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G.R. No.

L-33157 June 29, 1982
BENITO H. LOPEZ, petitioner,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO.,
INC., respondents.

GUERRERO, J.:
On June 2, 1959, petitioner Benito H. Lopez obtained a loan in the amount of P20,000.00 from the
Prudential Bank and Trust Company. On the same date, he executed a promissory note for the
same amount, in favor of the said Bank, binding himself to repay the said sum one (1) year after the
said date, with interest at the rate of 10% per annum. In addition to said promissory note, he
executed Surety Bond No. 14164 in which he, as principal, and Philippine American General
Insurance Co., Inc. (PHILAMGEN) as surety, bound themselves jointly and severally in favor of
Prudential Bank for the payment of the sum of P20,000.00.
On the same occasion, Lopez also executed in favor of Philamgen an indemnity agreement whereby
he agreed "to indemnify the Company and keep it indemnified and hold the same harmless from and
against any and all damages, losses, costs, stamps, taxes, penalties, charges and expenses of
whatever kind and nature which the Company shall or may at any time sustain or incur in
consequence of having become surety upon the bond." 1 At the same time, Lopez executed a deed of
assignment of 4,000 shares of the Baguio Military Institution entitled "Stock Assignment Separate from
Certificate", which reads:

This deed of assignment executed by BENITO H. LOPEZ, Filipino, of legal age,
married and with residence and postal address at Baguio City, Philippines, now and
hereinafter called the "ASSIGNOR", in favor of the PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC., a corporation duly organized and existing under
and by virtue of the laws of the Philippines, with principal offices at Wilson Building,
Juan Luna, Manila, Philippines, now and hereinafter called the "ASSIGNEE-SURETY
COMPANY"
— WITNESSETH —
That for and in consideration of the obligations undertaken by the ASSIGNEESURETY COMPANY under the terms and conditions of SURETY BOND NO. 14164,
issued on behalf of said BENITO H. LOPEZ and in favor of the PRUDENTIAL BANK
& TRUST COMPANY, Manila, Philippines, in the amount of TWENTY THOUSAND
PESOS ONLY (P20,000.00), Philippine Currency, and for value received, the
ASSIGNOR hereby sells, assigns, and transfers unto THE PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC., Four Thousand (4,000) shares of the Baguio
military Institute, Inc. standing in the name of said Assignor on the books of said
Baguio Military Institute, Inc. represented by Certificate No. 44 herewith and do
hereby irrevocably constitutes and appoints THE PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC. as attorney to transfer the said stock on the
books of the within named military institute with full power of substitution in the
premises. 2

With the execution of this deed of assignment, Lopez endorsed the stock certificate and delivered it
to Philamgen.
It appears from the evidence on record that the loan of P20,000.00 was approved conditioned upon
the posting of a surety bond of a bonding company acceptable to the bank. Thus, Lopez persuaded
Emilio Abello, Assistant Executive Vice-President of Philamgen and member of the Bond Under
writing Committee to request Atty. Timoteo J. Sumawang, Assistant Vice- President and Manager of
the Bonding Department, to accommodate him in putting up the bond against the security of his
shares of stock with the Baguio Military Institute, Inc. It was their understanding that if he could not
pay the loan, Vice-President Abello and Pio Pedrosa of the Prudential Bank would buy the shares of
stocks and out of the proceeds thereof, the loan would be paid to the Prudential Bank.
On June 2, 1960, Lopez' obligation matured without it being settled. Thus, the Prudential Bank made
demands for payment both upon Lopez and Philamgen. In turn, Philamgen sent Lopez several
written demands for the latter to pay his note (Exhibit H, H-1 & H-2), but Lopez did not comply with
said demands. Hence, the Prudential Bank sometime in August, 1961 filed a case against them to
enforce payment on the promissory note plus interest.
Upon receipt of the copies of complaint, Atty. Sumawang confronted Emilio Abello and Pio Pedrosa
regarding their commitment to buy the shares of stock of Lopez in the event that the latter failed to
pay his obligations to the Prudential Bank. Vice-President Abello then instructed Atty. Sumawang to
transfer the shares of stock to Philamgen and made a commitment that thereafter he (Abello) and
Pio Pedrosa will buy the shares of stock from it so that the proceeds could be paid to the bank, and
in the meantime Philamgen will not pay the bank because it did not want payment under the terms of
the bank. 3
Due to said commitment and instruction of Vice-President Abello, Assistant Treasurer Marcial C.
Cruz requested the transfer of Stock Certificate No. 44 for 4,000 shares to Philamgen in a letter
dated October 31, 1961. Stock Certificate No. 44 in the name of Lopez was accordingly cancelled
and in lieu thereof Stock Certificate No. 171 was issued by the Baguio Military Institute in the name
of Philamgen on November 17, 1961.
The complaint was thereafter dismissed. But when no payment was still made by the principal debtor
or by the surety, the Prudential Bank filed on November 8, 1963 another complaint for the recovery
of the P20,000.00. On November 18, 1963, after being informed of said complaint, Lopez addressed
the following letter to Philamgen:
Dear Mr. Sumawang:
This is with reference to yours of the 13th instant advising me of a complaint filed
against us by Prudential Bank & Trust Co. regarding my loan of P20,000.00. In this
connection, I would like to know what happened to my shares of stocks of Baguio
Military Academy which were pledged to your goodselves to secure said obligation.
These shares of stock I think are more than enough to answer for said obligation. 4
On December 9, 1963, Philamgen was forced to pay the Prudential Bank the sum of P27,785.89
which included the principal loan and accumulated interest and the Prudential Bank executed a
subrogation receipt on the same date.
On March 18, 1965, Philamgen brought an action in the Court of First Instance of Manila (Civil Case
No. 60272, "The Philippine American General Insurance Co., Inc. vs. Benito H. Lopez") for

reimbursement of the said amount. After hearing, the said court rendered judgment dismissing the
complaint holding:
The contention of the plaintiff that the stock of the defendant were merely pledged to
it by the defendant is not borne out by the evidence. On the contrary, it appears to be
contradicted by the facts of the case. The shares of stock of the defendant were
actually transferred to the plaintiff when it became clear after the plaintiff and the
defendant had been sued by the Prudential Bank that plaintiff would be compelled to
make the payment to the Prudential Bank, in view of the inability of the defendant
Benito H. Lopez to pay his said obligation. The certificate bearing No. 44 was
cancelled and upon request of the plaintiff to the Baguio Military Institute a new
certificate of stock was issued in the name of the plaintiff bearing No. 171, by means
of which plaintiff became the registered owner of the 4,000 shares originally
belonging to the defendant.
It is noteworthy that the transfer of the stocks of the defendant in the name of the
plaintiff company was made at the instance of Messrs. Abello and Pedrosa, who
promised to buy the same from the plaintiff. Now that these shares of stock of the
defendant had already been transferred in the name of the plaintiff, the defendant
has already divested himself of the said stocks, and it would seem that the remedy of
the plaintiff is to go after Messrs. Abello and Pedrosa on their promise to pay for the
said stocks. To go after the defendant after the plaintiff had already become the
owner of his shares of stock and compel him to pay his obligation to the Prudential
Bank would be most unfair, unjust and illogical for it would amount to double
payment on his part. After the plaintiff had already appropriated the said shares of
stock, it has already lost its right to recover anything from the defendant, for the
reason that the transfer of the said stocks was made without qualification. This
transfer takes the form of a reimbursement of what plaintiff had paid to the Prudential
Bank, thereby depriving the plaintiff of its right to go after the defendant herein. 5
Philamgen appealed to the Court of Appeals raising these assignments of errors:
I
The lower court erred in finding that the evidence does not bear out the contention of
plaintiff that the shares of stock belonging to defendant were transferred by him to
plaintiff by way of pledge.
II
The lower court erred in finding that plaintiff company appropriated unto itself the
shares of stock pledged to it by defendant Benito Lopez and in finding that, with the
transfer of the stock in the name of plaintiff company, the latter has already been
paid or reimbursed what it paid to Prudential Bank.
III
The lower court erred in not finding that the instant case is one where the pledge has
abandoned the security and elected instead to enforce his claim against the pledgor
by ordinary action. 6

the Court of Appeals promulgated a decision in favor of the Philamgen. and in not holding instead that it was a dation in payment. Corollarily. 7 The motion for reconsideration with prayer to set the same for oral argument having been denied. was there a novation of the obligation by substitution of debtor? 8 Philamgen failed to file its comment on the petition for review on certiorari within the extended period which expired on March 19. hereinbefore copied verbatim. duly endorsed in blank. 1970. 9 Under the first assignment of error. Philamgen is merely holding the stock as a security for the payment of Lopez' obligation. the stock assignment. On its face. thereby upholding the foregoing assignments of errors.000. as in this case. conditions. assigned. taking a new certificate of stock in its name. a party "sells. It is true that if Lopez should "well and truly perform and fulfill all the undertakings. Lopez argues in his brief: That the Court of Appeals erred in holding that when petitioner "sold. the transaction was a pledge. and that pending payment.785. as in this case. assigned and transferred unto Philamgen the stocks involved "for and in consideration of the obligations undertaken" by Philamgen "under the terms and conditions of the surety bond executed by it in favor of the Prudential Bank" and "for value received". the latter causes the shares of stock to be transferred in its name. terms. that assuming that Philamgen had appropriated the stocks.89 with interest at the rate of 12% per annum from December 9.89 as attorney's fees and the costs of the suit. and. this appropriation is null and void as a stipulation authorizing it is apactum commissorium. it is not itself a conditional conveyance. and agreements stipulated" in his promissory note to Prudential Bank. and another one is hereby entered ordering the defendant to pay the plaintiff the sum of P27. the obligations having arisen. in consideration of a contingent obligation of the former to the latter. . the latter caused the shares of stock to be transferred to it. the decision of the lower court is hereby reversed.00 to Prudential Bank. duly endorsed in blank.785. 10% of the P27. the debtor assigns the shares of stock to the creditor under an agreement between the latter and determinate third persons that the latter would buy the shares of stock so that the obligations could be paid out of the proceeds. Lopez sold. 1971. While it is a conveyance in consideration of a contingent obligation. covenants. the obligation of Philamgen under the surety bond would become null and void. The dispositive portion of the said decision states: WHEREFORE. transferred" and delivered shares of stock. what is the juridical nature of the transaction-a dation in payment or a pledge? b) Where. It declared that the stock assignment was a mere pledge that the transfer of the stocks in the name of Philamgen was not intended to make it the owner thereof.On December 17. to private respondent in consideration of a contingent obligation of the former to the latter and the obligation having thereafter arisen. Lopez brought this petition for review on certiorari presenting for resolution these questions: a) Where. 10 Considering the explicit terms of the deed denominated "Stock Assignment Separate from Certificate". 1963. assigns and transfers" and delivers shares of stock to another. The document speaks of an outright sale as there is a complete and unconditional divestiture of the incorporeal property consisting of stocks from Lopez to Philamgen. it is neither pledge nor dation in payment. The transfer appears to have been an absolute conveyance of the stocks to Philamgen whether or not Lopez defaults in the payment of P20. This Court thereby resolved to require Lopez to file his brief.

Hence. based on the manifest terms thereof. Notwithstanding the express terms of the "Stock Assignment Separate from Certificate". Thus.000.00 from Prudential Bank. a pledge. The character of the transaction between the parties is to be determined by their intention. even though a transfer. considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock assignment indicates a complete discharge of the same obligation. It should be remembered that on June 2. It has been said that a transfer of property by the debtor to a creditor. would necessarily become null and void likewise. even if sufficient on its face to make an absolute conveyance. but if there was some other intention. There would have been no necessity for the execution of the indemnity agreement if the stock assignment was really intended as an absolute conveyance. their contemporaneous and subsequent acts shall be principally considered. the stock assignment had other considerations referred to therein as "value received". should be treated as a pledge if the debt continues in existence and is not discharged by the transfer. and the admission of Lopez prove that it is in fact a pledge.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety. Exhibit C. in favor of said Bank. in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. The appellate court is correct in ruling that the following requirements of a contract of pledge have been .000. of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership. (Article 1371. In return for the undertaking of Philamgen under the surety bond. however. Indeed. Exhibit C. is inconsistent with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen. it is not a pledge. there are strong and cogent reasons to conclude that the parties intended said stock assignment to complement the indemnity agreement and thereby sufficiently guarantee the indemnification of Philamgen should it be required to pay Lopez' loan to Prudential Bank. We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. appears to have been absolute. regardless of what language was used or what the form of the transfer was. and that accordingly. it is an absolute transfer. it must be construed as a pledge. If it was intended to secure the payment of money. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the promissory note with Philamgen as his surety.000. the day Lopez obtained a loan of P20. its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. the use of the terms ordinarily importing conveyance. 11 We agree with the holding of the respondent Court of Appeals that the stock assignment. The indemnity agreement and the stock assignment must be considered together as related transactions because in order to judge the intention of the contracting parties. New Civil Code). But this is not the case here because aside from the obligations undertaken by Philamgen under the surety bond. is in truth and in fact. Hence. plus interest at the rate of ten (10%) per cent per annum. Lopez executed on the same day not only an indemnity agreement but also a stock assignment. for want of cause or consideration under Article 1352 of the New Civil Code. Lopez executed a promissory note for ?20.00. However. if regarded by itself.which is predicated on the obligation of Philamgen under the surety bond. the facts and circumstances leading to the execution of the stock assignment. 1959. the existence of the indemnity agreement whereby Lopez had to pay a premium of P1.

satisfied: (1) that it be constituted to secure the fulfillment of a principal obligation. is valid and extinguishes the debt. coupled with their endorsement in blank and delivery.) Incorporeal rights. the law on sales shall govern. shall be governed by the law of sales.C.) All these requisites are found in the transaction between the parties leading to the execution of the Stock Assignment. Article 2087 of the New Civil Code providing that it is also the essence of these contracts (pledge. 33 Phil. or of a third person by common agreement. Kipp & Wolff 317). 1963.C. (Perez Gonzales & Alguer :2-I Enneccerus. (Article 2085. 2093. already quoted above. 2095. Our Civil Code. in order to constitute the contract of pledge. including shares of stock may also be pledged (Art. 576) The modern concept of dation in payment considers it as a novation by change of the object.C. (2 Castan 525. (2) that the pledgor be the absolute owner of the thing pledged. Does this mean that there can be no dation in payment if the debt is not in money? We do not think so. conceived after he learned of the transfer of his stock to the plaintiff in the books of the Baguio Military Institute. the Court of Appeals correctly ruled: In addition to the requisites prescribed in article 2085. and antichresis) that when the principal obligation becomes due. Exhibit C. where he asked what had happened to his shares of stock "which were pledged to your goodselves to secure the said obligation". where the debt is in money. the act is deemed to be a sale. comes exactly under the Civil Code's definition of dation in payment. And that it is a pledge was admitted by the defendant in his letter of November 18. in which the true . it is well to cite that: Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. Speaking of the concept of dation in payment. The testimony of the defendantappellee that it was their agreement or understanding that if he would be unable to pay the loan to the Prudential Bank. Exhibit G. (Art. According to Article 1245 of the New Civil Code. N. provides in this article that. and this is to our mind the more juridically correct view. N. dation in payment. Martinez. Thus. but also of a real right (such as a usufruct) or of a credit against a third person. On this point further. plaintiff could sell the shares of stock or appropriate the same in full payment of its debt is a mere after-thought. It is precisely in obligations which are not money debts. that the thing pledged be placed in the possession of the creditor. not only of a thing. 8 Manresa. in this case. New Civil Code).C. 324) The property given may consist. further supports the appellate court's ruling. that he be legally authorized for the purpose. which We also affirm. it has been held that the assignment to the creditor of the interest of the debtor in an inheritance in payment of his debt. however. with the amount of the obligation to the extent that it is extinguished being considered as the price. We also do not agree with the contention of petitioner that "petitioner's 'sale assignment and transfer' unto private respondent of the shares of stock. it is necessary. and (3) that the person constituting the pledge has the free disposal of the property. whereby property is alienated to the creditor in satisfaction of a debt in money. (Ignacio vs. and in the absence thereof. the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. a long recognized and deeply rooted concept in Civil Law denominated by Spanish commentators as 'adjudicacion en pago'". mortgage.

nor the whole of the property of the debtor. it gave way to a dation in payment when the obligation secured came into existence and private respondent had the stocks transferred to it in the corporate books and took a stock certificate in its name. unless the parties by agreement. There is a real novation with immediate performance of the new obligation. whose value was neither intrinsic nor apparent and was not agreed upon by the parties. (8 Manresa 324). and the delivery is a mere performance of the new obligation. for it may be made even by a person who is completely solvent. express or implied. there is no express provision in the terms of the stock assignment between Philamgen and Lopez that the principal obligation (which is the loan) is immediately extinguished by reason of such assignment. is without merit. arguendo that the transaction was at its inception a pledge.juridical nature of dation in payment becomes manifest. however. in the absence of evidence tending to show an intention on the part of the parties that the transfer was in satisfaction of the debt. or some other 'specialty' chose of action. provided for in article 1255. extinguishes the original obligation. Moreover. the fact that Philamgen had the shares of stock transferred to it in the books of the corporation and took a certificate in its name in lieu of Lopez which was cancelled does not amount to conversion of the stock to one's own use. The transfer of . that conferred rights upon transfer by delivery of a different nature from the debt. The fact that the execution of the stock assignment is accompanied by the delivery of the shares of stock.000 shares of stock to Philamgen. 3 Valverde 174 fn Assignment of property by the debtor to his creditors. Under American jurisprudence. in which case the obligation is totally extinguished. (8 Manresa 324. the same could not have been constituted when the stock assignment was executed. In case of doubt as to whether a transaction is a pledge or a dation in payment. Lopez' obligation would arise only when he would default in the payment of the principal obligation (the loan) to the bank and Philamgen had to pay for it. The dation in payment extinguishes the obligation to the extent of the value of the thing delivered. such a transfer was presumed to be made for collateral security. duly endorsed in blank to Philamgen is no proof that the transaction is a dation in payment. A distinction might also be made between delivery of property in payment of debt and delivery of such property as collateral security for the debt. the latter being the lesser transmission of rights and interests. the presumption is in favor of pledge. Unlike the assignment for the benefit of creditors. It merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same voluntarily. dation in payment does not involve plurality of creditors. It does not suppose a situation of financial difficulties. Generally. 1959 when Lopez "alienated" his 4. Likewise. Such fact being adverse to the nature and concept of dation in payment. We find that the debt or obligation at bar has not matured on June 2. This presumption of a transfer for collateral security arose particularly where the property given was commercial paper. either as agreed upon by the parties or as may be proved. is similar to dation in payment in that both are substitute forms of performance of an obligation. 12 Considering the above jurisprudence. or by their silence. consider the thing as equivalent to the obligation. 13 Petitioner's argument that even assuming. The fact that there must be a prior agreement of the parties on the delivery of the thing in lieu of the original prestation shows that there is a novation which.

substituting the person of the debtor. and the lien continues to exist as long as the pledgee retains actual or symbolic possession of the property. (Article 1293. thus: . The general property in the pledge remains in the pledgor after default as well as prior thereto. he takes only a special property therein Such transfer merely performs the office that the delivery of possession does in case of a pledge of corporeal property. (3) subrogating a third person in the rights of the creditor.C. N. Though a pledgee of corporation stock does not become personally liable as a stockholder of the company. there was a novation of the obligation by substitution of debtor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. We do not agree. may be made even without the knowledge or against the will of the latter.. 14 In his second assignment of error. The general property therein remains in him.) Novation which consists in substituting a new debtor in the place of the original one. The pledgee does not acquire an interest in the property. N.. (2) substituting the person of the debtor. The extent of such lien is measured by the amount of the debt or the obligation that is secured by the collateral. assigned and transferred to the former by the petitioner for the purpose of paying petitioner's obligation out of the proceeds. that is.title to incorporeal property is generally an essential part of the delivery of the same in pledge. And in order that an obligation may be extinguished by another which substitute the same.C. it is imperative that it be so declared in unequivocal terms. the pledgor does not part with his general right of property in the collateral. he may have the shares transferred to him on the books of the corporation if he has been authorized to do so. . (Article 1292.C. and the debt or obligation remains unpaid. except that he then becomes entitled to proceed to make the security available in the manner prescribed by law or by the terms of the contract. By the contract of pledge. he cannot acquire any interest therein that is adverse to the pledgor's title. The failure of the pledgor to pay his debt at maturity in no way affects the nature of the pledgee's rights concerning the property pledged. even where the legal title to incorporeal property which may be pledged is transferred to a pledgee as collateral security. Moreover. or that the old and the new obligations be on every point incompatible with each other.) Commenting on the second concept of novation. Thus. xxx xxx xxx The pledgee has been considered as having a lien on the pledged property. the pledgee holds possession of the security subject to the rights of the pledgor. obligations may be modified by: (1) changing their object or principal condition. Manresa opines. and only a special property vests in the pledgee. . but not without the consent of the creditor.C. except as a security for his debt. Payment of the debt extinguishes the lien. petitioner contends that the Court of Appeals erred in not holding that since private respondent entered into an agreement with determinate third persons whereby the latter would buy the said shares so sold. It merely constitutes evidence of the pledgee's right of property in the thing pledged. Under Article 1291 of the New Civil Code.

Pedrosa would buy the stocks was a purely private arrangement between them. The promise of Abello and Pedrosa to buy the shares from private respondent not having materialized (which promise was given to said respondent only and not to petitioner) and no action was taken against the two by said respondent who chose instead to sue the petitioner on the Indemnity Agreement. It is also Our ruling that upon the facts established. Pending payment. The above holding of the appellate court is correct and We affirm the same. Vol. the first and the new debtor are considered obligated jointly. . it is necessary that the old debtor be released from the obligation. the same is also devoid of merit. 14164 and the Indemnity Agreement. No offer had been made for the return of the stocks to the defendant. If there is no agreement as to solidarity. petitioner's second assignment of error must be rejected. the decision of the Court of Appeals is hereby AFFIRMED in toto. (8 Manresa 435. Commentaries and Jurisprudence on the Civil Code of the Philippines. release or return the same to the petitioner-pledgor upon the latter's satisfaction of his obligation under the Indemnity Agreement. 360) In the case at bar. it is quite clear that this respondent has abandoned its right and interest over the pledged properties and must. IV. p. the undertaking of Messrs. and the third person or new debtor take his place in the relation. plaintiff is merely holding the certificates as a pledge or security for the payment of defendant's obligation. True. all executed and dated June 2. Abello to Atty. As the Court of Appeals said: The appellant (Philam) is not enriching himself at the expense of the appellee. there was no novation of the obligation by substitution of debtor. there is no novation. Sumawang that he and Mr. IN VIEW OF ALL THE FOREGOING. cited in Tolentino. WHEREFORE. and not a dacion en pago. It must also be made clear that there is no double payment nor unjust enrichment in this case because We have ruled that the shares of stock were merely pledged. constitutes a pledge of the 40. Without such release. not an agreement between (Philamgen) and (Lopez)" and which We hereby affirm. Emilio Abello and Pio Pedrosa that they would buy the shares of stock so that Philamgen could be reimbursed from the proceeds that it paid to Prudential Bank does not necessarily imply the extinguishment of the liability of petitioner Lopez. the appellee could have the stocks transferred to him anytime as long as he reimburses the plaintiff the amount it had paid to the Prudential Bank.In this kind of novation it is pot enough to extend the juridical relation to a third person. and was not intended to make the plaintiff the owner thereof. with costs against the petitioner. Philamgen may still enforce the obligation. the same does not constitute novation and hence. In fine. As the appellant had stated. the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety.000 shares of stock by the petitioner-pledgor in favor of the private respondent-pledgee. We hold and rule that the transaction entered into by and between petitioner and respondent under the Stock Assignment Separate From Certificate in relation to the Surety Bond No. As to the third assignment of error which is merely the consequence of the first two assignments of errors. 1959. the stock certificate of the appellee had been in the name of the appellant but the transfer was merely nominal. As the Court of Appeals correctly held that "(t)he representation of Mr. Since it was not established nor shown that Lopez would be released from responsibility. therefore.

. Jr. Barredo (Chairman). Concepcion. Aquino. De Castro and Escolin. concur.SO ORDERED.. JJ.. Abad Santos.

Rosario. Hermogenes died single." (p. Marciana. 1960 it appearing that . SUBSTITUTED BY JUANA P. now Development Bank of the Philippines was dropped as party defendant by the trial court on September 6. ANACITO PINOHERMOSO. VIRGINIA LOPEZ.R. Felicidad was survived by her husband herein plaintiff Melencio Padrelan and children Lydia. HON. ELISA PADRELAN. TERESITA PINOHERMOSO. AQUILINO PINOHERMOSO. all surnamed Pinohermoso. Remolona and children Ceferina. vs. Felisa. requiring the petitioners to restore to the respondents "the share of their grandmother in the old homestead. PEDRO PINOHERMOSO. LURESITA PINOHERMOSO. MELANIO PADRELAN. Juliana. 15186 and to issue another certificate of title in the name of plaintiffs as heirs of the late spouses Tiburcio Pinohermoso and Casiana Flores. 1989 BONIFACIO LOPEZ. MANUEL PADRELAN. L-49739 January 20. 1958. J. 15186 (should) be amended accordingly. which should be preserved in the family and not devoted to speculative purposes" and ordering that "Transfer Certificate of Title No. CEFERINA PINOHERMOSO. petitioners. 1964 and was substituted as party plaintiff by his surviving wife. Lopez and Roberta Llaneras in favor of the Rehabilitation Finance Corporation did not affect the land in question for the reason that the mortgagors were not the owners thereof at the time said mortgage was executed..G. Teresita. Nieves and Aquilino. all surnamed Pinohermoso. BONIFACIO LOPEZ. respondents. Rehabilitation Finance Corporation. NENA PADRELAN. they became the owners of one-half (1/2) thereof from the time of her death: that they became the owners of the other half pertaining to the late Tiburcio Pinohermoso in the conjugal partnership from the time of his death: that the mortgage executed by defendant spouses Bonifacio B. Branch III. JULIANA PADRELAN. Ismael T. Nena. LYDIA PADRELAN. GUTIERREZ. namely Hermogenes. Felicidad and Pedro. ROSITA PADRELAN and AMADO PADRELAN. ordering the defendant Register of Deeds of Quezon to cancel TCT No. Beltran & Beltran for petitioners. Manuel. plaintiffs pray among others that judgment be rendered declaring that the property in question belongs to the conjugal partnership of the spouses Tiburcio Pinohermoso and Casiana Flores and that as heirs of Casiana Flores.: This is an appeal from the judgment of the Court of Appeals which affirmed the decision of the then Court of First Instance of Quezon. No. ROSARIO PADRELAN. JR. Juana P. REMOLANA. Rosita and Amadeo Padrelan also plaintiffs in this case. JR. COURT OF APPEALS. 27. Anacito. SUBSTITUTED BY ROBERTA LLANERAS. Beltran. NIEVES PINOHERMOSO. Portes for private respondents. and FERNANDO LOPEZ. Luresita. Rollo) The assailed decision of the Court of Appeals has the following findings of facts: The deceased spouses Tiburcio Pinohermoso and Casiana Flores had three children. In this complaint dated March 19. Pedro Pinohermoso died on October 17. the ancestral home of the Pinohermosos.

It appears that on July 19. 1406 was cancelled and Transfer Certificate of Title No. . Lopez married to Roberta Llaneras.00 Tiburcio Pinohermoso sold this land to defendants Bonifacio B. 1406 (Exhibit 1) was issued on April 22. Consequently. with a condition that they first reimburse the petitioners the value of half of the coconut trees the latter had planted on the land since 1940 when they entered into the possession of the land. namely: Roberta Llaneras. however. In its decision. 1939 who took possession of the property and its improvements upon their purchase thereof (Exhibit 1). (p. the trial court ordered the reconveyance of half of the land to the respondents. 2874 of the Philippine Legislature. Virginia Lopez.00 and submitted his final proof on June 29. 1926 over the parcel of land in controversy unto the said Tiburcio Pinohermoso "to have and to hold the said tract of land. with the appurtenances thereto of right belonging unto the said Tiburcio Pinohermoso and to his heirs and assigns forever subject to the provisions of sections 116. The reimbursement of half of the purchase price was not ordered as the court believed that the petitioners had been amply compensated by the profits they derived from the use of the portion of land in question. Casiana Flores died. Dans of the Bureau of Lands. 119. The applicant had paid the required homestead fees amounting to P20. OCT No. It held that the action for reconveyance of said share had not prescribed in view of the relation of trust and confidence between Tiburcio and his children. On these bases. Under date of March 20. which provides that the land hereby acquired shall be inalienable and shall not be subject to incumbrance for a period of five (5) years from the date of this patent". By virtue of the said sale. 1970 and was substituted by his legal heirs. 30) The petitioner now comes to this Court assailing the decisions of the courts below. 1925. without admitting. Lopez Sr. or 19 years after its execution. that assuming. No. . an order for the issuance of patent to 'Tiburcio Pinohermoso was issued by Assistant Director Jose P. Defendant Bonifacio B. the petitioner is not bound by such fact because he is a buyer in good faith and for value who relied on the property's certificate of title . that the property is a conjugal property of the vendor and his deceased spouse. it ruled that Tiburcio had authority only to administer and not to sell the share of Casiana which passed on to her heirs. It. On appeal to the Court of Appeals. 1924. Lopez and Roberta Llaneras on May 20." (Rollo. Original Certificate of Title No. died on April 29. 1913. Lopez and Roberta Llaneras had already paid the mortgage of the property in litigation to their said co-defendant as shown in the deed of release or cancellation of mortgage. . . 1914. and Fernando Lopez. Rollo). 120 and 122 of Act. On April 5. the trial court declared the lot in question a conjugal property of Tiburcio Pinohermoso and Casiana Flores. as amended. He alleges that the validity of the deed of sale executed in 1939 by Tiburcio may no longer be attacked in an action in 1958. 1279 (Exhibit 4) was thereafter issued to Bonifacio Lopez and said defendant has been paying the realty taxes on the land since 1948 up to the filing of this case in 1958 (Exhibit 5 and 5a). 29. 15186 (Exhibit 3) was issued on February 3. In consideration of the sum of P550. 1922. 19478 (E-12596) and it was approved on October 26. 1940 in the name of Bonifacio B.defendants Bonifacio B. Bonifacio Lopez Jr. Tiburcio Pinohermoso filed Homestead Application No. Tax Declaration No. opined that "the alleged sale made by Tiburcio of the whole homestead is void and non-existent with respect to the one-half thereof and it is settled that the action to declare the inexistence of a contract does not prescribe. p. the appellate court affirmed the trial court's decision.

) The respondents further state that the petitioners' claim to an additional one-eighth part of the land has no basis in law because under the old law. 1942) No strong considerations of public policy have been presented which would lead us to reverse the established and sound doctrine that the buyer in good faith of a registered parcel of land does not have to look beyond the Torrens Title and search for any hidden defect or inchoate right which may later invalidate or diminish his right to what he purchased. The decision of the respondent court would have the buyer inquire first as to the rights of Generosa Canete. The land in question is a homestead titled under the Land Registration Act. Abache. CFI of Nueva Ecija. 73 Phil. the presumption is that the transferee of registered land is not aware of any defect in the title of the property he purchased. (Director of Lands v. If she had no right to the land. Tiburcio Pinohermoso had another wife in 1940. et al. 7 SCRA 351. Judge. v. We rule for the petitioners. In the case of Iglesia ni Cristo v. 103 SCRA 467 (1981)] Moreover. Moreover. 129) They allege that "where as in the instant case. a certain Generosa Canete (or Magigad according to the respondents' witnesses) whose name appears in the deed of sale as the legitimate wife of Tiburcio. the person dealing with registered land may safely rely on the correctness of its certificate of title and the law will in no way oblige him to go behind the certificate to determine the condition of the property. however.issued only in the name of the vendor. Bonifacio Lopez should be bound by the hard and unalterable fact that the homestead in question was a conjugal property notwithstanding that only the name of Tiburcio Pinohermoso appeared in the patent or title." (Rollo. [1963]).. this Court citing the case of Pajomayo. Hon. p. et al. Branch I." (Ibid. There is nothing in the questioned decision which indicates why Bonifacio Lopez should have looked beyond the title and why he should have taken notice of the fact that the sole registered owner had a legitimate wife who died in 1924 or 16 years before the land was offered to him by the sole registered owner in 1940. and. the requirements of law had been fulfilled during the marriage of the spouses Pinohermoso and Flores. it was error for the courts to hold that the vendor validly sold only one-half of the property without including another one-eighth part of it which represents the vendor's share in hereditary succession from his wife. Tiburcio inherited only a unsufructuary right over the portion of the conjugal property left by his wife. (See Fule v. [39 SCRA 676 (1971)] held that once a homestead patent granted in accordance with the Public Land Act is registered pursuant to Section 122 of Act 496. Manipon. he would ask for a search of marriage records in 1909 when the marriage to Casiana Flores was allegedly . Then. The respondents. [123 SCRA 516 (1983)]. The respondent court glossed over this issue completely. the certificate of title issued in virtue of said patent has the force and effect of a Torrens' title issued under the Land Registration Act. the buyer's next step would be to ascertain the exact date the rights of Tiburcio to the homestead were perfected prior to issuance of the title after which he would find out who the wife was at that time. de Legare. Under the established principles of land registration law. Court of Appeals. et al. [See Tajonera v. that assuming that he is bound by the conjugal nature of the property. the respondents aver that their cause of action had not prescribed inasmuch as the sale is void and inexistent and that the defense of laches was not pleaded by the petitioners in their answer and therefore cannot be considered on appeal. counter that Bonifacio Lopez should be bound by the conjugal nature of the property as "anyone dealing with a homestead is charged with the notice of how the requirements of the public land law for the acquisition of the right to the patent had been fulfilled. Lastly. 606.

Court of Appeals. this Court ruled that the period of prescription for the annulment of the deed of sale dated 26 November 1934 the execution of which was tainted by fraud is four years from the discovery of fraud according to Section 43 of Act 190. the petitioner may not be faulted for purchasing what now appears to have been conjugal property at the time. These are precisely what the law says do not have to be done. Tapucar. Inc. 1940 at the age of 68. Salao (70 SCRA 65. This is not a case where to satisfy the demands of justice it is necessary to consider the Calunuran fishpond as being held in trust by the heirs of Juan Y. commenced after 19 years. L-19872. Sr. the fraud attendant in the contract of sale was discovered by the respondents or their predecessors-in-interest in 1940 when the petitioners showed to them the deed of sale and ordered them to vacate the land. plaintiffs' action is clearly barred by prescription or laches (Ramos v. any earlier buyer who failed to register his purchase. And even assuming that there was an implied trust. December 3. Both causes of action had prescribed. . This Court ruled in Salao v. 1971. There is no evidence to show bad faith or knowledge of any defect in the title of the vendor when the land was purchased by Bonifacio Lopez. 114 Phil. The action to annul the sale. Salao. the old Code of Civil Procedure. Capunitan and Reyes. of no moment. This is reinforced by the fact that the respondents' attempt to impute bad faith to the petitioners were not successful in the courts below..solemnized to determine whether or not there was a valid marriage. or for reconveyance based on implied trust is. The records before us also show that the attributions of fraud or bad faith were found false. The respondents' evidence showed that Tiburcio Pinohermoso could not have traveled from Lucena to Lucban on May 20. 84 [1976]): There was no resulting trust in this case because there never was any intention on the part of Juan Y. May 31. 43 SCRA 503. Whether the action is one for the annulment of a deed of sale executed by means of fraud. If we are to accept the respondents' contentions. applying the law of the old Civil Code and the Code of Civil Procedure which governed the contract of sale executed in 1939. 1974. had clearly prescribed. a buyer of registered land would have to look beyond the title for any unregistered owner. however. 1939 to sign a deed of sale because he had a severe hernia reaching up to the knees until it burst in 1940 thus causing his death. Yet. 377). The ruling of the respondent court is contrary to the reasons behind the indefeasibility of a Torrens Title. for the heirs of Valentin Salao. Quiniano v. L-23024. all possible actual owners who used the registered buyer as a dummy. ad infinitum. L-30889. and so many other defects or vices of the title. the death certificate of Tiburcio shows that he died of "malaria" on June 17. Ramos. Salao. Ambrosia Salao and Valentin Salao to create any trust. Varsity Hills. v. As the land was titled only in the name of the vendor Tiburcio Pinohermoso. In the case of Cultura v. Navarro. The same is true as regards an action for reconveyance of property based on implied trust assuming implied trust is applicable. 1972. (140 SCRA 311 [1985]). Alzona v. There was no constructive trust because the registration of the two fishponds in the names of Juan and Ambrosia was not vitiated by fraud or mistake. 61 SCRA 284. 39 SCRA 221. February 29. Applied to the instant case.

The assailed decision of the Court of Appeals affirming the decision of the trial court is REVERSED and SET ASIDE. concur. WHEREFORE. the petition is hereby granted. Fernan... SO ORDERED. Bidin and Cortes. 190. 261.J. C. . Gorricho and Aguado. the longest period of extinctive prescription was only ten years (Sec. Whatever right the respondents had over one half of the registered property had already prescribed through lapse of time by reason of their negligence and abandonment. (Chairman).Under Act No. Diaz v. Feliciano. JJ. The complaint is DISMISSED. 266) The reasons alleged by the respondents for the long delay in filing the action-that they were poor and had to save for the expenses of litigation and that the Japanese occupation prevented them from filing the case immediately are not meritorious. whose statute of limitation would apply if there were an implied trust in this case. 103 Phil. 40.

The petitioner's case for unlawful detainer (Civil Case No. On November 12. 1967. 1973 GENERAL INSURANCE AND SURETY CORPORATION. 1959. 1959. together with the order dated November 21. with costs against the appellant. Upon appeal to the Court of Appeals. Branch V. HON. docketed as Civil Case No. LEANDRO E. of a complaint for unlawful detainer against private respondents Castelos in the Municipal Court of Quezon City. the latter court certified the case to this Court as one involving purely a question of law.: Petition for certiorari. No. CASTELO and JOSEFA PAYUMO CASTELO. J. 2. Quezon City. judgment is rendered in this case as follows: 1. 35546. docketed as Civil Case No. Vicente P. the same Court of First Instance decided Civil Case Q-4795 as follows: WHEREFORE. with prayer for a writ of preliminary injunction to review the order dated June 7. Q-6743) was dismissed for lack of jurisdiction. 1967 of the Court of First Instance (CFI) of Rizal. both by the City Court and the Court of First Instance of Quezon City. against herein petitioners. also denying petitioner's motion for reconsideration thereof. respondents. ESGUERRA. Quezon City. Ernesto P.G. both issued in its Civil Case No. Branch V (Quezon City).. affirming the judgment of the lower court. It was accepted and docketed as G." This case stemmed from the filing by petitioner on October 22. No. vs. Defendant. and decided on April 30. . 6743. et al. 1965. Q4795. in the name of the defendant and its reconveyance to the plaintiffs. "Leandro E. General Insurance and Surety Corporation. Judge of the Court of First Instance of Rizal. Fernando for private respondents. Branch V. denying petitioner's motion to file an amended answer with counterclaim.R. MASAKAYAN. Declaring the deed of sale with right of repurchase as additional security for the loans with the Philippine Bank of Commerce. as follows: IN VIEW OF ALL THE FOREGOING the decision appealed from is hereby affirmed in full. Q-4795 entitled. L-28764 November 29. Ordering the cancellation of TCT No. L-19330. Castelo. respondents Castelos likewise filed a complaint with the CFI of Rizal. HONORATO B. Plaintiffs vs. prohibition and mandamus. Villar and Arthur Tordesillas for petitioners.R. petitioner. (Emphasis Ours) On the other hand. This decision is without prejudice to the filing by the appellant of whatever claims it may have under the controverted deed of sale.

that the aforesaid additional loan of P600.15 and upon payment of which the Indemnity Agreement with Chattel Mortgage is hereby ordered cancelled. that the mortgage of the lot. was present and ready for trial every time. it must be reckoned that the case had previously been set for hearing seven times and defendant. and thereby succeeded in obtaining from the latter a deed of sale thereof in its favor. Tuason. 35546 issued by the Register of Deeds of Quezon City in defendant's name. Gregorio Araneta. rendered judgment for the defendant.000. the truth is that "only P1. that in view of these facts. as follows: On top of this. and had built a house thereon. 1965. and averred in effect that it had rightfully consolidated its ownership over the lot in question as vendee a retro.3. This decision was appealed to the Court of Appeals where it was docketed as CA-G. as a trustee and for the benefit of the plaintiff. Ordering the plaintiffs to pay the defendant the sum of P2. and as regards the original loan of P4. the balance of the purchase price of the lot.00.00 from the Philippine Bank of Commerce. plaintiffs were given possession of the lot. on August 18.000. between the parties the real contract is one of mortgage".R. that on account of this. represented by its agent. that eventually thereafter. As set forth in the decision of the Court of Appeals.M.000 was left in the possession of the defendant and with which it paid Gregorio Araneta. likewise with defendant as accommodation co-maker of the corresponding promissory note. the complaint alleges that by virtue of a contract to sell. denied among other things that the real contract is one of mortgage instead of sale with right of repurchase.000 was received by plaintiffs and the P3.00 has already been liquidated by plaintiffs. Inc. that subsequently. defendant is holding the title to the property in question. The Court of Appeals. thru counsel. Inc. Inc. Inc.(Emphasis Supplied) Among the several errors attributed to the trial court is that it abused its discretion in denying defendant's motion for postponement and in refusing to set aside its order directing plaintiffs to adduce their evidence ex-parte before a Commissioner. defendant paid the balance of the purchase price of the lot to Gregorio Araneta. because the same had not yet been fully paid for by plaintiffs. was bound to convey plaintiffs its ownership over a lot upon receipt of the total purchase price which was payable by installment. plaintiffs. plaintiffs again obtained. obtained from the Philippine Bank of Commerce a loan of P4. J. No. that meanwhile. plaintiffs entered into indemnity agreements with defendant whereby they mortgaged to the latter the house as well as the lot. thru the help of the defendant. 29574R. plaintiffs executed in the favor of defendant a "Deed of Sale with Right of Repurchase" (in lieu of the real estate mortgage) whereby they sold to the latter all their rights and interests over the lot. that although "the aforesaid instrument executed by plaintiffs over the lot in question is on its face a deed of sale with right of repurchase. Inc. that before complete payment of the purchase price. that in view thereof. but for one reason or another.698. did not however meet with the approval of Gregorio Araneta. the facts of Civil Case Q-4795 are as follows: Substantially. the trial court has kept on ordering the postponement . and later on an owner's title over the property — Transfer Certificate of Title No. through the help of defendant General Insurance and Surety Corporation. Traversing the complaint. defendant in its answer with counterclaim.00 documented by a promissory note wherein defendant signed as accommodation co-maker. a loan of P600.

Inc. Inc. Annex "D-1" Petition) In paragraph 8 of the Original Answer. which did not meet with the approval of the same. The decisive question to determine is whether or not the amendments with counterclaim sought to be included by petitioner in the amended answer. We believe that there was no change in the line of defense. 1967. the amended answer being only an amplification of the original answer. now herein petitioner. defendant's request for postponement was the very first on its part. and this case will be remanded to the court a quo for further proceeding permitting the defendant to crossexamine plaintiff witness and to adduce its evidence. was denied by the lower Court in its order of June 7. executed by no less than the petitioner and respondents themselves. on April 12. The respondents' assertion that paragraph 8 of the Amended Answer is a substantial amendment and a complete turnabout from its original stand is unwarranted.. (Emphasis Ours) After the remand of the case to the Court of First Instance for further proceedings. particularly paragraphs 8. both of the original and amended answer. did not meet with the approval of the latter and was not carried out over the lot of Araneta but on respondent Castelos' equitable rights only. the "Deed of Sale with Right of Redemption of his Equitable Rights" only (because all that he had at the time was a right to buy the land in question from the Gregorio Araneta.either motu propio or on plaintiffs motion. now subject of this petition for review. the truth of the matter being that the "Deed of Sale with Right of Repurchase" was not over the lot in question but on plaintiffs' equitable rights only because all that plaintiffs had at the time was a right to buy the land in question from Gregorio Araneta. Pertinent portion of the said Deed of Sale reads as follows: . On the other hand. and not herein petitioner which required the execution of the said Deed of Sale with Right of Repurchase. really changed the theory of petitioner's defense. 1967... 15 and 16. (Amended Answer with Counterclaim. Annex "B" of Petition) 8. but because Gregorio Araneta. Inc. That defendant specifically denies the allegations contained in paragraph 8 of the Complaint. A comparison of the aforementioned paragraphs. by virtue of the Transfer of the same made in his favor by Raymundo Fernando and that the reason for its execution by plaintiffs was not as alleged in par. required the plaintiffs to transfer their rights.) was a distinct transaction. Inc. 8 of the Complaint. titles and interests on the said lot by means of a deed of sale. Inc. because all that respondents had at the time of execution of the said deed of sale was a right to buy the land in question. was then the owner of the land and not the plaintiffs. clearly showing that it was Gregorio Araneta. could not have been carried out because Gregorio Araneta. the defendant. as evidenced by the Deed of Sale with Right of Repurchase (Annex "A" of the complaint). that whatever transaction on the said land of Gregorio Araneta. Inc. the decision appealed from is hereby set aside. as aforementioned. the theory of the defense is that the original transaction proposed by respondents Castelos on the land of Araneta. 12. Inc. Accordingly. the truth of the matter being. filed a motion for leave to file an amended answer with counterclaim which. (Original Answer with Counterclaim. respectively read as follows: 8. That defendant specifically denies the allegations contained in paragraph 8 of the Complaint. We think that the demands of justice and equity would call for the remanding of this case to the trial court so as to give the defendant a fair chance to cross-examine plaintiffs' witness and adduce its own evidence. Comparing said theory of defense with that embodied in the amended answer.

respectively read thus: 12. and instead has required the SELLERS to transfer such rights. the truth of the matter being that the aforesaid loan of plaintiffs for P2. which was completely a separate transaction from the "Deed of Sale with Right of Repurchase. That defendant specifically denies the allegations in paragraph 12 of the Complaint." and paragraph 7 of the Amended Answer alleges: 7. 1 Paragraph 12 of the petitioner's original and amended answer. Inc. as elucidated by the Amended Answer.WHEREAS.800.00 with the Philippine Bank of Commerce.800.00 with the Bank was not secured at all by the Indemnity Agreement with Chattel Mortgage referred to in said par. and the deed of sale was for a consideration.. That defendant specifically denies the allegations contained in paragraph 12 of the Complaint. 2085 of the New Civil Code. an Indemnity Agreement with Chattel Mortgage on the house of plaintiffs. 1952. has neither been changed or altered. or by any collateral of the plaintiffs as far as the loan of P4. but it was a counterbond in favor of the defendant for the latter's having signed as co-maker on a promissory note for plaintiff's loan of P600. therefore. the truth of the matter being. Defendant further alleges that plaintiffs executed on March 5. 11 of this Answer. 12 of the Complaint for there was no such subsisting indemnity agreement.800. An analysis of the allegations set forth in the above-quoted paragraphs points out more clearly that the petitioner's defense "that the consideration for the execution of the Deed of Sale with Right to Repurchase is the sum of P2.800.. the truth of the matter is that in consonance with the suggestion of Gregorio Araneta." The alleged indemnity agreement with the chattel mortgage was.00 paid by the defendant to the Bank as stated in par.800. the truth of the matter was that the chattel mortgage on the house is a separate transaction from the "Deed of Sale with Right to Repurchase. That defendant specifically denies the allegations contained in the paragraph 7 of the Complaint. a separate transaction. after its disapproval of the aforesaid real estate mortgage on the lot in question on October 13. Besides no valid mortgage could have been executed between the parties as the respondents were not the absolute owners of the land as required by Art. INC. . and that said loan was not secured at all by any collateral or by the alleged Indemnity Agreement with Chattel Mortgage. that the consideration for the execution of said Deed of Sale with Right to Repurchase was the sum of P2. plaintiffs executed the Deed of Sale with Right of Repurchase referred to in their Complaint. 1953.00 paid by the defendant. paragraph 7 of the Original Answer states: 7. the consideration for the execution of said deed of sale with right of repurchase is the sum of P2. titles and interests to the BUYER by means of a document of a deed of sale with right of repurchase. title and interests in the above described parcel of land executed by the SELLERS in favor of the BUYER did not meet the approval of the GREGORIO ARANETA.00 is concerned. That defendant specifically denies the allegations contained in paragraph 7 of the Complaint. Moreover.00 paid by petitioner to the Bank" for the loan of respondents Castelos who failed to pay the same when it became due. 12. a previous Deed of Indemnity Agreement with Real Estate Mortgage of their rights.000 reduced later to P2.

1952 and October 14. were the money of the defendant and for its own account. .200.M. 1952 was made to Gregorio Araneta. That defendant specifically denies the allegations contained in paragraph 16 of the Complaint. Inc..000 to P2. Inc. Inc. the defendant has never been appointed trustee by anyone. documentary stamps and documentation of the deed of sale. and the balance of P389. for the back installments on the aforesaid lot which were not paid by the plaintiffs and were already overdue. the title to the aforesaid lot was transferred to the defendant in its own right and account by the former owner J. and because of the agreement had between them and stipulated in the aforesaid Deed of Sale with Right of Repurchase.00 was also partially paid to the same upon plaintiffs own instruction. consequently. all the payments made by the defendant to Gregorio Araneta. And paragraphs 15 and 16 of its Amended Answer are as follows: 15. Inc.000. therefore. until the price thereof was fully paid. much less by the plaintiffs. for the installments on the aforesaid lot. and defendant cannot see its way clear how the Transfer Certificate Title No. inspection fee. plaintiffs received directly from the defendant the sums of P1.00. whatever payments made by the defendant on the installments on the aforesaid lot were from defendant's own money and for its own account.00 by the Philippine Bank of Commerce. Moreover. that defendant has never been appointed trustee by anyone.000 on October 14. through Gregorio Araneta. When this balance of P2. the truth of the matter is that out of the proceeds of the plaintiffs' loan of P4. and thereafter. the truth of the matter being. by the Bank from the defendants current account as co-maker..000.000 and the amount of P1. It is therefore not true that the "Deed of Sale with Right of Repurchase" has no consideration as falsely alleged by plaintiffs in paragraph 11 of their Complaint to mislead this Honorable Court.800. Tuason..Paragraph 15 and 16 of the petitioner's original answer. the truth of the matter is that after the aforesaid payment of P1. and defendant cannot see its way clear how the Transfer Certificate of Title No. That defendant specifically denies the allegations contained in paragraph 15 of the Complaint for the reason that while it is true that they were granted loan of P4. 16. and. 35546 could have been issued in its name as the sole and absolute owner thereof by the Register of Deeds of Quezon City if it is a mere trustee.000.000 out of their loan of P4. 1952. the sum of P1. respectively.93 was applied on the bank charges. 16.000. they already received from the defendant the sum of P1.800 and another sum of P1. insurance premiums and other expenses in connection with the aforesaid loan. after making all the aforesaid payments.000 to Gregorio Araneta.00 was paid to the bank to reduce the said loan of P4. there was no balance left with the defendant out of the proceeds of the plaintiffs' loan of P4.00 became due finally. That defendant specifically denies the allegations contained in paragraph 15 of the Complaint.800.00 and P410.07 on September 12. Inc. before the said loan was made available by the Bank. likewise read thus: 15.00 with the Bank. much less by the plaintiffs. thus reducing their loan to only P2. Hence. of the aforesaid lot.200. That defendant specifically denies the allegations contained in paragraph 16 of the Complaint. 35546 could have been issued in its name as the sole and absolute owner thereof by the Register of Deeds of Quezon City if it is a mere trustee. the plaintiffs did not pay it and the same was debited.

January 31. 719. and that is not within the exceptions to the rule. and considering further that in the case at bar the counterclaim set forth as amendment is connected with the subject matter of the action. substantial amendments may be made only upon leave of court. 105 Phil. now herein petitioner. if not set up. In National Marketing Corporation v. this Court had occasion to extensively expound on the subject "Counterclaims". respondents Castelos' likewise assail paragraph 4 of the Amended Answer with Counterclaims 3 as having introduced a new defense. may order or allow the amendment upon such terms as may be just. Federation of United Namarco Distributors. 22 SCRA 943. L-22578. Monte v.. Guirao v. Hence the trial court should have admitted the amendments (Shaffer v. Upon careful comparison of the disputed paragraphs in both the original and amended answers. the petitioner. But such leave may be refused if it appears to the court that the motion was made with intent to delay the action or that the cause of action or defense is substantially altered.00 loan. is barred. Aside from the amendments to paragraphs 8. When the purpose of an amendment is to submit the real matter in dispute without any intent to delay the action. Ortega. and an opportunity to be heard. Section 3 of Rule 10 clearly provides that: Amendments by leave of court. therefore. Inc. — After the case is set for hearing. if this can be done without unfairness to the other party and by the means provided for by the Rules of Court. 1973. It denies that it is holding the title of the property in question as a trustee for the benefit of the respondent. this Court is of the opinion that the amendments sought to be included did not in any manner change the theory of the defense. any claim that a party has against an opposing party that is logically related to the claim being asserted by the opposing party.000. 12. Bearing in mind that the established policy of all courts should be to provide rules which will avoid lengthy and expensive litigation and which will assist in the speedy disposition of cases. the "hearing had been set for seven times and for seven times too it was postponed but never on motion of defendant who was always present and prepared for trial". In the amended answer. Palma. and the events leading to the issuance to them of the Transfer Certificate Title. gave a more accurate statement and explanation of the circumstances involving the land. . is a compulsary counterclaim. the court in its discretion. the same should be filed and interposed in the same action as a compulsary counterclaim which. that may preclude a party from fully representing the facts of his case should be brushed aside. thus controverting all the allegations in the latter pleading. 48 of Petition). and after notice to the adverse party. without changing its defense theory. never had the slightest intent to delay the early settlement of this case but was consistently for its early decision. Under this test. 2 It must be recalled that as per findings of the Court of Appeals (p. 15 and 16. Tan. the petitioner specifically denies the respective allegations contained in paragraphs 15 and 16 of the Complaint. Uy Hoo Co. the different items covered by the P4. Anything. thereby showing that defendant. Orders of the court upon the matters provided in this section shall be made upon motion filed in court. 16 SCRA 639. v. 2 SCRA 1044). Ver.In paragraphs 15 and 16 of the original answer. Among others it said: The logical relationship between the claim and counterclaim has been called "the one compelling test of compulsoriness".

concur. Villanueva. "the logical relation test" has been uniformly adhered to. 1967. Castro. 473. they ought to have presented in reply to the complaint a joint petition or counterclaim for the value of the improvement and the amount of damages suffered. which was an action for ejectment. thus causing multiplicity of suits.. August 26. are hereby set aside and the case remanded to the lower court for further proceedings. it is clear that the amendment in paragraph 4 sets up a counterclaim for the damages suffered by the petitioner. C. 1 SCRA 1060 (cited in the NAMARCO case. Manalo. the Court should be liberal in allowing amendments to pleadings to avoid multiplicity of suits and in order that the real controversies between the parties are presented.In this jurisdiction. docketed as Civil Case No. supra). In Berces v. the respondent Judge disregarded the above tenets when he denied the motion for leave to amend the answer in the manner indicated. because the claim for such improvements and the amount of damages or indemnity is necessarily related to the action for the recovery of the land said to have been improved and to the consequences of the judgment ordering restitution thereof. 99 Phil. Teehankee. it should be interposed in the same action. 6743. Ozea v. Makalintal. The respondent court shall admit the amended answer with counterclaim and proceed to the hearing and final determination of its Civil Case No. 25 Phil. the orders appealed from dated June 7 and November 21.. This situation is what the rule precisely seeks to avoid and thus compel the parties to litigate all the issues in a single proceeding. Vda. Villanueva. 1956. It runs counter to a settled rule that in the furtherance of justice. . but which was dismissed not for lack of merit but for lack of jurisdiction. In the case at bar. L-8621. WHEREFORE. 4 The assertion of respondents that the counterclaim sought to be included as amendment to paragraph 4 in the Amended Answer should be filed as an original and separate action in the proper court. as owner of the lot in question. 53 Phil. is without merit. (if not barred) against respondent Castelos. 5 Evidently. their rights determined and the case decided on the merits without unnecessary delay. another action would have to be instituted. (Emphasis Supplied) That ruling was reiterated in Beltran v. JJ. for having been deprived by respondents Castelos of the use and enjoyment thereof. Costs against private respondents. No new cause of action or defense is thereby interposed since the same was the subject matter between the same parties in the ejectment case filed in the municipal court. Q-4795. de Montaur. Makasiar and Muñoz Palma. And said counterclaim is necessarily connected with the lot subject of the present action. 1061. this Court said: When plaintiffs were sued for recovery of a tract of land. If the amendment is not allowed.J. 697. Carpena v.

DURAN and ANTERO S. (4) the plaintiffs-appellants and the defendant-appellee Fe S. When petitioner Circe S. Psd 32780) covered by Transfer Certificate of Title No. INTERMEDIATE APPELLATE COURT. counterclaim. Duran are hereby ordered to pay solidarily to the spouses Tiangco the sum of Twenty Thousand Pesos (P20. (5) the plaintiffs-appellants and defendant-appellee Fe S. Duran are hereby ordered to deliver to (the Tiangcos) the two parcels of land and all the improvements thereon including the 12-door apartment thereon. she returned to the Philippines. Duran. and in the Sheriff's Certificate of Sale. No. Marcelo-Tiangco.000) for moral damages. on December 3. Duran came to know about the mortgage made by her mother. 1963. Duran. Fe S. (2) the defendants-appellants spouses Erlinda B. failed to redeem the mortgage properties. (3) the plaintiffs-appellants and the defendant-appellee Fe S. GASPAR. RELOVA. 149-150. L-64159 September 10. which reads as follows: (1) the complaint of the plaintiffs (herein petitioners) is hereby DISMISSED. Duran are hereby ordered to pay solidarily to the Tiangcos the sum of Two Thousand Four Hundred Pesos (P2. She left the Philippines in June 1954 and returned in May 1966.400) a month from May 16. a Deed of Sale of the two lots mentioned above was made in favor of Circe's mother. vs.R. Marcelo Tiangco and Restituto Tiangco (herein private respondents) are hereby declared the lawful owners of the two (2) parcels of land and all the improvements thereon including the 12-door apartment thereon described in the complaint.G. 1647 of the Register of Deeds of Caloocan City which she had purchased from the Moja Estate. petitioners. ERLINDA B. when her mother. and in the Sheriff's Certificate of Sale. Meanwhile.appellee Fe S.respondents. foreclosure proceedings . and the costs. and the sum of Twenty-Five Thousand Pesos (P25. Fe S. Duran who. J.000) as damages for attorney's fees. Rollo) The antecedent facts showed that petitioner Circe S. and cross-claim. 1972 until delivery of possession of the properties in question to said Tiangco spouses. 1985 CIRCE S. representing rentals collected by plaintiffs-appellants and defendant. in the counterclaim. (pp.: The respondent then Court of Appeals rendered judgment. Failing to get an answer from the registrar. in the cross-claim. On May 13. she wrote the Register of Deeds of Caloocan City informing the latter that she had not given her mother any authority to sell or mortgage any of her properties in the Philippines. MARCELO TIANGCO and RESTITUTO TIANGCO. mortgaged the same property to private respondent Erlinda B. subject matter of the complaint. modifying the decision of the then Court of First Instance of Rizal. Block A. Duran owned two (2) parcels of land (Lots 5 and 6. 1965.

and that she did not leave shortly after 1963. Cruz. Her return in 1966 does not prove she was not here also in 1963. Fule et al. Rollo) . On the other hand. Duran to be the owner. Duran and as aptly stated by respondent appellate court "[e]ven on the supposition that the sale was void.were initiated by private respondent Erlinda B. the mortgage made by Fe S. Duran claims that the Deed of Sale in favor of her mother Fe S. Duran in the Deed of Sale is a forgery or not. Fable. With respect to the issue as to whether the signature of petitioner Circe S. as evidenced by the registration of the property in the name of said Fe S. Otherwise stated. Nano et al. Marcelo-Tiangco was a buyer in good faith and for value. 7 SCRA 351). While it is true that under Art. Good faith. see also Sec. Legare et al. the sale by the sheriff and the issuance of Certificate of Sale in favor of the latter. saying that at the time of its execution in 1963 she was in the United States. Duran in favor of private respondent is valid. 35 Phil. The mortgagee had the right to rely upon what appeared in the certificate of title. Duran is a forgery. The doctrine to follow is simple enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the name of the true owner to the name of the forger or the name indicated by the forger. v. 146-147. raised only one issue and that is whether private respondent Erlinda B. Marcelo Tiangco and. Gomez dela Serna. ultimately. private respondents. Duran in the said Deed are genuine and. Legare. If the rule were otherwise. the defendants-appellants. v. petitioners discussed questions of law which. in good faith relied on the certificate of title in the name of Fe S. Thus the rule is simple: the fraudulent and forged document of sale may become the root of a valid title if the certificate has already been transferred from the name of the true owner to the name indicated by the forger (See De la Cruz v. good faith consists in the possessor's belief that the person from whom he received the thing was the owner of the same and could convey his title (Arriola vs. still it is Our opinion that the Deed of Mortgage is VALID. 55 of Act No. the efficacy and conclusiveness of Torrens Certificate of Titles would be futile and nugatory. and while as between the daughter and the mother. the Land Registration Act). and did not have to inquire further. good faith is the opposite of fraud and it refers to the state of mind which is manifested by the acts of the individual concerned. Rollo). 61 Phil. STILL insofar as innocent third persons are concerned the owner was already the mother (Fe S. in effect and substance. Petitioner Circe S. She should have presented her old passport. 14 Phil. with the right to convey it (Santiago vs." (p. while it is always to be presumed in the absence of proof to the contrary. the general rule that the direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot rise higher than its source) cannot apply here for We are confronted with the functionings of the Torrens System of Registration. Guided by previous decisions of this Court. the mortgagees in good faith actually believed Fe S. 148). The fact that at the time of the foreclosure sale proceedings (1970-72) the mortgagees may have already known of the plaintiffs' claim is immaterial. and the sale would be regarded as void. 147. 496. it was the daughter who still owned the lots. with respect to the mortgagees.. 2085 of the Civil Code. not her new one. it is essential that the mortgagor be the absolute owner of the property mortgaged. 627). Blondeau et al. 625. What is important is that at the time the mortgage was executed. In the case at bar. respondent appellate court held the same to be genuine because there is the presumption of regularity in the case of a public document and "the fact that Circe has not been able to satisfactorily prove that she was in the United States at the time the deed was executed in 1963. requires a well-founded belief that the person from whom title was received was himself the owner of the land. the adverse party alleges that the signatures of Circe S. There is good faith where there is an honest intention to abstain from taking any unconscientious advantage from another (Fule vs. consequently. 7 SCRA 351.. Duran) inasmuch as she had already become the registered owner (Transfer Certificates of Title Nos. Duran (pp. 144. 19 Phil." In elevating the judgment of the respondent appellate court to Us for review. 2418 and 2419). But even if the signatures were a forgery.

otherwise everyone dealing with property registered under the torrens system would have to inquire in every instance as to whether the title had been regularly or irregularly issued by the court. he could have discovered that the deed of sale sought to be set aside had been executed on May 13. 148.. Jr. Rollo) IN VIEW OF THE FOREGOING. JJ. shortly before the sheriff's sale. Likewise. In the process of construction. an innocent purchaser for value relying on a torrens title issued is protected. the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title. Antero Gaspar. And then again both plaintiffs could have intervened in the foreclosure suit but they did not. Melencio-Herrera. Duran). Gutierrez. 1981. 27. Indeed. Circe's mother. 1973). SO ORDERED. This was testified to by Circe herself (tsn. in the absence of anything to excite suspicion. namely. A mortgagee has the right to rely on what appears in the certificate of title and. p. specifically in the matter of obtaining a building permit. De la Fuente and Patajo. where innocent third persons relying on the correctness of the certificate of title issued. 41.. ." (p. We find the petition without merit and hereby AFFIRMED in toto the decision of respondent appellate court promulgated on August 12. Stated differently. Nov. Teehankee (Chairman). this is contrary to the evident purpose of the law. Fe S. Clearly. acquire rights over the property. to file a third-party claim. concur. 1963 (the building permit needed an application by the apparent owner of the land. They kept silent until almost the last moment when they finally decided.Thus. Plana.. We take note of the finding and observation of respondent appellate court in that petitioners were guilty of estoppel by laches "in not bringing the case to court within a reasonable period. the plaintiffs can be faulted for their estoppel by laches. he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. 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. husband of Circe. was in the Philippines in 1964 to construct the apartment on the disputed lots.

petitioners. 1961. No. 1959. and Arsenio Reyes. Basilio Magsambol and Arsenio Reyes as defendants in Civil Case No. the sheriff of Manila. Jose Desiderio.. 1959. defendants. But when April 10.000.00 and not for P3. 1981 RURAL BANK OF CALOOCAN. Upon request by Castro and the Valencias and with conformity of the bank. announcing that her property covered by T. No. when she learned for the first time that the mortgage contract (Exhibit "6") which was an encumbrance on her property was for P6." against petitioners Bank and Desiderio.. that thru mistake on her part or fraud on the part of Valencias she was induced to sign as co-maker of a promissory note (Exhibit "2") and to constitute a mortgage on her house and lot to secure the . sent a notice of sheriff's sale addressed to Castro." which affirmed in toto the decision of the Court of First Instance of Manila in favor of plaintiff.G. Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on February 13. On December 7.C. 7419 would be sold at public auction on March 10. 1959. defendants-appellants. 1961. signed a promissory note corresponding to her loan in favor of the bank. plaintiff-appellee. et al. December 11. versus Severino Valencia. 46698 before the Court of First Instance of Manila upon the charge. 1961 was postponed for April 10. and JOSE O. went to the Rural Bank of Caloocan to apply for an industrial loan. Rural Bank of Caloocan.00 and that she was made to sign as co-maker of the promissory note (Exhibit "2") without her being informed of this. 1961 was subsequently declared a special holiday. Jr. the Spouses Valencia.T. 7419 of the Office of the Register of Deeds of Manila. the Valencia spouses obtained from the bank an equal amount of loan for P3.R.000. On February 13.R.: This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CA-G.000. L-32116 April 2l. Castro filed a suit denominated "Re: Sum of Money. It was Severino Valencia who arranged everything about the loan with the bank and who supplied to the latter the personal data required for Castro's loan application. thru Acting Chief Deputy Sheriff Basilio Magsambol. 1961. respondents. On the same day. DESIDERIO. respondent Maxima Castro.00. the sheriff of Manila sold the property covered by T. covered by Transfer Certificate of Title No. JR. 7419 at a public auction sale that was held on April 11. the auction sale that was scheduled for March 10. On December 11. No. * J. 1961 to satisfy the obligation covering the two promissory notes plus interest and attorney's fees. which was the next succeeding business day following the special holiday. after the bank approved the loan for the amount of P3. 39760-R entitled "Maxima Castro. No.00.000. The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150 square meters. Castro.T.appellee. On April 4. THE COURT OF APPEALS and MAXIMA CASTRO. DE CASTRO. the herein private respondent Maxima Castro. accompanied by the Valencia spouses. accompanied by Severino Valencia. 1961. INC.C. 1961.. Inc. They signed a promissory note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as co-maker. vs. amongst others.

00 with the court a quo in full payment of her personal loan plus interest. covered by T. 7419 in favor of Arsenio Reyes. 1268-1270 Carola Street. No. In her amended complaint.00.000. b) Promissory Note dated December 11. of this partial stipulation of facts.T.383. signed by the spouses Severino Valencia and Catalina Valencia as borrowers. That the plaintiff was the registered owner of a residential house and lot located at Nos. 1959 in the amount of P3. dated December 7. Severino Valencia and Catalina Valencia. 2. c) Application for Industrial Loan with the Rural Bank of Caloocan. with damages. signed only by the defendants. more or less. and plaintiff Maxima Castro. respondent Castro deposited the amount of P3. 1959 executed by plaintiff Maxima Castro. 2 The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by respondent Court of Appeals are as follows: Spawning the present litigation are the facts contained in the following stipulation of facts submitted by the parties themselves: 1. Sampaloc. That the signatures of the plaintiff appearing on the following documents are genuine: a) Application for Industrial Loan with the Rural Bank of Caloocan. containing an area of one hundred fifty (150) square meters. In their answers. 7419 of the Office of the Register of Deeds of Manila.C.questioned note. as a co-maker.00 with the court a quo upon the filing of her complaint.000. 3. 1959 for the amount of P3000.000. 1959. dated December 11.C. for the discharge of her personal obligation with the bank by reason of a deposit of P3. in favor of the Rural Bank of Caloocan. 1959 signed by the plaintiff in favor of the Rural Bank of Caloocan for the amount of P3. No.000. attached as Annex C.00. . attorney's fees and costs. damages and cost. to secure the obligation of P6. At the time of filing her complaint. and for the award in her favor of attorney's fees. Manila. for the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds P3.00 as per Annex B of this partial stipulation of facts. attached as Annex D of this partial stipulation of facts.383. That the capacity and addresses of all the parties in this case are admitted . e) Real estate mortgage dated December 11. d) Promissory note in favor of the Rural Bank of Caloocan. Castro prayed.00 attached herein as Annex E of this partial stipulation of facts. for the annulment of the foreclosure sale of her property covered by T. dated December 11. petitioners interposed counterclaims and prayed for the dismissal of said complaint.00 attached as Annex A of this partial stipulation of facts. amongst other.T.

plus interest. etc. had consolidated his title to the property as per T. 67297 in favor of the defendant. would be sold at public auction on March 10. dated February 13. a copy of which is attached as Annex I of this partial stipulation of facts. Maxima Castro. (Note: No. attorney's fees. address to the plaintiff. 7 is omitted upon agreement of the parties. 11. No. Arsenio Reyes. of this stipulation of facts. No. That the sheriff of Manila. That upon the request of the plaintiff and defendants-spouses Severino Valencia and Catalina Valencia. That on April 16. announcing that plaintiff's property covered by TCT No. 1961 for thirty (30) days and the sheriff re-set the auction sale for April 10. as evidenced by the Notice of Sheriff's Sale and Notice of Extrajudicial Auction Sale of the Mortgaged property. which was cancelled. 1961. 7419 which was in the name of plaintiff.50.T. respectively. That April 10. was the highest bidder and the corresponding certificate of sale was issued to him as per Annex G of this partial stipulation of facts. 67299. and with the conformity of the Rural Bank of Caloocan. 1962.C. That after defendant.00. 67299 as per Annex J of this partial stipulation of facts. 1961 was declared a special public holiday. 7419 of the Register of Deeds of the City of Manila. and 13. plaintiff filed a notice of lis pendens with the Register of Deeds of Manila and the same was annotated in the back of T. Arsenio Reyes. 12. sold at public auction plaintiff's property covered by T. the defendant Arsenio Reyes. 5. in the amount of P7. the Sheriff of Manila. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No.728. thru Acting Chief Deputy Sheriff. 6. a copy of which is hereto attached as Annex H of this partial stipulation of facts.C. the Sheriff of Manila postponed the auction sale scheduled for March 10. 10. Arsenio Reyes. Basilio Magsambol. 7419 and defendant.All the parties herein expressly reserved their right to present any evidence they may desire on the circumstances regarding the execution of the above-mentioned documents.. WHEREFORE. 9.) 8. No.C. . attached herewith as Annexes F and F-1.T. That on May 9. sent a notice of sheriff's sale. it is respectfully prayed that the foregoing partial stipulation of facts be approved and admitted by this Honorable Court.T. 4.000. That on April 11. 1961. 1961 to satisfy the total obligation of P5. 1962. Arsenio Reyes. 1961. That the parties hereby reserved their rights to present additional evidence on matters not covered by this partial stipulation of facts. executed an Affidavit of Consolidation of Ownership. in lieu of Transfer Certificate of Title No. the Rural Bank of Caloocan Incorporated executed the final deed of sale in favor of the defendant.

. 1959. its manager declared that sometime in December. she needed money in the amount of P3.. 1961 upon the request of defendant spouses Valencia who needed more time within which to pay their loan of P3. p.00 to invest in the business of the defendant spouses Valencia. the manager of the bank was able to gather that plaintiff was in joint venture with the defendant spouses wherein she agreed to invest . it was found that the papers she was made to sign were: (a) Application for a loan of P3.00 dated December 7. The claims he asked the amount and the purpose of the loan and the security to he given and plaintiff said she would need P3. defendant spouses had their application for a loan also prepared and signed (see Exh.00 (ExhB-2). After the application of plaintiff was made.00 to be invested in a drugstore in which she was a partner (t. 1964).000. 1959 for P3.000. 1959 (Exh. 1961 was postponed co April 10. In his interview of plaintiff and defendant spouses. that in December 1959.. Sampaloc. p 4. 2).As for the evidence presented during the trial. Then a few days later. 811. as follows: In addition to the foregoing stipulation of facts. plus interest at the rate of 12% per annum up to April 3.000.000. Manila. p. plaintiff came back to the bank with the wife of defendant Valencia A date was allegedly set for plaintiff and the defendant spouses for the processing of their application. 1959 for the said loan of P3.383. that upon investigation of her lawyer. She signed the application and the other papers pertinent to the loan after she was interviewed by the manager of the defendant. regarding the extrajudicial foreclosure sale of her property.n.00 in full payment of her loan of P3.000. (b) Promissory note dated December 11. that sometime in February 1961. that she has only finished second grade (t. B-4 or Exh.00 and not P3. 1966).000. that while at the defendant bank. 13). there to inquire if she could get a loan from the bank.882. plaintiff was brought to the Office of the Bank by an employee(t.85 which she delivered to defendant spouses. As additional evidence for the defendant bank.000. plaintiff claims she is a 70-year old widow who cannot read and write the English language. B-1 and Exh.00 with the defendants Valencia spouses as borrowers and appellee as co-maker (Exh.s. The auction sale set for March 10. We quote from the decision of the Court of Appeals the statement thereof.000.. who accompanied her to the defendant bank for the purpose of securing a loan of P3. an employee handed to her several forms already prepared which she was asked to sign on the places indicated. plaintiff claims that when she filed the complaint she deposited with the Clerk of Court the sum of P3.00 with the defendant bank. she received a letter from the Acting Deputy Sheriff of Manila. plaintiff came without the defendant spouses. December 11. D). but on the day fixed.s.s. that she can speak the Pampango dialect only. (c) Promissory note dated December 11. 1).000.n. that she did not even receive a copy thereof. that she was given a check in the amount of P2.00.00. with no one explaining to her the nature and contents of the documents. January 27.000.00 with the defendant bank. 1961 (Exh. She offered as security for the loan her lot and house at Carola St.n. 4. She wept. which was promptly investigated by the defendant bank's inspector. that it was then when she learned for the first time that the mortgage indebtedness secured by the mortgage on her property was P6.

00 representing the principal obligation of plaintiff. and orders that plaintiff's deposit of P3. 4 Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent court's decision. The motion having been denied. 6 they now come before this Court in the instant petition. (6) Orders defendants spouses Severino D. Inc. (3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on April 11.P3. also as a consequence of the conclusion aforesaid. 1961. (5) Orders defendant Rural Bank of Caloocan. Inc. in so far as the amount thereof exceeds the sum of P3. and Orders defendants Rural Bank of Caloocan.000. the Court renders judgment and: (1) Declares that the promissory note.00 as additional capital in the laboratory owned by said spouses (t. and Arsenio Reyes are hereby dismissed. pp.00 plus the corresponding 12% interest thereon per annum from December 11. to return to defendant Arsenio Reyes the purchase price the latter paid for the mortgaged property at the public auction.383. Inc. Jose Desiderio.00.. Valencia and Catalina Valencia to pay plaintiff. In view of the conclusion that the court has thus reached.000.. 1963.000. is null and void. Exhibit '6'. Exhibit '2'. jointly and severally. Jr..s. is invalid as against plaintiff herein. 1961. as well as all the process and actuations made in pursuance of or in implementation thereto. with the following Assignment of Errors. 1960 until fully paid.00 by way of attorney's fees. Jr. and spouses Severino D.000. upon evaluation of the evidence. as well as costs. as of April 3. Jose Desiderio. Inc. Inc.00 in the Office of the Clerk of Court be applied to the payment thereof. as a corollary The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima Castro to deposit rentals filed on November 16. to wit: I . the amount of P3. (2) Declares that the contract of mortgage. plus the interest thereon at 12% per annum. resolution of which was held in abeyance pending final determination of the case on the merits. plus the interest thereon at 12% per annum. is only the amount of P3. (4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan.. the sum of P600. as well as reimburse him of all the expenses he has incurred relative to the sale thereof.n. the counterclaims of defendant Rural Bank of Caloocan. the dispositive portion of which reads: FOR ALL THE FOREGOING CONSIDERATIONS. 16-17) 3 The Court of Appeals. Valencia and Catalina Valencia to pay defendant Rural Bank of Caloocan. affirmed in toto the decision of the Court of First Instance of Manila.

II THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING PREJUDICIALLY AGAINST PETITIONERS.00 WITH THE COURT BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH PETITIONER BANK. V THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY RESPONDENT CASTRO OF P3. EXHIBIT 2. The issue raised in the first three (3) assignment of errors is whether or not respondent court correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they . BETWEEN PETITIONERS AND RESPONDENT CASTRO. AS BASIS FOR THE PARTIAL ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF FRAUD PERPETRATED BY THE VALENCIA SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES INTER ALIOS ACTA RULE. IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE. UNDER THE FACTS FOUND BY IT. VI THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON RESPONDENT CASTRO THE HOLDING OF THE SALE ON FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY SCHEDULED DATE THEREFOR WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE THEREOF. IV THE COURT OF APPEALS ERRED IN NOT FINDING THAT.383. III THE COURT OF APPEAL ERRED IN NOT HOLDING THAT. RESPONDENT CASTRO IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED TRANSACTION WITH PETITIONER BANK. INSOFAR AS THEY AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION OF SAID CONTRACTS FROM RESPONDENT CASTRO. AND THE MORTGAGE.THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE PROMISSORY NOTE. THE LATTER SHOULD SUFFER THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE VALENCIA SPOUSES. EXHIBIT 6.

it is evident that they would not have given their consents to the contracts. However. Petitioners' contention that the decision was silent regarding the participation of the bank in the fraud is. Misrepresentation by a third person does not vitiate consent.00. and the mortgage contract (Exhibit 6) valid up to the amount of P3. The records of the case reveal that respondent court's findings of fraud against the Valencias is well supported by evidence. In other words. a finding of fraud perpetrated by the spouses against Castro cannot be taken to operate prejudicially against the bank. For one. it is in indicating the admission of petitioners that the bank committed mistake in giving its consent to the contracts. in the light of the res inter alios acta rule. they also misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. For another. Petitioners concluded that respondent court erred in not giving effect to the promissory note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that the mortgage contract (Exhibit 6) was valid only to the extent of Castro's personal loan of P3. Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she signed as co-maker with the Valencias as principal borrowers and her acquiescence to the mortgage contract (Exhibit 6) where she encumbered her property to secure the amount of P6. But to reiterate.000. petitioners did not submit proof to support its contention. . Moreover. if the contention deserves any consideration at all. Petitioners argued that since the Valencias were solely declared in the decision to be responsible for the fraud against Castro. This must be the reason which prompted the bank to contend that it was defrauded by the Valencias. the findings of fact by respondent court in the matter is deemed final.00 only which was equivalent to her personal loan to the bank. no claim was made on this in the lower court. Thus. For if Castro had been aware of what she signed and the bank of the true qualifications of the loan applicants. 1342. substantial mistake vitiated their consents given. unless such misrepresentation has created substantial mistake and the same is mutual.00 was obtained by fraud perpetrated on her by the Valencias who had abused her confidence. taking advantage of her old age and ignorance of her financial need. We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias.000.affect respondent Castro vis-a-vis petitioner bank.000. Pursuant to Article 1342 of the Civil Code which provides: Art. correct. At any rate. Respondent court added that "the mandate of fair play decrees that she should be relieved of her obligation under the contract" pursuant to Articles 24 7 and 1332 8 of the Civil Code. therefore. 9 The decision declared the Valencias solely responsible for the defraudation of Castro. as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed mistake in giving their consents to the contracts. We observe that while the Valencias defrauded Castro by making her sign the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6). We cannot agree with the contention for reasons above-mentioned. The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6) was deemed valid up to the amount of P3.000.00 only.

resulted in mutual error on the part of the parties to the contract. she his not even given such kind of information -the true fact being that she was being paid P1. without any consideration from the Valencia spouses. is deemed sufficient basis for the declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank.000. ignorance and old age – she cannot be considered utterly neglectful for having been defrauded.We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the mortgage contract (Exhibit 6) binding on Castro beyond the amount of P3. of negligence in giving its consent to the contracts.00. to wit: A witness for the defendant bank. and the mortgage contract (Exhibit 6) valid only up to the amount of P3. why was she described in the application (Exh. such mention is not essential in order that the promissory note (Exhibit 2) may be declared of no binding effect between them and the mortgage (Exhibit 6) valid up to the amount of P3. The records of the case. petitioners argue that it was her negligence or acquiescence if not her actual connivance that made the fraud possible. . In attributing to Castro an consequences of the loss. The reason is that the mistake they mutually suffered was a mere consequence of the fraud perpetrated by the Valencias against them. having been proven. Rule 8 of the Rules of Court. considering that she was giving accommodation to. however. Moreover. Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein petitioners' negligence in the contracts has been aptly demonstrated. such may however be invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the Valencias. the fraud particularly averred in the complaint. even without connivance or complicity with one of the contracting parties. Although. The second issue raised in the fourth assignment of errors is who between Castro and the bank should suffer the consequences of the fraud perpetrated by the Valencias. 10this Court declared that a contract may be annulled on the ground of vitiated consent if deceit by a third person. It apparently relied on representations made by the Valencia spouses when it should have directly obtained the needed data from Castro who was the acknowledged owner of the property offered as collateral. and its mention in the prayer is definitely not a substantial compliance with the requirement of Section 5. Veloso. why was it placed in the application that she has income of P20.000. Thus. for while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto. Petitioners argued that the amended complaint fails to contain even a general averment of fraud or mistake. B-1-9) as drug manufacturer when in fact she was not.00 when according to plaintiff-appellee. guilty as Castro was. it is demanded of petitioners to exercise the highest order of care and prudence in its business dealings with the Valencias considering that it is engaged in a banking business –a business affected with public interest.000. the amended complaint made no mention of mistake being incurred in by the bank and Castro. it is evident that the bank was as much . If this were true why is it that her age was placed at 61 instead of 70.20 per picul of the sugarcane production in her hacienda and 500 cavans on the palay production. Thus. On the contrary. in the case of Hill vs. considering Castro's personal circumstances – her lack of education. It should have ascertained Castro's awareness of what she was signing or made her understand what obligations she was assuming. 11 From the foregoing. Rodolfo Desiderio claims he had subjected the plaintiff-appellee to several interviews. will show that the amended complaint contained a particular averment of fraud against the Valencias in full compliance with the provision of the Rules of Court.00 only.000.00.

the Valencias acted for their own behalf. The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction of the mortgaged property that was held on April 11. the Bank had long foreclosed the mortgage extrajudicially and the sale of the mortgage property had already been scheduled for April 10. said Bank had not made any claim of such deposit. it should have required a special power of attorney executed by Castro in their favor. This is apparent from the fact that Castro went to the Bank to sign the promissory note for her loan of P3. She cannot now be permitted to deny the authority of the Valencias to act as her agent for one who clothes another with apparent authority as her agent is not permitted to deny such authority.00 plus 12% interest per annum. respondent court considered the fact that the Bank was holding Castro liable for the sum of P6. The authority of the Valencias was only to follow-up Castro's loan application with the bank. the need of extreme caution and prudence by said officials and employees in the discharge of their functions cannot be over-emphasized. not valid. With the recent occurrence of events that have supposedly affected adversely our banking system. 1961 which was the next business day after the scheduled date of the sale on April 10. while the amount consigned was only P3.000. a special public holiday.Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to believe that they were authorized to speak and bind her. and it therefore. 1961. lack of education and old age – should have placed the Bank on prudent inquiry to protect its interest and that of the public it serves. if not under the strict provision of the law.383. the Bank should have exercised due care and prudence by making proper inquiry if Castro's consent to the mortgage was without any taint or defect.000. They were not authorized to borrow for her. It is contended that the consignation was made without prior offer or tender of payment to the Bank. Considering however that for the loan in which the Valencias appeared as principal borrowers. that at the time of consignation. and that despite the fact that the Bank already knew of the deposit made by Castro because the receipt of the deposit was attached to the record of the case.00 evidenced by a promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan.00 was validly made. and that therefore. 1961 for nonpayment of the obligation. it was the property of Castro that was being mortgaged to secure said loan. Since the bank did not. Under the foregoing circumstances. When the Valencias borrowed from the Bank a personal loan of P3.00 plus 12% interest. likewise. We can rightly assume that it did not entertain the notion.000.000. In holding that there is a substantial compliance with the provision of Article 1256 of the Civil Code. Petitioners contended that the public auction sale that was held on April 11. If her act had been understood by the Bank to be a grant of an authority to the Valencia to borrow in her behalf. was permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative Code which ordains: . 1961. in view of her personal circumstances – ignorance.00 plus 12% interest. the consignation made by Castro was valid. that the Valencia spouses were in any manner acting as an agent of Castro. under the more liberal considerations of equity.000. Castro was right in thinking that it was futile and useless for her to make previous offer and tender of payment directly to the Bank only in the aforesaid amount of P3.00. The possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with the Valencias and that her property was mortgaged to secure the two loans instead of her own personal loan only. Question is. raised as to the propriety of respondent court's decision which declared that Castro's consignation in court of the amount of P3. attributable to laxity in the conduct of bank business by its officials.

– Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated. We affirm the same in toto. or the last day. But. C. and if such property is worth more than four hundred pesos. the aforesaid sale cannot legally be made on the next succeeding business day without the notices of the sale on that day being posted as prescribed in Section 9. which provides: Section 9. if a party is required by law to file his answer to a complaint within fifteen (15) days from receipt of the summons and the last day falls on a holiday. We agree with respondent court. it not having been carried out in accordance with Section 9 of Act No. JJ.. – Where the day. 3135. No pronouncement as to cost. Guerrero and Melencio-Herrera. the act may be done on the next succeeding business day. It does not apply to a day fixed by an office or officer of the government for an act to be done.Pretermission of holiday. the trial thereof is not automatically transferred to the next succeeding business day. the last day is deemed moved to the next succeeding business day. Teehankee (Acting. 3135. finding no reversible error in the judgment under review. for doing any act required or permitted by law falls on a holiday. SO ORDERED. . WHEREFORE. 1961 was not the day or the last day set by law for the extrajudicial foreclosure sale. Respondent court ruled that the aforesaid sale is null and void." or when the last day of a given period for doing an act falls on a holiday. Since April 10. if the court fixes the trial of a case on a certain day but the said date is subsequently declared a public holiday.J. or the last day for doing any act required or permitted by law falls on a holiday. as distinguished from a period of time within which an act should be done. For example.) Makasiar. The pretermission of a holiday applies only "where the day. Act No. Fernandez. which may be on any day within that specified period. concur. such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. nor the last day of a given period but a date fixed by the deputy sheriff.

J. respondents. their property and all other documents executed in relation thereto in favor of the Government Service Insurance System" be declared null and void. Additionally. .G. 6 More than two years thereafter. Mr. RACHO.00) Philippine Currency. (P 11.. was given as security under the aforesaid two deeds. dated April 14. and/or they be allowed to repurchase the land. 2 They also executed a 'promissory note" which states in part: . Racho.00. It was further prayed that they be allowed to recover said property. COURT OF APPEALS and MR. No. petitioner. . they asked for actual and moral damages and attorney's fees. particularly the payment of the amortizations due. co-owned by said mortgagor spouses. . together with the spouses Mr. (P 127. . 1958. 1989 GOVERNMENT SERVICE INSURANCE SYSTEM. herein private respondents filed a complaint against the petitioner and the Lagasca spouses in the former Court of First Instance of Quezon City. & MRS. 3 On July 11. in favor of petitioner Government Service Insurance System (hereinafter referred to as GSIS) and subsequently. private respondents alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by the loans from the GSIS.. dated November 13. Sales for private respondents. respectively. . 1961. and Mrs.000. REGALADO . promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . and/or the GSIS be ordered to pay them the value thereof.500. with interest at the rate of six (6%) per centum compounded monthly payable in . Isabelo R. executed a deed of mortgage. In their aforesaid complaint. 4 This undertaking was not fulfilled.R. . 1965. L-40824 February 23.500. GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3. 1957. for value received. The Government Corporate Counsel for petitioner. 1962.. another deed of mortgage.00 and P 3. . the Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they obligated themselves to assume the aforesaid obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to herein private respondents and which was mortgaged to the GSIS. Lorenzo A.: Private respondents. vs.65) each. or on August 23. 7 praying that the extrajudicial foreclosure "made on. SEVERALLY and SOLIDARILY. 1 A parcel of land covered by Transfer Certificate of Title No. in connection with two loans granted by the latter in the sums of P 11. and Mrs Flaviano Lagasca. ISABELO R. we the undersigned . 5 Upon failure of the mortgagors to comply with the conditions of the mortgage. (120)equal monthly installments of . JOINTLY. 38989 of the Register of Deed of Quezon City..

The note is payable to a specified party..000. and another one entered (1) declaring the foreclosure of the mortgage void insofar as it affects the share of the appellants. 10 On the foregoing findings. clear that as against the GSIS. the judgment appealed from is hereby reversed.00. drawer. 2031. In submitting their case to this Court. The notice published in the newspaper. the respondent court consequently decreed thatIn view of all the foregoing. but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party. the GSIS.000. P 5. 1968 dismissing the complaint for failure to establish a cause of action. 12 This appears to be duly supported by sufficient evidence on record. which provide that an accommodation party is one who has signed an instrument as maker. 2031 because they are neither payable to order nor to bearer.00 as attorney's fees. they are so only for accomodation (sic) in that the GSIS required their consent to the mortgage of the entire parcel of land which was covered with only one certificate of title. or the value thereof if already sold to third party. and costs. as well as the mortgage deeds subject of this case. The promissory note hereinbefore quoted.. (2) directing the GSIS to reconvey to appellants their share of the mortgaged property.00 as moral damages.. 8 Said decision was reversed by the respondent Court of Appeals 9 which held that: . with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. both parties relied on the provisions of Section 29 of Act No. therefore. Indeed. instead. 2031 would not apply. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No.. although formally they are co-mortgagors. 11 The case is now before us in this petition for review.00. the provisions of Act No. As earlier indicated. Absent the aforesaid requisite. This approach of both parties appears to be misdirected and their reliance misplaced. the factual findings of respondent court are that private respondents signed the documents "only to give their consent to the mortgage as required by GSIS". appellants have a valid cause for having foreclosed the mortgage without having given sufficient notice to them as required either as to their delinquency in the payment of amortization or as to the subsequent foreclosure of the mortgage by reason of any default in such payment. 12) and posted pursuant to Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the application being made for an extrajudicial foreclosure. are clearly not negotiable instruments. in the sum of P 35. otherwise known as the Negotiable Instruments Law. xxxx 'It is.The trial court rendered judgment on February 25. . by the provisions of the Civil Code and special laws on mortgages. acceptor of indorser without receiving value therefor. governance shall be afforded. it would be unusual for the GSIS to arrange for and deduct the monthly amortizations on the loans from the salary as . with full knowledge that the loans secured thereby were solely for the benefit of the appellant (sic) spouses who alone applied for the loan. and (3) ordering the appellees Flaviano Lagasca and Esther Lagasca to pay the appellants the sum of P 10. 'Daily Record (Exh.

otherwise the consent of the private respondents would not have been required. 3135.. the introduction of such evidence falls under the exception to said rule.an army officer of Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also an army sergeant. In Bonnevie. it cannot be said that private respondents are without liability under the aforesaid mortgage contracts. there being allegations in the complaint of private respondents in the court below regarding the failure of the mortgage contracts to express the true agreement of the parties. 15 the Court ruled that Act No. . as already stated. et al. Notice shall be given by posting notices of sale for not less than twenty days in at least three public places of the municipality where the property is situated. their share in the property shall nevertheless secure and respond for the performance of the principal obligation. vs. as amended. Coming now to the extrajudicial foreclosure effected by GSIS. whether or not private respondents herein benefited from the loan. The factual context of this case is precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property So long as valid consent was given. the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to private respondents' share in the property. erred in annulling the mortgage insofar as it affected the share of private respondents or in directing reconveyance of their property or the payment of the value thereof Indubitably. that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their share of the mortgaged property from liability to the mortgagee. There is no showing that the foregoing requirement on notice was not complied with in the foreclosure sale complained of . The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there was no objection in the court below regarding the admissibility of the testimony and documents that were presented to prove that the private respondents signed the mortgage papers just to accommodate their co-owners. In consenting thereto. quoting the requirement on notice in such cases as follows: Section 3. There is no intimation that the former executed such instrument for a consideration. therefore. 14 However. The facts further show that the private respondents expressly bound themselves as solidary debtors in the promissory note hereinbefore quoted. The supposed requirement of prior demand on the private respondents would not be in point here since the mortgage contracts created obligations with specific terms for the compliance thereof. the mortgage and the extrajudicial foreclosure proceedings were valid. such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. We cannot agree with the ruling of respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale impairs the validity thereof. The respondent court. thus confirming that they did so pursuant to their original agreement. The parties to the mortgage could not have intended that the same would apply only to the aliquot portion of the Lagasca spouses in the property. even assuming that private respondents may not be assuming personal liability for the debt. Court of appeals. does not require personal notice on the mortgagor. Besides. the Lagasca spouses. Then there is also the undisputed fact. and if such property is worth more than four hundred pesos. et al. contrary to the holding of the respondent court.

Melencio-Herrera (Chairperson). Paras.. . Padilla and Sarmiento. SO ORDERED. Q-9418 thereof. JJ. concur. judgment is hereby rendered REVERSING the decision of the respondent Court of Appeals and REINSTATING the decision of the court a quo in Civil Case No.WHEREFORE.

vs.. MANOLO P. — We agree with petitioner that the filing of collection suit barred the foreclosure of the mortgage. SYLLABUS 1. Thus. The Special Power of Attorney did not make petitioner a mortgagor. nowhere could it be seen from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan. L-48359. PRIMARILY LIABLE. THE HONORABLE COURT OF APPEALS and CONRAD C. but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is. ID. 2." But by some stretch of the imagination. SIGNATORY TO THE PRINCIPAL CONTRACT OF LOAN. LEVISTE. Aquino for private respondent. The signatory to the principal contract — loan — remains to be primarily bound. And this is in compliance with the requirement in Article 2085 of the Civil Code which states that: "Art. to pay the loan. ID. And the liability of the third-party mortgagors extends only to the property mortgaged. Nowhere did it appear in the promissory note that petitioner was a co-debtor. Thus. ID. or when the law or the nature of the obligation requires solidarity. as evidenced by the promissory note.. from the contract itself. was signed by Delgado only." In effect. The law is clear that "(c)ontracts take effect only between the parties . The following requisites are essential to the contracts of pledge and mortgage: (3) That the persons constituting the pledge or mortgage have the free disposal of their property." The . Petitioner had no part in the said contract. 3. CERNA. NOT PRESUMED. 1993. petitioner. A chattel mortgage may be "an accessory contract" to a contract of loan. that they be legally authorized for the purpose.. 2085." The contract of loan. CIVIL LAW.R. . . the creditors has recourse on the principal debtor.. Delgado. petitioner lent his car to Delgado so that the latter may mortgage the same to secure his debt. March 30. It is only upon the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. Benjamin H. No. and in the absence thereof. REMEDIAL LAW. CIVIL ACTIONS. it was clear that only Delgado was the mortgagor regardless of the fact the he used properties belonging to a third person to secure his debt. ID. OBLIGATIONS & CONTRACTS. FILING OF COLLECTION SUIT BARRED THE FORECLOSURE OF MORTGAGE. petitioner was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal debtor.G. — There is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. he was the only one bound by the contract of loan.. THIRDPARTY MORTGAGOR NOT SOLIDARILY BOUND WITH THE PRINCIPAL DEBTOR. Should there be any deficiency. SOLIDARY LIABILITY. Zosa & Quijano Law Offices for petitioner. — Only Delgado signed the promissory note and accordingly. respondents. — The mortgage contract was also signed only by Delgado as mortgagor. All it did was to authorized Delgado to mortgage certain properties belonging to petitioner. 4. A SPECIAL POWER OF ATTORNEY AUTHORIZING THE MORTGAGE OF CERTAIN PROPERTIES DID NOT MAKE THE ATTORNEY-IN-FACT A MORTGAGOR. This ignores the basic precept that "(t)here is solidarily liability only when the obligation expressly so states. ID. Thus: "A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to recover in the said collection suit.

he also stated that since Leviste already opted to collect on the note. This is even more true in this case because of the death of the principal debtor." DECISION CAMPOS. having chosen to file the collection suit. Cerna (petitioner). he could no longer foreclose the mortgage. ID. Quezon City. OPTIONS GIVEN TO CREDITORS UNDER SEC.. however. and prohibition with preliminary injunction docketed as CA G. 1973. Kamias Rd. This prompted Leviste to a file a collection suit docketed as Civil Case No. Section 7. The facts of this case are as follows: On or about October 16. No. then total sum of SEVENTEEN THOUSAND FIVE HUNDRED (P17. MORTGAGE DEBT DUE FROM ESTATE. promise to pay to the order of CONRAD C.500. at his office at 215 Buendia Ave. Sison. NEW RULES OF COURT.00) PESOS." 1 On the same date. Herein petitioner filed his first Motion to Dismiss 4 on April 4. and shall receive no share in the distribution of the other assets of the estate. Moreover. JR. with interest at the rate of TWELVE (12%) PERCENT per annum. RULE 86.R. 7. No. in the foreclosure or the other proceeding to realize upon security. And acting as the attorney-in-fact of herein petitioner. when. and share in the general distribution of the assets of the estate. may abandon the security and prosecute his claim in the manner provided in this rule. with postal address at 98 K-11 St. Thereafter. NINETY (90) DAYS after date. . and foreclosure the same at any time within the period of the statue of limitations. This Motion to Dismiss was denied on August 15. Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note worded as follows: "FOR VALUE RECEIVED. Rule 86 of the Rules of Court provides: "Sec. could not now run after petitioner for the satisfaction of the debt. LEVISTE. he also mortgage a "Taunus' car owned by the latter. Branch XXII against Delgado and petitioner as solidary debtors. he may claim his deficiency judgment in the manner provided in the preceding section. Mortgage debt due from estate. 1978. .. or he may foreclose his mortgage or realize upon his security. by action in court. CELERINO DELGADO.R. 17507 3 with the Court of First Instance of Rizal. Delgado executed a chattel mortgage 2 over a Willy's jeep owned by him. . and if there is a judgment for a deficiency." 5. — A creditor holding a claim against the deceased secured by mortgaged or other collateral security. . Makati Rizal. 1972. mandamus. Manolo P. Delgado. not foreclosure. petitioner filed with the Court of Appeals a special civil action for certiorari.. I. 1973 by Judge Nicanor S. or the property pledged. the mortgage elects to file a suit for collection. 03088 on the .. The grounds cited in the Motion were lank of cause of action against petitioner and the death of Delgado. — Leviste. The period lapsed without Delgado paying the loan. Leviste was pursuing a money claim against a deceased person.reason for this rule is that: ". .. Philippine Currency without necessity of demand. . dated March 31. 7. after the sale of the mortgaged premises. thereby abandoning the chattel as basis for relief. making the executor or administrator a party defendant. and in that event he shall not be admitted as a creditor. Anent the latter. he clearly manifest his lack of desire and interest to go after the mortgaged property as security for the promissory note . . J p: Before us is a Petition for Review on Certiorari of the decision ** of the Court of Appeals in CA G. petitioner claimed that the claim should be filed in the proceedings for the settlement of Delgado's estate as the action did not survive Delgado's death. SP-07237. or he may upon his mortgage or other security alone.

thus: "WHEREFORE. On February 18. On June 28. he was the only one bound by the contract of loan. No costs. insofar. petitioner filed his second Motion to Dismiss on the ground that the trial court. the herein petition insofar as it alleges lack of cause of action on the part of the herein petitioner is concerned. the instant petition for review was filed." 7 Thereafter." 6 Petitioner filed a motion to reconsider the said order but this was denied. as the case against the deceased Celerino Delgado is concerned. the Court of Appeals 5 denied the petition because herein petitioner failed to prove the death of Delgado and the consequent settlement proceedings regarding the latter's estate. prima facie shows that it created the joint and solidary obligation of petitioner and Celerino Delgado against private respondent. Then. the said judge dismissed the motion in an order hereunder quoted. is hereby dismissed and/or denied and the writ of preliminary injunction previously issued by this Court is hereby lifted and/or set aside. . to wit: "Considering the second motion to dismiss filed by respondent Manolo Cerna on March 4. 1977. Neither did petitioner adequately prove his claim that the special power of attorney in favor of Delgado was forged. that is." 9 (Emphasis Ours) We do not agree. SP-07237 with the Court of Appeals. This petition was dismissed by the said court in a decision which stated. 1973. and that there was no cause of action against him. . INASMUCH AS THE COMPLAINT IS ONLY FOR COLLECTION OF A SUM OF MONEY BASED ON THE PROMISSORY NOTE.ground that the respondent judge committed grave abuse of discretion in refusing to dismiss the complaint. Cerna on the following grounds: 1) that the petitioner did not sign as joint obligator in the promissory note signed by the deceased Celerino Delgado hence. SHOULD NOT THE COMPLAINANT BE DISMISSED FOR LACK OF CAUSE OF ACTION AS AGAINST MANOLO P. Romero Valdellon. 1973. acquired no jurisdiction over deceased defendant. . Nowhere did it appear in the promissory note that petitioner was a codebtor. even if the allegations of the complaint are hypothetically admitted there is no cause of action against the herein petitioner because having proceeded against the promissory note he is deemed to have abandoned the foreclosure of the chattel mortgage contract. however. the Court of Appeals held that petitioner and Delgado were solidary debtors. Only Delgado signed the promissory note and accordingly. This contention deserves scant consideration. now presided by Judge Nelly L. . 1977. on October 17." 10 . it held: "But the herein petitioner pleads that the complaint states no cause of actions against the defendants Manolo P. Thus. The chattel mortgage contract. the petition is granted. The law is clear that "(c)ontracts take effect only between the parties . that the claim did not survive. he filed another petition for certiorari and prohibition docketed as CA G. the complaint in the lower court against Celerino Delgado should be dismissed. NOW. Petitioner raised the following legal issue: ". No. 1976. as well as plaintiff's opposition thereto reiteration of the same grounds raised in the first motion to dismiss dated April 4. On May 13. CERNA WHO IS NOT A DEBTOR UNDER THE PROMISSORY NOTE — CONSIDERING THAT ACCORDING TO SETTLED JURISPRUDENCE THE FILING OF A COLLECTION SUIT IS DEEMED AN ABANDONMENT OF THE SECURITY OF THE CHATTEL MORTGAGE?" 8 In holding petitioner liable. this Court hereby reiterates its resolution found in its order dated August 15. 1977. 1977.R.

. . made and entered into this 16th day of October. 2085. 1972 and acknowledged before Orlando J." (Emphasis Ours. The following requisites are essential to the contracts of pledge and mortgage: xxx xxx xxx (3) That the persons constituting the pledge or mortgage have the free disposal of their property. and in the absence thereof. as Attorney-in -Fact of Manolo P. Thus. . Delgado. The signatory to the principal contract — loan — remains to be primarily bound. A chattel mortgage may be "an accessory contract" 12 to a contract of loan. This ignores the basic precept that "(t)here is solidarily liability only when the obligation expressly so states. . it was clear that only Delgado was the mortgagor regardless of the fact the he used properties belonging to a third person to secure his debt. Should there be any deficiency. that they be legally authorized for the purpose. There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor." 13 But this alone does not make petitioner a co-mortgagor especially so since only Delgado singed the chattel mortgage as mortgagor. All it did was to authorized Delgado to mortgage certain properties belonging to petitioner. herein referred to as the MORTGAGOR. however. petitioner lent his car to Delgado so that the latter may mortgage the same to secure his debt. however. Thus. It is true that the contract stated the following: "That this CHATTEL MORTGAGE. The Special Power of Attorney did not make petitioner a mortgagor. the mortgage contract was also signed only by Delgado as mortgagor. Granting. And this is in compliance with the requirement in Article 2085 of the Civil Code which states that: "Art. 1972 at Makati. Cerna .) In effect. by and between: CELERINO DELGADO. that petitioner was obligated under the mortgage contract to answer for Delgado's indebtedness. . Cerna in my favor under the date of October 10. And the liability of the third-party mortgagors extends only to the property mortgaged. from the contract itself. or when the law or the nature of the obligation requires solidarity. .But by some stretch of the imagination. . . by virtue of a Special Power of Attorney executed by said Manolo P. . petitioner was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal debtor. under the circumstances. the creditors has recourse on the principal debtor. hereinafter referred to as the MORTGAGEE. Rizal. Coruna . . LEVISTE. In this case. It is only upon the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. was signed by Delgado only. as evidenced by the promissory note. petitioner could not be held liable because the .and CONRAD C." 11 We have already stated that the contract of loan. to pay the loan. Petitioner had no part in the said contract. . but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is. nowhere could it be seen from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan.

Rule 86 of the Rules of Court Provides: "Sec. No. at his own election. If he elects one he must abandon the other. and in that event he shall not be admitted as a creditor. Thus: "A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to recover in the said collection suit. 7. he may claim his deficiency judgment in the manner provided in the preceding section. making the executor or administrator a party defendant. and share in the mortgage or realize upon his security. not foreclosure.. This is even more true in this case because of the death of the principal debtor. and if there is a judgment for a deficiency." But while there is a merit in the substantial allegations of this petition. by ordinary action in court.R. may abandon the security and prosecute his claim before the committee. and not for the foreclosure of the security." 14 The reason for this rule is that: "." The above-quoted provision is substantially similar to Section 708 of the Code of Civil Procedure which states: "Sec. . The facts of this case reveal that the decision under review in the decision in the second certiorari and prohibition case lodged petitioner against the judge trying the civil case. Leviste. the mortgage elects to file a suit for collection. Leviste was pursuing a money claim against a deceased person. after the sale of the mortgaged premises. 03088 wherein petitioner alleged grave abuse of discretion on the part of Judge Sison. If he fails in one he fails utterly. Delgado. But the law does not provide that he may have both remedies. . 708. . in the foreclosure or the other proceeding to realize upon security. . having chosen to file the collection suit. . in the case of Osorio vs. making the executor or administrator a party defendant. by action in court. . The first . and shall receive no share in the distribution of the other assets of the estate. foreclose the mortgage and realize upon his security. 16 has made the following interpretation of the said provision. A creditor holding against the deceased. could not now run after petitioner for the satisfaction of the debt. and foreclosure the same at any time within the period of the statue of limitations. thereby abandoning the chattel as basis for relief. It provides also that he may. We are constrained to deny the petition on procedural grounds. . or the property pledged. however. and share in the distribution of the general assets of the estate. . or he may foreclose his mortgage or realize upon his security. . secured by mortgage or other collateral security. when. San Agustin." The Supreme Court. It appeared that after the denial of the first motion to dismiss. to wit: "It is clear by the provisions quoted section that a person holding a mortgage against the estate of a deceased person may abandon such security and prosecute his claim before the committee. Mortgage debt due from estate.complaint was for recovery of a sum of money. or he may upon his mortgage or other security alone. — A creditor holding a claim against the deceased secured by mortgaged or other collateral security. may abandon the security and prosecute his claim in the manner provided in this rule." 15 Hence. Section 7. petitioner filed CA-G. he clearly manifest his lack of desire and interest to go after the mortgaged property as security for the promissory note . We agree with petitioner that the filing of collection suit barred the foreclosure of the mortgage. . and share in the general distribution of the assets of the estate.

in view of the forgoing. The decision in the latter case is now under review. was thereafter filed. . No. Narvasa.. 03088.. Regalado and Nocon. WHEREFORE. C . Padilla. We agree with the contention of private respondent. Petitioner intended the second motion and the subsequent proceedings as remedies for his lapsed appeal. It appears in this case that the second motion was filed to circumvent the effects of the finality of the decision of the Court of Appeals in Ca-G. the Petition is hereby DISMISSED. SO ORDERED. It delayed the proceedings in this case and unduly burdened the courts. We cannot such behavior. It was likewise denied and another petition for certiorari and prohibition was again instituted. J . The second motion to dismiss. Petitioner should have allowed the trial of the case to go on where his defenses could still be presented and heard. With costs. JJ .R. that the action has been barred by the principle of res judicata. The decision became final. concur.. based on the same grounds.petition was denied by the Court of Appeals.

and to order defendants to pay damages. MIDPANTAO L. the petitioners herein. staying until further orders the execution of the decision rendered by the respondent Judge in said case. THE PROVINCIAL SHERIFF OF ILOILO. FRANCISCO MASA. Servando in favor of his co-defendants. I further certify that in case I fail to redeem the said properties within the period stated above. J. Court of First Instance of Iloilo. vs. Arevalo. and PIO SERVANDO. ADIL. or alternatively. MASA.00). 1979.. Villanueva The defendants moved to dismiss the complaint on the grounds that it did not state a cause of action. 12312 entitled "Pio Servando versus Jose Y. YAP.000. the plaintiff Pio Servando impugned the validity of the sale as being fraudulent.R. have this date mortgaged the said property to my cousin Pio Servando. petitioners. Servando et al.. plus interests. Court of First Instance of Iloilo. 1978. to secure a loan of P20.000. HECHANOVA. 1986 GEMMA R. covering three parcels of land situated in Iloilo City. L-49940 September 25.. executed by defendant Jose Y. Compania St. 1. and prayed that it be declared null and void and the transfer certificates of title issued to the vendees be cancelled. Jeruta (Sgd) Francisco B. and PRESCILLA R. (SGD.G. the alleged mortgage being invalid and unenforceable since it was a mere private document . JR. the sole owner of three parcel of land under Tax Declaration No. HON. respondents. respectively. No. Interior Molo. if the sale is not annulled.00. accompanied by her husband. to order the defendant Jose Servando to pay the amount of P20. 28905. which is quoted hereunder: August 20. Branch II. redeemable for a period not exceeding ten (10) years. 1970 This is to certify that I. my cousin Pio Servando.) JOSE YUSAY SERVANDO WITNESSES: (Sgd) Ernesto G. in Civil Case No. Nino St. NICANOR HECHANOVA. who is his cousin. in the amount of TWENTY THOUSAND PESOS (P20. 44123 and 31591 at Lot No. accompanied by her husband. 1863-Portion of 1863 & 1860 situated at Sto. the mortgage amount bearing an interest of 10% per annum. Attached to the complaint was a copy of the private document evidencing the alleged mortgage (Annex A). Claiming that the said parcels of land were mortgaged to him in 1970 by the vendor. shall become the sole owner thereof. Presiding Judge.000.: Petitioners seek the annulment of various orders issued by the respondent Presiding Judge of Branch II. & Compania St." A temporary restraining order was issued by this Court on May 9. Jose Yusay Servando. The case under review is for the annulment of a deed of sale dated March 11.00.

The motion to dismiss was denied on July 25. 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. and the complaint filed by plaintiff dated February 4. plaintiff filed a motion to declare defendants in default. . 1978. informing the trial court accordingly. and that the plaintiff was not the real party in interest and. or the same day that the default order was issued. 1978. SO ORDERED. 1978. his recourse was to foreclose the mortgage. the alleged deed of mortgage being a mere private document and not registered. it contains a stipulation (pacto comisorio)which is null and void under Article 2088 of the Civil Code. 1978 is hereby dismissed. The defendants filed a Manifestation and Motion. the main action being one for annulment and damages. the respondent Judge granted the motion and set the hearing for presentation of plaintiff's evidence ex-parte on August 24. defendants Hechanova and Masa filed their Answers. an appeal bond. and on February 2. and moving for the dismissal of the complaint pursuant to Section 21 of Rule 3 of the Rules of Court. in its order dated June 20. 1973 and its Order of February 2. moreover. "on the ground that this action is actually one for collection. Servando died. pointing out that the action was for. the grounds stated in their motions to dismiss. 1978. a judgment by default was rendered against the defendants. It is clear from the records of this case that the plaintiff has no cause of action. recovery of money based on an actionable document to which only the deceased defendant was a party." On June 23. it being only incidental. The motion was denied by the respondent Judge. 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. 1978. On August 2. We find the petition meritorious. issued an order granting the writ of execution prayed for by plaintiff. 1978 and accordingly. 1978. denying the allegations of the complaint and repeating. dismissed the appeal. WHEREFORE. 1979 are set aside. and a record on appeal. by way of special and affirmative defenses. and to revive the title issued in the name of Jose Y. "it appearing from the face of the complaint that the instant action is not purely a money claim. as a mere mortgagee. August 2. 1978. Servando and to deliver the same to the plaintiff. Even assuming that the property was validly mortgaged to the plaintiff. defendant Jose Y. However. The defendants took timely steps to appeal the decision to the Court of Appeals by filing a notice of appeal. On August 25.and was not recorded in the Registry of Deeds. the decision of the respondent court dated August 25. No valid mortgage has been constituted plaintiff's favor. and the same is hereby given due course." On August 1. had no standing to question the validity of the sale. and on the very next day. 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. 1978. not to seek annulment of the sale.

Baysa for petitioner.00) Pesos shah be paid on or before March 30. J. 77465 May 21. EJERCITO. herein VENDOR will give VENDEE another sixty (60) days from maturity dates. Judge of the Court of First Instance of Manila. petitioners assail the validity of a deed of assignment over an apartment unit and the leasehold rights over the land on which the building housing the said apartment stands for allegedly being in the nature of a pactum commissorium. 1988 SPOUSES UY TONG & KHO PO GIOK.000. No. Alvarado St. Philippine Currency. 1969 to be drawn by the VENDEE..000. the SPOUSES purchased from private respondent Bayanihan Automotive. 307. Inc. That if for any reason the VENDEE should fail to pay her aforementioned obligation to the VENDOR. 1969. Platon A. together with the leasehold right for ninety. Branch XXXVII and BAYANIHAN AUTOMOTIVE CORPORATION. That it is fully understood that should the two (2) aforementioned checks be not honored on their respective maturity dates.00) Pesos shall be paid on or before April 30.000. 1969. 307 of the Ligaya Building. The facts are not disputed. The transaction was evidenced by a written "Agreement" wherein the terms of payment had been specified as follows: That immediately upon signing of this Agreement. petitioners. Petitioners Uy Tong (also known as Henry Uy) and Kho Po Giok (SPOUSES) used to be the owners of Apartment No.00) Pesos. Binondo.the latter shall become automatically the owner of the former's apartment which is located at No. Ybarra for respondents. within which to pay or redeem the value of the said checks. Inc.00 payable in three (3) installments. HONORABLE COURT OF APPEALS. CORTES. the said amount again to be secured by another postdated check with maturity on April 30. the VENDEE shall pay unto the VENDOR the amount of Seven Thousand Seven Hundred (P7. In February. 307 and leased a portion of the land in which the building stands to the SPOUSES. owned the building which houses the apartment units but sold Apartment No.R. It appears that Ligaya Investments. 1969 and the balance of Twenty Five Thousand (P25.700. vs.nine (99) years over the land on which the building stands. and the amount of Fifteen Thousand (P15. The land is registered in the name of Ligaya Investments. (BAYANIHAN) seven (7) units of motor vehicles for a total amount of P47.G. Inc.: In the present petition. Manuel T. as evidenced by Transfer Certificate of Title No. . 79420 of the Registry of Deeds of the City of Manila. respondents. Ligaya Building. HONORABLE BIENVENIDO C.

000. After making a downpayment of P7. judgment is hereby rendered in favor of the plaintiff and against the defendants spouses UY TONG and KHO GIOK and defendant Ligaya Investment. In the event of their failure to do so within thirty (30) days from notice of this judgment.1972. they were allowed to remain in the premises as lessees for a stipulated monthly rental until November 30. Manila.535. BAYANIHAN filed an action for specific performance against the SPOUSES docketed as Civil Case No. 80420 with the Court of First Instance of Manila. to pay the plaintiffs. (Quoted in Decision in Civil Case No. judgment is hereby rendered.00) Pesos. p. Manila to the plaintiff. and in such event the VENDEE shall execute the corresponding Deed of absolute Sale in favor of the VENDOR and or the Assignment of Leasehold Rights.00. This prompted BAYANIHAN to file an ejectment case against them in the City Court of Manila docketed as Civil Case No. 240019. not being the owner of the building. the SPOUSES failed to surrender possession of the premises in favor of BAYANIHAN. Inc.00. judgment was rendered in favor of BAYANIHAN in a decision the dispositive portion of which reads: WHEREFORE. to vacate. after hearing. surrender and deliver possession of Apartment 307. 307 of the Ligaya Building together with the leasehold right over the land on which the building stands. paid by BAYANIHAN pursuant to the said judgment. 1979. 1972. jointly and severally. Notwithstanding the execution of the deed of assignment the SPOUSES remained in possession of the premises. This action was however dismissed on the ground that BAYANIHAN was not the real party in interest. . they are hereby ordered to execute the corresponding deed of absolute sale in favor of the plaintiff and/or the assignment of leasehold rights over the defendant's apartment located at 307 Ligaya Building. The defendants spouses UY TONG and KHO PO GIOK and any andlor persons claiming right under them.00 more or less. with interest at the legal rate from July 1. Subsequently. [emphasis supplied]. Pursuant to said judgment. Due to these unpaid balances. ordering the defendants. dismissing defendants' counterclaim and ordering: 1. the sum of P40. Ligaya Building.000. Despite the expiration of the said period. On February 7. an action for recovery of possession with damages was filed with the Court of First Instance of Manila. 1315321]. Philippine Currency. docketed as Civil Case No. 121532 against the SPOUSES and impleading Ligaya Investments. as party defendant. 1978. The SPOUSES acknowledged receipt of the sum of P3. upon the payment by the plaintiff to the defendants of the sum of P3. [emphasis supplied].000. 127] over Apartment No. Alvarado Street. On October 28. located at 64 Alvarado Street. an order for execution pending appeal was issued by the trial court and a deed of assignment dated May 27. 80420. Binondo.535. Binondo. Exhibit "A" of Civil Case No.Manila. Inc.00. was executed by the SPOUSES [Exhibit "B". decision in said case was rendered in favor of BAYANIHAN ordering the following: WHEREFORE. 1970 until full payment.. On March 17. with the only obligation on its part to pay unto the VENDEE the amount of Three Thousand Five Hundred Thirty Five (P3.00. after demands to vacate the subject apartment made by BAYANIHAN's counsel was again ignored by the SPOUSES. CFI Records. 1981.700. the SPOUSES failed to pay the balance of P40.

Rollo. Inc. In support of the first argument. 31. I.00 commencing from June. pp. Not satisfied with this decision. pp. hence. petitioners bring to the fore the contract entered into by the parties whereby petitioner Kho Po Giok agreed that the apartment in question will automatically become the property of private respondent BAYANIHAN upon her mere failure to pay her obligation. the respondent Court of Appeals affirmed in toto the decision appealed from [Petition. to recognize the right of ownership and possession of the plaintiff over Apartment No.1984. The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code: Art. as reasonable compensation for the use of the apartment. On October 2. Any stipulation to the contrary is null and void. 1972 until the premises are finally vacated and surrendered to the plaintiff. Inc. The genuineness and due Prosecution of the deed of assignment was not deemed admitted by petitioner. 1987 [Petition. Rollo. the deed of assignment which was borne out of the same agreement suffers the same fate. Annex "C".00 as and for attorney's fees to the plaintiff. according to the petitioners is in the nature of a pactum commissorium which is null and void. The deed of assignment is unenforceable because the condition for its execution was not complied with. A motion for reconsideration of the said decision was denied by the respondent Court in a resolution dated February 11. Petitioners-SPOUSES in seeking a reversal of the decision of the Court of Appeals rely on the following reasons: I. 1972. The creditor cannot appropriate the things given by way of pledge or mortgage. II. Ligaya Building. Ordering defendant Ligaya Investment. III.00 from December 1. 2088. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay P3. and 5. 15-20].00 as rental for the apartment. and the sum of P200. The deed of assignment is null and void because it is in the nature of a pactum commissoriumand/or was borne out of the same.000.400. 307. and the costs of this suit. Ordering Ligaya Investment. This agreement.34]. or a total amount of P3. . Annex "A". to acknowledge plaintiff as assignee-lessee in liue of defendants spouses Uy Tong and Kho Po Giok over the lot on which the building was constructed. 3. or dispose of the same.2. The refusal of petitioners to vacate and surrender the premises in question to private respondent is justified and warranted by the circumstances obtaining in the instant case. 4. 1971 to November 30. IV. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay to the plaintiff the sum of P200. the SPOUSES appealed to the Court of Appeals.

It is a fact that the parties agreed on the sale and purchase of trucks. First.00. jointly and severally to pay the plaintiff the sum of P40. 1973. In the event of their failure to do so within thirty (30) days from notice of this judgment. Clearly. February 22. by its very nature is ". respectively. When the SPOUSES defaulted in their payments of the second and third installments of the trucks they purchased. The trial court rendered favorable judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their obligation and in case of failure to do so.R. said case having been docketed as Civil Case No. Branch V. judgment is hereby rendered ordering the defendants. to execute a deed of assignment over the property involved in this case. And even granting that the original agreement between the parties had the badges of pactum commissorium. Manila and hereinafter to be known and called the ASSIGNEE. v. anathema to the concept of pacto commissorio" [Northern Motors. the ASSIGNEE was able to obtain a judgment against the ASSIGNOR wherein the latter was ordered by the court as follows. husband and wife.000. and presently residing at 307 Ligaya Bldg. G. A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum commissorium provision. -witnessethWHEREAS. with interest at the legal rate from July 31. Second. both of legal age. an entity duly organized and existing under the laws of the Philippines. No.The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation. 1970 until full payment. L-32674. Manila. and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period... which. Herrera. with principal business address at 1690 Otis St. Binondo. the deed of assignment does not suffer the same fate as this was executed pursuant to a valid judgment in Civil Case No. they are hereby ordered to execute the corresponding deed of absolute sale in favor of the plaintiff and/or the . the ASSIGNEE has filed a civil complaint for "Specific Performance with Damages" against the ASSIGNORS in the Court of First Instance of Manila. and hereinafter to be known and called as the ASSIGNORS. Paco. 80420. Inc. there was no automatic vesting of title on BAYANIHAN because it took the intervention of the trial court to exact fulfillment of the obligation. in favor of Bayanihan Automotive Corporation.. BAYANIHAN filed an action in court for specific performance. 80420 as can be gleaned from its very terms and conditions: DEED OF ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS: This deed made and entered into by Uy Tiong also known as Henry Uy and Kho Po Giok. WHEREAS. there is no indication of 'any contract of mortgage entered into by the parties. 49 SCRA 392]. The SPOUSES elected to execute the deed of assignment pursuant to said judgment. there is no case of automatic appropriation of the property by BAYANIHAN. . to wit: WHEREFORE. Alvarado St.

the SPOUSES are deemed to have admitted the deed's genuineness and due execution. Considering this Court's above conclusion that the deed of assignment is not invalid. Besides. That facts reveal that the action in Civil Case No. upon the payment by the plaintiff to the defendants the sum of P 3. .assignment of leasehold. II. Binondo. Manila. the contract was duly executed and that the same is genuine" [Sur-Rejoinder. under Section 8. We have hereunto signed our names this 27th day of May. They cannot now claim otherwise. in their answer to the complaint. Philippines. . UY TONG/HENRY UY KHO PO GIOK Assignor Assignor ACR-2151166 Manila 1/13/51 ACR-C-001620 Manila March 3. its heirs or assigns. Manila. Rule 8 of the Revised Rules of Court. NOW. the SPOUSES. . Alvarado Street. has ordered for the immediate execution of the said decision even pending appeal of the aforesaid decision. it follows that when an action founded on this written instrument is filed.. IN WITNESS WHEREOF. Binondo. and by these presents do hereby transfer. p. 307 Ligaya Building. in favor of the hererein ASSIGNEE. There is no compelling reason to reverse the abovementioned ruling of the appellate court. WHEREAS. The SPOUSES take exception to the ruling of the Court of Appeals that their failure to deny the genuineness and due execution of the deed of assignment was deemed an admission thereof. WHEREAS. 864 Alvarado St. the ASSIGNORS have transferred assigned and ceded. The basis for this exception is the SPOUSES' insistence that the deed of assignment having been borne out of pactum commissorio is not subject to ratification and its invalidity cannot be waived. the court. Rollo. upon petition by herein ASSIGNEE and its deposit of sufficient bond. 67]. there is no reason to impugn the validity of the said deed of assignment. rights over the defendants' apartment located at No. together with the corresponding leasehold rights over the lot on which the said building is constructed. 1971 at Manila. Perforce. the rule on contesting its genuineness and due execution must be followed. 307 at the Ligaya Building which is located at No. failed to deny under oath and specifically the genuineness and due execution of the said deed. THEREFORE. The defendants shall pay the costs.535. the ASSIGNORS have elected to just execute the necessary deed of sale and/or assignment of leasehold rights over the apartment mentioned in the decision in favor of the herein ASSIGNEE.00. 1965 This being the case. 121532 was founded on the deed of assignment. However. assign and cede all their rights and interests over that place known as Apartment No. for and in consideration of the foregoing premises. they themselves admit that ".

presiding Judge of the CFI of Manila. 3-4].) Henry Uy August 21.000. Branch V. [emphasis supplied. 80420 requiring BAYANIHAN to pay the former the sum of P 3.00 required in the decision in Civil Case No.00 is borne by the evidence on record. The contention that there is still a difference of P535.) Pho (sic) Po Glok (Sgd. they invoke the following receipt issued by the SPOUSES to show that BAYANIHAN was P535.. as contended by the plaintiff. 80420 has been applied for the payment of the previous rentals of the property which is the subject matter of the aforesaid judgment. Civil Case No. Conrado Vasquez.535.] (Sgd. dated September. Presiding Judge of the Court of First Instance of Manila. What petitioners SPOUSES refer to is that portion of the disposition in Civil Case No. [Decision.535. [Emphasis supplied]. 80420 as a condition for the execution of the deed of assignment was not paid by the plaintiff to the defendants is belied by the fact that the defendants acknowledged payment of P3. They contend that the deed is unenforceable because the condition for its execution was not complied with. . 1971 The issue presented involves a question of fact which is not within this Court's competence to look into. docketed as Civil Case No.III. is hard to believe Defendants further confirm by the joint manifestation of plaintiff and defendants.compliance. and which was already submitted in open court for the consideration of the sum of P3. in a receipt dated August 21. versus Kho Po Giok. etc. 80420 to pay the SPOUSES the sum of P3.000.. in Civil Case entitled Bayanihan Automotive Corp. RECEIPT This is to acknowledge the fact that the amount of THREE THOUSAND (P3. and also expressly mentioned as having been applied for the payment of the previous rentals of the property subject matter of the said judgment.535.00. more or less. more or less as indicated in the judgment of the Hon.00 short of the complete payment. Exhibit "O". 80420.00.00 is had to believe because the spouses Kho Po Giok and Uy Tong executed the deed of assignment without first demanding from the plaintiff the payment of P535. This amount was expressly mentioned in this receipt as indicated in the judgment of the Honorable Conrado Vasquez.00. Branch V. duly assisted by counsel. The Court finds merit in the following findings of the trial court: . Indeed. wherein it was stated that plaintiff has fully complied with its obligation to the defendants caused upon it (sic) by the pronouncement of the judgment as a condition for the execution of their (sic) leasehold rights of defendants. 121532. as evidenced by the receipt duly executed by the defendants. Pho (sic) Po Giok. Nothing could be more explicit. 1971. pp. Suffice it to say that this Court is of the view that findings and conclusion of the trial court and the Court of Appeals on the question of whether there was compliance by BAYANIHAN of its obligation under the decision in Civil Case No. 1971. To buttress their claim of non. Puerto and Associates. for it to refuse to pay this small amount and thus gave defendants a reason not to execute the Deed of Assignment. v. Defendants 'contention that the P 3. The SPOUSES also question the enforceability of the deed of assignment.00. in Civil Case entitled "Bayanihan Automotive Corp." and docketed as Civil Case No.535.00) PESOS.

1972. and Feliciano.. These are the clear terms of the deed of assignment which cannot be superseded by bare allegations of fact that find no support in the record. 1972-in order to give a semblance of validity to its attempt to dispossess herein petitioners of the subject premises. In short. this is one way of rendering seemingly illegal petitioners 'possession of the premises after November 30. Petitioners attempt to justify their continued refusal to vacate the premises subject of this litigation on the following grounds: (a) The deed of assingnment is in the nature of a pactum commissorium and.535.This Court agrees with private respondent BAYANIHAN's reasoning that inasmuch as the decision in Civil Case No. The first two classifications are mere reiterations of the arguments presented by the petitioners and which had been passed upon already in this decision. 1972. JJ.. null and void. therefore. Jr.00 then it could not compel petitioners to comply with their own obligation to execute the deed of assignment over the subject premises. BAYANIHAN is therefore entitled to the possession thereof. Private respondent merely stated that there was a term-until November 30. took no part. SO ORDERED. Gutierrez. Bidin. . This admission is very significant. concur. (c) Proof that petitioners have been allowed to stay in the premises. it is enough to state that the deed of assignment has vested in the private respondent the rights and interests of the SPOUSES over the apartment unit in question including the leasehold rights over the land on which the building stands. (b) There was no full compliance by private respondent of the condition imposed in the deed of assignment. As regards the third ground. IV. WHEREFORE. Fernan (Chairman). The fact that petitioners executed the deed of assignment with the assistance of their counsel leads to no other conclusion that private respondent itself had paid the full amount. is the very admission of private respondent who declared that petitioners were allowed to stay in the premises until November 20. 80420 imposed upon the parties correlative obligations which were simultaneously demandable so much so that if private respondent refused to comply with its obligation under the judgment to pay the sum of P 3. the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals is AFFIRMED in toto.

Benedicto as its representative in petitioner's board of directors. 1969 but finding the consolidation of ownership over the properties sold at such sale to have been prematurely executed thereby rendering it void ab initio.000. NAVARRO. 1965 the National Investment & Development Corporation (NIDC). 280). the same having been issued in consonance with the exercise of the Court's discretion. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK & PROVINCIAL SHERIFF OF RIZAL.G. for lack of merit. petitioner purchased five (5) parcels of land in Pasig. PARAS. as wen as its Resolution 3 dated January 22. p. approved a P2. 4. vs.00 as wen as an application for a loan of P300. The facts of the case as presented by petitioner and as embodied in the decision of the Court of Appeals are as follows: On December 12. 281) denying petitioner's supplement to motion for reconsideration.00 and a letter of credittrust receipt line of P550. and its Resolution 2 dated January 12.000. this Court hereby renders judgment: 1. Dismissing the charge of contempt against PCIB and its Executive Vice-President and General Manager. Denying the petition to set aside and annul the questioned orders dated January 31.1969 rendered by respondent Judge. On November 3. the wholly owned investment subsidiary of the Philippine National Bank. In accordance with this Court's resolution dated May 8. Eugenio R. HON. INC. III). J. 1988 ROSE PACKING COMPANY.: This is a petition for review on certiorari of the decision 1 of the Court of Appeals in CA-G. pp. discounting line of P100. No. 1969 and May 7. No.6 million loan application of petitioner with certain conditions.. Subsequently. 2.1970 (Rollo. 3.R. Pursuant thereto. Declaring valid the foreclosure sale of May 9. 43198-R promulgated on December 16. in view of the foregoing. petitioner.00.00. THE COURT OF APPEALS. 1971 (Rollo.000. 237-249). PEDRO C. Judge of the Court of First Instance of Rizal (Br. 1962 respondent bank (PCIB) approved a letter. 1971 (Rollo. the dispositive portion of which reads as follows: WHEREFORE.000. 1965 the amount of P100.R.request by petitioner for the reactivation of its overdraft line of P50. Unson.. petitioner is hereby granted sixty (60) days from receipt of a copy of this decision within which to redeem the properties sold at the foreclosure sale of May 9. denying petitioner's motion for reconsideration. L-33084 November 14. respondents.00. 1969. p. on fully secured real estate and chattel mortgage and on the further condition that respondent PCIB appoint as it did appoint its executive vice-president Roberto S. 1970. . Rizal making a down payment thereon. the NIDC released to petitioner on November 7.000.

000. petitioner advised respondent PCIB of the availability of P800. Pasig. PCIB gave petitioner notice that it would cause the real estate mortgage to be foreclosed at an auction sale. However. respondent Sheriff served notice of sheriffs sale (of the real properties mortgaged to respondent PCIB) on July 18.00 to petitioner and on January 12. the NIDC released another P100.000. Domingo. the NIDC refused to make further releases on the approved loan of petitioner. stating that all obligations should be liquidated before the release of the titles to the Pasig properties. 71697 of the Court of First Instance of Manila. PCIB released only P300. Bulacan with the P800. Rizal). On June 29. P500.00 of the P710. praying instead that the preliminary injunction should now enjoin respondents.T. On January 31.000.C.00 for operating capital. 1968. Rizal).00 to partially pay off its account and requested the release of the titles to the Pasig lots for delivery to the Development Bank of the Philippines.00 loan to be paid directly to petitioner's creditors.000.00 were applied to the payment of preferred stock which NIDC subscribed in petitioner corporation to partially implement its P1. 177019 (barrio of San Joaquin. On August 3. No.00 loan for the payment of the balance of the purchase price of those lots in Pasig required to be bought. petitioner moved for amendment of the Order issuing the preliminary injunction.1968. 1968 respondent PCIB filed a complaint against petitioner and Rene Knecht. Immediately upon receipt of notice of the approval of the Development Bank of the loan. respondent PCIB approved additional accomodations to petitioner consisting of a P710. municipality of Cainta). Petitioner likewise prayed. on July 15. the Development Bank of the Philippines approved an application by petitioner for a loan of P1.000. 1969. On May 13.1966.00 investment scheme as per agreement. 1969 respondent Court resolved to issue a writ of preliminary injunction upon filing by petitioner of a bond in the amount of P60. 1969 petitioner filed with respondent Court of Appeals a petition for certiorari with application for a restraining order and preliminary injunction against the foreclosure sale (Rollo.000.000.840. 1968.00 for the purchase of can making equipment.00 DBP loan. petitioner filed a complaint docketed as Civil Case No. the lower court issued ail order denying the application for preliminary injunction and dissolving its restraining order which had been issued on July 17.000. 11015 in the Court of First Instance of Rizal to enjoin respondents PCIB and the sheriff from proceeding with the foreclosure sale. that said <äre|| anº• 1àw> . Petitioner promptly filed a motion for reconsideration which was denied by the lower court on May 7. 1969. No. pending final judgment.00 approved loan for the payment of the Pasig lands and some P300. with the latter's consent. However. Respondent PCIB verbally advised petitioner of its refusal. its president for the collection of petitioner's indebtedness to respondent bank.000.1967. 1966 and October 5. for the issuance ex-parte of a writ of preliminary injunction enjoining herein respondents from proceeding with the foreclosure sale scheduled to be held on July 18. P200.000. Subsequently. to ask the lower court to fix a new period for the payment of the obligations of petitioner to PCIB and for other related matters.T. 73620 (barrio Sto.682. the aforesaid releases totalling P200.On January 5.000.C.000. which complaint was docketed as Civil Case No. p. while consolidating all previous accommodations at P1. 1966. petitioner purchased a parcel of land at Valenzuela.m. 1968. No. 54).00 and a guarantee for $652. On January 22. 1968. Pasig. 175595 (barrio San Joaquin. T.. from proceeding to give effect to the foreclosure sale of May 9.00. 1969. 1966. T.T.000.C. On January 5.00—all of which were still secured by chattel and real estate mortgages.000. on the ground that the aforementioned resolution of respondent Court came too late to stop the foreclosure sale which was held on May 9. which it scheduled for February 27. Following the PCIB's rejection of petitioner's counter-proposal. more particularly.597. particularly respondent Provincial Sheriff. Thus.1968 at 10:00 a.00 loan for operating capital. On May 8. 1969. Thereafter.000. and T.

678).sheriff should refrain from issuing a deed of certificate of sale pursuant thereto and from registering the certificate of deed of sale in the Registry of Deeds. The instant Petition for Review on certiorari (Rollo. p. 1971 (Rollo. 1970 and the consolidation of ownership of the same date be declared null and void.m. p.175595. p. an affidavit of consolidation of ownership executed by Eugenio R. Rizal covered by TCT No. was registered with the Register of Deeds of Pasig. 250) and on January 22. 697). The writ of preliminary injunction was issued on April 28. Petitioner prayed that (a) the Deed of Sale dated May 12. on May 12. Petitioner filed its opposition to the motion on May 27. the buyer at the foreclosure sale. 619). 752). On April 2. p. Rizal at 8:00 a. lot located at Sto. 12) was filed with the Court on February 16. Consequently. Unson with contempt of court. 1970. Respondent Court resolved to deny said motion in its Resolution dated May 28. 286174. the rejoinder to respondent PCIB's reply to opposition. Meantime the case was transferred to the Second Division.R. petitioner filed a motion charging respondent PCIB and its Executive Vice-President and Assistant General Manager Eugenio R. pp. p. by a Resolution of the First Division dated January 17.00 (Rollo. and 73620 with respondent Court for safekeeping (Rollo.. 177019. p. 237-249). and 286176—be cancelled and the old ones. In view thereof. 1971 (Rollo. 655). 286176 (Rollo. 1971 (Rollo. p. and to toll or stop the running of the period of redemption. Domingo. 1971 (Rollo. 260). more specifically the 31. p. TCT Nos. 280) to deny petitioner's motion for reconsideration dated January 5. 1971. The Brief for the Respondents was filed on September 20. On February 23. 1971 (Rollo. p. 1971 (Rollo. upon petitioner's posting a bond of P50. On January 12. 1969 (Rollo. 1971 it resolved (Rollo. 730). 584). should the said decision be one declaring the execution sale in dispute to be valid (Rollo. (b) that the new transfer certificates of title TCT Nos. The Brief for Petitioner was filed on June 18. On May 8. The reply to the opposition was filed on December 6. p. and 73620 be restored or revived by the Register of Deeds of Rizal. 237-242). on urgent motion of petitioner. Meantime. the Court resolved to give due course to the petition and ordered the issuance of preliminary injunction enjoining respondents from enforcing or implementing the appealed decision of respondent Court of Appeals. No.m. 243). 231). p. 1971. 281) to deny petitioner's supplement to motion for reconsideration dated January 18. 177019. Cainta. 631). p. 1970 respondent Court promulgated the questioned decision (Rollo.1971 (Rollo. pp. and (c) that the respondent PCIB be ordered to surrender and deposit the TCT Nos. 1971 it again resolved (Rollo.000. p. p. respondent Court granted petitioner a period of sixty (60) days from receipt of the decision to be rendered in CA-G. p. 712). 1970. On December 16. the old transfer certificates of title covering the aforementioned properties were cancelled and new ones issued in the name of respondent PCIB. p. p. Unson for and in behalf of respondent PCIB concerning the properties involved in the instant petition for certiorari. The issues raised in this case are the following: 1. WHETHER OR NOT RESPONDENT COURT ERRED IN FINDING THAT THE LOWER COURT DID NOT COMMIT AN ABUSE OF DISCRETION IN DENYING PETITIONER'S APPLICATION FOR A PRELIMINARY INJUNCTION AND . 1971 (Rollo. 447 sq. 1971 respondent PCIB filed a motion for leave to lease real estate properties in custodia legis. 1983 (Rollo. on November 19. 736). The Reply Brief was filed on December 6. 175595. 1971 (Rollo. 286175. 43198 within which to redeem its properties sold.

In this connection. De Lara v. The answer is in the negative. the loans of petitioner corporation from respondent bank were supposed to become due only at the time that it receives from the NIDC and PDCP the proceeds of the approved financing scheme. (Brief for the Respondent. compensatory and exemplary or corrective damages. 1969 (Rollo. (Brief for Petitioner. First was the question of whether or not petitioner corporation was already in default. In its letter dated August 12. pp. in fact. As it is. 9). (3) ordering defendant PCIB to immediately give up management of plaintiffs canning industry and to pay plaintiff such damages as it may prove in the concept of actual. Cloribel.00 which were all applied to the payment of the preferred stock NIDC subscribed in petitioner corporation to partially implement its P1. Locsin v. To quote: a) These facilities shall be temporary and shall be fully liquidated. 41). p. pp. (Brief for Petitioner.1969 OF THE MORTGAGED PROPERTIES EN MASSE WHEN THEY REFER TO SEVERAL REAL ESTATE MORTGAGES EXECUTED ON DIFFERENT DATES. aside from attorney's fees and expenses of litigation. Petitioner filed Civil Case No. Climaco. When the lower court denied the issuance of the writ prayed for and dissolved the restraining order it had previously issued. The main issue is whether or not private respondents have the right to the extrajudicial foreclosure sale of petitioner's mortgaged properties before trial on the merits.1966 to petitioner corporation. the conditions did not happen. in its order dated January 31. 4750). among the conditions that respondent bank set for the consolidation of the outstanding obligations of petitioner was the liquidation of the said obligations together with the latter's other obligations in the financing scheme already approved by the NIDC and PDCP.000. The foreclosure sale was premature. together with other obligations from a refinancing scheme already approved by the NIDC and PDCP totalling Pl million in equity and P2. 14 SCRA 269 [1965]. 26 SCRA 816 [1969]. The efficacy or obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event so that if the suspensive .00 investment scheme (Brief for Petitioner. 5 SCRA 79 [1962]. it admits its indebtedness to respondent bank (Brief for Petitioner. 21-47). NIDC refused to make further releases after it had made two releases totalling P200. (2) fixing a new period for the payment of the obligations of plaintiff to defendant PCIB sufficiently long to enable it to recover from the effects of defendant PCIB's inequitable acts. While petitioner corporation does not deny. WHETHER OR NOT RESPONDENT COURT ERRED IN DECLARING VALID THE FORECLOSURE SALE ON MAY 9. the firm shall present to this Bank a certified copy of the terms and conditions of the approval by the NIDC and PDCP. In other words.6 million in long term financing. 138) it practically adjudicated the case before trial on the merits. p. 11015 in the Court of First Instance of Rizal. It is to be noted that petitioner filed the above case mainly to forestall the foreclosure sale of the mortgaged properties before final judgment. plus costs (Rollo. p. 98).000.000. Branch II. there were matters that needed the preservation of the status quo between the parties. Fernandez. 7-11). pp. The issuance of a writ of preliminary injuction could have preserved the status quo of the parties in relation to the subject matter litigated by them during the pendency of the action (Lasala v. to obtain judgment (1) enjoining defendants (respondents herein) from proceeding with the foreclosure sale of the subject real estate mortgages.DISSOLVING THE RESTRAINING ORDER PREVIOUSLY ISSUED. p. 2.

13). at the insistence of respondent bank (Brief for Petitioner. Venancio Concepcion at a salary of P1. in Central Bank of the Philippines v. 10-11.000. 166). judicial or extrajudicial. another question that had to be determined was the question of cause or consideration. Respondent bank had complete control of the financial affairs and the management of petitioner corporation. Rollo. undermined the latter's financial stability. it also required petitioner to replace its then manager.00 a month. On January 2. Brief for the Respondent. 8).500. 19). p. Whether petitioner corporation is already in default or not and whether demand had been properly made or not had to be determined in the lower court. 9. pp.00 (Brief for Petitioner. Respondent Bank has not given up management of petitioner's food canning industry and continues to hold it. Federation of United Namarco Distributors. Respondent bank required petitioner to appoint Sycip. p. 1965 (Brief for Petitioner. petitioner's factory produced some P200.000.00 plus an assistant manager. p. the Management & Investment Development Associates (MIDA) and to appoint instead Edmundo Ledesma at a monthly salary of P3. pp. During the next 18 months' management by defendant's designated manager.00 worth of canned goods which according to petitioner is only equivalent to its normal production in three weeks (Brief for Petitioner. the parties would stand as if the conditional obligation had never existed (Gaite v. Gorrez. Juan de Ocampo has been retained by petitioner as corporate counsel. 41). p. In fact. 14). p. <äre|| anº• 1àw> Petitioner corporation alleges that there had been no demand on the part of respondent bank previous to its filing a complaint against petitioner and Rene Knecht personally for collection on petitioner's indebtedness (Brief for Petitioner. Fonacier. p. 139 SCRA 46 [1985] ). due representation in the board of petitioner being a condition for the loan granted to the petitioner (Rollo.condition does not take place. and that said factory . p. Benedicto as its representative in petitioner's board of directors. The loan agreements between petitioner and respondent Bank are reciprocal obligations (the obligation or promise of each party is the consideration for that of the other Penacio v. Court of Appeals. 7). Default generally begins from the moment the creditor demands the performance of the obligation. cited. 169). Rafael Ledesma was designated Chairman of the Board of Directors (Rollo. 2 SCRA 831 [1961]).000. A contract of loan is not a unilateral contract as respondent Bank thinks it is (Brief for the Respondent. Respondent bank's designation of its own choice of people holding key positions in petitioner corporation tied the hands of petitioner's board of directors to make decisions for the interest of petitioner corporation. 167). Ruaya. Borje v. respondent bank designated Rafael Ledesma as its representative in petitioner corporation's board of directors. p.10-11). For an obligation to become due there must generally be a demand. The promise of petitioner to pay is the consideration for the obligation of respondent bank to furnish the loan (Ibid. as full-time comptroller-treasurer of the corporation at a monthly salary of P1. 49 SCRA 238 [1973]. p.00 and transportation allowance of P1. giving him the position of vice-president in petitioner corporation (Brief for Petitioner. Velayo & Co. Respondent bank justifies the underproduction by averring that petitioner at that time did not have sufficient capital to operate the factory. 1967. in fact. During the 18 months of Edmundo Ledesma's management. Upon the resignation of Roberto S. 88 SCRA 576 [1979]). 110 SCRA 46 [1981].). p. Granting that the findings of the lower court after trial on the merits answer both questions in the affirmative. CFI of Misamis Occidental. Inc. Even Atty. Benedicto as vice-president and member of the board of directors of petitioner corporation on December 29. Without such demand. This has not been denied by respondent bank. the effects of default will not arise (Namarco v. no meeting of the board of directors of petitioner was calledEdmundo Ledesma exercised full control and management (Brief for Petitioner.000. It appointed its executive vice-president Roberto S.

00 loan for operating capital and the P40.00 loan of the manager. 167). . 11-13). p. petitioner corporation. the Court ruled that it is as if the loan was never delivered to it and thus. (supra). Rollo. petitioner's president. 3132) and such interference is only a consequence of respondent bank's management of petitioner corporation through the officers occupying key positions therein. 169). there was failure on the part of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed. 1967 a loan of P1. p. p. In a similar case.000. pp.00 loan at a higher interest of 14% per annum to petitioner at the request of the same Edmundo Ledesma (Rollo.was only operating for the purpose of avoiding spoilage and deterioration of the raw materials then in store at the petitioner's factory (Rollo. 13-14. if ever petitioner corporation was in financial straits instead of being rehabilitated this can be attributed to the mismanagement of respondent corporation through its representatives in petitioner corporation. Thus. 168) and yet respondent bank insists. Edmundo Ledesma. <äre|| anº• 1àw> It is apparent that it is respondent bank practically managing petitioner corporation through its representatives occupying key positions therein. may choose between specific performance or rescission with damages in either case (Central Bank of the Philippines v. had no authority to borrow for petitioner. p. After the Development Bank of the Philippines had approved on June 29. pp. Rafael Ledesma. under Article 1191 of the Civil Code. p. controlled 87% of the stockholding of petitioner and the by-laws authorized the president to borrow for the company (Brief for Petitioner. and the amount actually released by the Development Bank. pp. respondent bank was in default in fulfilling its reciprocal obligation under their loan agreement. Juan de Ocampo. 41).00 loan to petitioner (Rollo.000. defeating the very purpose of the loan which is to develop the projects of the corporation. in his capacity as Chairman of petitioner's board of directors wrote a letter to the Development Bank of the Philippines stating that Rene Knecht.00 applied for by petitioner in 1961. Intermediate Appellate Court. that it had released the entire amount of P500. 43) and admits having granted a P40. By its own admission it failed to release the P710. 79). That Rafael Ledesma wrote a letter to the Development Bank of the Philippines is admitted by respondent bank (Rollo. The Development Bank of the Philippines refused to make further releases on the approved loan or to issue the dollar guaranty for the importation of can making machinery. Filipinas Marble Corporation v.000. There is basis for petitioner's complaint of interference by respondent bank with petitioner's financing (Brief for Petitioner. p. although Rene Knecht. 139 SCRA 46 [1985]). p. It was Atty. Court of Appeals. 1966 (Brief for Respondent. p.000.00 to pay off partially petitioner's account with it and requested to release the titles of the Pasig parcels for delivery to the Development Bank of the Philippines. had been mismanaged or misspent by respondent bank through its representatives. most especially the P500. Furthermore. the corporate counsel retained by petitioner at the insistence of respondent bank that instituted the collection suit and extra-judicial foreclosure for respondent bank against petitioner (Brief for Petitioner.00 loan (Rollo. 167) earmarked for operating capital purposes (Brief for the Respondent. Not even the president of petitioner corporation could escape control by respondent bank through the Comptroller Treasurer assigned "to countersign all checks and other disbursements and decide on all financial matters regarding the operations and who shall see to it that operations are carried out" (Brief for the Respondent. p. 167) it approved on October 13. Intermediate Appellate Court (142 SCRA 180 [1986]) where the lending institution took over the management of the borrowing corporation and led that corporation to bankcruptcy through mismanagement or misappropriation of the funds. It cannot be determined at this point how much of the total loan.000.000. 44) in which case. This matter should rightfully be litigated below in the main action (Filipinas Marble Corportion v. being a mere figurehead president.840.000. respondent bank informed of the availability of P800.

Respondent bank cites the above-quoted article in its argument that the mortgage contract is indivisible and that the loan it secures cannot be divided among the different lots (Brief for Respondent. (Central Bank of the Philippines v. it is noted that as already stated hereinabove. 246). granting that there was consolidation of the entire loan of petitioner corporations approved by respondent bank.00.As a consequence. From these provisions is excepted the case in which. (3) the preliminary injunction issued by this Court on April 28. 1981 for leave to lease the real properties in custodia legis is DENIED. The debtor. p. The rule of indivisibility of a real estate mortgage refers to the provisions of Article 2089 of the Civil Code. The rule. (2) the lower court is ordered to proceed with the trial on the merits of the main case together with a determination of exactly how much are petitioner's liabilities in favor of respondent bank PCIB so that proper measures may be taken for their eventual liquidation. there being several things given in mortgage or pledge. shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied. Respondent Court upheld the validity of the sale en masse (Rollo. the real estate mortgage of petitioner corporation cannot be entirely foreclosed to satisfy its total debt to respondent bank. Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage. the rule of indivisibility of mortgage cannot apply where there was failure of consideration on the part of respondent bank for the mismanagement of the affairs of petitioner corporation and where said bank is in default in complying with its obligation to release to petitioner corporation the amount of P710. to the prejudice of the other heirs who have not been paid.) The issue of whether the foreclosure sale of the mortgaged properties en masse was valid or not must be answered in the negative. and (4) the motion of respondent bank dated April 1. 27). which provides: Art.000. PREMISES CONSIDERED. Court of Appeals. . (1) the decision of the Court of Appeals is REVERSED insofar as it sustained: (a) the lower court's denial of petitioner's application for preliminary injunction and (b) the validity of the foreclosure sale. A pledge or mortgage is indivisible. supra. each one of them guarantees only a determinate portion of the credit. the exact amount of petitioner's total debt was stillunknown. Therefore the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as the debt is not completely satisfied. SO ORDERED. In fact the real estate mortgage itself becomes unenforceable (Central Bank of the Philippines v. 1971 remains in force until the merits of the main case are resolved. even though the debt may be divided among the successors in interest of the debtor or of the creditor. in this case. supra. however. supra).) Furthermore. p. is not applicable to the instant case as it presupposes several heirs of the debtor or creditor which does not obtain in this case (Central Bank of the Philippines v. Finally. 2089. Court of Appeals. Court of Appeals.

Regalado. . J. and Sarmiento. Padilla.. took no part.Melencio-Herrera (Chairperson). JJ. concur..

Agusan. as a security for the loan. 47. by unanimous vote. approved the loan application for P80. 1985 CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. and damages with preliminary injunction. 1049. with 12% annual interest. vs.: This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals. repayable in semi-annual installments for a period of 3 years. and Sulpicio M. after being informed by the Bank that there was no fund yet available for the release of the P63.).000.000. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK. Fabian S. which provides: In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities. 64. 1972 of the Court of First Instance of Agusan.000. On April 28. after finding Island Savings Bank was suffering liquidity problems. No. 52253-R dated February 11. CASTRO. I. On May 22. a mere P17. rec.800.00 loan. The approved loan application called for a lump sum P80. the Board.00 (p. Island Savings Bank. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision.000. An advance interest for the P80. TOLENTINO. Tolentino on July 23.R. But this pre-deducted interest was refunded to Sulpicio M. rec. No. On August 13. Lombos and Marino E. rec. payable within 3 years from the date of execution of the contract at semiannual installments of P3.00 loan was made by the Bank. who. provided that such extensions or renewals shall be subject to review by the Superintendent of Banks. thru its vice-president and treasurer. The Bank.-G.000.00 balance (p. JR. respondents. in C. the Monetary Board of the Central Bank.G.).00 at 12% annual interest. and which mortgage was annotated on the said title the next day. It was required that Sulpicio M. executed on the same day a real estate mortgage over his 100-hectare land located in Cubo. 1965. Jr. 113.000.000. and covered by TCT No.459. Antonio R.00 balance (p.). specific performance or rescission.00 was deducted from the partial release of P17.000. L-45710 October 3.000.A.00 partial release of the P80. Eslao for petitioners. 1965.00 of Sulpicio M.. T-305.B. Tupaz for private respondent. MAKASIAR. 1965. in his capacity as statutory receiver of Island Savings Bank. Las Nieves. Tolentino and his wife Edita Tolentino signed a promissory note for P17. THE HONORABLE COURT OF APPEALS and SULPICIO M.00. Regalado. . 1977.00 loan covering a 6-month period amounting to P4. 1965. who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible. which dismissed the petition of respondent Sulpicio M. upon favorable recommendation of its legal department. petitioners. promised repeatedly the release of the P63. decided as follows: 1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans. Tolentino. modifying the decision dated February 15. CJ.R. issued Resolution No. Tolentino for injunction.

000. but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17.000. filed by the Central Bank and by the Acting Superintendent of Banks (pp. 30-:31. Tolentino filed a petition with the Court of First Instance of Agusan for injunction. 1977.00 plus legal interest and legal charges due thereon. Can the action of Sulpicio M. On January 20. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. and if said balance cannot be delivered. to rescind the real estate mortgage (pp. 32-43. the trial court. Tolentino's petition for specific performance. 65-76. On June 14. rec. alleging that since Island Savings Bank failed to deliver the P63. 1969. upon the filing of a P5.). rec. Sulpicio M. If Sulpicio M.00 loan. on appeal by Sulpicio M.000. Tolentino and the setting aside of the restraining order. 46. On January 21.000. finding unmeritorious the petition of Sulpicio M. issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. On February 11.). after trial on the merits rendered its decision. 1965. 1968. 1968.xxx xxx xxx (p. rec. the Monetary Board. rec. rec. Tolentino. the Court of Appeals. and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp.00 surety bond. The issues are: 1.000. Is Sulpicio M. modified the Court of First Instance decision by affirming the dismissal of Sulpicio M.00 debt covered by the promissory note? 3.000. Tolentino liable to pay the P17.). ordering him to pay Island Savings Bank the amount of PI 7 000. he is entitled to specific performance by ordering Island Savings Bank to deliver the P63.00 loan pp. On August 1. and the sheriff scheduled the auction for January 22. 1972. Tolentino's liability to pay the P17. 1969.). the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M.000. Tolentino.00 subsists. issued Resolution No.000. in view of non-payment of the P17.00 with interest of 12% per annum from April 28. Island Savings Bank. the trial court. 1969. On January 29. Tolentino for specific performance prosper? 2. filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. On February 15. can his real estate mortgage be foreclosed to satisfy said amount? . after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency.). 1969. 86-87. rec). 48-49. specific performance or rescission and damages with preliminary injunction.00 covered by the promissory note. Tolentino. rec.00 balance of the P80. Hence. 135-136. this instant petition by the central Bank.

00 balance. 1968. CJS p. 1049 issued on August 13. Pelarca 29 SCRA 1 [1969]).When Island Savings Bank and Sulpicio M.00 loan agreement on April 28. they undertook reciprocal obligations. Furthermore. 15.000. Thus. which prohibited Island Savings Bank from doing further business. the lower court. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility.00 balance of the P80.000. Inc. 1965. they must investigate the existence and evaluation of the properties being offered as a loan security.000. 198-199. No. Tolentino executed a real estate mortgage on April 28.00 out of the P80. From such date. the validity of which is not in question.. The Board Resolution No. A person cannot be legally charged interest for a non-existing debt. vs.000. And.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63.00 loan. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation.000. 1169 of the Civil Code).s.000. which right exist independently of his right to demand the completion of the P80.000. The act of Island Savings Bank.00 loan.A. the obligation or promise of each party is the consideration for that of the other (Penaco vs. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R. In reciprocal obligations. Afzelius and Afzelius.000. and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. The lower court's action is sanctioned . the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1965. It is the obligation of the bank's officials and employees that before they approve the loan application of their customers. Tolentino.000. 650) The fact that Sulpicio M. the bank shall bear the risk in case the collateral turn out to be over-valued. had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp.000. 1948. The promise of Sulpicio M. Sept. Besides. Tolentino entered into an P80. 104 SCRA 151 [1981]). the obligation of Island Savings Bank to furnish the P80. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4. 'Tolentino of the prededucted interest was an exercise of his right to it. The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80. 1965. and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No.00 loan accrued. he signified his willingness to pay the P80. 39 Phil. nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs.000. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral.000. the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. When Sulpicio M. 967 on June 14. was improper considering that only P17. 17A. Ruaya. the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract.00 loan.n.A. the exercise of the other.00 loan was released. 1974 ed. the Bank's delay in furnishing the entire loan started on April 28.00 for the supposed P80.00 loan. 190 [1918]). and when one party has performed or is ready and willing to perform his part of the contract. which took effect on June 15.800.00 balance because said resolution merely prohibited the Bank from making new loans and investments. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80.000..00 loan.00 loan. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63. de Quirino vs. in asking the advance interest for 6 months on the supposed P80. the receipt by Sulpicio M. on objections of' Sulpicio M. C. t. The exercise of one right does not affect. 265.1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63. Vda. 110 SCRA 46 [1981]. much less neutralize.000. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. 1971). Thus.

WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Rule 9. Tolentino's reciprocal obligation to pay the P17.00 debt within 3 years as stipulated.000. WE rule.000.00 debt shall not be included in offsetting the liabilities of both parties." Petitioners. voidable.00 loan when it falls due.000. Since Sulpicio M. For the debtor. Tolentino for interest on his PI 7.00. Since both parties were in default in the performance of their respective reciprocal obligations.by the Rules of Court. Section 2. If there is a right to rescind the promissory note. under Article 1191 of the Civil Code. in the form of penalties and surcharges. he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. it shall belong to the aggrieved party. Tolentino derived some benefit for his use of the P17. in relation to Art. 2052. or unenforceable debt (Art.00 within 3 years. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. lt may either be a prior or subsequent matter. does not make the real estate mortgage void for lack of consideration. Tolentino failed to comply with his obligation to pay his P17. Thus.00 loan. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No.000. as there was no debt yet because Island Savings Bank had not made any release on the loan. that is. 93 SCRA 443 [1979]). . If Tolentino had not signed a promissory note setting the date for payment of P17. that the real estate mortgage of Sulpicio M.000. The liability of Sulpicio M. Sulpicio M. as there is no doubt that the bank failed to give the P63.000. Tolentino. The fact that when Sulpicio M.. WE hold. WE cannot grant specific performance in favor of Sulpicio M. hence not entitled to rescission (Article 1191 of the Civil Code). 'Tolentino executed his real estate mortgage. 2086. the consideration of the debtor in furnishing the mortgage is the existence of a valid. Island Savings Bank. for not paying his overdue P17. thus. however. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations. the liability of the first infractor shall be equitably tempered by the courts. because the bank is in default only insofar as such amount is concerned.000.00 debt. 125 SCRA 122 [1983]).00 loan.000. no consideration was then in existence.00 balance of the P80. The promissory note gave rise to Sulpicio M. Bayuga. that is. As far as the partial release of P17. the bank was deemed to have complied with its reciprocal obligation to furnish a P17. it is just that he should account for the interest thereon. Tolentino for damages. Tolentino accepted and executed a promissory note to cover it. cannot raise the same issue before the Supreme Court. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement. may choose between specific performance or rescission with damages in either case.000.000. Rescission is the only alternative remedy left. C.000. they are both liable for damages. Tolentino cannot be entirely foreclosed to satisfy his P 17. the consideration of his obligation to pay is the existence of a debt.000.A.00. His failure to pay the overdue amortizations under the promissory note made him a party in default. 967.00. in the accessory contract of real estate mortgage. which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. that rescission is only for the P63.00 debt. however. The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. which Sulpicio M. of the Civil Code). Tolentino.

Jones on Mortgage. The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case. AND 3. when there is partial failure of consideration. Vol. p.W. F(2d) p. SULPICIO M. 88. Vol.00. P63.. HIS REAL ESTATE MORTGAGE COVERING 21.000. Article 2089 provides: A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor.000. Vol. IN CASE SULPICIO M.00 loan.00 is 78. the real estate mortgage of Sulpicio M. The mortgage covering the remainder of 21. Tolentino became unenforceable to such extent. Since Island Savings Bank failed to furnish the P63.000. p.000. p. 5-6).75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. Poore. 1974 ed.75% of P80. 82. et al.000. The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS. 19. Peterson. And. to the prejudice of other heirs who have not been paid. .00. the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22. the mortgage becomes unenforceable to the extent of such failure (Dow. Wiltsie on Mortgage. cited in 5th ed.75 hectares. 1985.25 hectares is more than sufficient to secure a P17. P. 583. the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. 21. 2. cited in Vol. 172 N. 1965 TO AUGUST 22. AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22. Sherman. THE REAL ESTATE MORTGAGE COVERING 78.00 debt. 1977 IS HEREBY MODIFIED. vs. 176 N. CJS. the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs. THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11. Vol. Co. TOLENTINO.000.00 balance of the P8O. Vol. 138). 59. Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage. 1985 UNTIL PAID. Therefore. 180). PLUS P41. AND 1. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage. Hence. pp. 1.But when the consideration is subsequent to the mortgage. 2. the rule of indivisibility of a mortgage cannot apply WHEREFORE. cited in the 8th ed.25 hectares subsists as a security for the P17. hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.000.210.E. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17. vs. TOLENTINO FAILS TO PAY.00 debt..

SO ORDERED. Concepcion. took no part. JJ.NO COSTS. Aquino (Chairman) and Abad Santos. concur. Jr.. Escolin.. JJ. .. Cuevas and Alampay.

G.R. No. L-60705 June 28, 1989
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners,
vs.
PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF
APPEALS,respondents.
G.R. No. L-60907 June 28, 1989
OVERSEAS BANK OF MANILA, petitioner,
vs.
COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L.
SANTOS, respondents.

REGALADO, J.:
In these petitions for review on certiorari, Integrated Realty Corporation and Raul Santos (G.R. No.
60705), and Overseas Bank of Manila (G.R. No. 60907) appeal from the decision of the Court of
Appeals, 1 the decretal portion of which states:
WHEREFORE, with the modification that appellee Overseas Bank of Manila is
ordered to pay to the appellant Raul Santos the sum of P 700,000.00 due under the
time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) interest per annum from
date of issue until fully paid, the appealed decision is affirmed in all other respects.
In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC and Raul L. Santos
(hereafter, Santos) seek the dismissal of the complaint filed by the Philippine National Bank
(hereafter, PNB), or in the event that they be held liable thereunder, to revive and affirm that portion
of the decision of the trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and
Santos whatever amounts the latter will pay to PNB, with interest from the date of payment. 2
On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision of respondent court
insofar as it holds OBM liable for interest on the time deposit with it of Santos corresponding to the
period of its closure by order of the Central Bank. 3
In its assailed decision, the respondent Court of Appeals, quoting from the decision of the lower
court, 4 narrated the antecedents of this case in this wise:
The facts of this case are not seriously disputed by any of the parties. They are set
forth in the decision of the trial court as follows:
Under date 11 January 1967 defendant Raul L. Santos made a time deposit with
defendant OBM in the amount of P 500,000.00. (Exhibit-10 OBM) and was issued a
Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, Exhibit D). Under date 6
February 1967 defendant Raul L. Santos also made a time deposit with defendant
OBM in the amount of P 200,000.00 (Exhibit 11 OBM and was issued certificate of
Time Deposit No. 2367 (Exhibit 2 Santos, Exhibit E).

Under date 9 February 1967 defendant IRC thru its President-defendant Raul L.
Santos, applied for a loan and/or credit line (Exhibit A) in the amount of P 700,000.00
with plaintiff bank. To secure the said loan, defendant Raul L. Santos executed on
August 11, 1967 a Deed of Assignment (Exhibit C) of the two time deposits (Exhibits
1-Santos and 2 Santos, also Exhibits D and E) in favor of plaintiff. Defendant OBM
gave its conformity to the assignment thru letter dated 11 August 1967 (Exhibit F).
On the same date, defendant IRC thru its President Raul L. Santos, also executed a
Deed of Conformity to Loan Conditions (Exhibit G).
The defendant OBM after the due dates of the time deposit certificates, did not pay
plaintiff PNB. Plaintiff demanded payment from defendants IRC and Raul L. Santos
(Exhibit K) and from defendant OBM (Exhibit L). Defendants IRC and Raul L. Santos
replied that the obligation (loan) of defendant IRC was deemed paid with the
irrevocable assignment of the time deposit certificates (Exhibits 5 Santos, 6 Santos
and 7 Santos).
On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with
interest as well as attomey's fees. It impleaded OBM as a defendant to compel it to redeem and pay to it Santos' time
deposit certificates with interest, plus exemplary and corrective damages, attorney's fees, and cost.

In their answer to the complaint, IRC and Santos alleged that PNB has no cause of
action against them because their obligation to PNB was fully paid or extinguished
upon the' irrevocable' assignment of the time deposit certificates, and that they are
not answerable for the insolvency of OBM They filed a counterclaim for damages
against PNB and a cross-claim against OBM alleging that OBM acted fraudulently in
refusing to pay the time deposit certificates to PNB resulting in the filing of the suit
against them by PNB, and that, therefore, OBM should pay them whatever amount
they may be ordered by the court to pay PNB with interest. They also asked that
OBM be ordered to pay them compensatory, moral, exemplary and corrective
damages.
In its answer to the complaint, OBM denied knowledge of the time deposit certificates
because the alleged time deposit of Santos 'does not appear in its books of account.
Whereupon, IRC and Santos, with leave of court, filed a third-party complaint against
Emerito B. Ramos, Jr., president of OBM and Rodolfo R. Sunico, treasurer of said
bank, who allegedly received the time deposits of Santos and issued the certificates
therefor.
Answering the third-party complaint, Ramos and Sunico alleged that IRC and Santos
have no cause of action against them because they received and signed the time
deposit certificates as officers of OBM that the time deposits are recorded in the
subsidiary ledgers of the bank and are 'civil liabilities of the defendant OBM
On November 18, 1970, OBM filed an amended or supplemental answer to the
complaint, acknowledging the certificates of time deposit that it issued to Santos, and
admitting its failure to pay the same due to its distressed financial situation. As
affirmative defenses, it alleged that by reason of its state of insolvency its operations
have been suspended by the Central Bank since August 1, 1968; that the time
deposits ceased to earn interest from that date; that it may not give preference to any
depositor or creditor; and that payment of the plaintiffs claim is prohibited.

On January 30, 1976, the lower court rendered judgment for the plaintiff, the
dispositive portion of which reads as foIlows
WHEREFORE, judgment is hereby rendered, ordering:
1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the
plaintiff, jointly and solidarily, the total amount of P 700,000.00 plus interest at the
rate of 9% per annum from maturity dates of the two promissory notes on January 11
and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest
effective February 28, 1968 and additional penalty interest of 1% per annum of the Id
amount of P 700,000.00 from the time of maturity of Id loan up to the time the said
amount of P 700,000.00 is actually paid to the plaintiff;
2. The defendants topay l0% of the amount of P 700,000.00 as and for attorney's
fees;
3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty
Corporation and Raul L. Santos whatever amounts the latter will pay to the plaintiff
with interest from date of payment;
4. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty
Corporation and Raul L. Santos the amount of P 10,000.00 as and for attorney's
fees;
5. The third-party complaint and cross-claim dismissed;
6. The defendant Overseas Bank of Manila to pay the costs.
SO ORDERED. 5
IRC Santos and OBM all appealed to the respondent Court of Appeals. As stated in limine, on March
16, 1982 respondent court promulgated its appealed decision, with a modification and the deletion of
that portion of the judgment of the trial court ordering OBM to pay IRC and Santos whatever
amounts they will pay to PNB with interest from the date of payment.
Therein defendants-appellants, through separate petitions, have brought the said decision to this
Court for review.
1. The first issue posed before us for resolution is whether the liability of IRC and
Santos with PNB should be deemed to have been paid by virtue of the deed of
assignment made by the former in favor of PNB, which reads:
KNOW ALL MEN BY THESE PRESENTS;
I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661
Richmond St., Mandaluyong, Rizal for and in consideration of certain loans,
overdrafts and other credit accommodations granted or those that may hereafter be
granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred
and conveyed and by these presents, do hereby assign, transfer and convey by way
of security unto said PHILIPPINE NATIONAL BANK its successors and assigns the
following Certificates of Time Deposit issued by the OVERSEAS BANK OF MANILA,

Lopez executed a deed of assignment of his shares of stock in the Baguio Military Institute.S. and the question whether there was or was not such an agreement. In upholding the finding therein of the Court of Appeals. he executed a promissory note in favor of the bank and. SANTOS. the Court of Appeals ruled that Lopez was still liable to Philamgen because. as principal. We held that: Notwithstanding the express terms of the 'Stock Assignment Separate from Certificate'. . 200). Inc. .000. it was not payment. was handed over by a debtor to his creditor. Philamgen was merely holding the stock as security for the payment of Lopez' obligation. 1967. and Philippine American General Insurance Co. was one of facts to be decided by the jury. the bank filed a complaint which compelled Philamgen to pay the bank. When Lopez' obligation matured without being settled. Hicks. he executed a surety bond in which he.00 from the Prudential Bank and Trust Company.] 240 L. Court of appeals. in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY (P 700. however. Philippine Currency. pending payment. At the same time. 404. Where a certificate of deposit in a bank. (Downey vs. The trial court therein held that the obligation of Lopez was deemed paid when his shares of stocks were transferred in the name of Philamgen. Philamgen caused the transfer of the shares of stocks to its name in order that it may sell the same and apply the proceeds thereof in payment of the loan to the bank. unless there was an express agreement on the part of the creditor to receive it as such. Ed. bound themselves jointly and severally in favor of the bank for the payment of the loan. On the same day. Inc. p. orders or decisions of the court or for any other cause whatsoever.. monies or properties resulting from any agreements. when no payment was still made by the principal debtor or surety. 6 xxx xxx xxx Respondent Court of Appeals did not consider the aforesaid assignment as payment. Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed to indemnify the company against any damages which the latter may sustain in consequence of having become a surety upon the bond. SANTOS and/or NORA S. Vol. We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. (Philamgen). In Lopez vs. However. hereto enclosed as Annex ' A'. [14 How. in addition.000. 8 petitioner Benito Lopez obtained a loan for P 20. et al. in favor of Philamgen. as surety. 5-B Banks and Banking. 55 U.. Philamgen filed an action to recover the amount of the loan against Lopez. See also Michie. thus: The contention of IRC and Santos that the irrevocable assignment of the time deposit certificates to PNB constituted payment' of their obligation to the latter is not well taken. xxx xxx xxx It is also understood that the herein Assignor/s shall remain hable for any outstanding balance of his/their obligation if the Bank is unable to actually receive or collect the above assigned sums .. Thereafter.its CONFORMITY issued on August 11. On appeal.00).. On the same occasion. 7 We uphold respondent court on this score.. in favor of RAUL L. payable at a future day.

It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P
20,000.00 from Prudential Bank, Lopez executed a promissory note for P 20,000.00,
plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He
likewise posted a surety bond to secure his full and faithful performance of his
obligation under the promissory note with Philamgen as his surety. In return for the
undertaking of Philamgen under the surety bond, Lopez executed on the same day
not only an indemnity agreement but also a stock assignment.
The indemnity agreement and stock assignment must be considered together as
related transactions because in order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered. (Article
1371, New Civil Code). Thus, considering that the indemnity agreement connotes a
continuing obligation of Lopez towards Philamgen while the stock assignment
indicates a complete discharge of the same obligation, the existence of the indemnity
agreement whereby Lopez had to pay a premium of P l,000.00 for a period of one
year and agreed at all times to indemnify Philamgen of any and all kinds of losses
which the latter might sustain by reason of it becoming a surety, is inconsistent with
the theory of an absolute sale for and in consideration of the same undertaking of
Philamgen. There would have been no necessity for the execution of the indemnity
agreement if the stock assignment was really intended as an absolute conveyance.
...
Along the same vein, in the case at bar it would not have been necessary on the part of IRC and
Santos to execute promissory notes in favor of PNB if the assignment of the time deposits of Santos
was really intended as an absolute conveyance.
There are cogent reasons to conclude that the parties intended said deed of assignment to
complement the promissory notes. In declaring that the deed of assignment did not operate as
payment of the loan so as to extinguish the obligations of IRC and Santos with PNB, the trial court
advanced several valid bases, to wit:
a. It is clear from the Deed of Assignment that it was only by way of security;
xxx xxx xxx
b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If
defendants IRC and Raul L. Santos, upon executing the Deed of Assignment on
August 11, 1967 had already paid their loan of P 700,000.00 or otherwise
extinguished the same, why were the promissory notes made on August 16, 1967
still executed by IRC and signed by Raul L. Santos as President?
c. In the application for a credit line (Exhibit A),the time deposits were offered as
collateral. 9
For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting
again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their
intention, regardless of what language was used or what the form of the transfer was.
If it was intended to secure the payment of money, it must be construed as a pledge;
but if there was some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its object and character

might still be qualified and explained by a contemporaneous writing declaring it to
have been a deposit of the property as collateral security. It has been said that a
transfer of property by the debtor to a creditor, even if sufficient on its face to make
an absolute conveyance, should be treated as a pledge if the debt continues in
existence and is not discharged by the transfer, and that accordingly, the use of the
terms ordinarily importing conveyance, of absolute ownership will not be given that
effect in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other
circumstances excluding an intent to pledge. 10
The facts and circumstances leading to the execution of the deed of assignment, as found by the
court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of
assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure
the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing
pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose. 11 The further requirement that
the thing pledged be placed in the possession of the creditor, or of a third person by common
agreement 12 was complied with by the execution of the deed of assignment in favor of PNB.

It must also be emphasized that Santos, as assignor, made an express undertaking that he would
remain liable for any outstanding balance of his obligation should PNB be unable to actually receive
or collect the assigned sums resulting from any agreements, orders or decisions of the court or for
any other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the
situation involved in the present case.
Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and
Santos should be held liable to PNB for the amount of the loan with the corresponding interest
thereon.
2. We find nothing illegal in the interest of one and one-half percent (1-1/2%)
imposed by PNB pursuant to the resolution of its Board which presumably was done
in accordance with ordinary banking procedures. Not only did IRC and Santos fail to
overcome the presumption of regularity of business transactions, but they are
likewise estopped from questioning the validity thereof for the first time in this
petition. There is nothing in the records to show that they raised this issue during the
trial by presenting countervailing evidence. What was merely touched upon during
the proceedings in the court below was the alleged lack of notice to them of the
board resolution, but not the veracity or validity thereof.
3. On the issue of whether OBM should be held liable for interests on the time
deposits of IRC and Santos from the time it ceased operations until it resumed its
business, the answer is in the negative.
We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 13 that:
It is a matter of common knowledge, which We take judicial notice of, that what
enables a bank to pay stipulated interest on money deposited with it is that thru the
other aspects of its operation it is able to generate funds to cover the payment of
such interest. Unless a bank can lend money, engage in international transactions,
acquire foreclosed mortgaged properties or their proceeds and generally engage in
other banking and financing activities from which it can derive income, it is

inconceivable how it can carry on as a depository obligated to pay stipulated interest.
Conventional wisdom dictated; this inexorable fair and just conclusion. And it can be
said that all who deposit money in banks are aware of such a simple economic
proposition petition. Consequently, it should be deemed read into every contract of
deposit with a bank that the obligation to pay interest on the deposit ceases the
moment the operation of the bank is completely suspended by the duly constituted
authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operation by the
Central Bank has been subsequently declared illegal by the Supreme Court, for
before the Court's order, the bank had no alternative under the law than to obey the
orders of the Central Bank. Whatever be the juridical significance of the subsequent
action of the Supreme Court, the stubborn fact remained that the petitioner was
totally crippled from then on from earning the income needed to meet its obligations
to its depositors. If such a situation cannot, strictly speaking, be legally denominated
as 'force majeure', as maintained by private respondent, We hold it is a matter of
simple equity that it be treated as such.
The Court further adjured that:
Parenthetically, We may add for the guidance of those who might be concerned, and
so that unnecessary litigations be avoided from further clogging the dockets of the
courts, that in the light of the considerations expounded in the above opinion, the
same formula that exempts petitioner from the payment of interest to its depositors
during the whole period of factual stoppage of its operations by orders of the Central
Bank, modified in effect by the decision as well as the approval of a formula of
rehabilitation by this Court, should be, as a matter of consistency, applicable or
followed in respect to all other obligations of petitioner which could not be paid during
the period of its actual complete closure.
We cannot accept the holding of the respondent Court of Appeals that the above-cited decisions
apply only where the bank is in a state of liquidation. In the very case aforecited, this issue was
likewise raised and We resolved:
Thus, Our task is narrowed down to the resolution of the legal problem of whether or
not, for purposes of the payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may be equated with actual
cessation of the bank's operation, not different, factually speaking, in its effects, from
legal liquidation the factual cessation having been ordered by the Central Bank.
In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, 65
Phil. 395, this Court held:
As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation
of the Mercantile Bank of China, Tan Tiong Tick, claimant and appellant vs.
American Apothecaries, C., et al., claimants and appellees, through Justice Imperial,
held the following:
4. The court held that the appellant is not entitled to charge interest on the amounts
of his claims, and this is the object of the second assignment of error, Upon this point
a distinction must be made between the interest which the deposits should earn from
their existence until the bank ceased to operate, and that which they may earn from

14 On December 5. In the light of the peculiar circumstances of this particular case. unless the contracts are renewed. 18 not a contract of deposit. While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing. we hold that the said interest should not be paid. Thus. 1290 of the CB OBM's operations were suspended. the bank being authorized by law to make use of the deposits with the limitation stated. 16 These CB resolutions were eventually annulled and set aside by this Court on October 4. 1967. that matters and is decisive insofar as his right to the continued payment of the interest on his deposit during the period of cessation is concerned. on August 2. when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11. It is Our considered view. the financial situation of OBM had already caused mounting concern in the Central Bank. the said Apothecaries case had in fact in contemplation a valid order of liquidation of the bank concerned. It appears that as early as April. This is true with respect to the stipulated interest. 1968 completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained and then nullified by this Supreme Court. 17 When respondent Santos invested his money in time deposits with OBM they entered into a contract of simple loan or mutuum. respectively. In other words. to invest the same in its business and other operations. but the obligations consisting as they did in the payment of money. 1971 in the decision rendered in the herein cited case of Ramos. 19 OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired. The Court of Appeals considered this ruling inapplicable to the instant case. Subsequently. 1968 when OBM was excluded from clearing with the CB under Monetary Board Resolution No. Moreover. that it is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to operate. it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the Id claims.the time the bank's operations were stopped until the date of payment of the deposits. 1968 and February 6. we hold that it should be paid because such interest has been earned in the ordinary course of the bank's businesses and before the latter has been declared in a state of liquidation. Consequently. the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) were elected and installed and they took over the management and control of the Overseas Bank. it was only on July 31. for having incurred in delay in the performance of its obligation. IRC and Santos claim that OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way of compensation for damages incurred. We disagree. As to the first-class. new directors and officers drafted from the Central Bank (CB) itself. there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. not the actual cessation thereof. under Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM and the . 1263. pursuant to Articles 1170 and 2201 of the Civil Code. the order of the Central Bank of August 13. 1968. this applies only to interest for the use of money. OBM should be held liable for damages. 1967. 4. after mature deliberation. As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation. Lastly. 1968. pursuant to Resolution No. as contended by private respondent. 15 However. whereas here. precisely because. It does not comprehend interest paid as damages. it is the legal reason for cessation of operations. as far as private respondent is concerned.

1968. no privity of contract between OBM and PNB which will justify the imposition of the aforesaid interests upon OBM whose liability should be strictly confined to and within the provisions of the certificates of time deposit involved in this case.00). 20 Which latter mode of demand was made by PNB. in the nature of damages for non-compliance with an obligation to pay a sum of money. 1967 and February 6. is recoverable from the date judicial or extra-judicial demand is made. until the same are fully paid. with interest thereon at the rate of nine percent (9%) per annum from the maturity dates of the two promissory notes on January 11 and February 6.00) due under Time Deposit Certificates Nos. 1968. 2. OBM was never a party to Id promissory notes. OBM is being required to pay such interest. IRC and Santos are not without fault. with interest thereon of six and one-half percent (61/2%) per annum from their dates of issue on January 11. Santos to pay Philippine National Bank.000. ordering: 1. 21 The measure of such damages.000. when OBM assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputed reimbursement. 2308 and 2367.00) as and for attorney's fees. Integrated Realty Corporation and Raul L. not as interest income stipulated in the certificates of time deposit. 3. 1967. plus one and one-half percent (1-1/2%) additional interest per annum effective February 28. In fine. 24 WHEREFORE. there being no stipulation to the contrary. 1968 and additional penalty interest of one percent (1%) per annum of the said amount of seven hundred thousand pesos (P 700. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts.000.00) is fully paid to Philippine National Bank. respectively. It must be noted that their liability to pay the various interests of nine percent (9%) on the principal obligation. as noted by respondent court. on March 1. one and one-half percent (1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory notes executed in favor of PNB. respectively. IRC and Santos did not dispute that objection of OBM Besides. 23 We reject the proposition of IRC and Santos that OBM should reimburse them the entire amount they may be adjudged to pay PNB. Santos the sum of seven hundred thousand pesos (P 700.measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fact.000. . The applicable rule is that legal interest. There is. They likewise acted in bad faith when they refuse to comply with their obligations under the promissory notes. therefore. Integrated Realty Corporation and Raul L. Such interest due or accrued shall further earn legal interest from the time of judicial demand. Santos to pay solidarily Philippine National Bank ten percent (10%) of the amount of seven hundred thousand pesos (P 700. the total amount of seven hundred thousand pesos (P 700. after the maturity of the certificates of time deposit.000. shall be the payment of the interest agreed upon in the certificates of deposit 22 Which is six and onehalf percent (6-1/2%). jointly and severally. thus incurring liability for all damages reasonably attributable to the non-payment of said obligations.00) from the time of maturity of said loan up to the time the said amount of seven hundred thousand pesos (P 700. except that no interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of Manila. judgment is hereby rendered.

Padilla and Sarmiento. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. 1968.000. Paras. until fifth payment thereof. plus legal interest of six percent (6%) on said interest from April 6.00) as and for attorney's fees. (Chairperson). concur. Santos ten thousand pesos (P l0. 5. except during the entire period of actual cessation of operations of said bank. Melencio-Herrera. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. JJ. 1968. Santos six and one-half per cent (6-1/2%) interest in the concept of damages on the principal amounts of said certificates of time deposit from the date of extrajudicial demand by PNB on March 1. SO ORDERED.4.. .

petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it.R. J. Branch VI.R. respondents. 36040. the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of the aforedescribed machinery. issued in Civil Case No. and HONORABLE COURT OF APPEALS.G. L-58469 May 16. 1981 of the said appellate court. 36040. Baduan for petitioner. of Judge Ricardo J. the sheriff enforcing the seizure order. vs.. Francisco. set aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders. INC.. as Presiding Judge of the Court of First instance of Rizal Branch VI. the same being attached to the ground by means of bolts and the only way to . Upon private respondent's default. 1981. No. as wen as the resolution dated September 22. The Court of Appeals. Ramon D. Mancella for respondent. much less of a chattel mortgage. setting aside certain Orders later specified herein. Bagatsing & Assoc. after ruling that the machinery in suit cannot be the subject of replevin. On July 13. It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation. Acting on petitioner's application for replevin. the case before the lower court. discounted and assigned several receivables with the former under a Receivable Purchase Agreement. denying petitioner's motion for reconsideration. No. the lower court finally issued on February 11. private respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range. After several incidents. the private respondent Wearever Textile Mills. 1981. 1983 MAKATI LEASING and FINANCE CORPORATION. repaired to the premises of private respondent and removed the main drive motor of the subject machinery. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration. docketed as Civil Case No. because it is a real property pursuant to Article 415 of the new Civil Code. an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said writ. Inc. 1981 in CA-G.: Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27. SP-12731. However. the enforcement of which was however subsequently restrained upon private respondent's filing of a motion for reconsideration. the lower court issued a writ of seizure. WEAREVER TEXTILE MILLS. in certiorari and prohibition proceedings subsequently filed by herein private respondent. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal. Jose V. To secure the collection of the receivables assigned. Loreto C. DE CASTRO. (collaborating counsel) for petitioner. petitioner.

Finally. 41 SCRA 143 where this Court.remove it from respondent's plant would be to drill out or destroy the concrete floor. wherein third persons assailed the validity of the chattel mortgage. having treated the subject house as personality. A similar. there is absolutely no reason why a machinery. and although this can not in itself alone determine the status of the property. & Leung Yee vs. as contended by said respondent. may not be likewise treated as such. it is the defendants-appellants themselves. A motion for reconsideration of this decision of the Court of Appeals having been denied. Strong Machinery & Williamson. however. . 1 Considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision. it made itself unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals decision. Lopez vs. petitioner has brought the case to this Court for review by writ of certiorari.L. with petitioner arguing that it is a personality. intended to treat the same as such. Moreover. It is contended by private respondent. The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from the point of view of the parties. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage. or at least. which accordingly held that the chattel mortgage constituted thereon is null and void.B. and was sustained by the appellate court. Examining the records of the instant case. yet by ceding. selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel. which is movable in its nature and becomes immobilized only by destination or purpose. the contention of private respondent that this petition has been mooted by such return may not be sustained. The doctrine of estoppel therefore applies to the herein defendants-appellants. particularly the mortgagors. speaking through Justice J. the present case from the application of the abovequoted pronouncement. as shown by the receipt duly signed by respondent's representative. it does so when combined with other factors to sustain the interpretation that the parties. as the appellate court did. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that the machine is real property by constituting a chattel mortgage thereon. as debtors-mortgagors. so that they should not now be allowed to make an inconsistent stand by claiming otherwise. F. Jr. while the respondent claiming the contrary. ruled: Although there is no specific statement referring to the subject house as personal property. like what was involved in the above Tumalad case. The contention of private respondent is without merit. that the instant petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated. Vicencio. unlike in the Iya cases. If a house of strong materials. When petitioner returned the subject motor drive. the subject house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee. Orosa. & Plaza Theatre. Inc. may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby.L. the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. We find no logical justification to exclude the rule out. Reyes. intended to treat the house as personality. if not Identical issue was raised in Tumalad v. who are attacking the validity of the chattel mortgage in this case.

with costs against the private respondent. 70. Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. the nature of the machinery and equipment involved therein as real properties never having been disputed nor in issue. be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom. it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property. Jaramillo. SO ORDERED.. not personal property. Undoubtedly.. the error of the appellate court in ruling that the questioned machinery is real. There is nothing on record to show that the mortgage has been annulled. Makasiar (Chairman). It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and impresses upon the property the character determined by the parties. 630. the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside. the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. As stated inStandard Oil Co. On the other hand. the Court of Appeals lays stress on the fact that the house involved therein was built on a land that did not belong to the owner of such house. concurs in the result. WHEREFORE. Moreover. even granting that the charge is true. From what has been said above. This contention lacks persuasiveness. CA. As aptly pointed out by petitioner and not denied by the respondent. Concepcion Jr. such fact alone does not render a contract void ab initio. 44 Phil. Neither is it disclosed that steps were taken to nullify the same. and the Orders of the lower court are hereby reinstated. but can only be a ground for rendering said contract voidable. J. Guerrero and Escolin JJ. of New York v.. becomes very apparent. Private respondent could not now therefore. Inc. and they were not the subject of a Chattel Mortgage. by a proper action in court.In rejecting petitioner's assertion on the applicability of the Tumalad doctrine. 96 Phil. Moreover. the case of Machinery and Engineering Supplies. Equity dictates that one should not benefit at the expense of another. as long as no interest of third parties would be prejudiced thereby. the latter has indubitably benefited from said contract. . heavily relied upon by said court is not applicable to the case at bar. But the law makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law. Abad Santos. Aquino. or annullable pursuant to Article 1390 of the new Civil Code. v. the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling jurisprudential authority. concur. as pointed out by petitioner and again not refuted by respondent.

1975. GUTIERREZ. in a contract denominated as Deed of Sale with Right to Repurchase." The private respondents contended that "notwithstanding which the vendor has failed to avail of its rights under the provisions of Article 1607 in relation to Article 1616 of the New Civil Code.328 square meters. for petitioners.000. the amount of P30. 1975. The price would be P532. and build on. respondents.000..00 per square meter after the first month. the private respondents. the petitioners.760. No.00 for both respondents as exemplary damages. petitioners. depending on when repurchase would be effected. 1984 CARLO LEZAMA BUNDALIAN and JOSE R.00 of the wife's money when the purchase from the estate of Mrs. Lava.00 computed at P190.200. P599. filed a petition for the consolidation of ownership on the ground that "more than a year has elapsed since the execution of the Deed of Sale with Right to Repurchase by the vendor on July 2.66 computed at P160. and to pay the costs of the suit.00 computed at P180. JR. JUANITO LITTAWA and EDNA CAMCAM.000.00 for respondent Littawa. more or less. for and in consideration of the amount of P499.G. affirming a judgment of the then Court of First Instance of Rizal dismissing the petition for declaratory relief and/or reformation of instrument filed by the petitioners against the respondents and ordering the petitioners to pay jointly and severally the amounts of P200.00 per square meter after the third month. Virata was consummated. sold to the private respondents the same three contiguous parcels of land for the same amount of P499.200.00 under specified terms and conditions. and P632. and to reduce the loan obligation to P474.00 and the petitioners put up P25. Jr.00 per square meter after the second month. It was also stipulated in the same contract that the vendor shall have the right to possess.: This is a petition for review of the decision of the Court of Appeals. 1976.00 for respondent Edna Camcam and P50. de Virata three (3) contiguous parcels of land located at San Juan." To this petition for consolidation of ownership. On August 27. the petitioners filed a petition for declaratory relief and/or reformation of instrument before the Court of First Instance of Rizal at Pasig. the petitioners filed their opposition upon the following grounds: (a) there .00 computed at P170.00 for and as attorney's fees.000. the property during the period pending redemption.040. L-55739 June 22. One of the terms and conditions was that the repurchase price would escalate month after month. Metro Manila to declare the Deed of Sale with Right to Repurchase an equitable mortgage and the entire portion of the same deed referring to the accelerating repurchase price null and void for being usurious. in turn. use. containing an aggregate area of 3. BUNDALIAN. THE HON.R.480. On July 1. P565. J.00. now Intermediate Appellate Court. The following day. vs. as moral damages. 1976.000. Benjamin B. Bernardino for private respondents.200. July 2. 1975.00. Rizal. Francisco A. the amount of P50. COURT OF APPEALS.320. On August 26.200. contending that the amount actually loaned was only P474.00 per square meter after the fourth month. the petitioners purchased from the Estate of the Deceased Agapita Sarao Vda. from and after the date of the instrument. the vendor has lost all his rights to avail himself of the right to consolidate ownership of the property subject of the Deed of Sale.

Accordingly. WHEN IT AFFIRMED THE APPEALED DECISION WITHOUT ANY DISCUSSION OF THE QUESTIONS RAISED IN THE APPEAL AND BY SIMPLY ADOPTING THE POSITION OF THE TRIAL WHICH IS PRECISELY QUESTIONED IN THE APPEAL. The appellate court affirmed in toto the decision of the trial court. AND SECOND MOTION FOR RECONSIDERATION. RESPONDENT COURT OF APPEALS ERRED GRAVELY TO THE EXTENT OF GRAVE ABUSE OF DISCRETION. (b) consolidation will be improper considering that the basic document upon which it is being sought is in fact and in law only an equitable mortgage. IN UNCERMONIOUSLY. and (c) consolidation cannot be effected thru the instant petition. the Court of First Instance of Rizal ordered the transfer of the petition for consolidation of ownership to Branch XXIV of the same Court where the petition for declaratory relief and/or reformation of instrument was pending in order that the two cases may be considered together. . FOREMOST OF WHICH IS TO DECLARE THE DEED OF SALE WITH RIGHT TO REPURCHASE TO BE AN EQUITABLE MORTGAGE. RESPONDENT COURT OF APPEAL ERRED GRAVELY TO THE EXTENT OF GRAVE ABUSE OF DISCRETION IN ADOPTING TOTALLY AND UNCRITICALLY THE GROSSLY ERRONEOUS REASON AND POSITION OF THE TRIAL COURT. A supplemental petition was subsequently filed by the petitioners alleging that the private respondents' petition for consolidation of ownership was made in order to frustrate and render nugatory whatever orders or judgment may be issued by the trial court in the petition for declaration relief/or reformation of instrument. DENYING PETITIONERS' FIRST MOTION FOR RECONSIDERATION. RESPONDENT COURT OF APPEALS ERRED GRAVELY TO THE EXTENT OF GRVE ABUSE OF DISCREATION. E. After the trial and presentation of the parties' respective memoranda the trial court rendered the decision in favor of the private respondents. The petitioners appealed to the Court of Appeals. RESPONDENT COURT OF APPEALS ERRED GRAVELY. MOTION TO INVITE AMICUS CURIAE. Two motions for reconsideration having been denied. the petitioners filed the present petition based on the following grounds: A. IN NOT REVERSING THE APPEALED JUDGMENT AND GRANTING THE PRAYERS OF PETITIONERS-APPELLANTS. C. MOTION FOR ORAL ARGUMENT. TO THE EXTENT OF GRAVE ABUSE OF DISCRETION.is a pending suit between the same parties involving the same cause and subject matter. AND IN VIOLATION OF PETITIONERS' RIGHT TO DUE PROCESS OF LAW AT APPELLATE LEVEL. B.

no other conclusion is possible but that the contract is an equitable mortgage. 28. 192. in his capacity as Administratorf of the Estate of the deceased Agapita Sarao Vda. Annex "A"). Annex "A"). Bundalian to sell the property to private respondents at the same price of P499. 89 Phil. petitioner Jose R.00 he had paid the estate of the deceased Agapita Sarao Vda. de Virata. (3) Having just purchased the property from the estate by way of Deed of Absolute Sale on July 1. up to P133. 'with funds loaned to him by the herein VENDEES' the latter being no other than respondents Littawa and Camcam (p. for which he had just paid P499. This already indicates. Annex "A"). the contract was one of "loan guaranteed by a mortgage" rather than a conditional sale (Macoy vs. Arcilla. as vendor. Bundalian to enable the latter to purchase the property from the aforementioned estate. Trinidad.200. Bundalian remained legally . lwphl@itç (2) Such intimate relation between the aforementioned Deed of Absolute Sale and Deed of Sale with Right to Repurchase is already clear in the statement in the latter instrument that the subject property had just been purchased by Jose R.120. 19-26. Annex "A"). that the two transactions must be intimately related.00 as purchase price. The Deed of Absolute Sale between petitioner Jose R. not a sale. it would have been utterly senseless for petitioner Jose R. de Virata. with or without the right of repurchase. in only four (4) months. Indeed.Tell issue is this case is whether or not the deed of sale with right to repurchase should be declared as an equitable mortgage. Bundalian from the estate of the deceased Agapita Sarao Vda. as in the case at bar. Bundalian) shall have the right to possess. July 2. The purported Deed of Sale with Right to Repurchase between petitioner. 199. (1) The contracts involving the subject properties came one after another in the space of two (2) days. (4) It would have been more senseless for petitioner Jose R. 1975 (pp. 1975 (pp.00. No other conclusion is possible except that the Deed of Sale with Right to Repurchase is precisely the security the equitable mortgage — to petitioner Jose R. Again. Patently. from Pl 50. 1975. (5) It is provided in the Deed of Sale with Right to Repurchase that 'It is agreed that the vendor (Jose R. and build on. By the terms of the Deed of Sale with Right to Repurchase he would have to repurchase the property at a continually increasing price. that is. at a very early stage. Jose R. was executed on July 1.00 per square meter. Bundalian as vendee and Romeo S. Geluz.00 over and above the original price of P499. use.00 per square meter to P190. without profit and at a sure loss. It has been held that there is a 'loan with security' rather than a pacto de retro sale where by agreement the vendor was to remain in possession of the lands (Escoto vs. 30. We find meritorious the petitioners' contention that under Article 1602 of the Civil Code the deed of sale with right to repurchase should be presumed to be an equitable mortgage due to the following reasons. 26. Where there was an acknowledgment of the vendor's right to retain possession of the property. there can be no question that petitioner Jose R. 202).200. 204). de Virata.32. the property during the period of redemption' (p.200. 1975. Bundalian to sell the same property to private respondents the very next day. Bundalian was funded by private respondents to enable him to purchase the property from the said estate. Bundalian as vendor and respondents Juanito Littawa and Edna Camcam as vendees was executed on July 2. 95 Phil.

De Leon. 204). Art. 202. 6).00 per square meter should "repurchase" be effected even "after the fourth month" (pp.480. it later necessarily provided for a built-in extension of the period of 'redemption' by providing for payment of the amount of P632. Bundalian could not have acquired the land to serve as security for the repayment of the loan unless private respondents had extended the loan in the first place. This would fall under the legal situation "where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation" (No. as equitable mortgage. as noted previously herein. meaning the interest of course. which was estimated to be worth at least P632. 370). 1603 and 1604 of the Civil Code. Trinidad. private respondents stood to benefit enormously from such financing transaction in view of the patently usurious monthly interests transparently disguised as the accelerating or increasing monthly 'repurchase' price. Reyes vs.00 should "repurchase" be effected during the first month from and after the date of the instrument.200. are clearly usurious. at this juncture. petitioner Jose R. 95 Phil. lwphl@itç (8) It may be argued. de Virata. It loses sight of the fact that private respondents precisely funded or financed petitioner Jose R. 1062. in the event that petitioner Jose R.00. Surely. the rapid increase in the price of the land. Annex "A"). that the supposed repurchase price is in the same amount as the original "price" of P499.320. Annex "A").00 computed at P190. Civil Code). (7) While the Deed of Sale with Right to Repurchase supposedly provided for a "redemption" period of "four (4) months from and after the date of this instrument" (p. The monthly increases in the alleged "redemption price"clearly represent nothing but interest. Art.00 after 4 months (from the initial . Again.00 computed at P160. or P632. (6) The increase per month in the alleged redemption price is very compatible with the Idea that the transaction was really intended by the parties to be a mortgage. It bears emphasis.in possession of the subject property. it was implicitly agreed that the period of 'repurchase' was not limited to 4 months from and after the date of execution of the instrument.00 per square meter should "repurchase" be effected after the first month. i.e. 30. It is well-settled that provision for interest payments is a clear indication that the supposed sale is actually an equitable mortgage (Macoy vs.200.00 computed at P180. precisely one of the evils sought to be negated by the provisions of Articles 1602. Bundalian ultimately failed to pay the loan. It is well — settled that extension of the period of "redemption" is indicative of equitable mortgage (Nos.00 per square meter should "repurchase" be after the second month. 20 SCRA 369. so that private respondents could not have loaned P499. In other words. 89 Phil. Annex "A").320. the conclusion is ineluctable that the Deed of Sale with Right to Repurchase was executed as security for the loan extended by private respondents to petitioner Jose R. P565.200. To make matters worse. Bundalian.320.00 computed at P170. 2930.00 per square meter should "repurchase" be effected "after the fourth month" (p. 1602. in as much as said "repurchase" could be effected even "after the fourth month".760. the monthly increase in the supposed "redemption price".00 computed at P190.00 per square meter should "repurchase" be after the third month. In other words. However. such reasoning is clearly unsound. 199.. P532.040. 192. At any rate. Escoto vs. P599. 29. Bundalian's acquisition of the property from the estate of the deceased Agapita Sarao Vda. that normally a loan does not exceed 60% of the price of the land given as security. as private respondents have argued.(3) and (6). Arcilla. Civil Code.00 on the land the value of which was claimed to be also P499.

which would make no sense at all considering the enormity of the loan. The contract shall be presumed to be an equitable mortgage. (11) If the Deed of Sale with Right to Repurchase would not be considered as an equitable mortgage.00). Furthermore.00 extended by private respondents to petitioners Jose R. Reckoning 4 months from July 2. (4) When the purchaser retains for himself a part of the purchase price.P499. to be sure. the contract should be held as such. Arcilla. 1975. Annex "A"). The intent of the parties to circumvent the provision discouraging pacto de retro transactions is very apparent from the records. As private respondents filed their petition for consolidation on August 27. none other than the equitable mortgage tainted with usury and disguised as the Deed of Sale with Right to Repurchase. 34. 1975. 1976. (2) When the vendor remains in possession as lessee or otherwise. (10) It is an admitted fact that private respondents took some time before filing their petition for consolidation of ownership. The petitioners were allegedly fully aware that the deed of sale with pacto de retro is what it purports to be and nothing else. it would result that there was actually no security for the loan of P499. Private respondents admitted in said petition that "more than a year has elapsed since the execution of the Deed of Sale with Right to Repurchase" (p. The private respondents argued that the petitioners' contention is true only in cases where the contract or instrument is not reflective of the true intentions of the contracting parties as would warrant reformation of the same. Bundalian paid taxes on the land.200. a security for said loan. . Article 1602 of the Civil Code states: Article 1602. 378). it is clear that they delayed filing said petition by more than 9 months. Bundalian. practically guaranteed a very good return on the money investment of private respondents as money. A similar delay in the filing of the supposed "vendee's" petition for consolidation was considered as indicative of equitable mortgage (Reyes vs. There was. even after the supposed 4 month period of "redemption". (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.supra). 3.200. 20 SCRA 369. Payment of taxes after expiration of the supposed "redemption" period has been considered as indicative of equitable mortgage (Escoto vs.lenders. They stated that if the intention of the parties is to execute a deed of sale with pacto de retro. the petitioners waited for the period of redemption to expire before availing of the relief granted by the Civil Code of reformation of contracts. par. (9) It cannot be questioned that petitioner Jose R. in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate. We find the stand of the private respondents without merit. de Leon. it would appear that the "repurchase" period expired supposedly on November 2.

The contract also provides that "it is agreed that the vendor shall have the right to possess. any money. and build on. The records show . they suffered a loss of P25. which was exactly the same amount paid to the estate of the deceased Agapita Sarao Vda. The Bundalians received the accounts due from the government only in 1977 after the proceedings in the trial court were well underway.000. or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.00.00. But vendors covered by Article 1602 of the Civil Code are usually in no position to bargain with the vendees and will sign onerous contracts to get the money they need. 192). a portion of the document in question reads: (The vendor) having just purchased the same from the Intestate estate of the deceased Agapita Sarao Vda. The respondents' contention that the right to possess.200.000.00 of their own funds as earnest money. In any of the foregoing cases. the vendors should at least have earned a little profit or interest if they really intended to resell the lots the following day. Instead. and we find grounds to believe their statement of having advanced P25. The intent of the parties is further shown by the fact that the Bundalians P500. It is precisely this evil which the Civil Code guards against.(5) When the vendor binds himself to pay the taxes on the thing sold. use. 95 Phil. (6) In any other eases where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or performance of any other obligation. Its purpose is to secure the return of the money invested with substantial profit or interest.000. Significantly." When the vendee acknowledged the right of the vendor to retain possession of the property the contract is one of loan guaranteed by mortgage. fruits. Trinidad. use.00 because the amount borrowed. with funds loaned to him by the herein VENDEES.200. The petitioners also bound themselves to pay exceedingly stiff prices for the privilege of repurchase. was actually only P474.00.. de Virata (Special Proceedings No. de Virata. The Bundalians were in the construction business and knew quite well what they were signing. or build on the lots embodied in the contract was a mere "right" and not actual possession appears to be sophistry.000. This statement appearing in the supposed pacto de retro sale confirms the real intention of the parties to secure the payment of the loan acquired by the petitioners from the private respondents. The petitioners had to run to the private respondents who had money to lend. a common characteristic of loans. not a conditional sale or an option to repurchase. The private respondents try to capitalize on an admission by Mrs.00 collectibles due from the government for completed construction contracts could not be collected on time to pay for the lots advertised for sale in Bulletin Today. The sale with the right to repurchase of the three parcels of land was for P499.After having purchased the three lots for P499. Bundalian that she "accepted" the transaction knowing it to be a contract of sale with right of repurchase. The reliance is grounded on shaky foundations. the property during the period of redemption. (Emphasis supplied). It is not the knowledge of the vendors that they are executing a contract of sale pacto de retro which is the issue but whether or not the real contract was one of sale or a loan disguised as a pacto de retro sale. (Macoy vs. The stipulation in the contract sharply escalating the repurchase price every month enhances the presumption that the transaction is an equitable mortgage. et al. B-710 of the Court of First Instance of Cavite).

the decisions of' the respondent Court of Appeals and the trial court are hereby REVERSED. de Virata. IN VIEW OF THE FOREGOING. The deed of sale with right to repurchase is declared as an equitable mortgage.. the original vendor-owner. The Bundalians paid the real estate taxes on the lots. The petitioners are ordered to pay their debt to the private respondents with legal rate of interest from the time they acquired the loan until it is fully paid. J. SO ORDERED. Mr. Teehankee (Chairman). Plana and Relova. and SET ASIDE. JJ. Parenthetically. concur. Virata up to the "minute" he testified. they were the ones in legal possession. payloaders.that the Bundalians construction equipment such as tractors.. Bundalian testified that from the time he purchased the property from the estate of Mrs. As against the express provision of the contract and the actual possession by the petitioners. the private respondents come up with a far fetched argument that since the titles to the lots were in their hands. the titles in their hands were still in the name of the estate of Agapita Sarao Vda. De la Fuente. took no part. and bulldozers were on the lots. A shop was built on the premises. . he never lost possession. Melencio-Herrera.

1984 denying the Motion for Reconsideration of the aforesaid decision. Tioseco told them that they could redeem the three lots by paying to him the amount he paid at the auction sale plus interest. Villanueva and Timotea P. petitioner. 1977 issued by the Provincial Sheriff to Tioseco was registered in the Office of the Register of Deeds of Tarlac on March 8.R. The Philippine National Bank stated in its answer that at the time of the auction sale of the three lots on March 7.00) PESOS. vs. C-542 issued by the Register of Deeds of Tarlac to secure payment of a loan of EIGHT THOUSAND SIX HUNDRED (P8. the title of the spouses Villanueva was cancelled and TCT No. the Philippine National Bank petitioned the Provincial Sheriff of Tarlac to foreclose upon the properties extrajudicially. Villanueva mortgaged to the Tarlac Branch of the Philippine National Bank three lots described in OCT No. CV No. 141194 was issued to Tioseco by the Register of Deeds on March 7. Upon the other hand. respondents. 1986 LEONARDO TIOSECO. It is claimed by Tioseco that sometime before March 9. 1977. 1977 sold the lots to Leonardo Tioseco. Jose T. Tioseco's ownership over the properties was consolidated. Finding the amount demanded excessive. as well as of the Resolution of said appellate court promulgated on February 13. HONORABLE COURT OF APPEALS JOSE P. The facts of this case are as follows: The respondent spouses Jose P.641. The certificate of sale dated March 7. When they failed to comply with the mortgage contract. service charges. The Provincial Sheriff in the public auction he conducted on March 7. Amado F. The amount included the principal of the loan.975. the respondents Villanueva filed a suit on March 7. but never did. VILLANUEVA.00) PESOS was due from the respondents.00) PESOS. 1977.: A petition for review by certiorari of the decision of the respondent Intermediate Appellate Court in AC-G. 1983. 1978. The answer also . expenses of foreclosure. 1977 the amount of EIGHTEEN THOUSAND NINE HUNDRED SEVENTY FIVE (P18. and attorney's fees. PARAS. No. L-66597 August 29. J.G.08) as redemption price. 68888 promulgated on December 27. Sumat for petitioner. Nera for respondents. The respondents promised to return. as the highest bidder for the amount of EIGHTEEN THOUSAND NINE HUNDRED AND SEVENTY FIVE (P18. VILLANUEVA and TIMOTEA P.600.975. accrued interest.R. it is claimed by the respondents that they offered to redeem the three lots within the period of redemption but Tioseco allegedly demanded TWENTY TWO THOUSAND SIX HUNDRED FORTY ONE PESOS AND EIGHT CENTAVOS (P22. herein petitioner. 1978 respondents Villanueva visited him in his house and offered to pay the amount he had paid for the three lots auctioned off on March 7. 1978 to annul the sale in favor of Tioseco on the ground that it was irregular and to require both the Philippine National Bank and Tioseco to determine the amount they should pay to be able to redeem the three lots.

. With the denial of his motion for reconsideration. Rule 39 of the Rules of Court within 30 days from the finality of this judgment. Rollo). 141194 OF THE REGISTER OF DEEDS OF TARLAC AFTER TIOSECO'S OWNERSHIP TO THE PROPERTIES WAS CONSOLIDATED. the Intermediate Appellate Court affirmed in toto the decision of the lower court. III THE TRIAL COURT ERRED IN ALLOWING THE PLAINTIFFS TO REDEEM THE PROPERTIES COVERED BY TCT NO. the petitioner filed this petition for review of the decision of the appellate court. II THE TRIAL COURT ERRED IN HOLDING THAT THE FAILURE OF THE PLAINTIFFS TO MAKE A VALID TENDER AND TO CONSIGN THE AMOUNT IN COURT ASSUMES SUBORDINATE IMPORTANCE AND THE PLAINTIFFS DESPITE SUCH FAILURE TO COMPLY BY THE STATUTORY REQUIREMENTS FOR LEGAL REDEMPTION. the dispositive portion of which readsWHEREFORE. without pronouncement as to costs. plus any assessment for taxation which defendant Tioseco may have paid thereon and the interest on such amount at the same rate and all other expenses specified in Sec. 141194 of the Register of Deeds of Tarlac by the payment to the defendant Tioseco of the amount of EIGHTEEN THOUSAND NINE HUNDRED SEVENTY FIVE (P 18. 30. On appeal by petitioner.975. Petitioner made the following assignment of errors: I THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT LEONARDO TIOSECO PUT UP AN AMOUNT BIGGER THAN WHAT WAS PROPER TO PREVENT THE PLAINTIFFS FROM EXERCISING THEIR RIGHTS OF REDEMPTION. Tioseco denied having demanded the sum of TWENTY TWO THOUSAND SIX HUNDRED FORTY ONE PESOS AND EIGHT CENTAVOS (P22. After trial the lower court rendered its decision. the plaintiffs are allowed to redeem the properties covered by TCT No. 1977 to the time of redemption. 9-10. ARE STILL ENTITLED TO MAKE THE REDEMPTION. (pp.stated that the auction sale conducted by the Provincial Sheriff was in accordance with the formalities and other requirements prescribed by law. In his answer.641-08) from the respondents. We prescind from the assignment of errors raised and proceed directly to the question presented before this Court: Have the respondents exercised their right of redemption effectively? We answer in the affirmative.00) PESOS plus 1% per month interest thereon in addition from the time of the sale on March 7.

xxx xxx xxx When the respondents chose to enforce their right of redemption thru a court action on March 7. accompanied by a bona fide tender of the redemption price. a formal offer to redeem. No. is equivalent to a formal offer to redeem (see Reoveros v. 1977. In fact. as in the instant case. Feria (Chairman). In any case. P. concur. altho proper. 48 O. is not even essential where. the ends of justice would be better served by affording the respondents the opportunity to redeem the subject property. .. WHEREFORE. 25. In the instant case. 694 (Revised Charter of PNB): SEC. And in this connection. Mirasol and Nunez.There is no question that the respondents have the right to redeem the subject property in view of the provision of Section 25. 694 is silent as to any formal tender of repurchase price as a pre-condition to a valid exercise of the right of redemption. It does not even require any previous notice to the vendee. SO ORDERED.—Within one year from the registration of the foreclosure sale of real estate. Alampay and Gutierrez. 5318). nor a meeting between him and the redemptioner. the mortgagor shall have the right to redeem the property by paying all claims of the Bank against him on the date of the sale including all the costs and other expenses incurred by reason of the foreclosure sale and custody of the property. Right of redemption of property-Right of possession during redemption period. No. Jr. within the period of redemption.D. the filing of the action itself. the petition for certiorari is DENIED and the judgment appealed from is AFFIRMED. P. 1978 they were well within their right as the action was filed within one year from the registration of the foreclosure sale of the real estate on March 9. 761). Abel and Sandoval. the lack of funds which may render the right inefficacious cannot affect the existence of the right. 40 Phil. Fernan. much less a previous formal tender before any action is begun in court to enforce the right of redemption.D..G. the right to redeem is exercised thru the filing of judicial action. JJ. as well as charges and accrued interests. (Javellana v. This ruling is in obedience to the policy of the law to aid rather than to defeat the right of redemption. Costs against the petitioner.

1982 by the First Division of the Court of Appeals in CA-G.G. defendant Philippine National Bank extrajudicially foreclosed the mortgage properties and the Provincial Sheriff of Quezon sold the properties at public auction on February 12. petitioner. Divina B. interests on said amounts plus costs of publication of the Sheriff's notice of auction sale. For failure of the plaintiff to pay her total obligation upon maturity date.. Diaz. all the aforementioned mortgaged properties were sold to the bank for the amount of P59. 1985 PHILIPPINE NATIONAL BANK. plaintiff instituted the present case for the annulment of the aforesaid extrajudicial foreclosure and sale and for damages with prayer for preliminary injunction. 1975..R. 7927 which is an action for Annulment of Extrajudicial Foreclosure and Sale of Real Properties and for Damages with Prayer for Preliminary Injunction was filed on April 26. No." . and dismissing all the claims and counterclaims that the parties may have against each other in connection with the case. containing an area of 58 hectares each of a total of 116 hectares. Juan J. Lucena City. 1975 by the private respondent herein against the Philippine National Bank (PNB) in the Court of First Instance of Quezon Province. On November 27. attorney's fees and other charges. The defendant Philippine National Bank being the only bidder in said auction sale. "On April 26. 67131-R. 1979 a decision was rendered by said court enjoining defendant Philippine National Bank from consolidating its title over the mortgaged properties and directing said bank to allow the private respondent.: Civil Case No. (b) Transfer Certificate of Title Nos. the following material facts are not disputed.00 which was the total obligation of the plaintiff as of the date of the sale. ALAMPAY J. 1973. Iyam District. Benjamin C. On February 2. to redeem the mortgaged properties by accepting payment from the latter. THE HONORABLE COURT OF APPEALS AND DIVINA ALIM. planted with coconut trees. more or less. The said amount already included the principal obligation. No. respondents. and a lot with an area of 540 square meters. This decision which was appealed by the defendant PNB was affirmed on March 25. Alim. As succinctly stated in the decision of the Court of Appeals.320.000 from defendant Philippine National Bank secured by three (3) parcels of land registered in the name of herein plaintiff and covered by the following title(a) Transfer Certificate of Title No. 1968 plaintiff Divina Alim obtained a loan in the total amount of P40.R. vs. del Rosario and Cesar Basa for petitioner. L-60208 December 5.8384 of the Register of Deeds of Lucena City comprising a house of strong materials located along the National Highway. T-79631 and T-79632 of the Registry of Deeds for the Province of Quezon. These appear to be as follows: .

p. 1973. 3135 being a special law that governs particularly extrajudicial foreclosures.. Considering that the very step initiated by the Petitioner was a petition for Sale under Act No. 1300. Act No. paragraph 2 thereof. On the other hand. the parties agreed to submit the case for decision only upon the issue as to whether or not the plaintiff should still pay interest specified in the mortgage after the auction sale on February 12. The trial court reasoned out— . 694 (1975). In the case at bar. 1972. In the light. 1975. 1973. Record on Appeal. 84 SCRA 668. In rendering the decision in favor of plaintiff Divina Alim. Complaint. Rollo. the original Charter of the PNB. In its petition. Thus at the pre-trial. In consequence of said petition the Provincial Sheriff sold at public auction the properties of herein private respondent to the Philippine National Bank. plaintiff Divina Alim. 1973 including reimbursement for costs of publication. it can be noted that during the pendency of the case in the said court the parties attempted to confer with the end in view of settling this case amicably and in the course thereof the plaintiff deposited with defendant bank a sufficient amount to cover the loan and interest thereon as of February 12. 694. the foreclosure and subsequent sale of the properties were valid.From the decision rendered by the Court of First Instance of Quezon Province. The defendant Philippine National Bank contends that the plaintiff is still obligated to pay the said interest citing the provisions of Presidential Decree No. What appears from the case records is that the extrajudicial foreclosure proceedings instituted by the PNB was commenced on May 25." (Annex "B" of Petition. Republic Act No. the applicable law then would be no other than the said statute. as amended by Presidential Decree No. particularly Section 25. supra) after the public auction sale on February 12. et al.. all of which petitioner PNB claims authorize the imposition of the interest specified in the mortgage.. Lucena City. the PNB assails the decision of the defunct appellate court and contends that the interests specified in the mortgage should still be added to the bid or purchase price computed from the time of the auction sale up to the date the mortgaged properties are redeemed as clearly authorized by law. the defendant Philippine National Bank can no longer demand payment of interest on the property should the mortgagor exercise her right of redemption. et al. Zaragosa. the consolidated sale could not be made. it necessarily excludes the application in this instance of the General Banking Act and . But this PNB sought the f• reclosure and sale of the properties of the herein private respondent and directed said Sheriff to publish the Notice of Sale in the Quezon Times. 3135 (Annex F. The corresponding Certificate of Sale was executed by the Sheriff in favor of the Philippine National Bank on February 16. 26). the private respondent herein cites the case of the Development Bank of the Philippines versus Jovencio A. Zaragosa. p. 101: parenthesis supplied) This ruling which was sustained by the then Court of Appeals is now the subject of the Petition for Review on certiorari presented to this Court by the Philippine National Bank.320. where it was therein ruled that when the foreclosure proceedings are completed all interests of the mortgagor are cut off from the property and that this principle is applicable to an extrajudicial foreclosure. 3135 filed by its counsel with the Provincial Sheriff for Quezon Province. (DBP vs. pursuant to a petition for sale under Act No. therefore. but because of the timely filing of this case and in view of the Order of June 9. Record on Appeal. of the above cited ruling of the Supreme Court. 1478. Presidential Decree No. 1973.. upon the latter's bid of P59. Petitioner invokes Republic Act No. 337 known as the General Banking Law and Rule 39 of the Rules of Court.00.

Since the applicable law is Act 3135. Zaragosa. the redemptioner mortgagor would be bound to pay only for the amount of the purchase price with interests thereon at the rate of one per centum per month in addition up to the time of redemption. The same secitons were reiterated in the Revised Rules of Court in July 1964 (Co vs. togethere with the amount of any assessments or taxes which the purchaser may have paid therein after purchase and interest on such last named amount at the same interest rate. permanent and irrevocable. up to the time of redemption. The decision appealed from is affirmed with modification. 1300 but it has been held that "Republic Act 1300 does not contemplate extrajudicial foreclosure" (Co vs. L-51767. the redemptioner. the provisions of Section 30. provides: Sec. who is the private respondent herein. In 1968. . on paying the prchaser the amount of his purchase. 1985. Pursuant to Section 30 of Rule 39. "may redeeem the property from the purchaser at any time within twelve (12) months after the sale. of the Code of Civil Procedure. 855). — In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to. supra). and such redemption shall be governed by the provisions of sections four hundred and sixty-four. together with the amount of any assessments or taxes which the purchaser may have paid thereon after the purchase and interest on such last named amount at the same rate. 1982. 114 SCRA 842. Presidential Decree No. or any person ahving a lein on the proeprty subsequent to the mortgage or deed of trust under which the property is old. In the case at bar the mortgage contract was entered into in 1968. may redeem the same at any time within the term of one year from and after the date of the sale. WHEREFORE. with one per centum per month interest thereon in addition. Rule 39. the petition in this case is hereby granted. of the Code of Civil Procedure. June 29. in so far as these are not incosistent with the provision of this Act." This would rightfully be so because. (b) Allowing the plaintiff to redeem the mortgaged properties by paying the amount of the purchase with interests thereon at the rate of one per centum per month up to the date of her deposit of the redemption price and ordering the defendant to accept payment from the plaintiff.) Section hundred sixty-four to four hundred sixty-six inclusive. after the foreclosure proceedings and the execution of the corresponding certificate of sale of the property sold at public auction in favor of the successful bidder. became Sections 29. 30. PNB. when the foreclosure proceedings are completed and the mortgaged property is sold to the purchaser then all interest of the mortgagor are cut off from the property Prior to the completion of the foreclosure. which was enacted only in 1975. inclusive.. (emphasis supplied. . so as to read as follows: (a) Making the writ of preliminary injunction issued by this Court in its Order of June 9. Section 6 of Act 3135. the governing law on PNB operations was Republic Act No. Rules of Court shall be determinative of the sole issue presented in this case. However. PNB. his successors in interest or any judicial creditor or judgment creditor of said debtor.the provisions on redemption under the Revised Charter of PNB. supra.. 694. as stated in the case of DBP vs. the debtro. and 34 of Rule 39 of our Rules of Court. the mortgagor is liable for the interests on the mortgage. as amended by Act 4018. 6.

Jr.. SO ORDERED.. JJ.. Gutierrez. Concepcion. JJ. Aquino... Teehankee. No costs. in the result. Plana. C. .. Escolin and Cuevas. Relova. is on leave. J. Jr. took no part. Abad Santos.J..(c) Dismissing all the claims and counterclaims that the parties may have against each other in connection with this case. concur. Melencio-Herrera. De la Fuente and Patajo. J.

Prudencio Guinto and Margarita Guinto. Makalintal. GUTIERREZ. No. that after several attempts to redeem the land were refused by the petitioners. 272-R for the recovery of the possession and ownership of the said property. Dizon & Domingo Law Office for respondents. 1920. Ocampo.: This is an appeal from the decision of the Court of Appeals which affirmed in toto the decision of the then Court of First instance of Rizal rendered in the petition for review of the decree of registration issued in Land Registration Case No. that. JR. which possession was continued by Agapita Bonifacio in 1928.C. L-38185 September 24. the petitioners began paying taxes on the land. vs. they also filed the instant petition for review. Tax Declaration No. filed a petition to review the decree of registration on the ground of fraud. Mendoza & Associates for petitioner. The private respondents based their claim to the land on the following allegations: that they are the legal heirs of the deceased Agapita Bonifacio who died intestate on March 11. was subsequently .R. Civil Case No.1959. N-2597. petitioners. the petitioners presented parol evidence that they acquired the land in question by purchase from Gregorio Pascual during the early part of the American regime but the corresponding contract of sale was lost and no copy or record of the same was available. Flores. The previous complaint. Las Pinas Rizal. 1928. thereafter. On September 15. that Valentina Bonifacio is a sister of the deceased Agapita Bonifacio. 1960. 6611 of Las Pinas Rizal issued on December 8. On January 30. 2273 of the Registry of Deeds of Rizal was issued in the petitioners names. publicly and uninterruptedly. MATILDE MARTIN. 8777 was cancelled and substituted by Tax Declaration Nos. from 1916.R.. N-17939.G. that when they learned of the issuance of the certificate of title to the land in the petitioners' names. J. An order of general default was issued and the court allowed the petitioners to present evidence in support of their claim. petitioners' nephews and nieces. the private respondents Francisca Medina. On March 30. that Gregoria Pascual during her lifetime. Delfin Guinto. that for this reason. Matilde Martin. After notice and publication nobody appeared to oppose the application. TEOFILO GUINTO. the respondents filed a complaint in the Court of First Instance of Pasay City docketed as Civil Case No. Castro. 8777 was issued in her name on May 21. 1960. respondents. that in 1938 respondents obtained a loan of P400. EMILIO MARTIN. DELFIN GUINTO. Record No. the court ordered the issuance of the decree of registration and consequently: Original Certificate of Title No. Basilio Martin. 1986 HILARIO RAMIREZ and VALENTINA BONIFACIO. petitioners-spouses Hilario Ramirez and Valentina Bonifacio filed an application for registration of a parcel of riceland in Pamplona. 1936. FRANCISCA MEDINA. 9522 and 2385 issued in the names of the petitioners. Thereafter.00 from the petitioners which they secured with a mortgage on the land in question by way of antichresis. possessed the said property in the concept of owner. 272-R. that Gregoria Pascual previously owned the land in question as evidenced by Tax Declaration No. HONORABLE COURT OF APPEALS. they being the children of one Gregoria Pascual. that Agapita Bonifacio acquired the property in question by purchase from Gregoria Pascual for which reason Tax Declaration No. L. Teofilo Guinto. PRUDENCIO GUINTO and MARGARITA GUINTO.

and ordering the issuance of the decree of registration in the names of petitioners. After trial. married to Ana Guinto. judgment is hereby rendered in favor of petitioners and against applicants as follows: 1) Setting aside its decision dated December 28.dismissed on a joint petition filed by the parties after they agreed to have the determination of the question of ownership resolved in the registration proceedings. Francisca Medina. married to Felix Calacala one. one-third (1/3) thereof. 2) Declaring the petitioners. 2273 of the Register of Deeds of Rizal in the names of applicants and the issuance in lieu thereof of another original certificate of title in the names of petitioners in the proportion of their ownership of the property as stated in paragraph 2 above. . c. B and C and insofar as it ordered the registration thereof in their names. mortgaged it to the spouses Ramirez to secure the payment of a loan in the amount of P400. all of legal age. and Matilde Martin. 1937 and April 23. B and C in the following proportions: a. the spouses Ramirez denied the material allegations of the petition.00 to petitioners as and for attorney's fees. The trial court appreciated the fact of the petitioners' failure. Cavite. married to Gregoria Pamaran. 4) Setting aside its order for the issuance of the decree of registration in favor of applicants dated January 30. 1959. Emilio Martin. married to Rocila de la Cruz. 3) Ordering the registration of the said parcel of land described in Exhibits A. and all residents of Ligas Bacoor. married to Federico Torres. despite formal request. 1959 insofar as it found and declared applicants to be the owners of the parcel of land described in Exhibits A. 1937 which they allegedly found accidentally in March 1960. In their answer. it ordered the reconveyance of the property in the following manner: WHEREFORE. 6) Ordering applicants to pay P3. to produce the document in court in favor of the respondents. and pay the land taxes thereon.third (1/3) thereof.00.000. Finding the claims of the herein respondents sustained by the evidence. Delfin Guinto. they based their claim to the land on two deeds of sale allegedly executed on April 15. all Filipinos. 5) Cancelling Original Certificate of Title No. married to Tomas de Leon. The written agreement was kept by the petitioners as creditors. B and C in the names of petitioners. It was agreed that the respondents could not redeem the property within a period of five years and that the petitioners would take possession of the land. to be the true and absolute owners pro indiviso of the said parcel of land described in Exhibits A. b. Prudencio Guinto. enjoy its fruits. and Margarita Guinto. Teofilo Guinto. It further found that the respondents took possession of the land as owners after the death of Agapita Bonifacio and in 1938. the court found that deeds of sale spurious. one-third (1/3) thereof-. married to Dolores Antonio.

in possession. in the case at bar. there is no mortgage or incumbrance of any kind whatsoever affecting said land. the same appellate court. In the applicant's application for registration. remainder. legal or equitable. as We have found. but with a new member. On a motion for reconsideration filed by the petitioners. this resolution was set aside and the original decision was reinstated.' This allegation is false and made in bad faith. The petition alleged that 'the applicants Hilario Ramirez and Valentina Bonifacio willfully and fraudulently suppressed the facts that the petitioners are the legal and rightful owners of the ricefield in question and that they possess the said ricefield merely as antichretic creditors as security for the loan of P400.00. that no other person had any claim or interest in the said land. SECTION 48 OF COM. the applicants are not the owners of the land sought to be registered and they are in possession thereof only as antichretic creditors. The first question does not warrant favorable consideration. promulgated a resolution setting aside the original decision.. the applicants alleged that 'to the best of our knowledge and belief. The issue was submitted to the appellate court and in our opinion. ACT NO. ACT NO.7) Ordering applicants to pay the costs of this suit. 141 AS AMENDED BY REP. THE JURISDICTION TO GIVE DUE COURSE TO A PETITION FOR REVIEW OF DECREE UNDER SEC. ACTING AS A LAND REGISTRATION COURT. The decision was affirmed by the Court of Appeals. 38 OF ACT 496 AND TO REOPEN THE ORIGINAL PROCEEDINGS WHEN THE PETITION IS ACTUALLY ONE OF RECONVEYANCE AND NOT BASED ON ACTUAL OR EXTRINSIC FRAUD? TWO-DOES SEC. that the applicants are guilty of fraudulent misrepresentation and concealment when they declared in their application.' These we believe are sufficient allegations of extrinsic fraud. reversion or expectancy. ACTING AS A LAND REGISTRATION COURT.. nor any other person having any estate or interest therein. . 496 APPLY ON ALL FORES (SIC) TO ORIGINAL LAND REGISTRATION PROCEEDINGS HAD UNDER PARAGRAPH B. The Court of Appeals stated: . for. which followed the form required by the Land Registration Act. THE POWER AND AUTHORITY TO VEST TITLE ON THE LAND INVOLVED TO HEREIN PRIVATE RESPONDENTS AND ORDER EVEN ITS PARTITION AMONGST THEM IN THE FACE OF THE ADMITTED FACT THAT THE LAND IS IN ACTUAL POSSESSION OF PETITIONERS WHILE PRIVATE RESPONDENTS HAD NOT POSSESSED THE SAME AT ALL? FOUR-DO THE PRIVATE RESPONDENTS HAVE THE LEGAL CAPACITY AND QUALIFICATION TO ACQUIRE AND BE VESTED BY THE COURT WITH TITLE TO THE LAND IN QUESTION? We find the petition without merit. correctly resolved therein. 1942 WHEREIN THE LAND INVOLVED IS PUBLIC AGRICULTURAL LAND? THREE-HAS THE COURT OF FIRST INSTANCE. 38 OF ACT NO. The petitioners went to this Court in a petition for review on certiorari with the following questions: ONE-HAS THE COURT OF FIRST INSTANCE. On a motion for reconsideration filed by the private respondents.

when such omission or concealment secures a benefit to the prejudice of a third person (Estiva v. or in willfully misrepresenting that there are no other claims. is one that affects and goes into the jurisdiction of the court. They positively attested to the absence of any adverse claim therein. Section 122 of Act No.The averments in the petition for review of the decree of registration constitute specific and not mere general allegations of actual and extrinsic fraud. The second question assigned as an error must also be resolved against the petitioners. The fraud. Alvero. granted. The petitioners in this case did not merely omit a statement of the respondents' interest in the land. 497). 122. this Court held: The purpose of the law in giving aggrieved parties. This is clear misrepresentation. but did prevent a fair and just determination of the case. attorneys or witnesses. connotes any fraudulent scheme executed by a prevailing litigant 'outside the trial of a case against the defeated party. whereby said defeated party is prevented from presenting fully and fairly his side of the case. or conveyed to persons or the public or private corporations. the same shall be brought forthwith under the operation of this Act and shall become registered lands. therefore. or his agents. Thus. or in applying for and obtaining adjudication and registration in the name of a co-owner of land which he knows had not been alloted to him in the partition. . But the action to annul a judgment. relief is granted to a party deprived of his interest in land where the fraud consists in a deliberate misrepresentation that the lots are not contested when in fact they are.' But intrinsic fraud takes the form of 'acts of a party in a litigation during the trial. It shall be the duty of the official issuing the instrument of alienation. such as the use of forged instruments or perjured testimony. of an act or of a fact which the law requires to be performed or recorded is fraud. the opportunity to review the decree is to insure fair and honest dealing in the registration of land. and conniving with the land inspector to include in the survey plan the bed of a navigable stream. deprived of land or any interest therein. Palma Gil (45 SCRA 17). Competent proof to support these allegations was adduced. Whenever public lands in the Philippine Islands belonging to the Government of the United States or to the Government of the Philippine Islands are alienated. or in inducing him not to oppose an application. or in misrepresenting about the indentity of the lot to the true owner by the applicant causing the former to withdraw his opposition. which did not affect the presentation of the case. or conveyance in behalf of the Government to cause such instrument before its delivery to the grantee. to be filed with the register of deeds for the province where the land lies and to be there registered like other deeds and conveyances. or in deliberately failing to notify the party entitled to notice. Extrinsic or collateral fraud. would be unavailing unless the fraud be extrinsic or collateral and the facts upon which it is based have not been controverted or resolved in the case where the judgment sought to be annulled was rendered. or in intentionally concealing facts. The omission and concealment. as distinguished from intrinsic fraud. 37 Phil. upon the ground of fraud. knowingly and intentionally made. In the case of Libundan v. In all these examples the overriding consideration is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court or from presenting his case. grant. 496 otherwise known as the Land Registration Act provides: SEC. through fraud in the registration proceedings. We find no compelling reason to disturb the findings of the two courts below.

After due registration and issue of the certificate and owner's duplicate. 17. Ramirez v. There is likewise no merit in the third assigned error. it is within the provisions of the Land Registration Act. Thus. Court of Appeals. 540. Barreto v. Thus.R. The fourth issue raised by the petitioners is answered by a referral to the detailed factual findings and conclusions of the trial court. it was made to show and prove the fact that the petitioners are only antichretic creditors. Civil Code). Lahora v. Acala. 865. The final resolution of the Court of Appeals affirmed the trial court's decision in toto. 177. 1227. and an owner's duplicate certificate issued to the grantee. Republic v. the decree of registration granted by the lower court in favor of the petitioners may be reviewed on the ground of actual and extrinsic fraud pursuant to Section 38 of the same Act. 56-66) state in convincing detail the portion of the trial court's decision which support its conclusion that Hilario Ramirez and Valentina Bonifacio are not the owners of the disputed land and have no registrable right over it and that the respondents herein have established their ownership by a strong preponderance of evidence. The deed. they alleged that they and their predecessors-in-interest namely Gregoria Pascual and Agapita Bonifacio have been in possession of the land since time immemorial and that the petitioners were placed in possession of the land pursuant to a contract of antichresis. 3 Phil. 42 Phil. or instrument of conveyance of public land is registered with the Register of Deeds and the corresponding certificate and owner's duplicate title is issued. Heirs of Carle 105 Phil. 139 SCRA 293.. pp. The petitioners are not possessors in the concept of owner but mere holders placed in possession of the land by its owners. 96 Phil. 40425-R. Once the deed. but shall operate only as contract between the Government and the grantee and as evidence of authority to the clerk or register of deeds to make registration. 48 Phil. 973). such land shall be registered land for all purposes under this Act. registration shall be made in the office of the register of deeds for the province where the land lies. 60 Phil. this finding is binding on us as it is not our duty to weigh evidence on this point all over again. Court of Appeals. We can apply it to the facts without need for judicial interpretation. On the contrary. The respondents never admitted that they have not possessed the land at all. 30 SCRA 297. . (See Heirs of Deogracias Ramos v. grant. Valencia v. We see no reversible error in this finding. El Hogar Filipino v. CA-G. Lukban. 234). On the basis of the evidence supporting this conclusion. Barreto.whereupon a certificate shall be entered as in other cases of registered land. This finding and its factual bases were affirmed by the Court of Appeals. and in all cases under this Act. Jugado 2 SCRA 32. Dayanghirang 37 SCRA 346. It is brought within the scope and operation of the Land Registration Law. such land is deemed registered land. Olviga. Nelayan v. The court below found that the petitioners are merely antichretic creditors. While there was an admission that the petitioners have been in actual possession of the disputed land since 1938. Ten pages of the record on appeal (Record on Appeal. The respondents were declared the true and real owners and entitled to registration in their names. grant. The fees for registration shall be paid by the grantee. The law is clear. The act of registration shall be the operative act to convey and affect the land. their possession cannot serve as a title for acquiring dominion (See Art. et al. Manansala. This court has on several occasions held that the antichretic creditor cannot ordinarily acquire by prescription the land surrendered to him by the debtor (Trillana v. This is the doctrine laid down by this Court in a long line of cases. Nelayan. No. 183. Manolo v. Director of Lands v. The land in this case having been registered and covered by an original certificate of title issued by the Register of Deeds of Rizal. or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land. 109 Phil.

the fruits obtained from the possession of the land having been applied to the interests on the loan. Under Article 2136 of the Civil Code. we are constrained to affirm the appellate court's decision. . there had been attempts to recover the property. Feria (Chairman). Fernan. however. WHEREFORE. The private respondents are nephews and nieces. concur. Moreover.. We note.The argument of laches is explained and countered by the close relationship of the parties and the nature of a contract of antichresis. JJ. the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. that in spite of the finding of an existing contract of antichresis between the parties. Alampay and Paras. with their spouses. In view of the foregoing. the decision appealed from is hereby AFFIRMED with a modification that the respondents are ordered to pay the petitioners the amount of P 400. the two courts below did not order the payment of the principal amount of mortgage. SO ORDERED.00 as principal for the contract of antichresis. there is evidence to show that long before the filing of the cases. of the petitioners.

1967 ISABEL OCAMPO. No.defendants-appellees. so the same in order of June 2.: Sole question raised on appeal is this: Is a court order confirming a sheriff's sale upon a judgment in a real estate foreclosure case a bar to a subsequent action by the judgment debtor to annul the sale upon grounds which were raised in said foreclosure proceedings? First. appellee Ignacio Domalanta. That objection projected before the court the very same grounds relied upon in the complaint herein — the second case — to wit. defendants"]. on Domalanta's motion. Isabel O. the court. issued a writ of execution. and irregularities in the auction sale and non-conformity thereof to the rules of court.00 as attorneys' fees. "Ignacio Domalanta. on November 9. Nothing in the record suggests that after the order of June 2. Cavite) mortgaged. Grounds: Appellant mortgagor was not properly notified of the forecloseure sale. inter alia: res judicata. with 1% interest per month from December 5. and directing that after failure to pay the above amounts in ninety days." A move to reconsider was thwarted below in the order of November 21. Vda. According to the order of confirmation. confirmed. plaintiff vs. 1962. 1962 order of confirmation of the sheriff's sale in the first case — Case 45778 — was issued over appellant's opposition. defendants") to annul the sheriff's sale. SANCHEZ.000.00. Topacio.537. 1962. Pursuant thereto. J. IGNACIO DOMALANTA and PONCIANO MARTINEZ. in his capacity as Provincial Sheriff of Cavite.558 square meters to the highest bidder. . vs. Domalanta moved to confirm the sale. dismissed the case "with prejudice and with costs against the plaintiff. appellant started the present suit (Civil Case N-496 of the Court of First Instance of Cavite. Over appellant's objection. 1962 in the first case (Civil Case 45778). lack of notice by the Provincial Sheriff to appellant of the foreclosure sale. 1. Hence. and the price for which the property was sold was "very much lower than the actual market value" and shocking to the conscience. the thrust of appellant's said objection is that she "was not notified of the sheriff's sale and that the price for which the property was sold is unconscionable. 1962 stresses.G." nor was appellant's opposition verified. 1962 order had become final. 1962.00. After the June 2. A contested case to foreclose a real estate and chattel mortgage [Civil Case 45778. Ignacio Domalanta and Ponciano Martinez an his capacity as Provincial Sheriff of Cavite. 1962. and P500. Jr. plaintiff-appellant. L-21011 August 30. de Chi Chioco (now known as Isabel Ocampo) to pay appellee Ignacio Domalanta P2. appellee sheriff sold at public auction the mortgaged land of 32. de Chi Chioco. et al. and thus invalid. Arturo M. subject to a first mortgage in favor of the Philippine National Bank in reference to appellant's land (located in Tanza." But these factual allegations. "have not been established by any evidence. entitled "Isabel Ocampo. His reason. Appellee Domalanta moved to dismiss the complaint below. for P3. on June 2. Domalanta for defendant-appellee. resulted in judgment ordering appellant Isabel O. for plaintiff-appellant. Court of First Instance of Manila. Vda.1 The judgment debt remained unpaid. to the background facts. 1958 until full payment.. The court. on May 8. Adverted to earlier is that the June 2. the properties mortgaged be sold at public auction. The court. attempt was ever made by appellant to cure the defects so pointedly expressed by the court in that order.R. plaintiff vs. this appeal. Teodoro O.

" Nor was there an averment in the complaint now before us that if a resale should take place. the parties in the two suits below are the same: Isabel Ocampo and Ignacio Domalanta. or in respect to the probate of a will. Because. or the condition. on the ground of inadequacy of price. 1äwphï1. 930. 54 Phil. and was in fact. not merely interlocutory.ñët And if the notice that appellant here complains of is personal notice to her. Effect of judgments. or in respect to the personal. the will or administration.3 In fact. 49. Rule 39 of the new Rules.—The effect of a judgment or final order rendered by a court or judge of the Philippines.5 Appellant pleaded such lack of notice. It follows that said order is final. The value of such allegation is further downgraded by the lack of proof. political or legal condition or status of a particular person or his relationship to another. viz: Sec. 4.2. Belando. binding. It is based on a personal claim sought to be enforced against a specific property of a person named party defendant. raised and litigated in the anterior suit" (Civil Case 45778). Confirmation retroacts to the date of the sale. a legal tenet of long standing is that official duty presumptively has been regularly performed. Not that the disputed order of confirmation may be labelled null and void. Law and jurisprudence have formulated the rule that confirmation of sale of real estate in judicial foreclosure proceedings cuts off all interests of the mortgagor in the real estate sold and vests them in the purchaser. or the administration of the estate of a deceased person. states that the legality of the foreclosure sale questioned in this action "was an issue that could have been. Except for the Provincial Sheriff who is a nominal defendant here. status or relationship of the person. For.4 No appeal was taken. a circumstance "essential to rescind a sale regularly made and confirmed by a competent court. however. the second.2 An order of confirmation in court foreclosure proceedings is a final order. its purpose is to have the property seized and sold by court order to the end that the proceeds thereof be applied to the payment of plaintiff's claim. A proceeding for judicial foreclosure of mortgage is an action quasi in rem. personal notice is not required by Section 16 of Rule 39 of the 1940 Rules of Court. Her duty it was to prove it in court. This legal provision was given judicial nod as early as 1930 in La Urbana vs. 932 — a case of foreclosure of real estate mortgage — where we pronounced that "[t]he law does not require that such notification be given personally to the party upon whose property execution is levied. indeed. The first suit is a judicial foreclosure of mortgage. Properly to be pointed out here is that the dismissal order of November 9. 3. Rule 39 of the new Rules of Court."6 The mere averment that the price is unconscionable is nothing more than a conclusion of law. it is the final order from which appeal may be taken in judicial foreclosure proceedings. now Section 18. "the realty would bring a higher price" thereat. This is one case which epitomizes the fatal distance between allegation and proof. as appellant would want it to be. Rule 39 of the Rules of Court — which is now substantially embodied in Section 49. The right to appeal therefrom has long been recognized.7 To be read as controlling here are Sections 44 and 45. annulment of the foreclosure sale conducted in the first suit. the probate of a will or granting of . the judgment or order is conclusive upon the title to the thing. Subject matter is the same land. The judgment and order of confirmation of the sheriff's sale in the first suit have both become final. 1962 now on appeal. having jurisdiction to pronounce the judgment or order. holds true here. The presumption that the notice of sale of real estate in foreclosure proceedings has been given. She did not. may be as follows: (a) In case of a judgment or order against a specific thing. she is wrong. And.

" 8 Here. Castro. coming into play also is paragraph (c) above-quoted. J. however. the latter merely challenges the legality of the sheriff's sale in the first proceeding. that such legality of sale is an issue which could have been.P. (b) In other cases the judgment or order is. Paragraph (a) of the foregoing rule is commonly known to speak of judgments in rem. with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto. the confirmation order in the foreclosure case is. the lower court's order of November 9. are hereby affirmed. JJ. that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged. Angeles and Fernando. we reach the same result." It is thus beyond doubt that the present action is barred by the conclusiveness of judgment in the anterior suit. and paragraph (c) is the concept understood in law as "conclusiveness of judgment. Costs against plaintiff-appellant. the question raised by appellant in the present suit should be "deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged. . Therefore. the first suit was an action quasi in rem. It is true that the cause of action in the first suit is not exactly identical to the cause of action in the second. "with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto. (c) In any other litigation between the same parties or their successors in interest. litigating for the same thing and under the same title and in the same capacity. So ordered.. Reyes. As we view this case from another standpoint. 10This case must be dismissed. Makalintal. We do say. and was in fact raised and rejected in the first case. or which was actually and necessarily included therein or necessary thereto. Conformably to the foregoing. Concepcion.L. 1962 dismissing this case.. concur. and the order of November 21.. Sanchez."9Directly applicable is paragraph (b) above-quoted. For. J. 1962 denying reconsideration thereof. conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding. A judgment therein "is conclusive only between the parties. Dizon. By that provision.letters of administration shall only be prima facie evidence of the death of the testator or intestate. conclusive between the parties" and their privies.J. Bengzon.. or which was actually and necessarily included therein or necessary thereto. paragraph (b) is said to refer to judgments in personam. C. Thus.B.