G.R. No.
L-32762 January 27, 1983 null and void; (5) that since the plaintiff has been
CRISTINA PENULLAR, petitioner,
vs. PHILIPPINE NATIONAL BANK, respondent.
Teodoro T Junio for petitioner.
Antonio M. Ramos for respondent PNB.
GUTIERREZ, JR., J.:
The principal issue raised in this petition is whether or
not the Court of Appeals, even as it sustained the trial
court's finding that the titles covering the disputed
parcels of land are null and void, could still declare
that the mortgages annotated on those titles are valid.
The Court of Appeals stated the facts of this case as
follows:
RESOLVING: On Appeal Civil Case No. D-894 of the
Court of First Instance of Pangasinan instituted by
Cristina P. Penullar against Florencio Felix et. al., for
declaration of absolute nullity of judicial proceedings
in which after filing of the complaint on 9 May, 1959,
answer on 27 May, 1959 by the Philippine National
Bank stipulation of facts on 1 February, 1967 and
hearing on 11 August 1967 with only plaintiff
presenting evidence purely documentary there was
after that promulgated decision disposing.
WHEREFORE, in view of all the foregoing the Court
rules that:
(1) that the proceedings made under Land
Registration Case No. 16347 are null and void;
(2) that all the titles issued by the Land Registration
Court pursuant to the said Land Registration
proceedings, as well as all Certificate of Title flowing
from the said original title are null and void;
(3) that the land covered by this case are the
registered properties of the plaintiff over which she
holds an irrevocable and indefeasible title over the
same;
(4) that the writ of possession issued by the land
registration court on 26 of September 1958 in
connection with Land Registration Case No. 16347 is
Until after the Department of Agriculture and
found to be the sole and absolute owner of the
properties in question, the defendants are hereby
ordered to vacate the same and to surrender the
possession as well as the ownership thereof in favor
of the plaintiff;
(6) that the defendants are required to render a true
and faithful accounting of the fruits of the said
properties from September 26, 1958 until the
possession of the plaintiff has been restored, and to
indemnify value of said products as may be found in
said accounting. The defendants are likewise ordered
to pay the costs of this suit.
xxx xxx xxx
which defendant Philippine National Bank has taken
here on appeal on the errors assigned in its brief;
IT APPEARING: That the antecedents are rather
complicated; it will be the task of this Court to simplify;
on 27 February, 1936 claiming that she was the
absolute owner but that therein defendants were
pretending to have an interest in the property and had
intruded sometime in December, 1935, Genoveva
Miguel filed Civil Case No. 7199 in the Court of First
Instance of Pangasinan against Praxedes Moya et al.,
predecessors of herein plaintiff Cristina Penullar, for
declaration of ownership over three (3) portions of
agricultural land situated at Bayambang, Pangasinan;
Praxedes Moya and companions presented their
answer in due time Exh. A-1; while that Civil Case No.
7199 was pending, Genoveva Miguel presented
formal application for registration of her title on 1
February, 1938 in land Case No. 16347; and
Praxedes Moya opposed on 10 June, 1938 Exh. B-3;
well then on a date which is not very clear in the
records but during the pendency of both Civil Case
No. 7199 and the land registration Case No. 160.47,
Praxedes Moya was able to obtain free patent over
the property and unto her was issued original
certificate of title No. 3148 and on another parcel also
was issued a free patent in the name of one Josefa
Sison also one of herein plaintiff's predecessors and
unto her was issued Original Certificate of Title No.
2932; in both cases, Civil Case No. 7199 and
Expediente 16347 trial Judge issued order on 15
February, 1940 suspending hearing in order to give a
chance to Genoveva Miguel to investigate the Original
Certificates of Title No, 3148 and 2932 Exh. A-4,
issuing a supplementary order on 11 September,
1940 that said cases be held in abeyance,
Commerce pass upon the complaint that Genoveva
Miguel and others have made for the cancellation or
withdrawal of the free 'patent certificate issued in the
name of Praxedes Moya and others.
the parties shall immediately notify the Court soon
after the Department of Agriculture and Commerce
renders any action on said claim. 'Exh. B- 6;
but nothing more happened with respect to the
cancellation of the free patents; and so it was that, on
22 May, 1947 Exh. A-7 because
since September 11, 1940 up to this date, the plaintiff
has failed to take any steps for the prosecution of her
action.
trial Judge in Civil Case No. 7199 dismissed the case,
without prejudice and without pronouncement as to
costs,
and what Genoveva Miguel instead did after that was
to prosecute the registration case and after the same
had been finally heard, in the absence of Praxedes
Moya, et. al., the Registration Court promulgated its
decision on 20 December, 1955 ordering the
inscription of the properties now in question in the
name of applicant Genoveva Miguel's heirs because
she had died in the meantime and as the judgment
afterwards became final: Genoveva Miguel or better
stated her successors in interest applied for a writ of
possession which was granted the Registration Court
on 25 September, 1958 and it was executed by the
Sheriff on 30 September, 1958 but in the words of the
Sheriff, herein plaintiff successor in interest of
oppositor Praxedes Moya,
vehemently objected to the possession of the
applicant,'
and a few months after that herein plaintiff Cristina
Penullar filed the present Civil Case No, T-894 for
annulment of the Registration Proceeding specifically
the decision rendered therein and the titles issued
pursuant to that in the name of the heirs of Genoveva
Miguel, namely Original Certificates No. 14242,
24244, 24240, 14238, 24313 as well as the
incumbrance by way of mortgage constituted by the
said adjudicatees in favor of the Philippine National
Bank, on the Position that the lands having already
been registered, although by way of free patent, the
1
titles in the names of Praxedes Moya and Josefa
Sison, predecessors in interest of Cristina Penullar
became an absolute bar against posterior registration
and in the trial of the case plaintiff submitted her case
on the basis of aforementioned documentary proofs
constituting of Exhs. A to 0, against this, Philippine
National Bank in its answer p. 23 R.A. submitted as
special defense that it was an innocent mortgagee for
value having granted loans to the adjudicatees in the
registration case namely Maximo Alejo, Filomeno
Domingo, Serafina Gascon relying on their titles
which appeared to be genuine, issued in due course
and regular on their face; and it is to be stated that the
fact of this constitution of the mortgages in favor of
the Philippine National Bank by the said adjudicatees
successors in interest of Genoveva Miguel does not
appear to be debated; but trial Judge after hearing the
case held for Cristina Penullar successor in the
interest of Praxedes Moya and Josefa Sison and
annulled the titles issued pursuant to the decision of
the Land Registration Court in favor of the successors
in interest of Genoveva Miguel; ...
The respondent Court of Appeals modified the
appealed decision to the effect ... that the mortgages
in favor of Philippine National Bank attacked by
plaintiff are hereby declared valid.' In all other
respects, the decision of the lower court was affirmed.
(Annex " D ", p. 18, rollo)
Not satisfied with the modified decision, plaintiff-
appellee Cristina Penullar filed a motion for
reconsideration and when the motion was denied by
the respondent court, filed the instant petition.
The petitioner assigns the following errors:
I
THE COURT OF APPEALS ERRED IN HOLDING AS
VALID THE MORTGAGES NEVER ANNOTATED IN
PETITIONER'S TITLES BUT IN THE VOID TITLES
OF RESPONDENT'S CO-DEFENDANTS.
II
THE COURT OF APPEALS ERRED IN
ADJUDICATING RESPONDENT'S APPEAL UPON
AN ISSUE NOT RAISED IN THE PLEADINGS
BEFORE ITSELF NOR BEFORE THE TRIAL
COURT.
III
THE COURT OF APPEALS ERRED IN RESORTING
TO PALPABLY UNTENABLE THEORIES AND
POSTULATES TO JUSTIFY ITS DECISION.
The main issue centers on the ruling of the Court of
Appeals' sustaining the validity of the mortgages in
favor of the respondent Philippine National Bank.
The petitioner contends: 1. that the Court of Appeals
did not have a basis to rule on the matter since the
issue of the Philippine National Bank as a mortgagee
in good faith was never raised before the trial court
and the Court of Appeals, and 2. under the facts
obtaining in the case was not justified in ruling that
respondent Philippine National Bank's mortgages
were valid.
The record on Appeal filed by the Philippine National
Bank shows that in the Answer of the bank, there was
alleged the special defense .. that the Philippine
National Bank, a credit institution, in the ordinary
course of business, in good faith and for valuable
consideration, is an innocent purchaser having
granted loans to Maximo Alejo. ... and to Filomeno
Domingo and Serafina Gascon ... under the security
of Torrens Title issued to the borrower and relying on
the fact of the same which appeared to be genuine,
regular and in due form." (Record on Appeal, p. 24)
Moreover, respondent Philippine National Bank on the
very theory that it was a mortgage in good faith filed a
Motion to Dismiss the case as against it. (Record on
Appeal, pp. 31-34) And this motion was subject to
another URGENT MOTION for Resolution filed by
respondent Philippine National Bank (Record on
Appeal, pp. 39-40).1wph1.t The same motion
prompted the petitioner plaintiff in the trial court, to file
an Opposition thereto, (Record on Appeal, PP- 40-41)
which in turn led the respondent Philippine National
Bank to file a Reply to the Opposition. (Record on
Appeal pp, 48- 50).
In its appeal to the Court of Appeals, the Philippine
National Bank maintained its position that it was a
mortgagee in good faith. Thus, in the third
Assignment of Error of its brief filed before the
appellate court, the Philippine National Bank
adequately discussed its being a mortgagee in good
faith. The first proposition is without merit.
The second proposition covered by the first and third
assignments of errors is premised on the following
arguments: Since the torrens titles wherein
respondent Philippine National Bank's mortgages
were annotated were declared void, necessarily the
same mortgages annotated in the said torrens title
should also be declared void, on the theory that a
mortgage is but an accessory contract. The petitioner
maintains that her torrens title should not answer for
the same mortgages since the latter were not
annotated considering the "fundamental principle of
registration that Torrens titles are affected only by the
encumbrance registered and annotated in said titles."
Furthermore, she argues that to validate the
mortgages annotated in the void titles of Philippine
National Bank's co-defendants but never annotated in
her torrens titles would in effect revalidate the void
titles to co-exist with her valid title.
The petitioner considers the ruling of the Court of
Appeals inconsistent because according to her no
valid lien could emanate from a void title.
The petitioner's arguments have no merit. The Court
of Appeals fully explained the reasons why the
mortgages annotated in the void torrens titles should
be considered valid. Thus:
... now in resolving this question let it be granted that
there is clear logic in the position of appellees that the
titles of the heirs of Genoveva Miguel mortgagors to
Philippine National Bank having been declared void,
on the principle that the rights of Philippine National
Bank being dependent upon those void titles,
Philippine National Bank should not be permitted to
pretend that its mortgages should be considered a
valid encumbrance upon the property, for it is like the
branch of a dead tree so to speak but the trouble is
that cases cannot be decided upon pure logic; the fact
of the matter is that the Bank relief upon regular
Torrens Titles issued pursuant to a regular judgment
of the registration Court: there is no showing,
absolutely no showing, that the Bank was made
specifically aware of the fact that the very property
already covered by the free patents were only
afterwards adjudicated to and Torrens Titles issued in
the name of the heirs of Genoveva Miguel, who were
the parties that afterwards had secured the
mortgages from the Bank, not only this, the
declaration of nullity of the titles of the heirs of
Genoveva Miguel due to the fact that there had
already been free patents issued in the name of
plaintiff's predecessors Praxedes Moya and Josefa
Sison came in only much later and in fact as of the
time when these mortgages were accepted by the
Bank, there was as yet no decision declaring the titles
of the mortgagors null and void; stated otherwise
there can be no denying the fact that the Bank was
made to rely and had the right to rely upon regular
certificates of title first presented to it by the
2
mortgagors; ... (Rollo, pp. 17-18)
The foregoing findings and conclusions of the
respondent Court are sustained by rulings in
precedent cases.
In Director of Lands v. Abache (73 Phil. 606) the
principal issue hinged on whether or not the mortgage
lien annotated on the torrens title which was declared
null and void should likewise be ordered null and void.
We said:
Where, however, innocent third persons, relying on
the correctness of the certificate of title thus issued,
acquire rights over the property, the court cannot
disregard such rights and order the total cancellation
of the certificate. The effect of such an outright
cancellation would be to impair public confidence in
the certificates of title, for everyone dealing with
property registered under the Torrens System would
have to inquire in every instance as to whether the
title has been regularly or irregularly issued by the
court. And this is contrary to the evident purpose of
the law. Section 39 of Act No. 496 provides that every
person receiving a certificate of title in pursuance of a
dectree of registration, and every subsequent
purchaser of registered land who takes a certificate of
title for value in good faith, shall hold the same free of
all encumbrance except those noted on said
certificate. We have heretofore emphasized, and do
so now, that every person dealing with registered land
may safely rely on the correctness of the certificate of
title issued therefor and the law will in no way oblige
him to go behind the certificate to determine the
condition of the property .
Resolving a similar issue in Blanco, et al. v.
Esquierdo, et al. (110 Phil. 495) this Court ruled:
That the certificate of title issued in the name of
Fructuosa Esquierdo (mortgagor) is a nullity, the
same having been secured thru fraud, is not here in
question. The only question for determination is
whether the defendant bank is entitled to the
protection accorded to 'innocent purchasers for value',
which phrase, according to sec. 38 of the Land
Registration Law, includes an innocent mortgagee for
value. The question, in our opinion, must be
answered in the affirmative.
The trial court, in the decision complained of, made
no finding that the defendant mortgagee bank was a
party to the fraudulent transfer of the land to
Fructuosa Esquierdo. Indeed, there is nothing alleged
in the complaint which may implicate said defendant
mortgagee in the fraud, or justify a finding that it acted
in bad faith. On the other hand, the certificate of title
was in the name of the mortgagor Fructuosa
Esquierdo when the land was mortgaged by her to the
defendant bank. Such being the case, the said
defendant bank, as mortgagee, had the right to rely
on what appeared in the certificate and, in the
absence of anything to excite suspicion, was under no
obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on the
fact of said certificate. (De Lara, et. al. vs. Ayroso 95
Phil. 185; 50 Off. Gaz., [101 4838; Joaquin vs.
Madrid, et al., 106 Phil. 1060). Being thus an innocent
mortgagee for value, its right or lien upon the land
mortgaged must be respected and protected, even if
the mortgagor obtained her title thereto thru fraud. ...
In the instant case, the Philippine National Bank relied
on the torrens titles of the mortgagors which had been
regularly issued. The torrens titles were the result of
regular land registration proceedings duly registered
with the Register of Deeds. There was nothing in the
torrens titles which would excite suspicion that the
same were fraudulently processed by the mortgagors.
Applying, therefore, the principles enunciated in the
afore- cited cases, the respondent Bank was not duty
bound to further investigate the validity and/or
invalidity of the torrens title.
The assertion that the Philippine National Bank could
not be an innocent mortgagee in good faith
considering that the same parcel of land covered by
the invalidated titles was previously mortgaged by:
first, Domingo Cayabyab, a predecessor-in-interest of
the petitioner and second, by the petitioner herself
under Transfer Certificate of Title No. 8822 to the
respondent Philippine National Bank is not well-taken.
An examination of the technical descriptions of the
parcels of land covered by the three subject torrens
titles shows that they are different from each other
and there is no way for a reader to detect that the void
torrens titles covered the same parcels of land in
Transfer Certificate of Title No. 8822, previously
mortgaged to the respondent Bank. Thus, Transfer
Certificate of Title No. 8822 has the following
technical description of the land it covers:
A parcel of land Plan F-61451, situated in the barrio of
Pant-at Municipality of Bayambang, Province of
Pangasinan, Islands of Luzon, Bounded on the
Northeast by Lot No. 1-B of Plan Psd 8364, Lot No. 1
of Plan Psu-30431-Amd. and Lot No. 2 of plan Psu-
37494 vs. Lot No. 2 of plan Psu 30431 Amd. on the
Southeast, by property of Josefa Sison de Mananzan,
on the Southwest, by properties of Maximiano Felix
and Heirs of Martin Palisoc, and on the Northwest by
Lot No. 5 of plan Psu-103094, and Lot No. 1-B of plan
Psd 8364. Containing an area of ONE HUNDRED
FIVE THOUSAND TWO HUNDRED SEVENTY
EIGHT (105,278), square meters more or less.
Surveyed under authority of Sections 41, 43, Act No.
2874 and in accordance with existing regulations of
the Bureau of Lands by Pedro Terrado, Private Land
Surveyor, on Dec. 17, 1933.
On the other hand, the technical description of the
parcel of land awarded to Maximo Alejo, mortgagor in
one of the subject mortgages in favor of the
respondent Bank, which appears in the writ of
possession issued by the cadastral court in the voided
land registration proceedings and which necessarily
must have been included in the Original Certificate of
Title No. 14240 issued in the name of the same
Maximo Alejo reads:
4. A parcel of land (Lot No. 3, plan Psu-103094).
Bounded on the NE, by property of Gregorio de Leon
& Domingo Rodriguez (before) Onofre Sison Abalos
(now); on the SE. by lot No. 2; on the SW. by
properties of Flaviano Junio and Vicente Castillo; and
on the NW. by Lot No. Area 14,807 square meters.
Adjudicated in favor of Maximo Alejo.
The technical description of the parcel of land
awarded to Filomeno Domingo, the mortgagor in the
other mortgage in favor of respondent Philippine
National Bank, which description necessarily must
have been inscribed on Transfer Certificate of Title
No. 24313 issued in his name reads:
1. A parcel of land (Lot No. 1, plan Psu-
103094).Bounded on the N. and NW. by Lot No. 2; on
the NE. by property of Gregorio de Leon & Domingo
Rodriguez (before) Onofre Sison Abalos (now); on the
SE. by Vecinal Road (before) heirs of German
Maramba (now); and on the SW. by properties of
Faustino Pinto and Filemon Padua. Area 27,463
square meters. Adjudicated in favor of Florencio Felix.
2. A parcel of land (Lot No. 2, Plan Psu-103094).
Bounded on the NE: by property of Gregorio de Leon
& Domingo Rodriguez before Onofre Sison Abalos
(now); on the SE. and S. by Lot No. 1; on the SW. by
property of Flaviano Junio and on the NW. by Lot No.
3. Area 26,870 square meters. Adjudicated in favor of
Florencio Felix.
We agree with the invocation by the Court of Appeals
3
of the principle of equity:
... if there be any doubt as to the correctness of this
solution this court might as well invoke the principle
that where one of two innocent parties must have to
suffer due to the act of a third person, he whose
negligence had caused the damage should be made
to bear the loss; in the present case if 'he heirs of
Genoveva Miguel, that is to say herein plaintiff had
only been diligent, and had appealed from the
decision in the registration case, no certificate of Title
would have been issued just like that in the name of
the heirs of Genoveva Miguel and no mortgage could
have been constituted by them in favor of Bank but as
it is, said successors of Praxedes Moya and Josefa
Sison failed to do that; instead they let the decision in
the registration case gain the status of finality; allowed
without prior protest, the certificate of title to be
issued; did not even as early as possible, annotate an
adverse claim on the "titles; and they filed this case
only several months afterwards, it was their
negligence that permitted said adjudicatees in the
said registration case to apply for and secure
mortgages from the Bank.
The petitioner argues that neither she nor her
predecessors could have appealed the decision in the
land registration proceedings because: 1) her
predecessors were already dead at the time of the
promulgation of the decision, and 2) she was not
substituted as a party nor was she aware of said
registration proceedings, 3) petitioner's predecessor
Praxedes Moya who was aware of the land
registration proceedings had the right to rely on the
previous suspension of the land registration
proceedings; and 4) petitioner's predecessor had the
right to rely on the dismissal of Civil Case No. 7199
filed by respondent's co-defendant against;
petitioner's predecessors for "declaration of
ownership 'over the subject, parcels of land and that
nobody notified petitioner or her predecessors of the
revival of the void subsequent registration
proceedings.
The arguments are not well-taken. The records show
that Praxedes Moya, predecessor-in-interest of the
petitioner, was fully aware of the subject land
registration proceedings. From the stipulation of the
Facts" alone, the extent of her knowledge can be
gleaned Thus:
xxx xxx xxx
(7) That Notice of Hearing of the Registration Case
No. 16347, G.L.R.O. Record No. 52435, dated July the Court of Appeals took into consideration when it
11, 1955 was issued by the Court, setting the trial for ruled that the negligence of petitioner's predecessor-
October 6, 1955. in-interest was binding upon the petitioner herself
notwithstanding her non- substitution as party to the
subject land registration proceedings.
(8) Copy of this Notice of Hearing was sent by
registered mail, under Registered letter No. 118,
which was received by counsel for Praxedes Moya WHEREFORE. the decision appealed from is hereby
Atty. Jose M. Garcia, on July 22, 1955, as evidenced affirmed. Costs against the petitioner.
by Registry Return Card of letter No. 118 attached in
the Record of the said registration case on page 148;
SO ORDERED.
and,
(9) Praxedes Moya herself received or. July 23, 1955
copy of the Notice of Hearing as evidenced by
Registry Return Card of registered letter No. 119
attached to the records of Registration Case No.
16347 on page 151. (See minutes of October 6, 1955,
page 153 of the Records of Registration Case No.
16347, G.L.R.O. Records No. 524 35.
(10) On December 20, 1955, the Court rendered its
decision in said Reg. Case 16347, Record 52435
making the following adjudication ...
xxx xxx xxx
Copy of this Decision were (sic) sent by registered
mail to Atty. Jose M. Garcia, counsel for Praxedes
Moya who received it on January 27, 1956 as
evidenced by Registry Return Card of Letter No. 39
attached to the Record of Registration Case No.
16347, on page 187,
(12) Praxedes Moya, herself, was also notified of this
decision, furnished to her by registered letter which
she received on January 30, 1956 as evidenced by
Registry Return Card of Registered Letter No. 138,
attached to the record of this registration Case 16347,
on page 179. " (Record on Appeal pp, 55-56)
xxx xxx xxx
As successor-in-interest, the petitioner did not only
succeed to the rights and interests of her
predecessor-in-interest but she was also bound to
recognize the liens and/or encumbrances attached to
the subject parcels of land which by law are
considered to be valid though not inscribed in the
torrens title of that land. The petitioner cannot invoke
her relationship with her predecessor when it is to her
advantage and yet disclaim the effects of said
relationship on exactly the same subject matter when
it is to her disadvantage. This is the principle which
4
G.R. No. L-22331 June 6, 1967
IN RE: PETITION FOR CONSOLIDATION OF TITLE
IN THE VENDEES OF A HOUSE AND THE RIGHTS
TO A LOT. MARIA BAUTISTA VDA. DE REYES,
ET AL., vendees-petitioners-appellees. RODOLFO
LANUZA, vendor, vs. MARTIN DE LEON,
intervenor-appellant.
Erasmo R. Cruz and C. R. Pascual for intervenor-
appellant. Augusto J. Salas for vendees-petitioners-
appellees.
REGALA, J.:
Rodolfo Lanuza and his wife Belen were the owners
of a two-story house built on a lot of the Maria Guizon
Subdivision in Tondo, Manila, which the spouses
leased from the Consolidated Asiatic Co. On January
12, 1961, Lanuza executed a document entitled
"Deed of Sale with Right to Repurchase" whereby he
conveyed to Maria Bautista Vda. de Reyes and
Aurelia R. Navarro the house, together with the
leasehold rights to the lot, a television set and a
refrigerator in consideration of the sum of P3,000. The
deed reads:
DEED OF SALE WITH RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age,
married to Belen Geronimo, and residing at 783-D
Interior 14 Maria Guizon, Gagalangin, Tondo, Manila,
hereby declare that I am the true and absolute owner
of a new two storey house of strong materials,
constructed on a rented lot Lot No. 12 of the Maria
Guizon Subdivision, owned by the Consolidated
Asiatic Co. as evidenced by the attached Receipt
No. 292, and the plan of the subdivision, owned by
said company.
That for and in consideration of the sum of THREE
THOUSAND PESOS (P3,000.00) which I have
received this day from Mrs. Maria Bautista Vda. de
Reyes, Filipino, of legal age, widow; and Aurelia
Reyes, married to Jose S. Navarro, Filipinos, of legal
ages, and residing at 1112 Antipolo St., Tondo,
Manila, I hereby SELL, CEDE, TRANSFER, AND
CONVEY unto said Maria Bautista Vda. de Reyes,
her heirs, succesors, administrators and assigns said
house, including my right to the lot on which it was
constructed, and also my television, and frigidaire
"Kelvinator" of nine cubic feet in size, under the
following conditions:
I hereby reserve for myself, my heirs, successors,
administrators, and assigns the right to repurchase
the above mentioned properties for the same amount
of P3,000.00, without interest, within the stipulated
period of three (3) months from the date hereof. If I
fail to pay said amount of P3,000.00, within the
stipulated period of three months, my right to
repurchase the said properties shall be forfeited and
the ownership thereto shall automatically pass to Mrs.
Maria Bautista Vda. de Reyes, her heirs, successors,
administrators, and assigns, without any Court
intervention, and they can take possession of the
same.1wph1.t
IN WITNESS WHEREOF, we have signed this
contract in the City of Manila, this 12th day of
January, 1961.
s/t RODOLFO LANUZA
Vendor
s/t AURELIA REYES
Vendee
When the original period of redemption expired, the
parties extended it to July 12, 1961 by an annotation
to this effect on the left margin of the instrument.
Lanuza's wife, who did not sign the deed, this time
signed her name below the annotation.
It appears that after the execution of this instrument,
Lanuza and his wife mortgaged the same house in
favor of Martin de Leon to secure the payment of
P2,720 within one year. This mortgage was executed
on October 4, 1961 and recorded in the Office of the
Register of Deeds of Manila on November 8, 1961
under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon
filed in the sheriff's office on October 5, 1962 a
petition for the extra-judicial foreclosure of the
mortgage. On the other hand, Reyes and Navarro
followed suit by filing in the Court of First Instance of
Manila a petition for the consolidation of ownership of
the house on the ground that the period of redemption
expired on July 12, 1961 without the vendees
exercising their right of repurchase. The petition for
consolidation of ownership was filed on October 19.
On October 23, the house was sold to De Leon as the
only bidder at the sheriffs sale. De Leon immediately
took possession of the house, secured a discharge of
the mortgage on the house in favor of a rural bank by
paying P2,000 and, on October 29, intervened in
court and asked for the dismissal of the petition filed
by Reyes and Navarro on the ground that the
unrecorded pacto de retro sale could not affect his
rights as a third party.
The parties1 thereafter entered into a stipulation of
facts on which this opinion is mainly based and
submitted the case for decision. In confirming the
ownership of Reyes and Navarro in the house and the
leasehold right to the lot, the court said:
It is true that the original deed of sale with pacto de
retro, dated January 12, 1961, was not signed by
Belen Geronimo-Lanuza, wife of the vendor a retro,
Rodolfo Lanuza, at the time of its execution. It
appears, however, that on the occasion of the
extension of the period for repurchase to July 12,
1961, Belen Geronimo-Lanuza signed giving her
approval and conformity. This act, in effect,
constitutes ratification or confirmation of the contract
(Annex "A" Stipulation) by Belen Geronimo-Lanuza,
which ratification validated the act of Rodolfo Lanuza
s/t MARIA BAUTISTA VDA. DE REYES
from the moment of the execution of the said contract.
Vendee
In short, such ratification had the effect of purging the
WITH MY MARITAL CONSENT:
contract (Annex "A" Stipulation) of any defect which it
s/t JOSE S. NAVARRO
might have had from the moment of its execution.
(Article 1396, New Civil Code of the Philippines; Tang
Ah Chan and Kwong Koon vs. Gonzales, 52 Phil.
180)
Again, it is to be noted that while it is true that the
original contract of sale with right to repurchase in
favor of the petitioners (Annex "A" Stipulation) was
not signed by Belen Geronimo-Lanuza, such failure to
sign, to the mind of the Court, made the contract
merely voidable, if at all, and, therefore, susceptible of
ratification. Hence, the subsequent ratification of the
said contract by Belen Geronimo-Lanuza validated
the said contract even before the property in question
was mortgaged in favor of the intervenor.
It is also contended by the intervenor that the contract
of sale with right to repurchase should be interpreted
as a mere equitable mortgage. Consequently, it is
argued that the same cannot form the basis for a
judicial petition for consolidation of title over the
property in litigation. This argument is based on the
fact that the vendors a retro continued in possession
of the property after the execution of the deed of sale
with pacto de retro. The mere fact, however, that the
vendors a retro continued in the possession of the
property in question cannot justify an outright
declaration that the sale should be construed as an
equitable mortgage and not a sale with right to
repurchase. The terms of the deed of sale with right to
repurchase (Annex "A" Stipulation) relied upon by the
5
petitioners must be considered as merely an equitable
mortgage for the reason that after the expiration of the
period of repurchase of three months from January
12, 1961.
Article 1602 of the New Civil Code provides:
"ART. 1602. The contract shall be presumed to be in
equitable mortgage, in any of the following cases;
xxx xxx xxx
"(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.
xxx xxx xxx
In the present case, it appears, however, that no other
instrument was executed between the parties
extending the period of redemption. What was done
was simply to annotate on the deed of sale with right
to repurchase (Annex "A" Stipulation) that "the period
to repurchase, extended as requested until July 12,
1961." Needless to say, the purchasers a retro, in the
exercise of their freedom to make contracts, have the
power to extend the period of repurchase. Such
extension is valid and effective as it is not contrary to
any provision of law. (Umale vs. Fernandez, 28 Phil.
89, 93)
The deed of sale with right to repurchase (Annex "A"
Stipulation) is embodied in a public document.
Consequently, the same is sufficient for the purpose
of transferring the rights of the vendors a retro over
the property in question in favor of the petitioners. It is
to be noted that the deed of sale with right to
repurchase (Annex "A" Stipulation) was executed on
January 12, 1961, which was very much ahead in
point of time to the execution of the real estate
mortgage on October 4, 1961, in favor of intervenor
(Annex "B" Stipulation). It is obvious, therefore, that
when the mortgagors, Rodolfo Lanuza and Belen
Geronimo Lanuza, executed the real estate mortgage
in favor of the intervenor, they were no longer the
absolute owners of the property since the same had
already been sold a retro to the petitioners. The
spouses Lanuza, therefore, could no longer constitute
a valid mortgage over the property inasmuch as they
did not have any free disposition of the property
mortgaged. (Article 2085, New Civil Code.) For a valid
mortgage to exist, ownership of the property
mortgaged is an essential requisite. A mortgage
executed by one who is not the owner of the property
mortgaged is without legal existence and the
registration cannot validate. (Philippine National Bank
vs. Rocha, 55 Phil. 497).
The intervenor invokes the provisions of article 1544
of the New Civil Code for the reason that while the
real estate mortgage in his favor (Annex "B"
Stipulation) has been registered with the Register of
Deeds of Manila under the provisions of Act No. 3344
on November 3, 1961, the deed of sale with right to
repurchase (Annex "A" Stipulation) however, has not
been duly registered. Article 1544 of the New Civil
Code, however, refers to the sale of the same
property to two or more vendees. This provision of
law, therefore, is not applicable to the present case
which does not involve sale of the same property to
two or more vendees. Furthermore, the mere
registration of the property mortgaged in favor of the
intervenor under Act No. 3344 does not prejudice the
interests of the petitioners who have a better right
over the property in question under the old principle of
first in time, better in right. (Gallardo vs. Gallardo,
C.B., 46 O.G. 5568)
De Leon appealed directly to this Court, contending
(1) that the sale in question is not only voidable but
void ab initio for having been made by Lanuza without
the consent of his wife; (2) that the pacto de retro sale
is in reality an equitable mortgage and therefore can
not be the basis of a petition for consolidation of
ownership; and (3) that at any rate the sale, being
unrecorded, cannot affect third parties.
We are in accord with the trial court's ruling that a
conveyance of real property of the conjugal
partnership made by the husband without the consent
of his wife is merely voidable. This is clear from article
173 of the Civil Code which gives the wife ten years
within which to bring an action for annulment. As such
it can be ratified as Lanuza's wife in effect did in this
case when she gave her conformity to the extension
of the period of redemption by signing the annotation
on the margin of the deed. We may add that actions
for the annulment of voidable contracts can be
brought only by those who are bound under it, either
principally or subsidiarily (art. 1397), so that if there
was anyone who could have questioned the sale on
this ground it was Lanuza's wife alone.
We also agree with the lower court that between an
unrecorded sale of a prior date and a recorded
mortgage of a later date the former is preferred to the
latter for the reason that if the original owner had
parted with his ownership of the thing sold then he no
longer had the ownership and free disposal of that
thing so as to be able to mortgage it again.
Registration of the mortgage under Act No. 3344
would, in such case, be of no moment since it is
understood to be without prejudice to the better right
of third parties.2 Nor would it avail the mortgagee any
to assert that he is in actual possession of the
property for the execution of the conveyance in a
public instrument earlier was equivalent to the
delivery of the thing sold to the vendee.3
But there is one aspect of this case which leads us to
a different conclusion. It is a point which neither the
parties nor the trial court appear to have sufficiently
considered. We refer to the nature of the so-called
"Deed of Sale with Right to Repurchase" and the
claim that it is in reality an equitable mortgage. While
De Leon raised the question below and again in this
Court in his second assignment of error, he has not
demonstrated his point; neither has he pursued the
logical implication of his argument beyond stating that
a petition for consolidation of ownership is an
inappropriate remedy to enforce a mortgage.
De Leon based his claim that the pacto de retro sale
is actually an equitable mortgage on the fact that, first,
the supposed vendors (the Lanuzas) remained in
possession of the thing sold and, second, when the
three-month period of redemption expired the parties
extended it. These are circumstances which indeed
indicate an equitable mortgage.4 But their relevance
emerges only when they are seen in the perspective
of other circumstances which indubitably show that
what was intended was a mortgage and not a
sale.These circumstances are:
1. The gross inadequacy of the price. In the
discussion in the briefs of the parties as well as in the
decision of the trial court, the fact has not been
mentioned that for the price of P3,000, the supposed
vendors "sold" not only their house, which they
described as new and as being made of strong
materials and which alone had an assessed value of
P4,000, but also their leasehold right television set
and refrigerator, "Kelvinator of nine cubic feet in size."
indeed, the petition for consolidation of ownership is
limited to the house and the leasehold right, while the
stipulation of facts of the parties merely referred to the
object of the sale as "the property in question." The
failure to highlight this point, that is, the gross
inadequacy of the price paid, accounts for the error in
determining the true agreement of the parties to the
deed.
2. The non-transmission of ownership to the vendees.
6
The Lanuzas, the supposed vendors did not really right.)9 Under article 2125 of the Civil Code, the
transfer their ownership of the properties in question equitable mortgage, while valid between Reyes and
to Reyes and Navarro. What was agreed was that Navarro, on the one hand, and the Lanuzas, on the
ownership of the things supposedly sold would vest in other, as the immediate parties thereto, cannot prevail
the vendees only if the vendors failed to pay P3,000. over the registered mortgage of De Leon.
In fact the emphasis is on the vendors payment of the
amount rather than on the redemption of the things
Wherefore, the decision appealed from is reversed,
supposedly sold. Thus, the deed recites that
hence, the petition for consolidation is dismissed.
Costs against Reyes and Navarro.
If I (Lanuza) fail to pay said amount of P3,000.00
within the stipulated period of three months, my right
to repurchase the said properties shall be forfeited
and the ownership thereto automatically pass to Mrs.
Maria Bautista Vda. de Reyes . . . without any Court
intervention and they can take possession of the
same.

This stipulation is contrary to the nature of a true

pacto de retro sale under which a vendee acquires
ownership of the thing sold immediately upon
execution of the sale, subject only to the vendor's
right of redemption.5 Indeed, what the parties
established by this stipulation is an odious pactum
commissorium which enables the mortgages to
acquire ownership of the mortgaged properties
without need of foreclosure proceedings. Needless to
say, such a stipulation is a nullity, being contrary to
the provisions of article 2088 of the Civil Code.6 Its
insertion in the contract of the parties is an avowal of
an intention to mortgage rather than to sell.7

3. The delay in the filing of the petition for

consolidation. Still another point obviously overlooked
in the consideration of this case is the fact that the
period of redemption expired on July 12, 1961 and yet
this action was not brought until October 19, 1962 and
only after De Leon had asked on October 5, 1962 for
the extra-judicial for closure of his mortgage. All the
while, the Lanuzas remained in possession of the
properties they were supposed to have sold and they
remained in possession even long after they had lost
their right of redemption.

Under these circumstances we cannot but conclude

that the deed in question is in reality a mortgage. This
conclusion is of far-reaching consequence because it
means not only that this action for consolidation of
ownership is improper, as De Leon claims, but, what
is more that between the unrecorded deed of Reyes
and Navarro which we hold to be an equitable
mortgage, and the registered mortgage of De Leon,
the latter must be preferred. Preference of mortgage
credits is determined by the priority of registration of
the mortgages,8 following the maxim "Prior tempore
potior jure" (He who is first in time is preferred in
7
G.R. Nos. L-43459 and 43460 August 11,
1937
EL HOGAR FILIPINO, Mutual Building and Loan
Association, petitioner-appellant, vs. THE
PHILIPPINE NATIONAL BANK, oppositor-appellee.
DeWitt, Perkins, Brady and Ponce Enrile for
appellant. Roman J. Lacson for appellee.
AVANCEA, C.J.:
On November 5, 1949, Serafin Novella, Mercedes
Novella, Cecilia Magalona and Robustiano Magalona
constituted a first mortgage on lots Nos. 194, 158 and
14 of the cadastre of Victorias, Occidental Negros,
and on lots Nos. 700, 817 and 706 of the cadastre of
Saravia, Occidental Negros, to secure the payment of
the sum of P28,000, with interest thereon at 9 per
cent per annum, representing their indebtedness to El
Hogar Filipino, Mutual Building and Loan Association.
This mortgage was duly registered and noted in the
corresponding certificates of title. The deed of
mortgage contains the following clause:
TENTH. The borrowers hereby give and confer upon
the eventual manager of the Association sufficient
and irrevocable power so that, in case the debt
hereby acknowledge should become due by reason of
the nonfulfillment by the borrower of any of the
obligations stated in the second, fourth, fifth, eleventh,
twelfth, thirteen, sixteenth, seventeenth, and twenty-
first clauses of this instrument, upon resolution of the
board of directors declaring that the Association has
chosen to make use of its right to consider the
borrower's debt due, and upon publication of notices
in a newspaper of general circulation in this city once
a week for three (3) consecutive weeks, he may
proceed with the extrajudicial sale at public auction of
the mortgaged property, before the notary or
auctioneer designated by the board of directors, the
eventual manager of the Association being likewise
vested with irrevocable power, as agent of the
borrower, to execute the corresponding deed of sale
in favor of the highest bidder at the auction. Provided,
however, That said instrument of sale shall not be
executed until after the expiration of thirty (30) days
from the dated of the auction sale. And provided,
further, That if within said period of thirty (30) days
from the date of the auction sale, the borrower should
pay to the Association the full amount of his
indebtedness on that date, plus the accrued interest
thereon and the expenses occasioned by the auction
sale, minus the withdrawal value of his shares, the
auction sale shall be of no effect and the
representatives of the Association shall execute the
corresponding instrument of cancellation of the
mortgage constituted hereby, the expenses for the
execution of said instrument of cancellation being for
By virtue of the mortgage constituted in favor of the El
the account of the borrower.
Subsequently, on June 6, 1930, Serafin Novella,
constituted a second mortgage on his 3/4 share of
said lots in favor of the Philippine National Bank. El
Hogar Filipino consented to the constitution of the
second mortgage in favor of the Philippine National
Bank on condition that it be considered subordinate to
the first mortgage constituted in favor of the former.
The Novellas and Magalonas having violated the
contract, El Hogar Filipino declared due, as to them,
and proceeded with the auction sale of the mortgaged
lots strictly in accordance with the conditions set forth
in the above-quoted tenth clause of the mortgage
deed. El Hogar Filipino having been the highest
bidder at said sale, the lots sold were adjudicated to it
for the amount of its credit of P39,063.71.
Before the auction sale of the lots in question was
carried out, the Philippine National Bank was notified
thereof. After the sale had been made, it was likewise
notified for the purposes of its right of repurchase.
The Philippine National Bank, however, never made
use of its right of repurchased to this date.
Thirty days after the auction sale had been made, the
corresponding deed of sale was issued in favor of El
Hogar Filipino. When said document was presented
to the office of the register of deeds for the
cancellation of the titles to said lots and the issuance
of new certificates in favor of El Hogar Filipino, the
Philippine National Bank opposed, alleging that,
under the law, it had one year within which to redeem
the lots. Notwithstanding said opposition, the
documents was registered with a notation of the
mortgage in favor of the Philippine National Bank,
which notation was agreed to by El Hogar Filipino
provided it was made to appear that it was merely
taken from the original certificate of the title.
El Hogar Filipino brought these two actions in the
Court of First Instance of Occidental Negros to have
the court declare the mortgage lien in favor of the
Philippine National Bank extinguished and order the
register of deeds to cancel the annotation of said
mortgage in favor of the Philippine National Bank on
the transfer certificates of title issued in favor of El
Hogar Filipino.
The court, after due trial, rendered judgment denying
the petition of El Hogar Filipino and from said
judgment an appeal was taken to this court.
Hogar Filipino, and the credit thereof having become
demandable, said mortgaged lots in order to apply the
proceeds to the payment of its credit. Such is the
legal effect of the mortgage. The Philippine National
Bank, by reason of the second mortgage constituted
in its favor which was accepted by it as subordinate to
the first mortgage in favor of El Hogar Filipino, cannot
oppose such effect. The above-quoted tenth clause of
the contract being valid (El Hogar Filipino vs.
Paredes, 45 Phil., 1780, the validity of the sale made
strictly in accordance therewith cannot be questioned.
The sale in debtors and said lots should thereafter be
considered extinguished in so far as they secured the
payment of the credit of the Philippine National Bank.
Therefore, the security in favor of said bank, as
second creditor, was in fact extinguished thereby.
Aside from the right of repurchase, the Philippine
National Bank's only right under the mortgage
constituted in its favor would be to apply to the
payment of its credit the excess of the proceeds of the
sale after the payment of that of El Hogar Filipino,
such being the effect of the subordination of its
mortgage to that of the latter. However, inasmuch as
the credit of El Hogar Filipino has absorbed the entire
proceeds of the sale, the mortgage in favor of the
bank was in fact extinguished with it because it
cannot be enforced by said bank beyond the total
value of the mortgaged lots. Consequently, the lots
passed to the repurchaser free from the mortgage in
favor of the bank. The bank's claim that the second
mortgage in its favor stands to the prejudice of the
purchaser is untenable, particularly because, as the
repurchaser in this case is the first mortgages, would
practically be to convert the second mortgage,
constituted in favor of the Philippine National Bank,
into a first mortgage, and the first mortgage,
constituted in favor of El Hogar Filipino, into a second
mortgage. The fact that El Hogar tolerated the
annotation of the bank's second mortgage on the
transfer certificates of title in its name is of no avail, it
being clear that El Hogar's consent to this effect was
not an admission of the existence of the bank's
second mortgage but merely a compromise with the
bank's claim that it was still timely for the latter to
redeem the lots sold, as shown by the fact that El
Hogar consented thereto provided it was made to
appear that the annotation was merely taken from the
debtors' certificates of title.
In this instance, Serafin Novella filed a petition to
intervene on April 6, 1937, after the case had already
8
been submitted. As said petition was not filed on time,
it should be denied (Felismino vs. Gloria, 47 Phil.,
967; De Borja vs. Jugo, p. 464, ante).

For the foregoing considerations, the appealed

judgment is reversed, and the second mortgage
constituted on the lots in question in favor of the
Philippine National Bank is ordered cancelled, without
special pronouncement as to costs. So ordered.

9
DEVELOPMENT BANK OF THE PHILIPPINES, 11, 1975; and April 4, 1977;
petitioner, vs. COURT OF APPEALS
and LYDIA CUBA, respondents. 3. As security for said loans, plaintiff
Lydia P. Cuba executed two
[G.R. No. 118367. January 5, 1998] Deeds of Assignment of her
Leasehold Rights;
4. Plaintiff failed to pay her loan on
the scheduled dates thereof in
accordance with the terms of
LYDIA P. CUBA, petitioner, vs. COURT OF the Promissory Notes;
APPEALS, DEVELOPMENT BANK OF
THE PHILIPPINES and AGRIPINA P. 5. Without foreclosure proceedings,
CAPERAL, respondents. whether judicial or extra-
judicial, defendant DBP
DECISION appropriated the Leasehold
Rights of plaintiff Lydia Cuba
DAVIDE, JR., J.: over the fishpond in question;
6. After defendant DBP has
These two consolidated cases stemmed from appropriated the Leasehold
a complaint[1] filed against the Development Bank of Rights of plaintiff Lydia Cuba
the Philippines (hereafter DBP) and Agripina Caperal over the fishpond in
filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 question, defendant DBP, in
with the Regional Trial Court of Pangasinan, Branch turn, executed a Deed of
54. The said complaint sought (1) the declaration of Conditional Sale of the
nullity of DBPs appropriation of CUBAs rights, title, Leasehold Rights in favor of
and interests over a 44-hectare fishpond located in plaintiff Lydia Cuba over the
Bolinao, Pangasinan, for being violative of Article same fishpond in question;
2088 of the Civil Code; (2) the annulment of the Deed
of Conditional Sale executed in her favor by DBP; (3) 7. In the negotiation for repurchase,
the annulment of DBPs sale of the subject fishpond plaintiff Lydia Cuba
to Caperal; (4) the restoration of her rights, title, and addressed two letters to the
interests over the fishpond; and (5) the recovery Manager DBP, Dagupan City
of damages, attorneys fees, and expenses of dated November 6, 1979 and
litigation. December 20, 1979. DBP
thereafter accepted the offer
After the joinder of issues following the filing to repurchase in a letter
by the parties of their respective pleadings, the trial addressed to plaintiff dated
court conducted a pre-trial where CUBA and DBP February 1, 1982;
agreed on the following facts, which were embodied
in the pre-trial order:[2] 8. After the Deed of Conditional
Sale was executed in favor
1. Plaintiff Lydia P. Cuba is a of plaintiff Lydia Cuba, a new
grantee of a Fishpond Lease Fishpond Lease Agreement
Agreement No. 2083 (new) No. 2083-A dated March 24,
dated May 13, 1974 from the 1980 was issued by the
Government; Ministry of Agriculture and
Food in favor of plaintiff
2. Plaintiff Lydia P. Cuba obtained Lydia Cuba only, excluding
loans from the Development her husband;
Bank of the Philippines in the
amounts of P109,000.00; 9. Plaintiff Lydia Cuba failed to pay
P109,000.00; and P98,700.00 the amortizations stipulated
under the terms stated in the in the Deed of Conditional
Promissory Notes dated Sale;
September 6, 1974; August
10. After plaintiff Lydia Cuba failed to
pay the amortization as
stated in Deed of Conditional
Sale, she entered with the
DBP a temporary
arrangement whereby in
consideration for the
deferment of the Notarial
Rescission of Deed of
Conditional Sale, plaintiff
Lydia Cuba promised to
make certain payments as
stated in temporary
Arrangement dated February
23, 1982;
11. Defendant DBP thereafter sent a
Notice of Rescission thru
Notarial Act dated March 13,
1984, and which was
received by plaintiff Lydia
Cuba;
12. After the Notice of Rescission,
defendant DBP took
possession of the Leasehold
Rights of the fishpond in
question;
13. That after defendant DBP took
possession of the Leasehold
Rights over the fishpond in
question, DBP advertised in
the SUNDAY PUNCH the
public bidding dated June
24, 1984, to dispose of the
property;
14. That the DBP thereafter executed
a Deed of Conditional Sale in
favor of defendant Agripina
Caperal on August 16, 1984;
15. Thereafter, defendant Caperal
was awarded Fishpond
Lease Agreement No. 2083-
A on December 28, 1984 by
the Ministry of Agriculture
and Food.
Defendant Caperal admitted only the facts
stated in paragraphs 14 and 15 of the pre-trial order.
[3]
Trial was thereafter had on other matters.
The principal issue presented was whether
10
the act of DBP in appropriating to itself CUBAs
leasehold rights over the fishpond in question without
foreclosure proceedings was contrary to Article 2088
of the Civil Code and, therefore, invalid. CUBA
insisted on an affirmative resolution. DBP stressed
that it merely exercised its contractual right under the
Assignments of Leasehold Rights, which was not a
contract of mortgage. Defendant Caperal sided with
DBP.
The trial court resolved the issue in favor of
CUBA by declaring that DBPs taking possession and
ownership of the property without foreclosure was
plainly violative of Article 2088 of the Civil Code which
provides as follows:
ART. 2088. The creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null and
void.
It disagreed with DBPs stand that the Assignments of
Leasehold Rights were not contracts of mortgage
because (1) they were given as security for loans, (2)
although the fishpond land in question is still a public
land, CUBAs leasehold rights and interest thereon
are alienable rights which can be the proper subject of
a mortgage; and (3) the intention of the contracting
parties to treat the Assignment of Leasehold Rights
as a mortgage was obvious and unmistakable; hence,
upon CUBAs default, DBPs only right was to
foreclose the Assignment in accordance with law.
The trial court also declared invalid condition
no. 12 of the Assignment of Leasehold Rights for
being a clear case of pactum commissorium
expressly prohibited and declared null and void by
Article 2088 of the Civil Code. It then concluded that
since DBP never acquired lawful ownership of
CUBAs leasehold rights, all acts of ownership and
possession by the said bank were void. Accordingly,
the Deed of Conditional Sale in favor of CUBA, the
notarial rescission of such sale, and the Deed of
Conditional Sale in favor of defendant Caperal, as
well as the Assignment of Leasehold Rights executed
by Caperal in favor of DBP, were also void and
ineffective.
As to damages, the trial court found ample
evidence on record that in 1984 the representatives
of DBP ejected CUBA and her caretakers not only
from the fishpond area but also from the adjoining big
house; and that when CUBAs son and caretaker
went there on 15 September 1985, they found the
said house unoccupied and destroyed and CUBAs
personal belongings, machineries, equipment, tools,
and other articles used in fishpond operation which
were kept in the house were missing. The missing
items were valued at about P550,000. It further found
that when CUBA and her men were ejected by DBP
for the first time in 1979, CUBA had stocked the
fishpond with 250,000 pieces of bangus fish (milkfish),
all of which died because the DBP representatives
prevented CUBAs men from feeding the fish. At the
conservative price of P3.00 per fish, the gross value
would have been P690,000, and after deducting 25%
of said value as reasonable allowance for the cost of
feeds, CUBA suffered a loss of P517,500. It then set
the aggregate of the actual damages sustained by
CUBA at P1,067,500.
The trial court further found that DBP was
guilty of gross bad faith in falsely representing to the
Bureau of Fisheries that it had foreclosed its
mortgage on CUBAs leasehold rights. Such
representation induced the said Bureau to terminate
CUBAs leasehold rights and to approve the Deed of
Conditional Sale in favor of CUBA. And considering
that by reason of her unlawful ejectment by DBP,
CUBA suffered moral shock, degradation, social
humiliation, and serious anxieties for which she
became sick and had to be hospitalized the trial court
found her entitled to moral and exemplary
damages. The trial court also held that CUBA was
entitled to P100,000 attorneys fees in view of the
considerable expenses she incurred for lawyers fees
and in view of the finding that she was entitled to
exemplary damages.
In its decision of 31 January 1990, [4] the trial
court disposed as follows:
WHEREFORE, judgment is hereby rendered in favor
of plaintiff:
1. DECLARING null and void and without
any legal effect the act of defendant
Development Bank of the Philippines
in appropriating for its own interest,
without any judicial or extra-judicial
foreclosure, plaintiffs leasehold rights
and interest over the fishpond land in
question under her Fishpond Lease
Agreement No. 2083 (new);
2. DECLARING the Deed of Conditional Sale
dated February 21, 1980 by and
between the defendant Development
Bank of the Philippines and plaintiff
(Exh. E and Exh. 1) and the acts of
notarial rescission of the Development
Bank of the Philippines relative to said
sale (Exhs. 16 and 26) as void and
ineffective;
3. DECLARING the Deed of Conditional
Sale dated August 16, 1984 by and
between the Development Bank of the
Philippines and defendant Agripina
Caperal (Exh. F and Exh. 21), the
Fishpond Lease Agreement No. 2083-
A dated December 28, 1984 of
defendant Agripina Caperal (Exh. 23)
and the Assignment of Leasehold
Rights dated February 12, 1985
executed by defendant Agripina
Caperal in favor of the defendant
Development Bank of the Philippines
(Exh. 24) as void ab initio;
4. ORDERING defendant Development Bank
of the Philippines and defendant
Agripina Caperal, jointly and severally,
to restore to plaintiff the latters
leasehold rights and interests and right
of possession over the fishpond land
in question, without prejudice to the
right of defendant Development Bank
of the Philippines to foreclose the
securities given by plaintiff;
5. ORDERING defendant Development Bank
of the Philippines to pay to plaintiff the
following amounts:
a) The sum of ONE MILLION SIXTY-
SEVEN THOUSAND FIVE
HUNDRED PESOS
(P1,067,500.00), as and for
actual damages;
b) The sum of ONE HUNDRED
THOUSAND (P100,000.00)
PESOS as moral damages;
c) The sum of FIFTY THOUSAND
(P50,000.00) PESOS, as and
for exemplary damages;
d) And the sum of ONE HUNDRED
THOUSAND (P100,000.00)
PESOS, as and for attorneys
fees;
11
 6. And ORDERING defendant Development
Bank of the Philippines to reimburse
and pay to defendant Agripina
Caperal the sum of ONE MILLION
FIVE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED TEN
PESOS AND SEVENTY-FIVE
CENTAVOS (P1,532,610.75)
representing the amounts paid by
defendant Agripina Caperal to
defendant Development Bank of the
Philippines under their Deed of
Conditional Sale.
CUBA and DBP interposed separate appeals
from the decision to the Court of Appeals. The former
sought an increase in the amount of damages, while
the latter questioned the findings of fact and law of the
lower court.
In its decision [5] of 25 May 1994, the Court of
Appeals ruled that (1) the trial court erred in declaring
that the deed of assignment was null and void and
that defendant Caperal could not validly acquire the
leasehold rights from DBP; (2) contrary to the claim of
DBP, the assignment was not a cession under Article
1255 of the Civil Code because DBP appeared to be
the sole creditor to CUBA - cession presupposes
plurality of debts and creditors; (3) the deeds of
assignment represented the voluntary act of CUBA in
assigning her property rights in payment of her debts,
which amounted to a novation of the promissory notes
executed by CUBA in favor of DBP; (4) CUBA was
estopped from questioning the assignment of the
leasehold rights, since she agreed to repurchase the
said rights under a deed of conditional sale; and (5)
condition no. 12 of the deed of assignment was an
express authority from CUBA for DBP to sell whatever
right she had over the fishpond. It also ruled that
CUBA was not entitled to loss of profits for lack
of evidence, but agreed with the trial court as to the
actual damages of P1,067,500. It, however, deleted
the amount of exemplary damages and reduced the
award of moral damages from P100,000 to P50,000
and attorneys fees, from P100,000 to P50,000.
The Court of Appeals thus declared as valid
the following: (1) the act of DBP in appropriating
Cubas leasehold rights and interest under Fishpond
Lease Agreement No. 2083; (2) the deeds of
assignment executed by Cuba in favor of DBP; (3) the
deed of conditional sale between CUBA and DBP;
and (4) the deed of conditional sale between DBP and
Caperal, the Fishpond Lease Agreement in favor of
Caperal, and the assignment of leasehold
rights executed by Caperal in favor of DBP. It then
ordered DBP to turn over possession of the property
to Caperal as lawful holder of the leasehold rights and
to pay CUBA the following amounts: (a) P1,067,500
as actual damages; P50,000 as moral damages; and
P50,000 as attorneys fees.
Since their motions for reconsideration were
denied,[6] DBP and CUBA filed separate petitions for
review.
In its petition (G.R. No. 118342), DBP assails
the award of actual and moral damages and
attorneys fees in favor of CUBA.
Upon the other hand, in her petition (G.R. No.
118367), CUBA contends that the Court of Appeals
erred (1) in not holding that the questioned deed of
assignment was a pactum commissorium contrary to
Article 2088 of the Civil Code; (b) in holding that the
deed of assignment effected a novation of the
promissory notes; (c) in holding that CUBA was
estopped from questioning the validity of the deed of
assignment when she agreed to repurchase her
leasehold rights under a deed of conditional sale; and
(d) in reducing the amounts of moral damages and
attorneys fees, in deleting the award of exemplary
damages, and in not increasing the amount of
damages.
We agree with CUBA that the assignment of
leasehold rights was a mortgage contract.
It is undisputed that CUBA obtained from DBP
three separate loans totalling P335,000, each of
which was covered by a promissory note. In all of
these notes, there was a provision that: In the event
of foreclosure of the mortgage securing this notes,
I/We further bind myself/ourselves, jointly and
severally, to pay the deficiency, if any. [7]
Simultaneous with the execution of the notes
was the execution of Assignments of Leasehold
Rights [8] where CUBA assigned her leasehold rights
and interest on a 44-hectare fishpond, together with
the improvements thereon. As pointed out by CUBA,
the deeds of assignment constantly referred to the
assignor (CUBA) as borrower; the assigned rights,
as mortgaged properties; and the instrument itself, as
mortgage contract. Moreover, under condition no. 22
of the deed, it was provided that failure to comply
with the terms and condition of any of the loans shall
cause all other loans to become due and demandable
and all mortgages shall be foreclosed. And,
condition no. 33 provided that if foreclosure is
actually accomplished, the usual 10% attorneys fees
and 10% liquidated damages of the total obligation
shall be imposed. There is, therefore, no shred of
doubt that a mortgage was intended.
Besides, in their stipulation of facts the parties
admitted that the assignment was by way of security
for the payment of the loans; thus:
3. As security for said loans, plaintiff Lydia P.
Cuba executed two Deeds of
Assignment of her Leasehold Rights.
In Peoples Bank & Trust Co. vs. Odom,[9]
this Court had the occasion to rule that an assignment
to guarantee an obligation is in effect a mortgage.
We find no merit in DBPs contention that the
assignment novated the promissory notes in that the
obligation to pay a sum of money the loans (under the
promissory notes) was substituted by the assignment
of the rights over the fishpond (under the deed of
assignment). As correctly pointed out by CUBA, the
said assignment merely complemented or
supplemented the notes; both could stand
together. The former was only an accessory to the
latter. Contrary to DBPs submission, the obligation to
pay a sum of money remained, and the assignment
merely served as security for the loans covered by the
promissory notes. Significantly, both the deeds of
assignment and the promissory notes were executed
on the same dates the loans were granted. Also, the
last paragraph of the assignment stated: The
assignor further reiterates and states all terms,
covenants, and conditions stipulated in the
promissory note or notes covering the proceeds of
this loan, making said promissory note or notes, to all
intent and purposes, an integral part hereof.
Neither did the assignment amount to
payment by cession under Article 1255 of the Civil
Code for the plain and simple reason that there was
only one creditor, the DBP. Article 1255
contemplates the existence of two or more creditors
and involves the assignment of all the debtors
property.
Nor did the assignment constitute dation in
payment under Article 1245 of the civil Code, which
reads: Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law on sales. It
bears stressing that the assignment, being in its
essence a mortgage, was but a security and not a
satisfaction of indebtedness.[10]
We do not, however, buy CUBAs argument
that condition no. 12 of the deed of assignment
constituted pactum commissorium. Said condition
12
reads:
12. That effective upon the breach of any condition of
this assignment, the Assignor hereby appoints the
Assignee his Attorney-in-fact with full power and
authority to take actual possession of the property
above-described, together with all improvements
thereon, subject to the approval of the Secretary of
Agriculture and Natural Resources, to lease the same
or any portion thereof and collect rentals, to make
repairs or improvements thereon and pay the same,
to sell or otherwise dispose of whatever rights the
Assignor has or might have over said property and/or
its improvements and perform any other act which the
Assignee may deem convenient to protect its
interest. All expenses advanced by the Assignee in
connection with purpose above indicated which shall
bear the same rate of interest aforementioned are
also guaranteed by this Assignment. Any amount
received from rents, administration, sale or disposal of
said property may be supplied by the Assignee to the
payment of repairs, improvements, taxes,
assessments and other incidental expenses and
obligations and the balance, if any, to the payment of
interest and then on the capital of the indebtedness
secured hereby. If after disposal or sale of said
property and upon application of total amounts
received there shall remain a deficiency, said
Assignor hereby binds himself to pay the same to the
Assignee upon demand, together with all interest
thereon until fully paid. The power herein granted
shall not be revoked as long as the Assignor is
indebted to the Assignee and all acts that may be
executed by the Assignee by virtue of said power are
hereby ratified.
The elements of pactum commissorium are
as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal
obligation within the stipulated period.[11]
Condition no. 12 did not provide that the
ownership over the leasehold rights would
automatically pass to DBP upon CUBAs failure to pay
the loan on time. It merely provided for the
appointment of DBP as attorney-in-fact with authority,
among other things, to sell or otherwise dispose of the
said real rights, in case of default by CUBA, and to
apply the proceeds to the payment of the loan. This
provision is a standard condition in mortgage
contracts and is in conformity with Article 2087 of the
Civil Code, which authorizes the mortgagee to
foreclose the mortgage and alienate the mortgaged
property for the payment of the principal obligation.
DBP, however, exceeded the authority vested
by condition no. 12 of the deed of assignment. As
admitted by it during the pre-trial, it had [w]ithout
foreclosure proceedings, whether judicial or
extrajudicial, appropriated the [l]easehold [r]ights of
plaintiff Lydia Cuba over the fishpond in question. Its
contention that it limited itself to mere administration
by posting caretakers is further belied by the deed of
conditional sale it executed in favor of CUBA. The
deed stated:
WHEREAS, the Vendor [DBP] by virtue of a deed of
assignment executed in its favor by the herein
vendees [Cuba spouses] the former acquired all the
rights and interest of the latter over the above-
described property;
The title to the real estate property [sic] and all
improvements thereon shall remain in the name of the
Vendor until after the purchase price, advances and
interest shall have been fully paid. (Emphasis
supplied).
It is obvious from the above-quoted
paragraphs that DBP had appropriated and taken
ownership of CUBAs leasehold rights merely on the
strength of the deed of assignment.
DBP cannot take refuge in condition no. 12 of
the deed of assignment to justify its act of
appropriating the leasehold rights. As stated earlier,
condition no. 12 did not provide that CUBAs default
would operate to vest in DBP ownership of the said
rights. Besides, an assignment to guarantee an
obligation, as in the present case, is virtually a
mortgage and not an absolute conveyance of title
which confers ownership on the assignee.[12]
At any rate, DBPs act of appropriating
CUBAs leasehold rights was violative of Article 2088
of the Civil Code, which forbids a creditor from
appropriating, or disposing of, the thing given as
security for the payment of a debt.
The fact that CUBA offered and agreed to
repurchase her leasehold rights from DBP did not
estop her from questioning DBPs act of
appropriation. Estoppel is unavailing in this case. As
held by this Court in some cases,[13] estoppel cannot
give validity to an act that is prohibited by law or
against public policy. Hence, the appropriation of the
leasehold rights, being contrary to Article 2088 of the
Civil Code and to public policy, cannot be deemed
validated by estoppel.
Instead of taking ownership of the questioned
real rights upon default by CUBA, DBP should have
foreclosed the mortgage, as has been stipulated in
condition no. 22 of the deed of assignment. But, as
admitted by DBP, there was no such
foreclosure. Yet, in its letter dated 26 October 1979,
addressed to the Minister of Agriculture and Natural
Resources and coursed through the Director of the
Bureau of Fisheries and Aquatic Resources, DBP
declared that it had foreclosed the mortgage and
enforced the assignment of leasehold rights on March
21, 1979 for failure of said spouses [Cuba spouces] to
pay their loan amortizations.[14] This only goes to
show that DBP was aware of the necessity of
foreclosure proceedings.
In view of the false representation of DBP that
it had already foreclosed the mortgage, the Bureau of
Fisheries cancelled CUBAs original lease permit,
approved the deed of conditional sale, and issued a
new permit in favor of CUBA. Said acts which were
predicated on such false representation, as well as
the subsequent acts emanating from DBPs
appropriation of the leasehold rights, should therefore
be set aside. To validate these acts would open the
floodgates to circumvention of Article 2088 of the Civil
Code.
Even in cases where foreclosure proceedings
were had, this Court had not hesitated to nullify the
consequent auction sale for failure to comply with the
requirements laid down by law, such as Act No. 3135,
as amended.[15] With more reason that the sale of
property given as security for the payment of a debt
be set aside if there was no prior foreclosure
proceeding.
Hence, DBP should render an accounting of
the income derived from the operation of the fishpond
in question and apply the said income in accordance
with condition no. 12 of the deed of assignment which
provided: Any amount received from rents,
administration, may be applied to the payment of
repairs, improvements, taxes, assessment, and other
incidental expenses and obligations and the balance,
if any, to the payment of interest and then on the
capital of the indebtedness.
We shall now take up the issue of damages.
Article 2199 provides:
Except as provided by law or by stipulation, one is
13
entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual
or compensatory damages.
Actual or compensatory damages cannot be
presumed, but must be proved with reasonable
degree of certainty.[16] A court cannot rely on
speculations, conjectures, or guesswork as to the fact
and amount of damages, but must depend upon
competent proof that they have been suffered by the
injured party and on the best obtainable evidence of
the actual amount thereof.[17] It must point out
specific facts which could afford a basis for measuring
whatever compensatory or actual damages are
borne.[18]
In the present case, the trial court awarded in
favor of CUBA P1,067,500 as actual damages
consisting of P550,000 which represented the value
of the alleged lost articles of CUBA and P517,500
which represented the value of the 230,000 pieces of
bangus allegedly stocked in 1979 when DBP first
ejected CUBA from the fishpond and the adjoining
house. This award was affirmed by the Court of
Appeals.
We find that the alleged loss of personal
belongings and equipment was not proved by clear
evidence. Other than the testimony of CUBA and her
caretaker, there was no proof as to the existence of
those items before DBP took over the fishpond in
question. As pointed out by DBP, there was not
inventory of the alleged lost items before the loss
which is normal in a project which sometimes, if not
most often, is left to the care of other
persons. Neither was a single receipt or record of
acquisition presented.
Curiously, in her complaint dated 17 May
1985, CUBA included losses of property as among
the damages resulting from DBPs take-over of the
fishpond. Yet, it was only in September 1985 when
her son and a caretaker went to the fishpond and the
adjoining house that she came to know of the alleged
loss of several articles. Such claim for losses of
property, having been made before knowledge of the
alleged actual loss, was therefore speculative. The
alleged loss could have been a mere afterthought or
subterfuge to justify her claim for actual damages.
With regard to the award of P517,000
representing the value of the alleged 230,000 pieces
of bangus which died when DBP took possession of
the fishpond in March 1979, the same was not called
for. Such loss was not duly proved; besides, the
claim therefor was delayed unreasonably. From 1979 Let this case be REMANDED to the trial court
until after the filing of her complaint in court in May for the reception of the income statement of DBP, as
1985, CUBA did not bring to the attention of DBP the well as the statement of the account of Lydia P. Cuba,
alleged loss. In fact, in her letter dated 24 October and for the determination of each partys financial
1979,[19] she declared: obligation to one another.
1. That from February to May 1978, I was then SO ORDERED.
seriously ill in Manila and within the same period I
neglected the management and supervision of the
cultivation and harvest of the produce of the aforesaid
fishpond thereby resulting to the irreparable loss in
the produce of the same in the amount of about
P500,000.00 to my great damage and prejudice due
to fraudulent acts of some of my fishpond workers.
Nowhere in the said letter, which was written
seven months after DBP took possession of the
fishpond, did CUBA intimate that upon DBPs take-
over there was a total of 230,000 pieces of bangus,
but all of which died because of DBPs
representatives prevented her men from feeding the
fish.
The award of actual damages should,
therefore, be struck down for lack of sufficient basis.
In view, however, of DBPs act of
appropriating CUBAs leasehold rights which was
contrary to law and public policy, as well as its false
representation to the then Ministry of Agriculture and
Natural Resources that it had foreclosed the
mortgage, an award of moral damages in the amount
of P50,000 is in order conformably with Article
2219(10), in relation to Article 21, of the Civil
Code. Exemplary or corrective damages in the
amount of P25,000 should likewise be awarded by
way of example or correction for the public good.[20]
There being an award of exemplary damages,
attorneys fees are also recoverable.[21]
WHEREFORE, the 25 May 1994 Decision of
the Court of Appeals in CA-G.R. CV No. 26535 is
hereby REVERSED, except as to the award of
P50,000 as moral damages, which is hereby
sustained. The 31 January 1990 Decision of the
Regional Trial Court of Pangasinan, Branch 54, in
Civil Case No. A-1574 is MODIFIED setting aside the
finding that condition no. 12 of the deed of
assignment constituted pactum commissorium and
the award of actual damages; and by reducing the
amounts of moral damages from P100,000 to
P50,000; the exemplary damages, from P50,000 to
P25,000; and the attorneys fees, from P100,000 to
P20,000. The Development Bank of the Philippines is
hereby ordered to render an accounting of the income
derived from the operation of the fishpond in question.
14
G.R. No. L-49940 September 25, 1986
GEMMA R. HECHANOVA, accompanied by her
husband, NICANOR HECHANOVA, JR., and
PRESCILLA R. MASA, accompanied by her
husband, FRANCISCO MASA, petitioners,
vs. HON. MIDPANTAO L. ADIL, Presiding
Judge, Branch II, Court of First Instance of Iloilo,
THE PROVINCIAL SHERIFF OF ILOILO, and PIO
SERVANDO, respondents.
YAP, J.:
Petitioners seek the annulment of various orders
issued by the respondent Presiding Judge of Branch
II, Court of First Instance of Iloilo, in Civil Case No.
12312 entitled "Pio Servando versus Jose Y.
Servando et al." A temporary restraining order was
issued by this Court on May 9, 1979, staying until
further orders the execution of the decision rendered
by the respondent Judge in said case.
The case under review is for the annulment of a deed
of sale dated March 11, 1978, executed by defendant
Jose Y. Servando in favor of his co-defendants, the
petitioners herein, covering three parcels of land
situated in Iloilo City. Claiming that the said parcels of
land were mortgaged to him in 1970 by the vendor,
who is his cousin, to secure a loan of P20,000.00, the
plaintiff Pio Servando impugned the validity of the
sale as being fraudulent, and prayed that it be
declared null and void and the transfer certificates of
title issued to the vendees be cancelled, or
alternatively, if the sale is not annulled, to order the
defendant Jose Servando to pay the amount of
P20,000.00, plus interests, and to order defendants to
pay damages. Attached to the complaint was a copy
of the private document evidencing the alleged
mortgage (Annex A), which is quoted hereunder:
August 20, 1970
This is to certify that I, Jose Yusay Servando, the sole
owner of three parcel of land under Tax Declaration
No. 28905, 44123 and 31591 at Lot No. 1, 1863-
Portion of 1863 & 1860 situated at Sto. Nino St.,
Arevalo, Compania St. & Compania St., Interior Molo,
respectively, have this date mortgaged the said
property to my cousin Pio Servando, in the amount of
TWENTY THOUSAND PESOS (P20,000.00),
redeemable for a period not exceeding ten (10) years,
the mortgage amount bearing an interest of 10% per
annum.
I further certify that in case I fail to redeem the said
properties within the period stated above, my cousin
Pio Servando, shall become the sole owner thereof.
(SGD.) JOSE YUSAY SERVANDO
WITNESSES:
(Sgd) Ernesto G. Jeruta
(Sgd) Francisco B. Villanueva
The defendants moved to dismiss the complaint on
the grounds that it did not state a cause of action, the
alleged mortgage being invalid and unenforceable
since it was a mere private document and was not
recorded in the Registry of Deeds; and that the
plaintiff was not the real party in interest and, as a
mere mortgagee, had no standing to question the
validity of the sale. The motion was denied by the
respondent Judge, in its order dated June 20, 1978,
"on the ground that this action is actually one for
collection."
On June 23, 1978, defendant Jose Y. Servando died.
The defendants filed a Manifestation and Motion,
informing the trial court accordingly, and moving for
the dismissal of the complaint pursuant to Section 21
of Rule 3 of the Rules of Court, pointing out that the
action was for. recovery of money based on an
actionable document to which only the deceased
defendant was a party. The motion to dismiss was
denied on July 25, 1978, "it appearing from the face of
the complaint that the instant action is not purely a
money claim, it being only incidental, the main action
being one for annulment and damages."
On August 1, 1978, plaintiff filed a motion to declare
defendants in default, and on the very next day,
August 2, the respondent Judge granted the motion
and set the hearing for presentation of plaintiff's
evidence ex-parte on August 24, 1978.
On August 2, 1978, or the same day that the default
order was issued, defendants Hechanova and Masa
filed their Answers, denying the allegations of the
complaint and repeating, by way of special and
affirmative defenses, the grounds stated in their
motions to dismiss.
On August 25, 1978, a judgment by default was
rendered against the defendants, 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 to revive the title issued
in the name of Jose Y. Servando and to deliver the
same to the plaintiff.
The defendants took timely steps to appeal the
decision to the Court of Appeals by filing a notice of
appeal, an appeal bond, and a record on appeal.
However, 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 and accordingly, dismissed the
appeal, and on February 2, 1978, issued an order
granting the writ of execution prayed for by plaintiff.
We find the petition meritorious, and the same is
hereby given due course.
It is clear from the records of this case that the plaintiff
has no cause of action. 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. No valid
mortgage has been constituted plaintiff's favor, the
alleged deed of mortgage being a mere private
document and not registered; moreover, it contains a
stipulation (pacto comisorio) which is null and void
under Article 2088 of the Civil Code. Even assuming
that the property was validly mortgaged to the plaintiff,
his recourse was to foreclose the mortgage, not to
seek annulment of the sale.
WHEREFORE, the decision of the respondent court
dated August 25, 1973 and its Order of February 2,
1979 are set aside, and the complaint filed by plaintiff
dated February 4, 1978 is hereby dismissed.
SO ORDERED.
15
G.R. No. 74073 September 13, 1991
HONESTO ONG, RENATO LLOBRERA, AVELINO
DE GRACIA, JR., ALFONSO ONG, and SANTIAGO
OCAMPO, petitioners, vs. HON. INTERMEDIATE
APPELLATE COURT, HON. RICARDO D. DIAZ, as
Judge of the RTC of Manila, Branch XXVII and
CONSOLIDATED BANK AND TRUST
CORPORATION (SOLID BANK), respondents.
Joaquin P. Yuseco, Jr. for petitioners.
C.M. De los Reyes & Associates for SOLID BANK
PARAS, J.:
This is a petition for review on certiorari seeking to
reverse and set aside: (a) the decision * of the
Intermediate Appellate Court dated January 31, 1986
in AC-G.R. SP No. 05490 entitled "Honesto Ong, et
al. v. Hon. Ricardo D. Diaz, et al." which dismissed
the petition for lack of merit and (b) the resolution
dated March 26, 1986 denying the motion for
reconsideration.
The undisputed facts of the case are as follows:
On July 27, 1977, Madrigal Shipping Co., Inc. applied
for and was granted a loan by the Consolidated Bank
and Trust Corporation (Solidbank for short) in the
amount of P2,094,000.00 payable on or before July
27, 1978 at ten (10%) percent interest per annum as
evidenced by Promissory Note No. 57884 (Rollo, p.
61).
To secure the fulfillment of the obligations of Madrigal
Shipping Co., Inc. to the Solidbank, and credit
accommodations which the former may from time to
time obtain from the latter both parties executed a
document denominated as "Pledge Agreement" dated
December 4, 1978 (Rollo, pp. 77-78).
Under the said Pledge Agreement, Madrigal Shipping,
Co., Inc. gave additional securities or collaterals in the
form of a pledge in favor of the bank, its barge and
tugboat particularly described, as follows:
"Tugboat CARBPM" of 27/42 gross tonnage 13.87 net
tonnage, one (1) deck, no mast, 13.77 mt. long, 4.32
mt. broad, 1.73 mt. steep, with Certificate of
Ownership No. 1283 and Certificate of Registration
No. 6886.
MSC Barge No. 601, of 372.28 gross tonnage, 361.96
net tonnage, 120 mt. long, 32 mt. broad, 10 ft. deep,
with Certificate of Ownership No. 6213, Certificate No.
127-68. (Ibid.)
Madrigal Shipping Co., Inc. failed to pay its obligation
to the Solidbank. The creditor bank had to sell the
pledged properties. Nevertheless, when the pledgee
bank was to sell the pledged properties, it found out
that the tugboat and the barge had surreptitiously
been taken from the Tanque Bodega, Pasig River,
Manila, where the vessels were moored and towed to
Pier 2, North Harbor, Manila, without the knowledge
and consent of the Solidbank (Rollo, p. 62).
Meanwhile, on August 1, 1979, petitioner Honesto
Ong bought one (1) MSC Barge No. 601 with 300 net
tonnage, the same barge which was subject of the
pledge from Santiago S. Ocampo, a successful bidder
in a public auction by virtue of a writ of execution
issued by the National Labor Relations Commission
(NLRC) in a case entitled "Union de Marinos v.
Madrigal Shipping Co., Inc.". (Rollo, Annex "A", p. 23).
On August 6, 1979, private respondent (Solidbank)
filed a complaint against Honesto Ong, et al. for
Replevin with Damages before the defunct Court of
First Instance (now Regional Trial Court) and was
docketed as Civil Case No. 125651 (Rollo, pp. 42-46).
On August 7, 1979, the respondent court (CFI) issued
an order for the seizure of the above described
personal property upon posting of a bond in the sum
of P1,000,000.00 (Rollo, p. 23; pp. 75-76).
On August 8, 1979, petitioner Honesto Ong filed a
Motion to Lift Order of Seizure, claiming great and
irreparable damage would be suffered by him if the
Court would not recall the above stated order. In the
same motion, petitioner Honesto Ong maintained that
he purchased in good faith MSC Barge No. 601 and
even offered to post a counterbond in an amount to
be determined by respondent Court of First Instance
(Rollo, p. 24).
On August 13, 1979, private respondent Solidbank,
filed an opposition to lift order of seizure and accused
the petitioner Honesto Ong of being a purchaser in
bad faith. In its opposition, the private respondent
outlined numerous circumstances pointing to an
alleged conspiracy where the petitioners resorted to
foul schemes to place the subject barge beyond the
reach of the plaintiff Solidbank (Rollo, p. 9).
On August 31, 1979, the petitioners, Honesto Ong
and Alfonso Ong filed their answer, and set forth their
specific denials and affirmative defenses to the
complaint filed by Solidbank (Rollo, pp. 156-164).
On September 7, 1979, a reply and answer to the
counterclaim was filed by the private respondent
Solidbank, where additional issues and matters were
averred as against the petitioners (Rollo, p. 24).
On September 25, 1979, the respondent court (CFI)
issued an order lifting the order of seizure and
ordered the sheriff to return the MSC Barge No. 601
to the petitioner-defendant Honesto Ong (Rollo, p.
166).
On September 28, 1979, a motion for reconsideration
was filed by the private respondent Bank (Rollo, p.
115).
On December 16, 1980, after an opposition to the
motion for reconsideration and a reply to the
opposition had been filed by the parties, the Court of
First Instance denied the motion for reconsideration
but ordered the petitioners Alfonso Ong and Honesto
Ong to post a counterbond of P400,000.00 executed
to the herein plaintiff-private respondent. The
pertinent part of the order and its dispositive portion
reads:
The alleged Pledge Agreement between plaintiff and
Madrigal Shipping Company covering the vessel
(barge) in question was not registered in the registry
of vessels. Considering that plaintiff does not charge
private defendants with knowledge of such pledge
(see par. 8, complaint), said defendants, being third
persons, cannot be said to be bound by said pledge.
Plaintiff therefore, vis-a-vis private defendants and
third persons, cannot be considered, at this stage of
the action, to be entitled to possession of the vessel
for purposes of maintaining the efficacy of the writ of
replevin earlier issued and pursuant to the law
applicable and pertinent to the matter, the defendants,
Alfonso L. Ong and Honesto Ong, are ordered to put
up a counterbond of P400,000.00 which is double the
value of the subject vessel (barge), executed to the
herein plaintiff if such delivery be adjudged in favor of
the plaintiff.
WHEREFORE, the motion for reconsideration is
hereby DENIED for lack of merit.
SO ORDERED. (Rollo, p. 50) (Emphasis supplied).
16
On January 1, 1981, Solidbank filed a motion to
release the properties subject matter of replevin for
failure of the petitioners to post the required
counterbond (Rollo, p. 10).
On March 3, 1981, a motion for clarification and
opposition to the motion to release properties was
filed by the petitioners (Rollo, p. 25).
On February 21, 1983, the respondent Court (CFI)
issued an order stating that its order dated December
16, 1981 is clear and needs no clarification, and that
the order requiring the petitioners to post a
counterbond is reiterated. The dispositive portion
reads:
WHEREFORE, the defendants, Alfonso Ong and
Honesto Ong, are hereby ordered to put up a
counterbond of P400,000.00 executed in favor of the
plaintiff within ten (10) days from receipt of this order.
Otherwise, the plaintiffs motion to release properties
subject matter of replevin will be granted. (Rollo, p.
26).
On April 21, 1983, a motion for reconsideration to the
above stated order was filed by the petitioners Ong
(Ibid.).
On October 27, 1983, the respondent court (CFI)
issued an order directing petitioners Alfonso Ong and
Honesto Ong to deliver and release the barge in
question. In the same order, the motion for
reconsideration filed by the petitioners was denied for
lack of merit. Plaintiff's motion, in short, dated January
22, 1981 was granted. The dispositive portion of the
order reads:
WHEREFORE, defendants Alfonso Ong and Honesto
Ong are hereby ordered to deliver and/or release the
barge in question (MSC Barge No. 601) to herein
plaintiff from receipt (hereof) of this order.
SO ORDERED. (Rollo, pp. 51-53).
On June 11, 1984, the new counsel filed a second
motion for reconsideration in behalf of the petitioners
to the above stated order (Rollo, pp. 167-170). And on
June 21, 1984, a supplement to the second motion for
reconsideration was filed again by the counsel of the
petitioners (Rollo, pp. 172-175).
Acting on the second motion for reconsideration and
supplement filed by the defendants Ongs, as well as,
the opposition interposed by the plaintiff Solidbank the
lower court denied the second motion for
reconsideration. (Rollo, p. 65)
The defendants Alfonso Ong and Honesto Ong filed
with the Intermediate Appellate Court a petition for
certiorari docketed as AC-G.R. No. 05490 (Rollo,
Ibid.).
On January 31, 1986, the Intermediate Appellate
Court rendered a decision, dismissing the petition for
lack of merit, the dispositive portion reading:
WHEREFORE, the petition is hereby DISMISSED for
lack of merit. The restraining order previously issued
is dissolved, lifted and set aside. No costs.
SO ORDERED. (Rollo, p. 34).
Petitioner Ong's motion for reconsideration of said
decision was denied. (Rollo, p. 48)
Hence, this petition.
This Court, in its resolution dated April 6, 1987 gave
due course to the petition and required both parties to
file their respective memoranda (rollo, petition, pp. 7-
20- Resolution, p. 100).
The main issues in this case are: (1) whether or not
the contract of pledge entered into by and between
Solidbank and Madrigal Shipping Co., Inc. is binding
on the petitioners Ong (2) whether or not there is a
necessity for the Ongs to post a counterbond in the
amount of P400,000.00.
I.
Undoubtedly, petitioners rely heavily on the fact that
the contract of pledge by and between Solidbank and
Madrigal Shipping Co., Inc. was not recorded under
Sections 804 and 809 of the Tariff and Customs Code
and argue that it is not binding on third persons like
the petitioners.
It is, however, stated under Article 2096 of the Civil
Code that for a pledge to take effect against third
persons, it should be in a public instrument which
must contain the description of the thing pledged and
the date of the pledge.
In the case of Bachrach Motor Co. v. Lacson
Ledesma, 64 Phil. 681 (1937), Art. 2096 has been
interpreted in the sense that for the contract to affect
third persons, apart from being in a public instrument,
possession of the thing pledged must in addition be
delivered to the pledgee.
All these requirements have been complied with, in
the case at bar. The pledge agreement is a public
instrument, the same having been notarized and
under the notarial seal of Vicente A. Casim, as Doc.
No. 1487; Page No. 179; Book V and Series of 1978.
Subject of the pledge (MSC Barge No. 601) was
delivered to the Solidbank which had it moored at
Tanque Bodega, Pasig River, Manila, where it was
guarded by a security guard. (Rollo, pp. 69-70).
Undeniably, Madrigal Shipping co., Inc., owner of
MSC Barge No. 601, pledged said vessel and tugboat
to secure the shipping company's obligation to the
creditor bank (Solidbank) in the amount of
P2,094,000.00, and no payment was made by
Madrigal Shipping Co., Inc., as pledgor. Therefore the
Solidbank has the light of retention of the barge in
question pledged to it until it is paid. The Civil Code
expressly provides;
Art. 2090. The contract of pledge gives right to the
creditor to retain the thing in his possession or in that
of a third person to whom it has been delivered, until
the debt is paid.
Applying these concepts in the case at bar, the
pledgee is obviously a lawful and rightful possessor of
the personal property pledged.
II.
As to the second issue of whether or not there is
necessity for the Ongs to post a counterbond, the
provisions of the Rules are clear. This Court has
explained that a defendant in a replevin suit,
(petitioners Ong in this case) may demand the return
of possession of the property replevined by filing a
redelivery bond executed to the plaintiff in double the
value of the property as stated in the plaintiff s
affidavit, within the periods specified in Sections 5 and
6 of Rule 60 of the Rules of Court. Under Section D,
petitioner may "at any time before the delivery of the
property to the plaintiff' require the return of the
property; in Section 6, he may do so, "within five (5)
days after the taking of the property by the officer."
Both these periods are mandatory in character. Thus,
a lower court which approves a counterbond filed
17
beyond the statutory periods, acts in excess of
jurisdiction (Yang v. Valdez, 177 SCRA 143 [1989]).

As correctly explained by the Intermediate Appellate

Court (.now Court of Appeals):

... The intent of the law requiring the posting of the

bond by the applicant is clear and manifest, which is
to cover and insulate the defendant's interest from
undue damage. ...

To forestall the possession by the plaintiff of the

property our procedural law provides that the
defendant must post a counterbond and must furnish
the plaintiff with the copy of the undertaking. (Chan
vs. Villanueva, L-3420. April 30, 1982; Sections 5 & 6,
Rule 60, Revised Rules of Court) Again, if only for the
purpose of emphasis, this is required to protect the
plaintiff, should his action be adjudged meritorious.
We need not mention, that this procedure was
purposely formulated to allow the defendant to
continue possessing the property. Not to require him
to post any bond would likewise, be counter to the
objectives and intent sought by the framers of the law.
In short, whoever holds the property must post the
bond to stand as security to the non-holder pending
the final determination of the case. (Rollo, pp. 33-34)

Verily, respondent Appellate Court aptly observed that

the questioned orders reveal that the Court a quo
exercised prudence in the highest degree. Solidbank
was required and has already posted a bond in favor
of the Ongs should the suit for replevin be declared
improper. Conversely, petitioner Ong must post a
bond if he seeks the continued possession of the
property, in favor of Solidbank should the suit for
replevin prosper.

Under the circumstances, the court a quo's orders

which were affirmed by the Court of Appeals cannot
be faulted.

PREMISES CONSIDERED, the petition is

DISMISSED for lack of merit, and the assailed
decision dated January 31, 1986 of the Intermediate
Appellate Court is AFFIRMED.

SO ORDERED.

18