following: He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his cousin who is a resident of California, United States of America (USA), arrived in the Philippines and offered to redeem the property. Believing that she had made the offer for the purpose of retaining his ownership over the property, he accepted. She then remitted P59,000.00 to the mortgagor for his account, after which the mortgagee cancelled the real estate mortgage. However, he was alarmed when the plaintiff had a deed of absolute sale over the property prepared (for P83,000.00 as consideration) and asked him to sign the same. She also demanded that the defendant turn over the owners duplicate of TCT No. S-44980. The defendant was in a quandary. He then believed that if he signed the deed of absolute sale, Roberts would acquire ownership over the property. He asked her to allow him to redeem or reacquire the property at any time for a reasonable amount.[18] When Roberts agreed, Papio signed the deed of absolute sale.

Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property for P250,000.00. In July 1985, since Roberts was by then already in the USA, he remitted to her authorized representative, Perlita Ventura, the amount of P150,000.00 as partial payment for the property.[19] On June 16, 1986, she again remitted P100,000.00, through Ventura. Both payments were evidenced by receipts signed by Ventura.[20] Roberts then declared that she would execute a deed of absolute sale and surrender the title to the property. However, Ventura had apparently misappropriated P39,000.00 out of the P250,000.00 that she had received; Roberts then demanded that she pay the amount misappropriated before executing the deed of absolute sale. Thus, the sole reason why Roberts refused to abide by her promise was the failure of her authorized representative to remit the full amount of P250,000.00. Despite Papios demands, Roberts refused to execute a deed of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action to demand payment of rental and eject him from the property. Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura to the plaintiff wherein the former admitted having used the money of the plaintiff to defray the plane fares of Perlitas parents to the USA, and pleaded that she be allowed to repay the amount within one year; (b) the letter of Eugene Roberts (plaintiffs husband) to Perlita Ventura dated July 25, 1986 where he accused Ventura of stealing the money of plaintiff Amelia (thus preventing the latter from paying her loan on her house and effect the cancellation of the mortgage), and demanded that she deposit the balance;[21] and (c) plaintiffs letter to defendant Papio dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of P39,000.00 so that the plaintiff could transfer the title of the property to the defendant.[22] Papio asserted that the letters of Roberts and her husband are in themselves admissions or declarations against interest, hence, admissible to prove that he had reacquired the property although the title was still in her possession. In her Affidavit and Position Paper,[23] Roberts averred that she had paid the real estate taxes on the property after she had purchased it; Papios initial right to occupy the property was terminated when the original lease period expired; and his continued possession was only by mere tolerance. She further alleged that the Deed of Sale states on its face that the conveyance of the property was absolute and unconditional. She also claimed that any right to repurchase the property must appear in a public document pursuant to Article 1358, Paragraph 1, of the Civil Code of the Phililppines.[24] Since no such document exists, defendants supposed real interest over the property could not be enforced without violating the Statute of Frauds.[25] She stressed that her Torrens title to the property was an absolute and indefeasible evidence of her ownership of the property which is binding and conclusive upon the whole world. Roberts admitted that she demanded P39,000.00 from the defendant in her letter dated July 25, 1986. However, she averred that the amount represented his back rentals on the property.[26] She declared that she neither authorized Ventura to sell the property nor to receive the purchase price therefor. She merely authorized her to receive the rentals from defendant and to deposit them in her account. She did not know that Ventura had received P250,000.00 from Papio in July 1985 and on June 16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that she became aware of the receipts when she received defendant Papios letter to which were appended the said receipts. She and her husband offered to sell the property to the defendant in 1984 for US$15,000.00 on a take it or leave it basis when they arrived in the Philippines in May 1984.[27] However, defendant refused to accept the offer. The spouses then offered to sell the property anew on December 20, 1997, for P670,000.00 inclusive of back rentals.[28] However, defendant offered to settle his account with the spouses.[29] Again, the offer came on January 11, 1998, but it was rejected. The defendant insisted that he had already purchased the property in July 1985 for P250,000.00. Roberts insisted that Papios claim of the right to repurchase the property, as well as his claim of payment therefor, is belied by his own letter in which he offered to settle plaintiffs claim for back rentals. Even assuming that the purchase price of the property had been paid through Ventura, Papio did not adduce any proof to show that Ventura had been authorized to sell the property or to accept any payment thereon. Any payment to Ventura could have no binding effect on her since she was not privy to the transaction; if at all, such agreement would be binding only on Papio and Ventura. She further alleged that defendants own inaction belies his claim of ownership over the property: first, he failed to cause any notice or annotation to be made on the Register of Deeds copy of TCT No. 114478 in order to protect his supposed adverse claim; second, he did not institute any action against Roberts to compel the execution of the necessary deed of transfer of title in his favor; and third, the defense of ownership over the property was raised only after Roberts demanded him to vacate the property. Based solely on the parties pleadings, the MeTC rendered its January 18, 2001 Decision[30] in favor of Roberts. The fallo of the decision reads: WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby ordered to: 1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City; 2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to December 13, 1997 at the rate equivalent to Php2,500.00 per month and thereafter, Php10,000.00 from January 1998 until he actually vacates the premises; 3. Pay the plaintiff attorneys fees as Php20,000.00; and 4. Pay the costs SO ORDERED.[31] The MeTC held that Roberts merely tolerated the stay of Papio in the property after the expiration of the contract of lease on May 1, 1984; hence, she had a cause of action against him since the only elements in an unlawful detainer act