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G.R. No. L-32762 January 27, 1983 CRISTINA PENULLAR, petitioner, 
 vs.
 PHILIPPINE NATIONAL BANK, respondent. Teodoro T Junio for petitioner.

Antonio M. Ramos for respondent PNB. GUTIERREZ, JR., J.: The principal issue raised in this petition is whether or not the Court of Appeals, even as it sustained the trial court's finding that the titles covering the disputed parcels of land are null and void, could still declare that the mortgages annotated on those titles are valid. The Court of Appeals stated the facts of this case as follows: RESOLVING: On Appeal Civil Case No. D-894 of the Court of First Instance of Pangasinan instituted by Cristina P. Penullar against Florencio Felix et. al., for declaration of absolute nullity of judicial proceedings in which after filing of the complaint on 9 May, 1959, answer on 27 May, 1959 by the Philippine National Bank stipulation of facts on 1 February, 1967 and hearing on 11 August 1967 with only plaintiff presenting evidence purely documentary there was after that promulgated decision disposing. WHEREFORE, in view of all the foregoing the Court rules that: (1) that the proceedings made under Registration Case No. 16347 are null and void; Land

null and void; (5) that since the plaintiff has been found to be the sole and absolute owner of the properties in question, the defendants are hereby ordered to vacate the same and to surrender the possession as well as the ownership thereof in favor of the plaintiff; (6) that the defendants are required to render a true and faithful accounting of the fruits of the said properties from September 26, 1958 until the possession of the plaintiff has been restored, and to indemnify value of said products as may be found in said accounting. The defendants are likewise ordered to pay the costs of this suit. xxx xxx xxx which defendant Philippine National Bank has taken here on appeal on the errors assigned in its brief; IT APPEARING: That the antecedents are rather complicated; it will be the task of this Court to simplify; on 27 February, 1936 claiming that she was the absolute owner but that therein defendants were pretending to have an interest in the property and had intruded sometime in December, 1935, Genoveva Miguel filed Civil Case No. 7199 in the Court of First Instance of Pangasinan against Praxedes Moya et al., predecessors of herein plaintiff Cristina Penullar, for declaration of ownership over three (3) portions of agricultural land situated at Bayambang, Pangasinan; Praxedes Moya and companions presented their answer in due time Exh. A-1; while that Civil Case No. 7199 was pending, Genoveva Miguel presented formal application for registration of her title on 1 February, 1938 in land Case No. 16347; and Praxedes Moya opposed on 10 June, 1938 Exh. B-3; well then on a date which is not very clear in the records but during the pendency of both Civil Case No. 7199 and the land registration Case No. 160.47, Praxedes Moya was able to obtain free patent over the property and unto her was issued original certificate of title No. 3148 and on another parcel also was issued a free patent in the name of one Josefa Sison also one of herein plaintiff's predecessors and unto her was issued Original Certificate of Title No. 2932; in both cases, Civil Case No. 7199 and Expediente 16347 trial Judge issued order on 15 February, 1940 suspending hearing in order to give a chance to Genoveva Miguel to investigate the Original Certificates of Title No, 3148 and 2932 Exh. A-4, issuing a supplementary order on 11 September, 1940 that said cases be held in abeyance,

Until after the Department of Agriculture and Commerce pass upon the complaint that Genoveva Miguel and others have made for the cancellation or withdrawal of the free 'patent certificate issued in the name of Praxedes Moya and others. the parties shall immediately notify the Court soon after the Department of Agriculture and Commerce renders any action on said claim. 'Exh. B- 6; but nothing more happened with respect to the cancellation of the free patents; and so it was that, on 22 May, 1947 Exh. A-7 because since September 11, 1940 up to this date, the plaintiff has failed to take any steps for the prosecution of her action. trial Judge in Civil Case No. 7199 dismissed the case, without prejudice and without pronouncement as to costs, and what Genoveva Miguel instead did after that was to prosecute the registration case and after the same had been finally heard, in the absence of Praxedes Moya, et. al., the Registration Court promulgated its decision on 20 December, 1955 ordering the inscription of the properties now in question in the name of applicant Genoveva Miguel's heirs because she had died in the meantime and as the judgment afterwards became final: Genoveva Miguel or better stated her successors in interest applied for a writ of possession which was granted the Registration Court on 25 September, 1958 and it was executed by the Sheriff on 30 September, 1958 but in the words of the Sheriff, herein plaintiff successor in interest of oppositor Praxedes Moya, vehemently objected to the possession of the applicant,' and a few months after that herein plaintiff Cristina Penullar filed the present Civil Case No, T-894 for annulment of the Registration Proceeding specifically the decision rendered therein and the titles issued pursuant to that in the name of the heirs of Genoveva Miguel, namely Original Certificates No. 14242, 24244, 24240, 14238, 24313 as well as the incumbrance by way of mortgage constituted by the said adjudicatees in favor of the Philippine National Bank, on the Position that the lands having already been registered, although by way of free patent, the

(2) that all the titles issued by the Land Registration Court pursuant to the said Land Registration proceedings, as well as all Certificate of Title flowing from the said original title are null and void; (3) that the land covered by this case are the registered properties of the plaintiff over which she holds an irrevocable and indefeasible title over the same; (4) that the writ of possession issued by the land registration court on 26 of September 1958 in connection with Land Registration Case No. 16347 is

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50). a credit institution. In its appeal to the Court of Appeals. the Philippine National Bank maintained its position that it was a mortgagee in good faith. II THE COURT OF APPEALS ERRED IN ADJUDICATING RESPONDENT'S APPEAL UPON AN ISSUE NOT RAISED IN THE PLEADINGS BEFORE ITSELF NOR BEFORE THE TRIAL COURT. The main issue centers on the ruling of the Court of Appeals' sustaining the validity of the mortgages in favor of the respondent Philippine National Bank. stated otherwise there can be no denying the fact that the Bank was made to rely and had the right to rely upon regular certificates of title first presented to it by the 2 . 39-40).. absolutely no showing.40-41) which in turn led the respondent Philippine National Bank to file a Reply to the Opposition. 18. III THE COURT OF APPEALS ERRED IN RESORTING TO PALPABLY UNTENABLE THEORIES AND POSTULATES TO JUSTIFY ITS DECISION. in the ordinary course of business. to file an Opposition thereto. against this. in the third Assignment of Error of its brief filed before the appellate court. The petitioner's arguments have no merit. not only this. filed the instant petition. (Record on Appeal. now in resolving this question let it be granted that there is clear logic in the position of appellees that the titles of the heirs of Genoveva Miguel mortgagors to Philippine National Bank having been declared void. The record on Appeal filed by the Philippine National Bank shows that in the Answer of the bank." Furthermore.. pp. under the facts obtaining in the case was not justified in ruling that respondent Philippine National Bank's mortgages were valid. (Record on Appeal. she argues that to validate the mortgages annotated in the void titles of Philippine National Bank's co-defendants but never annotated in her torrens titles would in effect revalidate the void titles to co-exist with her valid title.. regular and in due form. 24) Moreover. Thus. but trial Judge after hearing the case held for Cristina Penullar successor in the interest of Praxedes Moya and Josefa Sison and annulled the titles issued pursuant to the decision of the Land Registration Court in favor of the successors in interest of Genoveva Miguel.. and 2.. there was as yet no decision declaring the titles of the mortgagors null and void..' In all other respects. PP. the fact of the matter is that the Bank relief upon regular Torrens Titles issued pursuant to a regular judgment of the registration Court: there is no showing. on the theory that a mortgage is but an accessory contract. respondent Philippine National Bank on the very theory that it was a mortgage in good faith filed a Motion to Dismiss the case as against it. A to 0. The petitioner considers the ruling of the Court of Appeals inconsistent because according to her no valid lien could emanate from a void title. rollo) Not satisfied with the modified decision. and it is to be stated that the fact of this constitution of the mortgages in favor of the Philippine National Bank by the said adjudicatees successors in interest of Genoveva Miguel does not appear to be debated.. for it is like the branch of a dead tree so to speak but the trouble is that cases cannot be decided upon pure logic. that the Court of Appeals did not have a basis to rule on the matter since the issue of the Philippine National Bank as a mortgagee in good faith was never raised before the trial court and the Court of Appeals.ñët The same motion prompted the petitioner plaintiff in the trial court." (Record on Appeal. Serafina Gascon relying on their titles which appeared to be genuine. Philippine National Bank in its answer p. who were the parties that afterwards had secured the mortgages from the Bank.. The petitioner maintains that her torrens title should not answer for the same mortgages since the latter were not annotated considering the "fundamental principle of registration that Torrens titles are affected only by the encumbrance registered and annotated in said titles. The respondent Court of Appeals modified the appealed decision to the effect . is an innocent purchaser having granted loans to Maximo Alejo. The petitioner contends: 1. p.. 31-34) And this motion was subject to another URGENT MOTION for Resolution filed by respondent Philippine National Bank (Record on Appeal. issued in due course and regular on their face. the declaration of nullity of the titles of the heirs of Genoveva Miguel due to the fact that there had already been free patents issued in the name of plaintiff's predecessors Praxedes Moya and Josefa Sison came in only much later and in fact as of the time when these mortgages were accepted by the Bank.A.titles in the names of Praxedes Moya and Josefa Sison. the Philippine National Bank adequately discussed its being a mortgagee in good faith. that the Bank was made specifically aware of the fact that the very property already covered by the free patents were only afterwards adjudicated to and Torrens Titles issued in the name of the heirs of Genoveva Miguel. . 48. The Court of Appeals fully explained the reasons why the mortgages annotated in the void torrens titles should be considered valid. (Record on Appeal pp. in good faith and for valuable consideration. submitted as special defense that it was an innocent mortgagee for value having granted loans to the adjudicatees in the registration case namely Maximo Alejo. there was alleged the special defense . The petitioner assigns the following errors: I THE COURT OF APPEALS ERRED IN HOLDING AS VALID THE MORTGAGES NEVER ANNOTATED IN PETITIONER'S TITLES BUT IN THE VOID TITLES OF RESPONDENT'S CO-DEFENDANTS. plaintiffappellee Cristina Penullar filed a motion for reconsideration and when the motion was denied by the respondent court. . that the mortgages in favor of Philippine National Bank attacked by plaintiff are hereby declared valid.. the decision of the lower court was affirmed. Filomeno Domingo. that the Philippine National Bank.1äwphï1.. The second proposition covered by the first and third assignments of errors is premised on the following arguments: Since the torrens titles wherein respondent Philippine National Bank's mortgages were annotated were declared void. predecessors in interest of Cristina Penullar became an absolute bar against posterior registration and in the trial of the case plaintiff submitted her case on the basis of aforementioned documentary proofs constituting of Exhs. p. necessarily the same mortgages annotated in the said torrens title should also be declared void. on the principle that the rights of Philippine National Bank being dependent upon those void titles. Thus: . The first proposition is without merit. 23 R. and to Filomeno Domingo and Serafina Gascon . under the security of Torrens Title issued to the borrower and relying on the fact of the same which appeared to be genuine. Philippine National Bank should not be permitted to pretend that its mortgages should be considered a valid encumbrance upon the property. (Annex " D ". pp.

Indeed. Domingo Cayabyab. on Dec. Esquierdo. 43. by Lot No. We agree with the invocation by the Court of Appeals 3 . and every subsequent purchaser of registered land who takes a certificate of title for value in good faith. by Lot No. 1060). 14240 issued in the name of the same Maximo Alejo reads: 4. Being thus an innocent mortgagee for value. Abache (73 Phil. [101 4838. in our opinion. on the Southeast. Surveyed under authority of Sections 41. innocent third persons. Lot No. its right or lien upon the land mortgaged must be respected and protected. A parcel of land (Lot No. by properties of Faustino Pinto and Filemon Padua. Adjudicated in favor of Maximo Alejo. 8822 has the following technical description of the land it covers: A parcel of land Plan F-61451..807 square meters. by property of Gregorio de Leon & Domingo Rodriguez (before) Onofre Sison Abalos (now). Section 39 of Act No.cited cases. A parcel of land (Lot No. And this is contrary to the evident purpose of the law. the respondent Bank was not duty bound to further investigate the validity and/or invalidity of the torrens title. by property of Flaviano Junio and on the NW. 5 of plan Psu-103094. (110 Phil. Lot No. Containing an area of ONE HUNDRED FIVE THOUSAND TWO HUNDRED SEVENTY EIGHT (105. A parcel of land (Lot No. Adjudicated in favor of Florencio Felix. or justify a finding that it acted in bad faith. by properties of Flaviano Junio and Vicente Castillo. Area 27. In Director of Lands v. Madrid. which phrase. Area 14. 1 of Plan Psu-30431-Amd. The trial court. 2. et. by Lot No. Area 26. (Rollo. Islands of Luzon. An examination of the technical descriptions of the parcels of land covered by the three subject torrens titles shows that they are different from each other and there is no way for a reader to detect that the void torrens titles covered the same parcels of land in Transfer Certificate of Title No. Gaz. there is nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud. by Lot No. for everyone dealing with property registered under the Torrens System would have to inquire in every instance as to whether the title has been regularly or irregularly issued by the court. Ayroso 95 Phil. 1-B of Plan Psd 8364.. . There was nothing in the torrens titles which would excite suspicion that the same were fraudulently processed by the mortgagors. by Vecinal Road (before) heirs of German Maramba (now). the principles enunciated in the afore.. the court cannot disregard such rights and order the total cancellation of the certificate. and Lot No. Joaquin vs. by properties of Maximiano Felix and Heirs of Martin Palisoc. and on the Northwest by Lot No. vs. according to sec. plan Psu103094). 2 of plan Psu37494 vs. 496 provides that every person receiving a certificate of title in pursuance of a dectree of registration. Private Land Surveyor. Province of Pangasinan.. The effect of such an outright cancellation would be to impair public confidence in the certificates of title. situated in the barrio of Pant-at Municipality of Bayambang. the certificate of title was in the name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank. 606) the principal issue hinged on whether or not the mortgage lien annotated on the torrens title which was declared null and void should likewise be ordered null and void. on the SE. et al. 3. on the Southwest. et al. The only question for determination is whether the defendant bank is entitled to the protection accorded to 'innocent purchasers for value'. a predecessor-in-interest of the petitioner and second. 2 of plan Psu 30431 Amd. 185. 2874 and in accordance with existing regulations of the Bureau of Lands by Pedro Terrado. is not here in question. 1. 24313 issued in his name reads: 1. (De Lara. the same having been secured thru fraud.. We said: Where. 17. Bounded on the NE. previously mortgaged to the respondent Bank. 3. that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property . 2. by property of Josefa Sison de Mananzan. made no finding that the defendant mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa Esquierdo.463 square meters. Bounded on the Northeast by Lot No. on the SE. the mortgagor in the other mortgage in favor of respondent Philippine National Bank. by lot No. as mortgagee. The assertion that the Philippine National Bank could not be an innocent mortgagee in good faith considering that the same parcel of land covered by the invalidated titles was previously mortgaged by: first. and NW. Thus. Act No. shall hold the same free of all encumbrance except those noted on said certificate. square meters more or less. 8822 to the respondent Philippine National Bank is not well-taken. On the other hand.Bounded on the N. 38 of the Land Registration Law. the said defendant bank. Transfer Certificate of Title No. however. 50 Off. which description necessarily must have been inscribed on Transfer Certificate of Title No. Applying. Plan Psu-103094). 17-18) The foregoing findings and conclusions of the respondent Court are sustained by rulings in precedent cases.. by property of Gregorio de Leon & Domingo Rodriguez (before) Onofre Sison Abalos (now). Adjudicated in favor of Florencio Felix. therefore. al.mortgagors. Such being the case. the Philippine National Bank relied on the torrens titles of the mortgagors which had been regularly issued. on the SW.278).870 square meters. the technical description of the parcel of land awarded to Maximo Alejo. Resolving a similar issue in Blanco. Bounded on the NE: by property of Gregorio de Leon & Domingo Rodriguez before Onofre Sison Abalos (now). 1933. plan Psu-103094). was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the fact of said certificate. and do so now. The technical description of the parcel of land awarded to Filomeno Domingo. 495) this Court ruled: That the certificate of title issued in the name of Fructuosa Esquierdo (mortgagor) is a nullity. pp. mortgagor in one of the subject mortgages in favor of the respondent Bank. includes an innocent mortgagee for value. and on the SW. On the other hand. . The torrens titles were the result of regular land registration proceedings duly registered with the Register of Deeds. v. 106 Phil. 8822. and on the NW. had the right to rely on what appeared in the certificate and. in the absence of anything to excite suspicion. on the SW. acquire rights over the property. relying on the correctness of the certificate of title thus issued. must be answered in the affirmative. The question. by the petitioner herself under Transfer Certificate of Title No. and Lot No. We have heretofore emphasized. on the NE. 2. 2. 1. which appears in the writ of possession issued by the cadastral court in the voided land registration proceedings and which necessarily must have been included in the Original Certificate of Title No. on the SE. even if the mortgagor obtained her title thereto thru fraud. In the instant case. 1-B of plan Psd 8364. et al. in the decision complained of. and S.

The arguments are not well-taken. was fully aware of the subject land registration proceedings. WHEREFORE. Jose M. 1955 copy of the Notice of Hearing as evidenced by Registry Return Card of registered letter No. July 23.L. G.. xxx xxx xxx Copy of this Decision were (sic) sent by registered mail to Atty. Garcia. SO ORDERED. Case 16347. dated July 11. 16347 on page 151. Record No. setting the trial for October 6. parcels of land and that nobody notified petitioner or her predecessors of the revival of the void subsequent registration proceedings. 1955. Jose M. and. 16347.of the principle of equity: .. The petitioner argues that neither she nor her predecessors could have appealed the decision in the land registration proceedings because: 1) her predecessors were already dead at the time of the promulgation of the decision. and had appealed from the decision in the registration case. the petitioner did not only succeed to the rights and interests of her predecessor-in-interest but she was also bound to recognize the liens and/or encumbrances attached to the subject parcels of land which by law are considered to be valid though not inscribed in the torrens title of that land. 1956 as evidenced by Registry Return Card of Registered Letter No. 1955. which was received by counsel for Praxedes Moya Atty. 55-56) xxx xxx xxx As successor-in-interest. The petitioner cannot invoke her relationship with her predecessor when it is to her advantage and yet disclaim the effects of said relationship on exactly the same subject matter when it is to her disadvantage. Costs against the petitioner. 119 attached to the records of Registration Case No. 39 attached to the Record of Registration Case No. From the stipulation of the Facts" alone. petitioner's predecessors for "declaration of ownership 'over the subject. Record 52435 making the following adjudication . 118. page 153 of the Records of Registration Case No. 52435. (8) Copy of this Notice of Hearing was sent by registered mail.L. 7199 filed by respondent's co-defendant against.O. 524 35. did not even as early as possible. 138. and 4) petitioner's predecessor had the right to rely on the dismissal of Civil Case No. furnished to her by registered letter which she received on January 30. (See minutes of October 6. on July 22. G. 16347. 1955. the certificate of title to be issued. (12) Praxedes Moya. " (Record on Appeal pp. (9) Praxedes Moya herself received or. 1955. Records No.. (10) On December 20.. The records show that Praxedes Moya. on page 179. was also notified of this decision. 1956 as evidenced by Registry Return Card of Letter No. 4 . 16347. it was their negligence that permitted said adjudicatees in the said registration case to apply for and secure mortgages from the Bank. 118 attached in the Record of the said registration case on page 148. if there be any doubt as to the correctness of this solution this court might as well invoke the principle that where one of two innocent parties must have to suffer due to the act of a third person. the Court rendered its decision in said Reg. that is to say herein plaintiff had only been diligent. instead they let the decision in the registration case gain the status of finality. the extent of her knowledge can be gleaned Thus: xxx xxx xxx (7) That Notice of Hearing of the Registration Case No. the decision appealed from is hereby affirmed. on page 187. Garcia.substitution as party to the subject land registration proceedings. predecessor-in-interest of the petitioner. in the present case if 'he heirs of Genoveva Miguel.R. herself. counsel for Praxedes Moya who received it on January 27. attached to the record of this registration Case 16347. allowed without prior protest. 3) petitioner's predecessor Praxedes Moya who was aware of the land registration proceedings had the right to rely on the previous suspension of the land registration proceedings. annotate an adverse claim on the "titles. 1955 was issued by the Court. he whose negligence had caused the damage should be made to bear the loss. as evidenced by Registry Return Card of letter No. and 2) she was not substituted as a party nor was she aware of said registration proceedings.R. no certificate of Title would have been issued just like that in the name of the heirs of Genoveva Miguel and no mortgage could have been constituted by them in favor of Bank but as it is. said successors of Praxedes Moya and Josefa Sison failed to do that.O. This is the principle which the Court of Appeals took into consideration when it ruled that the negligence of petitioner's predecessorin-interest was binding upon the petitioner herself notwithstanding her non. and they filed this case only several months afterwards. under Registered letter No.

It appears that after the execution of this instrument. this time signed her name below the annotation. DE REYES. Filipino. This act. Lanuza and his wife mortgaged the same house in favor of Martin de Leon to secure the payment of P2.. owned by the Consolidated Asiatic Co. Vendee In short.G. and residing at 1112 Antipolo St. 292. s/t RODOLFO LANUZA Vendor s/t AURELIA REYES Vendee When the original period of redemption expired. Navarro. 
 RODOLFO LANUZA. therefore. Maria Bautista Vda. such failure to sign. Maria Bautista Vda. 1961 by an annotation to this effect on the left margin of the instrument. On January 12. 1961 and recorded in the Office of the Register of Deeds of Manila on November 8. 1961 under the provisions of Act No. together with the leasehold rights to the lot. 12 of the Maria Guizon Subdivision.000. 
 MARIA BAUTISTA VDA. intervenor-appellant. REGALA.000.: Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria Guizon Subdivision in Tondo. de Reyes. Erasmo R. 3344. owned by said company. New Civil Code of the Philippines. of legal ages. administrators. wife of the vendor a retro. R. however. Gonzales. In confirming the ownership of Reyes and Navarro in the house and the leasehold right to the lot. and. dated January 12. under the by Reyes and Navarro on the ground that the unrecorded pacto de retro sale could not affect his rights as a third party. 1961. who did not sign the deed. Manila. 1961. and frigidaire "Kelvinator" of nine cubic feet in size. de Reyes. Salas for vendees-petitionersappellees. (Article 1396.00) which I have received this day from Mrs.R.00. vendees-petitioners-appellees. married to Jose S. Cruz and C. within the stipulated period of three months. a television set and a refrigerator in consideration of the sum of P3. As the Lanuzas failed to pay their obligation. and assigns. Tondo. Hence. secured a discharge of the mortgage on the house in favor of a rural bank by paying P2.000. the parties extended it to July 12. we have signed this contract in the City of Manila. The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based and submitted the case for decision.. to the mind of the Court. administrators and assigns said house. and Aurelia Reyes. widow. Manila. successors. which ratification validated the act of Rodolfo Lanuza s/t MARIA BAUTISTA VDA. my right to repurchase the said properties shall be forfeited and the ownership thereto shall automatically pass to Mrs. CEDE. vendor. Consequently.ñët IN WITNESS WHEREOF. De Leon immediately took possession of the house. I hereby SELL. and assigns the right to repurchase the above mentioned properties for the same amount of P3. DE REYES from the moment of the execution of the said contract. No. On the other hand. 1962 a petition for the extra-judicial foreclosure of the mortgage. NAVARRO might have had from the moment of its execution. succesors. in effect. 1967 following conditions: I hereby reserve for myself. — as evidenced by the attached Receipt No. 52 Phil. Tondo. that the vendors a retro continued in the possession of the property in question cannot justify an outright declaration that the sale should be construed as an equitable mortgage and not a sale with right to repurchase. administrators. Gagalangin. my heirs. the court said: It is true that the original deed of sale with pacto de retro. was not signed by Belen Geronimo-Lanuza. J. That for and in consideration of the sum of THREE THOUSAND PESOS (P3. it is argued that the same cannot form the basis for a judicial petition for consolidation of title over the property in litigation. The petition for consolidation of ownership was filed on October 19. married to Belen Geronimo. it is to be noted that while it is true that the original contract of sale with right to repurchase in favor of the petitioners (Annex "A" Stipulation) was not signed by Belen Geronimo-Lanuza.00. The terms of the deed of sale with right to repurchase (Annex "A" Stipulation) relied upon by the 5 .720 within one year. Lanuza executed a document entitled "Deed of Sale with Right to Repurchase" whereby he conveyed to Maria Bautista Vda. her heirs. It appears. however. hereby declare that I am the true and absolute owner of a new two storey house of strong materials. Manila. successors. the subsequent ratification of the said contract by Belen Geronimo-Lanuza validated the said contract even before the property in question was mortgaged in favor of the intervenor. This mortgage was executed on October 4. without any Court intervention.
 Augusto J. ET AL. which the spouses leased from the Consolidated Asiatic Co.1äwphï1. Navarro the house. 
 vs. Pascual for intervenorappellant. if at all. made the contract merely voidable. If I fail to pay said amount of P3. on October 29. The mere fact. this 12th day of January. Filipinos.000 and. de Reyes and Aurelia R. constructed on a rented lot — Lot No. the house was sold to De Leon as the only bidder at the sheriffs sale. RODOLFO LANUZA. constitutes ratification or confirmation of the contract (Annex "A" Stipulation) by Belen Geronimo-Lanuza. Lanuza's wife. and residing at 783-D Interior 14 Maria Guizon. her heirs. Belen Geronimo-Lanuza signed giving her approval and conformity. and the plan of the subdivision. within the stipulated period of three (3) months from the date hereof. On October 23. TRANSFER. such ratification had the effect of purging the WITH MY MARITAL CONSENT: contract (Annex "A" Stipulation) of any defect which it s/t JOSE S. of legal age. Filipino. Rodolfo Lanuza. that on the occasion of the extension of the period for repurchase to July 12. AND CONVEY unto said Maria Bautista Vda. L-22331 June 6. of legal age. de Reyes. at the time of its execution. 1961. and also my television. intervened in court and asked for the dismissal of the petition filed IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE RIGHTS TO A LOT. Tang Ah Chan and Kwong Koon vs. 180) Again. The deed reads: DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS: That I. This argument is based on the fact that the vendors a retro continued in possession of the property after the execution of the deed of sale with pacto de retro. and they can take possession of the same. De Leon filed in the sheriff's office on October 5. 1961.000.
 MARTIN DE LEON. Reyes and Navarro followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of ownership of the house on the ground that the period of redemption expired on July 12. without interest. It is also contended by the intervenor that the contract of sale with right to repurchase should be interpreted as a mere equitable mortgage. susceptible of ratification. 1961 without the vendees exercising their right of repurchase. including my right to the lot on which it was constructed.

New Civil Code. It is obvious. in favor of intervenor (Annex "B" Stipulation). This is clear from article 173 of the Civil Code which gives the wife ten years within which to bring an action for annulment. C. 1961." Needless to say. Consequently. Article 1544 of the New Civil Code. The gross inadequacy of the price. "Kelvinator of nine cubic feet in size. first. better in right. have the power to extend the period of repurchase. they were no longer the absolute owners of the property since the same had already been sold a retro to the petitioners. De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact that." The failure to highlight this point. 3344 would. being unrecorded. We refer to the nature of the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality an equitable mortgage. therefore. in such case. that no other instrument was executed between the parties extending the period of redemption. This provision of law. extended as requested until July 12. Registration of the mortgage under Act No. which was very much ahead in point of time to the execution of the real estate mortgage on October 4. The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason that while the real estate mortgage in his favor (Annex "B" Stipulation) has been registered with the Register of Deeds of Manila under the provisions of Act No. xxx xxx xxx executed by one who is not the owner of the property mortgaged is without legal existence and the registration cannot validate. the petition for consolidation of ownership is limited to the house and the leasehold right.These circumstances are: 1. the supposed vendors (the Lanuzas) remained in possession of the thing sold and.000. it appears. xxx xxx xxx In the present case. These are circumstances which indeed indicate an equitable mortgage. either principally or subsidiarily (art. 1961. when the three-month period of redemption expired the parties extended it. and (3) that at any rate the sale. has not been duly registered. second. the purchasers a retro. the supposed vendors "sold" not only their house. 3344 does not prejudice the interests of the petitioners who have a better right over the property in question under the old principle of first in time. that when the mortgagors. A mortgage 6 . he has not demonstrated his point. while the stipulation of facts of the parties merely referred to the object of the sale as "the property in question. 1961. therefore.) For a valid mortgage to exist. however. 1602. 1397). In the discussion in the briefs of the parties as well as in the decision of the trial court. What was done was simply to annotate on the deed of sale with right to repurchase (Annex "A" Stipulation) that "the period to repurchase. We also agree with the lower court that between an unrecorded sale of a prior date and a recorded mortgage of a later date the former is preferred to the latter for the reason that if the original owner had parted with his ownership of the thing sold then he no longer had the ownership and free disposal of that thing so as to be able to mortgage it again.petitioners must be considered as merely an equitable mortgage for the reason that after the expiration of the period of repurchase of three months from January 12.G. therefore. (Gallardo vs. "(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed. The contract shall be presumed to be in equitable mortgage. neither has he pursued the logical implication of his argument beyond stating that a petition for consolidation of ownership is an inappropriate remedy to enforce a mortgage. in the exercise of their freedom to make contracts. 497). We are in accord with the trial court's ruling that a conveyance of real property of the conjugal partnership made by the husband without the consent of his wife is merely voidable. ownership of the property mortgaged is an essential requisite. the same is sufficient for the purpose of transferring the rights of the vendors a retro over the property in question in favor of the petitioners.. (Umale vs. 1961.3 But there is one aspect of this case which leads us to a different conclusion. While De Leon raised the question below and again in this Court in his second assignment of error. 46 O. Fernandez. Furthermore. (Article 2085. (2) that the pacto de retro sale is in reality an equitable mortgage and therefore can not be the basis of a petition for consolidation of ownership. the gross inadequacy of the price paid. Such extension is valid and effective as it is not contrary to any provision of law. Gallardo. Rocha. cannot affect third parties.4 But their relevance emerges only when they are seen in the perspective of other circumstances which indubitably show that what was intended was a mortgage and not a sale. (Philippine National Bank vs. the mere registration of the property mortgaged in favor of the intervenor under Act No. 93) The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public document. that is.2 Nor would it avail the mortgagee any to assert that he is in actual possession of the property for the execution of the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold to the vendee. is not applicable to the present case which does not involve sale of the same property to two or more vendees. refers to the sale of the same property to two or more vendees.000. 3344 on November 3. accounts for the error in determining the true agreement of the parties to the deed. so that if there was anyone who could have questioned the sale on this ground it was Lanuza's wife alone. the deed of sale with right to repurchase (Annex "A" Stipulation) however. in any of the following cases. 1961. be of no moment since it is understood to be without prejudice to the better right of third parties. The spouses Lanuza. 89. As such it can be ratified as Lanuza's wife in effect did in this case when she gave her conformity to the extension of the period of redemption by signing the annotation on the margin of the deed. which they described as new and as being made of strong materials and which alone had an assessed value of P4. We may add that actions for the annulment of voidable contracts can be brought only by those who are bound under it. The non-transmission of ownership to the vendees. could no longer constitute a valid mortgage over the property inasmuch as they did not have any free disposition of the property mortgaged. contending (1) that the sale in question is not only voidable but void ab initio for having been made by Lanuza without the consent of his wife." indeed. It is to be noted that the deed of sale with right to repurchase (Annex "A" Stipulation) was executed on January 12. Article 1602 of the New Civil Code provides: "ART.B. however. executed the real estate mortgage in favor of the intervenor. 5568) De Leon appealed directly to this Court. 55 Phil. Rodolfo Lanuza and Belen Geronimo Lanuza. the fact has not been mentioned that for the price of P3. It is a point which neither the parties nor the trial court appear to have sufficiently considered. but also their leasehold right television set and refrigerator. 2. 28 Phil.

and the registered mortgage of De Leon. Preference of mortgage credits is determined by the priority of registration of the mortgages. 1962 for the extra-judicial for closure of his mortgage. being contrary to the provisions of article 2088 of the Civil Code.5 Indeed.The Lanuzas. the equitable mortgage. The delay in the filing of the petition for consolidation.000. Maria Bautista Vda. what the parties established by this stipulation is an odious pactum commissorium which enables the mortgages to acquire ownership of the mortgaged properties without need of foreclosure proceedings. the supposed vendors did not really transfer their ownership of the properties in question to Reyes and Navarro. Costs against Reyes and Navarro. Thus. 1962 and only after De Leon had asked on October 5. Under these circumstances we cannot but conclude that the deed in question is in reality a mortgage. This conclusion is of far-reaching consequence because it means not only that this action for consolidation of ownership is improper. without any Court intervention and they can take possession of the same.6 Its insertion in the contract of the parties is an avowal of an intention to mortgage rather than to sell.00 within the stipulated period of three months. In fact the emphasis is on the vendors payment of the amount rather than on the redemption of the things supposedly sold. de Reyes . what is more that between the unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage. the latter must be preferred. Needless to say. Wherefore. the decision appealed from is reversed. the deed recites that — If I (Lanuza) fail to pay said amount of P3. the petition for consolidation is dismissed. 7 . . 1961 and yet this action was not brought until October 19.000. the Lanuzas remained in possession of the properties they were supposed to have sold and they remained in possession even long after they had lost their right of redemption. cannot prevail over the registered mortgage of De Leon. my right to repurchase the said properties shall be forfeited and the ownership thereto automatically pass to Mrs. while valid between Reyes and Navarro. All the while. such a stipulation is a nullity. subject only to the vendor's right of redemption. What was agreed was that ownership of the things supposedly sold would vest in the vendees only if the vendors failed to pay P3.)9 Under article 2125 of the Civil Code. and the Lanuzas. as the immediate parties thereto. . Still another point obviously overlooked in the consideration of this case is the fact that the period of redemption expired on July 12. This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires ownership of the thing sold immediately upon execution of the sale. on the one hand. on the other.7 3. but.8 following the maxim "Prior tempore potior jure" (He who is first in time is preferred in right. as De Leon claims. hence.

plus the accrued interest thereon and the expenses occasioned by the auction sale. That said instrument of sale shall not be executed until after the expiration of thirty (30) days from the dated of the auction sale. El Hogar Filipino consented to the constitution of the second mortgage in favor of the Philippine National Bank on condition that it be considered subordinate to the first mortgage constituted in favor of the former. 
 vs. 158 and 14 of the cadastre of Victorias. the lots sold were adjudicated to it for the amount of its credit of P39. which notation was agreed to by El Hogar Filipino provided it was made to appear that it was merely taken from the original certificate of the title. This mortgage was duly registered and noted in the corresponding certificates of title. constituted a second mortgage on his 3/4 share of said lots in favor of the Philippine National Bank. El Hogar Filipino declared due. minus the withdrawal value of his shares. said mortgaged lots in order to apply the proceeds to the payment of its credit. However. Notwithstanding said opposition. The borrowers hereby give and confer upon the eventual manager of the Association sufficient and irrevocable power so that. inasmuch as the credit of El Hogar Filipino has absorbed the entire proceeds of the sale. on June 6. as shown by the fact that El Hogar consented thereto provided it was made to appear that the annotation was merely taken from the debtors' certificates of title. Brady and Ponce Enrile for appellant. El Hogar Filipino having been the highest bidder at said sale. rendered judgment denying the petition of El Hogar Filipino and from said judgment an appeal was taken to this court. and upon publication of notices in a newspaper of general circulation in this city once a week for three (3) consecutive weeks. EL HOGAR FILIPINO. representing their indebtedness to El Hogar Filipino. The sale in debtors and said lots should thereafter be considered extinguished in so far as they secured the payment of the credit of the Philippine National Bank. Cecilia Magalona and Robustiano Magalona constituted a first mortgage on lots Nos. Mutual Building and Loan Association. Occidental Negros. the Philippine National Bank was notified thereof. That if within said period of thirty (30) days from the date of the auction sale. the borrower should pay to the Association the full amount of his indebtedness on that date. alleging that. it had one year within which to redeem the lots. fourth. with interest thereon at 9 per cent per annum. Lacson for appellee. by reason of the second mortgage constituted in its favor which was accepted by it as subordinate to the first mortgage in favor of El Hogar Filipino. further. and twentyfirst clauses of this instrument. The bank's claim that the second mortgage in its favor stands to the prejudice of the purchaser is untenable. C. Serafin Novella filed a petition to intervene on April 6. Serafin Novella. before the notary or auctioneer designated by the board of directors. 194. When said document was presented to the office of the register of deeds for the cancellation of the titles to said lots and the issuance of new certificates in favor of El Hogar Filipino. into a second mortgage.G. petitioner-appellant. the Philippine National Bank opposed. oppositor-appellee. seventeenth. The fact that El Hogar tolerated the annotation of the bank's second mortgage on the transfer certificates of title in its name is of no avail. L-43459 and 43460 1937 August 11. Occidental Negros. thirteen. Nos. The above-quoted tenth clause of the contract being valid (El Hogar Filipino vs. under the law. Thirty days after the auction sale had been made. The Philippine National Bank. to secure the payment of the sum of P28. In this instance. would practically be to convert the second mortgage. as agent of the borrower. After the sale had been made. however. the eventual manager of the Association being likewise vested with irrevocable power. AVANCEÑA. the mortgage in favor of the bank was in fact extinguished with it because it cannot be enforced by said bank beyond the total value of the mortgaged lots.
 Roman J. constituted in favor of El Hogar Filipino. Such is the legal effect of the mortgage. in case the debt hereby acknowledge should become due by reason of the nonfulfillment by the borrower of any of the obligations stated in the second. the expenses for the execution of said instrument of cancellation being for the account of the borrower. 1949. 1780. the validity of the sale made strictly in accordance therewith cannot be questioned.R. and the credit thereof having become demandable.: On November 5. The Novellas and Magalonas having violated the contract. the corresponding deed of sale was issued in favor of El Hogar Filipino. 1930. as second creditor.063. Mutual Building and Loan Association. constituted in favor of the Philippine National Bank. into a first mortgage.J. cannot oppose such effect. upon resolution of the board of directors declaring that the Association has chosen to make use of its right to consider the borrower's debt due. and on lots Nos. particularly because. sixteenth. Mercedes Novella. Perkins. Consequently. Aside from the right of repurchase. Serafin Novella. The court. Subsequently. Before the auction sale of the lots in question was carried out. such being the effect of the subordination of its mortgage to that of the latter. he may proceed with the extrajudicial sale at public auction of the mortgaged property. DeWitt. to execute the corresponding deed of sale in favor of the highest bidder at the auction. El Hogar Filipino brought these two actions in the Court of First Instance of Occidental Negros to have the court declare the mortgage lien in favor of the Philippine National Bank extinguished and order the register of deeds to cancel the annotation of said mortgage in favor of the Philippine National Bank on the transfer certificates of title issued in favor of El Hogar Filipino. never made use of its right of repurchased to this date.
 THE PHILIPPINE NATIONAL BANK. 1937. however. Provided. The Philippine National Bank. the security in favor of said bank. By virtue of the mortgage constituted in favor of the El Hogar Filipino. 45 Phil.. the Philippine National Bank's only right under the mortgage constituted in its favor would be to apply to the payment of its credit the excess of the proceeds of the sale after the payment of that of El Hogar Filipino. twelfth. as the repurchaser in this case is the first mortgages. eleventh. it was likewise notified for the purposes of its right of repurchase. and proceeded with the auction sale of the mortgaged lots strictly in accordance with the conditions set forth in the above-quoted tenth clause of the mortgage deed. the documents was registered with a notation of the mortgage in favor of the Philippine National Bank. was in fact extinguished thereby. as to them. the lots passed to the repurchaser free from the mortgage in favor of the bank.000. fifth. after the case had already 8 . Paredes. 817 and 706 of the cadastre of Saravia. Therefore. the auction sale shall be of no effect and the representatives of the Association shall execute the corresponding instrument of cancellation of the mortgage constituted hereby. And provided. The deed of mortgage contains the following clause: TENTH.71. and the first mortgage. after due trial. 700. it being clear that El Hogar's consent to this effect was not an admission of the existence of the bank's second mortgage but merely a compromise with the bank's claim that it was still timely for the latter to redeem the lots sold.

ante). As said petition was not filed on time. it should be denied (Felismino vs. 464. Jugo. and the second mortgage constituted on the lots in question in favor of the Philippine National Bank is ordered cancelled. p. 967. 47 Phil.been submitted. De Borja vs. Gloria.. 9 . the appealed judgment is reversed. So ordered. For the foregoing considerations. without special pronouncement as to costs.

Pangasinan. in turn.700. Cuba executed two Deeds of Assignment of her Leasehold Rights.. 1982. Branch 54. After the joinder of issues following the filing by the parties of their respective pleadings.000. a new Fishpond Lease Agreement No. Dagupan City dated November 6. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba. vs. title. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1. No. to dispose of the property. 13.00. Without foreclosure proceedings. P109. CUBA. 6. 1984. 1984. 2083-A dated March 24. 2. Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order. whether judicial or extrajudicial. 1998] 11. 2083 (new) dated May 13. defendant DBP took possession of the Leasehold Rights of the fishpond in question. and interests over a 44-hectare fishpond located in Bolinao. defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question. [G. which were embodied in the pre-trial order:[2] 1. and (5) the recovery of damages. she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale. 1974 from the Government. DBP advertised in the SUNDAY PUNCH the public bidding dated June 24. 1982. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16. J. DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts. LYDIA P. 1984. 9. excluding her husband. petitioner. As security for said loans. respondents.R. (4) the restoration of her rights. 1974. 8. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question. defendant DBP. DECISION DAVIDE. 4. plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23.: 10. 3. defendant Caperal was awarded Fishpond Lease Agreement No. Plaintiff Lydia P. plaintiff Lydia P. plaintiff Lydia Cuba addressed two letters to the Manager DBP. (3) the annulment of DBP’s sale of the subject fishpond to Caperal. 1979. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes. vs. Cuba is a grantee of a Fishpond Lease Agreement No. The principal issue presented was whether These two consolidated cases stemmed from a complaint[1] filed against the Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan. and April 4. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question. and expenses of litigation. (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP. 15. CAPERAL. 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only. After the Notice of Rescission. title. August 7. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13. 1975. executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question. 12. and P98. Plaintiff Lydia P. 5. 10 . Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109. petitioner. 118367. and which was received by plaintiff Lydia Cuba. COURT OF APPEALS and LYDIA CUBA. In the negotiation for repurchase. The said complaint sought (1) the declaration of nullity of DBP’s appropriation of CUBA’s rights. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale. Thereafter. 1979 and December 20.00 under the terms stated in the Promissory Notes dated September 6.000. 1977.DEVELOPMENT BANK OF THE PHILIPPINES. and interests over the fishpond. [3] Trial was thereafter had on other matters. 2083A on December 28. 14. for being violative of Article 2088 of the Civil Code. January 5. attorney’s fees.00. JR. COURT OF APPEALS. 1984 by the Ministry of Agriculture and Food. respondents. 11.

1980 by and between the defendant Development Bank of the Philippines and plaintiff (Exh.00) PESOS. the Fishpond Lease Agreement No. 2088. It disagreed with DBP’s stand that the Assignments of Leasehold Rights were not contracts of mortgage because (1) they were given as security for loans. The trial court also held that CUBA was entitled to P100. machineries. as and for actual damages. Any stipulation to the contrary is null and void.00) PESOS as moral damages.500.500. The trial court also declared invalid condition no. equipment. they found the said house unoccupied and destroyed and CUBA’s personal belongings. Accordingly.067.the act of DBP in appropriating to itself CUBA’s leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and. F and Exh. 2. 24) as void ab initio. It then set the aggregate of the actual damages sustained by CUBA at P1. 12 of the Assignment of Leasehold Rights for being a clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the Civil Code. [4] the trial court disposed as follows: WHEREFORE. or dispose of them. 5. jointly and severally. social humiliation. all acts of ownership and possession by the said bank were void. DECLARING the Deed of Conditional Sale dated February 21. the Deed of Conditional Sale in favor of CUBA.067. to restore to plaintiff the latter’s leasehold rights and interests and right of possession over the fishpond land in question. as and for attorney’s fees. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following amounts: a) The sum of ONE MILLION SIXTYSEVEN THOUSAND FIVE HUNDRED PESOS (P1. and (3) the intention of the contracting parties to treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable.000. which was not a contract of mortgage. It then concluded that since DBP never acquired lawful ownership of CUBA’s leasehold rights. plaintiff’s leasehold rights and interest over the fishpond land in question under her Fishpond Lease Agreement No. upon CUBA’s default.000. In its decision of 31 January 1990.00) PESOS. tools. As to damages. DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold Rights. the notarial rescission of such sale. 1985 executed by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines (Exh. b) The sum of ONE HUNDRED THOUSAND (P100. Such representation induced the said Bureau to terminate CUBA’s leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. CUBA suffered a loss of P517. DECLARING the Deed of Conditional Sale dated August 16. c) The sum of FIFTY THOUSAND (P50. 1) and the acts of notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 1984 of defendant Agripina Caperal (Exh. 21). therefore. DECLARING null and void and without any legal effect the act of defendant Development Bank of the Philippines in appropriating for its own interest. 2083 (new). (2) although the “fishpond land” in question is still a public land. the trial court found “ample evidence on record” that in 1984 the representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house. CUBA’s leasehold rights and interest thereon are alienable rights which can be the proper subject of a mortgage. Defendant Caperal sided with DBP. all of which died because the DBP representatives prevented CUBA’s men from feeding the fish. 3. and the Deed of Conditional Sale in favor of defendant Caperal. without prejudice to the right of defendant Development Bank of the Philippines to foreclose the securities given by plaintiff.000.00 per fish. and serious anxieties for which she became sick and had to be hospitalized” the trial court found her entitled to moral and exemplary damages.000 pieces of bangus fish (milkfish). as and for exemplary damages. It further found that when CUBA and her men were ejected by DBP for the first time in 1979. 23) and the Assignment of Leasehold Rights dated February 12. as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP. DBP’s only right was to foreclose the Assignment in accordance with law. ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal. 16 and 26) as void and ineffective.000 attorney’s fees in view of the considerable expenses she incurred for lawyers’ fees and in view of the finding that she was entitled to exemplary damages. E and Exh. The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA’s leasehold rights. judgment is hereby rendered in favor of plaintiff: 1.00). invalid. were also void and ineffective. And considering that by reason of her unlawful ejectment by DBP. 1984 by and between the Development Bank of the Philippines and defendant Agripina Caperal (Exh. 11 . d) And the sum of ONE HUNDRED THOUSAND (P100. without any judicial or extra-judicial foreclosure.500. CUBA had stocked the fishpond with 250. the gross value would have been P690. degradation. and other articles used in fishpond operation which were kept in the house were missing. 2083A dated December 28. hence. The missing items were valued at about P550. and that when CUBA’s son and caretaker went there on 15 September 1985.000. and after deducting 25% of said value as reasonable allowance for the cost of feeds. 4. CUBA insisted on an affirmative resolution.000. The creditor cannot appropriate the things given by way of pledge or mortgage. CUBA “suffered moral shock. At the conservative price of P3. The trial court resolved the issue in favor of CUBA by declaring that DBP’s taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which provides as follows: ART.

We agree with CUBA that the assignment of leasehold rights was a mortgage contract.067. to all intent and purposes. jointly and severally. (2) contrary to the claim of DBP.000 and attorney’s fees. it was provided that “failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed.000 to P50.[10] We do not. in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans. 2083. It is undisputed that CUBA obtained from DBP three separate loans totalling P335. Nor did the assignment constitute dation in payment under Article 1245 of the civil Code.500. Cuba executed two Deeds of Assignment of her Leasehold Rights. condition no.” It bears stressing that the assignment. The former was only an accessory to the latter. and the instrument itself. As security for said loans.[9] this Court had the occasion to rule that an assignment to guarantee an obligation is in effect a mortgage. thus: 3. It then ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1. and (5) condition no. Said condition 12 .610. In its petition (G. and conditions stipulated in the promissory note or notes covering the proceeds of this loan. the deeds of assignment constantly referred to the assignor (CUBA) as “borrower”. the obligation to pay a sum of money remained. The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cuba’s leasehold rights and interest under Fishpond Lease Agreement No. and (d) in reducing the amounts of moral damages and attorney’s fees.500 as actual damages. 118342).” Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor. 118367). (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment when she agreed to repurchase her leasehold rights under a deed of conditional sale. It.R. the assigned rights. as mortgage contract.” There is. I/We further bind myself/ourselves.000. (4) CUBA was estopped from questioning the assignment of the leasehold rights.” And. As correctly pointed out by CUBA. Since their motions for reconsideration were denied. 12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right she had over the fishpond. The former sought an increase in the amount of damages.75) representing the amounts paid by defendant Agripina Caperal to defendant Development Bank of the Philippines under their Deed of Conditional Sale. but agreed with the trial court as to the actual damages of P1. No. 33 provided that if “foreclosure is actually accomplished. We find no merit in DBP’s contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). 12 of the deed of assignment constituted pactum commissorium. however. under condition no. and P50. the said assignment merely complemented or supplemented the notes. and (4) the deed of conditional sale between DBP and Caperal. P50.cession presupposes plurality of debts and creditors. Besides. Contrary to DBP’s submission. and in not increasing the amount of damages. Odom. No. no shred of doubt that a mortgage was intended. the Court of Appeals ruled that (1) the trial court erred in declaring that the deed of assignment was null and void and that defendant Caperal could not validly acquire the leasehold rights from DBP. In its decision [5] of 25 May 1994.000 as attorney’s fees.000 as moral damages. vs. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor’s property. as mortgaged properties. (3) the deeds of assignment represented the voluntary act of CUBA in assigning her property rights in payment of her debts. Significantly. In People’s Bank & Trust Co. It also ruled that CUBA was not entitled to loss of profits for lack of evidence. Moreover. there was a provision that: “In the event of foreclosure of the mortgage securing this notes. however. was but a security and not a satisfaction of indebtedness. making said promissory note or notes. CUBA contends that the Court of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article 2088 of the Civil Code. and the assignment of leasehold rights executed by Caperal in favor of DBP. since she agreed to repurchase the said rights under a deed of conditional sale. deleted the amount of exemplary damages and reduced the award of moral damages from P100.R. the assignment was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA . and the assignment merely served as security for the loans covered by the promissory notes. each of which was covered by a promissory note. an integral part hereof.000 to P50. both could stand together. CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. In all of these notes.[6] DBP and CUBA filed separate petitions for review. whereby property is alienated to the creditor in satisfaction of a debt in money. buy CUBA’s argument that condition no. therefore. the Fishpond Lease Agreement in favor of Caperal.” [7] Simultaneous with the execution of the notes was the execution of “Assignments of Leasehold Rights” [8] where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond. the last paragraph of the assignment stated: “The assignor further reiterates and states all terms. which reads: “Dation in payment.067.000. covenants. As pointed out by CUBA. (b) in holding that the deed of assignment effected a novation of the promissory notes. 22 of the deed.6. both the deeds of assignment and the promissory notes were executed on the same dates the loans were granted. which amounted to a novation of the promissory notes executed by CUBA in favor of DBP. while the latter questioned the findings of fact and law of the lower court. from P100. the usual 10% attorney’s fees and 10% liquidated damages of the total obligation shall be imposed. (2) the deeds of assignment executed by Cuba in favor of DBP. shall be governed by the law on sales. in deleting the award of exemplary damages. plaintiff Lydia P. Also. together with the improvements thereon. in her petition (G.532. (3) the deed of conditional sale between CUBA and DBP. Upon the other hand. the DBP. to pay the deficiency. if any. And ORDERING defendant Development Bank of the Philippines to reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1. being in its essence a mortgage. DBP assails the award of actual and moral damages and attorney’s fees in favor of CUBA.

As stated earlier. subject to the approval of the Secretary of Agriculture and Natural Resources. there was no such foreclosure. as has been stipulated in condition no. the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the herein vendees [Cuba spouses] the former acquired all the rights and interest of the latter over the abovedescribed property. as in the present case. 3135. … may be applied to the payment of repairs. as admitted by DBP. 1979 for failure of said spouses [Cuba spouces] to pay their loan amortizations. It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of CUBA’s leasehold rights merely on the strength of the deed of assignment. if any. 12 of the deed of assignment which provided: “Any amount received from rents.”[14] This only goes to show that DBP was aware of the necessity of foreclosure proceedings. That effective upon the breach of any condition of this assignment. and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law. (Emphasis supplied). it had “[w]ithout foreclosure proceedings. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBP’s act of appropriation. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA’s failure to pay the loan on time. … The title to the real estate property [sic] and all improvements thereon shall remain in the name of the Vendor until after the purchase price. DBP cannot take refuge in condition no. to make repairs or improvements thereon and pay the same. should therefore be set aside. … appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question. 22 of the deed of assignment. assessment. DBP declared that it “had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21.[11] Condition no. DBP should have foreclosed the mortgage. As held by this Court in some cases. Article 2199 provides: Except as provided by law or by stipulation. one is 13 . the appropriation of the leasehold rights. taxes.” We shall now take up the issue of damages. or disposing of. is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee. As admitted by it during the pre-trial. DBP. Estoppel is unavailing in this case. condition no. Even in cases where foreclosure proceedings were had. If after disposal or sale of said property and upon application of total amounts received there shall remain a deficiency. as well as the subsequent acts emanating from DBP’s appropriation of the leasehold rights. an assignment to guarantee an obligation. and to apply the proceeds to the payment of the loan. Besides. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code. exceeded the authority vested by condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. administration. which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. said Assignor hereby binds himself to pay the same to the Assignee upon demand. Instead of taking ownership of the questioned real rights upon default by CUBA. in its letter dated 26 October 1979. It merely provided for the appointment of DBP as attorney-in-fact with authority. improvements. assessments and other incidental expenses and obligations and the balance. sale or disposal of said property may be supplied by the Assignee to the payment of repairs. among other things. improvements.” Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. such as Act No. to sell or otherwise dispose of the said real rights. But. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation. which forbids a creditor from appropriating. in case of default by CUBA. to the payment of interest and then on the capital of the indebtedness…. the Bureau of Fisheries cancelled CUBA’s original lease permit. Any amount received from rents. In view of the false representation of DBP that it had already foreclosed the mortgage. to sell or otherwise dispose of whatever rights the Assignor has or might have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. taxes. administration. the thing given as security for the payment of a debt. advances and interest shall have been fully paid. if any. DBP should render an accounting of the income derived from the operation of the fishpond in question and apply the said income in accordance with condition no. cannot be deemed validated by estoppel. Yet. together with all interest thereon until fully paid. the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property above-described. The deed stated: WHEREAS. addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Hence. as amended.[13] estoppel cannot give validity to an act that is prohibited by law or against public policy. and issued a new permit in favor of CUBA. being contrary to Article 2088 of the Civil Code and to public policy. Hence. 12 did not provide that CUBA’s default would operate to vest in DBP ownership of the said rights. to lease the same or any portion thereof and collect rentals. however.[12] At any rate. 12 of the deed of assignment. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this Assignment.reads: 12. together with all improvements thereon.[15] With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior foreclosure proceeding. to the payment of interest and then on the capital of the indebtedness secured hereby. whether judicial or extrajudicial. and other incidental expenses and obligations and the balance. approved the deed of conditional sale. Said acts which were predicated on such false representation. DBP’s act of appropriating CUBA’s leasehold rights was violative of Article 2088 of the Civil Code.

if not most often. SO ORDERED. Branch 54. and by reducing the amounts of moral damages from P100.000 should likewise be awarded by way of example or correction for the public good. Such claim for “losses of property. from P100. Yet. there was not “inventory of the alleged lost items before the loss which is normal in a project which sometimes. besides. as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had “foreclosed the mortgage. This award was affirmed by the Court of Appeals. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan. As pointed out by DBP. therefore.000. Let this case be REMANDED to the trial court for the reception of the income statement of DBP. The Development Bank of the Philippines is hereby ordered to render an accounting of the income derived from the operation of the fishpond in question. the same was not called for. as well as the statement of the account of Lydia P. but must be proved with reasonable degree of certainty.000 pieces of bangus. We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. That from February to May 1978. Nowhere in the said letter.[18] In the present case. but all of which died because of DBP’s representatives prevented her men from feeding the fish. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages. there was no proof as to the existence of those items before DBP took over the fishpond in question.[16] A court cannot rely on speculations. but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. or guesswork as to the fact and amount of damages. conjectures. in Civil Case No.500 as actual damages consisting of P550.000.00 to my great damage and prejudice due to fraudulent acts of some of my fishpond workers. Cuba.000. and for the determination of each party’s financial obligation to one another. it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several articles. the 25 May 1994 Decision of the Court of Appeals in CA-G. of the Civil Code. The award of actual damages should. Such compensation is referred to as actual or compensatory damages. I was then seriously ill in Manila and within the same period I neglected the management and supervision of the cultivation and harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the amount of about P500. which was written seven months after DBP took possession of the fishpond. CUBA included “losses of property” as among the damages resulting from DBP’s take-over of the fishpond. be struck down for lack of sufficient basis. 26535 is hereby REVERSED.000. Such loss was not duly proved. CV No.” having been made before knowledge of the alleged actual loss.[21] WHEREFORE. which is hereby sustained. did CUBA intimate that upon DBP’s takeover there was a total of 230. in relation to Article 21. however. attorney’s fees are also recoverable.000 to P20.067. Curiously.000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. 12 of the deed of assignment constituted pactum commissorium and the award of actual damages.000 is in order conformably with Article 2219(10). of DBP’s act of appropriating CUBA’s leasehold rights which was contrary to law and public policy.[20] There being an award of exemplary damages. From 1979 until after the filing of her complaint in court in May 1985. the claim therefor was delayed unreasonably. the exemplary damages.000 representing the value of the alleged 230.000 which represented the value of the alleged lost articles of CUBA and P517. Other than the testimony of CUBA and her caretaker. the trial court awarded in favor of CUBA P1. Actual or compensatory damages cannot be presumed. and the attorney’s fees. In view.000 pieces of bangus which died when DBP took possession of the fishpond in March 1979. CUBA did not bring to the attention of DBP the alleged loss. In fact. is left to the care of other persons. was therefore speculative.[17] It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne.entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Exemplary or corrective damages in the amount of P25. in her complaint dated 17 May 1985.” an award of moral damages in the amount of P50.500 which represented the value of the 230. except as to the award of P50. 14 .[19] she declared: 1.000 to P50.R. in her letter dated 24 October 1979. from P50.” Neither was a single receipt or record of acquisition presented.000 to P25. With regard to the award of P517.000 as moral damages. A-1574 is MODIFIED setting aside the finding that condition no.

G. and PRESCILLA R. SO ORDERED. Servando et al. and prayed that it be declared null and void and the transfer certificates of title issued to the vendees be cancelled. Interior Molo. Servando died. Court of First Instance of Iloilo. and to order defendants to pay damages. the mortgage amount bearing an interest of 10% per annum. moreover. as a mere mortgagee. it being only incidental. We find the petition meritorious. 1978. Court of First Instance of Iloilo. 1986 GEMMA R. by way of special and affirmative defenses. Branch II. Servando in favor of his co-defendants. 1978 is hereby dismissed. Claiming that the said parcels of land were mortgaged to him in 1970 by the vendor. and moving for the dismissal of the complaint pursuant to Section 21 of Rule 3 of the Rules of Court.00). staying until further orders the execution of the decision rendered by the respondent Judge in said case. 1978. had no standing to question the validity of the sale. and a record on appeal. Presiding Judge. have this date mortgaged the said property to my cousin Pio Servando.) JOSE YUSAY SERVANDO WITNESSES: (Sgd) Ernesto G. who is his cousin. and the same is hereby given due course. 1979 are set aside.. the alleged deed of mortgage being a mere private document and not registered. pointing out that the action was for. The defendants took timely steps to appeal the decision to the Court of Appeals by filing a notice of appeal.000. and the complaint filed by plaintiff dated February 4. redeemable for a period not exceeding ten (10) years.
 HON. the plaintiff Pio Servando impugned the validity of the sale as being fraudulent. 44123 and 31591 at Lot No." On June 23. "it appearing from the face of the complaint that the instant action is not purely a money claim. and on February 2. the respondent Judge granted the motion and set the hearing for presentation of plaintiff's evidence ex-parte on August 24. 1978. the trial court disapproved the record on appeal due to the failure of defendants to comply with its order to eliminate therefrom the answer filed on August 2. and on the very next day. a judgment by default was rendered against the defendants. in the amount of TWENTY THOUSAND PESOS (P20. Servando and to deliver the same to the plaintiff. an appeal bond. 
 vs. The case under review is for the annulment of a deed of sale dated March 11. in Civil Case No. L-49940 September 25. respondents. The defendants filed a Manifestation and Motion. Arevalo. issued an order granting the writ of execution prayed for by plaintiff. Attached to the complaint was a copy of the private document evidencing the alleged mortgage (Annex A). & Compania St. 1978. The motion was denied by the respondent Judge. On August 2. annulling the deed of sale in question and ordering the Register of Deeds of Iloilo to cancel the titles issued to Priscilla Masa and Gemma Hechanova. the main action being one for annulment and damages.000.R. 1978. The defendants moved to dismiss the complaint on the grounds that it did not state a cause of action.00. informing the trial court accordingly. MIDPANTAO L. No. plaintiff filed a motion to declare defendants in default. covering three parcels of land situated in Iloilo City. "on the ground that this action is actually one for collection. JR. August 2. in its order dated June 20. 1978. 1970 This is to certify that I. shall become the sole owner thereof. petitioners. 1978. not to seek annulment of the sale.. dismissed the appeal. accompanied by her husband. accompanied by her husband. recovery of money based on an actionable document to which only the deceased defendant was a party. Jeruta On August 25. I further certify that in case I fail to redeem the said properties within the period stated above. 15 . MASA. the alleged mortgage being invalid and unenforceable since it was a mere private document and was not recorded in the Registry of Deeds. the grounds stated in their motions to dismiss. or alternatively. HECHANOVA. 1973 and its Order of February 2. his recourse was to foreclose the mortgage." On August 1. plus interests. NICANOR HECHANOVA. 12312 entitled "Pio Servando versus Jose Y. and that the plaintiff was not the real party in interest and. 1978. respectively. defendant Jose Y. the sole owner of three parcel of land under Tax Declaration No. 28905. denying the allegations of the complaint and repeating. Villanueva Petitioners seek the annulment of various orders issued by the respondent Presiding Judge of Branch II. 1863Portion of 1863 & 1860 situated at Sto. if the sale is not annulled. ADIL.: (Sgd) Francisco B.000.00. Compania St. No valid mortgage has been constituted plaintiff's favor. It is clear from the records of this case that the plaintiff has no cause of action. executed by defendant Jose Y. 1978. Even assuming that the property was validly mortgaged to the plaintiff. WHEREFORE. defendants Hechanova and Masa filed their Answers. it contains a stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil Code. 1979. FRANCISCO MASA. 1. and to revive the title issued in the name of Jose Y. THE PROVINCIAL SHERIFF OF ILOILO. which is quoted hereunder: August 20. the petitioners herein. Jose Yusay Servando. my cousin Pio Servando. The motion to dismiss was denied on July 25. Nino St. J. the decision of the respondent court dated August 25. to secure a loan of P20. to order the defendant Jose Servando to pay the amount of P20." A temporary restraining order was issued by this Court on May 9. YAP. Plaintiff has no standing to question the validity of the deed of sale executed by the deceased defendant Jose Servando in favor of his co-defendants Hechanova and Masa. However. 1978 and accordingly. (SGD.. or the same day that the default order was issued. and PIO SERVANDO.

MSC Barge No. Plaintiff therefore. Certificate No. Ong and Honesto Ong. 62). the respondent court (CFI) issued an order for the seizure of the above described personal property upon posting of a bond in the sum of P1. Diaz. 1. filed an opposition to lift order of seizure and accused the petitioner Honesto Ong of being a purchaser in bad faith.000. Annex "A".R. one (1) deck. 125651 (Rollo. deep. 166). the motion for reconsideration is hereby DENIED for lack of merit.73 mt. 74073 September 13. long. 601.) Madrigal Shipping Co.00 payable on or before July 27.. et al. claiming great and irreparable damage would be suffered by him if the Court would not recall the above stated order. p. 1980.96 net tonnage. Alfonso L. In its opposition. Hon. Ricardo D. p. 6886.. Nevertheless. Pasig River. 10 ft. its barge and tugboat particularly described. 50) (Emphasis supplied). JR. Co. being third persons.00 which is double the value of the subject vessel (barge). for Replevin with Damages before the defunct Court of First Instance (now Regional Trial Court) and was docketed as Civil Case No. for petitioners. INTERMEDIATE APPELLATE COURT. the Court of First Instance denied the motion for reconsideration but ordered the petitioners Alfonso Ong and Honesto Ong to post a counterbond of P400. pp. 361.". 24). long. of 372.094. 4. 1978 at ten (10%) percent interest per annum as evidenced by Promissory Note No. the same barge which was subject of the pledge from Santiago S. In the same motion. Manila. North Harbor. (Rollo. failed to pay its obligation to the Solidbank. 115). 1979. the respondent court (CFI) issued an order lifting the order of seizure and ordered the sheriff to return the MSC Barge No. WHEREFORE. p.G. a reply and answer to the counterclaim was filed by the private respondent Solidbank. 77-78). Inc. Ocampo. 32 mt. RENATO LLOBRERA. Inc. 1991 HONESTO ONG. as follows: "Tugboat CARBPM" of 27/42 gross tonnage 13. as Judge of the RTC of Manila. 23. On September 25. 1979. 601 and even offered to post a counterbond in an amount to be determined by respondent Court of First Instance (Rollo. 1979. Inc. cannot be considered.77 mt. Honesto Ong and Alfonso Ong filed their answer. respondents. 61). 1283 and Certificate of Registration No. 1977. 1978 (Rollo. 6213. Branch XXVII and CONSOLIDATED BANK AND TRUST CORPORATION (SOLID BANK). On August 31. private respondent Solidbank.
 HON. The creditor bank had to sell the pledged properties. steep. pp. when the pledgee bank was to sell the pledged properties. petitioner Honesto Ong bought one (1) MSC Barge No. to be entitled to possession of the vessel for purposes of maintaining the efficacy of the writ of replevin earlier issued and pursuant to the law applicable and pertinent to the matter. On August 13. 16 .000. at this stage of the action. Under the said Pledge Agreement. 120 mt. p.87 net tonnage.32 mt. 42-46). Madrigal Shipping Co. 1979.28 gross tonnage. after an opposition to the motion for reconsideration and a reply to the opposition had been filed by the parties. said defendants. 1979. Joaquin P. Manila. 127-68. et al. p. it found out that the tugboat and the barge had surreptitiously been taken from the Tanque Bodega. et al. (Rollo. 156-164). where additional issues and matters were averred as against the petitioners (Rollo. with Certificate of Ownership No. and set forth their specific denials and affirmative defenses to the complaint filed by Solidbank (Rollo. SO ORDERED. To secure the fulfillment of the obligations of Madrigal Shipping Co. and SANTIAGO OCAMPO.000. AVELINO DE GRACIA. (Ibid. petitioner Honesto Ong filed a Motion to Lift Order of Seizure. Inc. The pertinent part of the order and its dispositive portion reads: The alleged Pledge Agreement between plaintiff and Madrigal Shipping Company covering the vessel (barge) in question was not registered in the registry of vessels. RICARDO D. 1979. Meanwhile. are ordered to put up a counterbond of P400. pp. 1986 in AC-G. broad. On September 7.M. 75-76). pp. p. no mast. 23). De los Reyes & Associates for SOLID BANK PARAS. 13.000. 1979. v. private respondent (Solidbank) filed a complaint against Honesto Ong. p. p. 8. without the knowledge and consent of the Solidbank (Rollo. executed to the herein plaintiff if such delivery be adjudged in favor of the plaintiff. SP No.00 (Rollo. applied for and was granted a loan by the Consolidated Bank and Trust Corporation (Solidbank for short) in the amount of P2. complaint). vis-a-vis private defendants and third persons. the defendants. 601 with 300 net tonnage. 601 to the petitioner-defendant Honesto Ong (Rollo.R. 1979. and credit accommodations which the former may from time to time obtain from the latter both parties executed a document denominated as "Pledge Agreement" dated December 4." which dismissed the petition for lack of merit and (b) the resolution dated March 26. p.00 executed to the herein plaintiff-private respondent. 24). on August 1. Madrigal Shipping Co. 57884 (Rollo. petitioners. the private respondent outlined numerous circumstances pointing to an alleged conspiracy where the petitioners resorted to foul schemes to place the subject barge beyond the reach of the plaintiff Solidbank (Rollo. 05490 entitled "Honesto Ong. Inc... cannot be said to be bound by said pledge.000. No. a motion for reconsideration was filed by the private respondent Bank (Rollo. HON. Yuseco. 9). gave additional securities or collaterals in the form of a pledge in favor of the bank.. The undisputed facts of the case are as follows: On July 27. ALFONSO ONG. a successful bidder in a public auction by virtue of a writ of execution issued by the National Labor Relations Commission (NLRC) in a case entitled "Union de Marinos v. On December 16. Jr.: This is a petition for review on certiorari seeking to reverse and set aside: (a) the decision * of the Intermediate Appellate Court dated January 31. 1979. p. On August 7. On August 6. to the Solidbank. where the vessels were moored and towed to Pier 2. 
 vs. On August 8. J. C. 1986 denying the motion for reconsideration. Considering that plaintiff does not charge private defendants with knowledge of such pledge (see par. petitioner Honesto Ong maintained that he purchased in good faith MSC Barge No. broad. the petitioners. Madrigal Shipping. with Certificate of Ownership No. On September 28. DIAZ..

172-175). Applying these concepts in the case at bar. 601. On June 11. is binding on the petitioners Ong (2) whether or not there is a necessity for the Ongs to post a counterbond in the amount of P400. Under Section D. was not recorded under Sections 804 and 809 of the Tariff and Customs Code and argue that it is not binding on third persons like the petitioners.000. v. he may do so. Solidbank filed a motion to release the properties subject matter of replevin for failure of the petitioners to post the required counterbond (Rollo. p. 1983.. 69-70). a lower court which approves a counterbond filed 17 . the defendants. 681 (1937).. 26). 167-170). Madrigal Shipping co. petitioner may "at any time before the delivery of the property to the plaintiff' require the return of the property. the new counsel filed a second motion for reconsideration in behalf of the petitioners to the above stated order (Rollo. p. On January 31. II. No. On April 21. p. p. however. pp. Pasig River. the dispositive portion reading: WHEREFORE. the Intermediate Appellate Court rendered a decision. 51-53).. It is. This Court has explained that a defendant in a replevin suit.. the plaintiffs motion to release properties subject matter of replevin will be granted. 1986. Inc. (Rollo. Undoubtedly. 720. the motion for reconsideration filed by the petitioners was denied for lack of merit. 1983. Inc. and that the order requiring the petitioners to post a counterbond is reiterated. pp. (Rollo. Subject of the pledge (MSC Barge No.00. SO ORDERED. Manila. possession of the thing pledged must in addition be delivered to the pledgee. Plaintiff's motion. Art. defendants Alfonso Ong and Honesto Ong are hereby ordered to deliver and/or release the barge in question (MSC Barge No. pp.00. No costs.. within the periods specified in Sections 5 and 6 of Rule 60 of the Rules of Court. In the case of Bachrach Motor Co. the same having been notarized and under the notarial seal of Vicente A. On March 3. 48) Hence.094.. Lacson Ledesma.).00 executed in favor of the plaintiff within ten (10) days from receipt of this order. pledged said vessel and tugboat to secure the shipping company's obligation to the creditor bank (Solidbank) in the amount of P2. petition. The contract of pledge gives right to the creditor to retain the thing in his possession or in that of a third person to whom it has been delivered. Ibid. in short.Resolution. Thus. "within five (5) days after the taking of the property by the officer. Art. as pledgor. 2096 has been interpreted in the sense that for the contract to affect third persons. SO ORDERED. Acting on the second motion for reconsideration and supplement filed by the defendants Ongs. the petition is hereby DISMISSED for lack of merit. (Rollo. 1983. Casim. owner of MSC Barge No. 1981 was granted. (Rollo. p. are hereby ordered to put up a counterbond of P400. 1981. All these requirements have been complied with. the provisions of the Rules are clear. until the debt is paid.R." Both these periods are mandatory in character. a motion for clarification and opposition to the motion to release properties was filed by the petitioners (Rollo.On January 1. a supplement to the second motion for reconsideration was filed again by the counsel of the petitioners (Rollo. 05490 (Rollo. in the case at bar. The dispositive portion of the order reads: WHEREFORE. Petitioner Ong's motion for reconsideration of said decision was denied. as well as. (Rollo. The dispositive portion reads: WHEREFORE. As to the second issue of whether or not there is necessity for the Ongs to post a counterbond. in Section 6. 65) The defendants Alfonso Ong and Honesto Ong filed with the Intermediate Appellate Court a petition for certiorari docketed as AC-G. The restraining order previously issued is dissolved. 1984. 34). as Doc. Undeniably. Otherwise. The main issues in this case are: (1) whether or not the contract of pledge entered into by and between Solidbank and Madrigal Shipping Co. lifted and set aside. This Court. it should be in a public instrument which must contain the description of the thing pledged and the date of the pledge. a motion for reconsideration to the above stated order was filed by the petitioners Ong (Ibid. 1487.). 601) to herein plaintiff from receipt (hereof) of this order. 601) was delivered to the Solidbank which had it moored at Tanque Bodega. dated January 22. Inc. the opposition interposed by the plaintiff Solidbank the lower court denied the second motion for reconsideration. where it was guarded by a security guard. I. The pledge agreement is a public instrument. 1987 gave due course to the petition and required both parties to file their respective memoranda (rollo. On October 27. And on June 21.000. pp. 10). the respondent court (CFI) issued an order directing petitioners Alfonso Ong and Honesto Ong to deliver and release the barge in question. pp. apart from being in a public instrument. the respondent Court (CFI) issued an order stating that its order dated December 16. On February 21. 2090. 1984. and no payment was made by Madrigal Shipping Co. Page No. petitioners rely heavily on the fact that the contract of pledge by and between Solidbank and Madrigal Shipping Co. this petition. 64 Phil. p. 100). Therefore the Solidbank has the light of retention of the barge in question pledged to it until it is paid. No. the pledgee is obviously a lawful and rightful possessor of the personal property pledged. Book V and Series of 1978. (petitioners Ong in this case) may demand the return of possession of the property replevined by filing a redelivery bond executed to the plaintiff in double the value of the property as stated in the plaintiff s affidavit. Alfonso Ong and Honesto Ong. 179. p. Inc. 1981 is clear and needs no clarification.000. in its resolution dated April 6. (Rollo. stated under Article 2096 of the Civil Code that for a pledge to take effect against third persons. 1981. In the same order. 25). The Civil Code expressly provides. dismissing the petition for lack of merit.

and the assailed decision dated January 31. The intent of the law requiring the posting of the bond by the applicant is clear and manifest. In short.. should his action be adjudged meritorious. Not to require him to post any bond would likewise. Villanueva. SO ORDERED. be counter to the objectives and intent sought by the framers of the law.. Revised Rules of Court) Again. in favor of Solidbank should the suit for replevin prosper. (Rollo. 18 . L-3420. respondent Appellate Court aptly observed that the questioned orders reveal that the Court a quo exercised prudence in the highest degree. Under the circumstances. We need not mention. whoever holds the property must post the bond to stand as security to the non-holder pending the final determination of the case. 33-34) Verily. Rule 60. which is to cover and insulate the defendant's interest from undue damage. Valdez. petitioner Ong must post a bond if he seeks the continued possession of the property.beyond the statutory periods. if only for the purpose of emphasis. . Sections 5 & 6. (Chan vs. To forestall the possession by the plaintiff of the property our procedural law provides that the defendant must post a counterbond and must furnish the plaintiff with the copy of the undertaking.now Court of Appeals): .. PREMISES CONSIDERED. Solidbank was required and has already posted a bond in favor of the Ongs should the suit for replevin be declared improper. 177 SCRA 143 [1989]). Conversely. As correctly explained by the Intermediate Appellate Court (. that this procedure was purposely formulated to allow the defendant to continue possessing the property.. 1982. pp. April 30. the court a quo's orders which were affirmed by the Court of Appeals cannot be faulted. 1986 of the Intermediate Appellate Court is AFFIRMED. the petition is DISMISSED for lack of merit. acts in excess of jurisdiction (Yang v. this is required to protect the plaintiff.