January 10, 2018

G.R. No. 192971

FLORO MERCENE, Petitioner

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, Respondent

Commencement of the prescriptive period for real estate mortgages material in

determining cause of action

In its answer, GSIS raised the affirmative defense, among others, that the
complaint failed to state a cause of action.1âwphi1 In turn, the CA ruled that
Mercene's complaint did not state a cause of action because the maturity date of the
loans, or the demand for the satisfaction of the obligation, was never alleged.

In order for cause of action to arise, the following elements must be present: (1) a
right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect or not
to violate such right; and (3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a breach of obligation of the
defendant to the plaintiff.17

In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., 18 the Court

clarified that prescription runs in mortgage contract from the time the cause of
action arose and not from the time of its execution, to wit:

The prescriptive period neither runs from the date of the execution of a contract
nor does the prescriptive period necessarily run on the date when the loan becomes
due and demandable. Prescriptive period runs from the date of demand, subject to
certain exceptions.

In other words, ten (10) years may lapse from the date of the execution of contract,
without barring a cause of action on the mortgage when there is a gap between the
period of execution of the contract and the due date or between the due date and
the demand date in cases when demand is necessary.

The mortgage contracts in this case were executed by Saturnino Petalcorin in 1982.
The maturity dates of FISLAI's loans were repeatedly extended until the loans
became due and demandable only in 1990. Respondent informed petitioner of its
decision to foreclose its properties and demanded payment in 1999.

The running of the prescriptive period of respondent's action on the mortgages did
not start when it executed the mortgage contracts with Saturnino Petalcorin in
1982.1âwphi1

The prescriptive period for filing an action may run either (1) from 1990 when the
loan became due, if the obligation was covered by the exceptions under Article

1
1169 of the Civil Code; (2) or from 1999 when respondent demanded payment, if
the obligation was not covered by the exceptions under Article 1169 19 of the Civil
Code. [emphasis supplied]

In Maybank Philippines, Inc. v. Spouses Tarrosa, 20 the Court explained that the
right to foreclose prescribes after ten (10) years from the time a demand for
payment is made, or when then loan becomes due and demandable in cases where
demand is unnecessary, viz:

An action to enforce a right arising from a mortgage should be enforced within ten
(10) years from the time the right of action accrues, i.e., when the mortgagor
defaults in the payment of his obligation to the mortgagee; otherwise, it will be
barred by prescription and the mortgagee will lose his rights under the mortgage.
However, mere delinquency in payment does not necessarily mean delay in the
legal concept. To be in default is different from mere delay in the grammatical
sense, because it involves the beginning of a special condition or status which has
its own peculiar effects or results.

In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially, unless demand is not
necessary - i.e., when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal inducement for
the creation of the obligation; and where demand would be useless. Moreover, it is
not sufficient that the law or obligation fixes a date for performance; it must further
state expressly that after the period lapses, default will commence. Thus, it is only
when demand to pay is unnecessary in case of the aforementioned circumstances,
or when required, such demand is made and subsequently refused that the
mortgagor can be considered in default and the mortgagee obtains the right to file
an action to collect the debt or foreclose the mortgage.

Thus, applying the pronouncements of the Court regarding prescription on the right
to foreclose mortgages, the Court finds that the CA did not err in concluding that
Mercene's complaint failed to state a cause of action. It is undisputed that his
complaint merely stated the dates when the loan was contracted and when the
mortgages were annotated on the title of the lot used as a security. Conspicuously
lacking were allegations concerning: the maturity date of the loan contracted and
whether demand was necessary under the terms and conditions of the loan.

As such, the RTC erred in ruling that GSIS' right to foreclose had prescribed
because the allegations in Mercene's complaint were insufficient to establish
prescription against GSIS. The only information the trial court had were the dates
of the execution of the loan, and the annotation of the mortgages on the title. As
elucidated in the above-mentioned decisions, prescription of the right to foreclose
mortgages is not reckoned from the date of execution of the contract. Rather,
prescription commences from the time the cause of action accrues; in other words,
from the time the obligation becomes due and demandable, or upon demand by the
creditor/mortgagor, as the case may be.

2
In addition, there was no judicial admission on the part of GSIS with regard to
prescription because treating the obligation as prescribed, was merely a conclusion
of law. It would have been different if Mercene's complaint alleged details
necessary to determine when GSIS' right to foreclose arose, i.e., date of maturity
and whether demand was necessary.

WHEREFORE, the petition is DENIED. The 29 April 2010 Decision and 20 July
2010 Resolution of the Court of Appeals (CA) in CAG. R. CV No. 86615 are
AFFIRMED in toto.

SO ORDERED.

17
Philippine Long Distance Telephone Company v. Fingal, 644 Phil. 675,
683 (2010).
18
G.R. Nos. 194964-65, January 11, 2016, 778 SCRA 458, 483-484.
19
Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. However, the demand by the creditor shall not
be necessary in order that delay may exist:

1) When the obligation or the law expressly so declare; or

2) When from the nature and the circumstances of the obligation it

appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or

3) When the demand would be useless, as when the obligor has

rendered it beyond his power to perform.
20
771 Phil. 423, 428-429 (2015).

October 14, 2015

G.R. No. 213014

MAYBANK PHILIPPINES, INC. (Formerly PNB-Republic Bank1), Petitioner

vs.
SPOUSES OSCAR and NENITA TARROSA, Respondents

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari2 are the Decision3 dated
November 29, 2013 and the Resolution4 dated May 13, 2014 of the Court of
Appeals (CA) in CA-G.R. CV No. 02211, which affirmed the Decision5 dated June
16, 2005 of the Regional Trial Court of Bacolod City, Branch 41 (RTC) in Civil
3
Case No. 98-10451 declaring the extra judicial foreclosure sale of the property
covered by Transfer Certificate of Title (TCT) No. T-5649 as null and void for
being barred by prescription.

The Facts

On December 15, 1980, respondents-spouses Oscar and Nenita Tarrosa (Sps.

Tarrosa) obtained from then PNB-Republic Bank, now petitioner Maybank
Philippines, Inc. (Maybank), a loan in the amount of ₱91,000.00. The loan was
secured by a Real Estate Mortgage6 dated January 5, 1981 (real estate mortgage)
over a 500-square meter parcel of land situated in San Carlos City, Negros
Occidental (subject property), covered by TCT No. T-5649,7 and the improvements
thereon.8

After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained
another loan from Maybank in the amount of ₱60,000.00 (second loan), 9 payable
on March 11, 1984.10 However, Sps. Tarrosa failed to settle the second loan upon
maturity.11

Sometime in April 1998, Sps. Tarrosa received a Final Demand Letter12 dated
March 4, 1998 (final demand letter) from Maybank requiring them to settle their
outstanding loan in the aggregate amount of ₱564,579.91, inclusive of principal,
interests, and penalty charges.13 They offered to pay a lesser amount, which
Maybank refused.14 Thereafter, or on June 25, 1998, Maybank commenced
extrajudicial foreclosure proceedings15 before the office of Ex-Officio Provincial
Sheriff Ildefonso Villanueva, Jr. (Sheriff Villanueva). The subject property was
eventually sold in a public auction sale held on July 29, 199816 for a total bid price
of ₱600,000.00, to the highest bidder, Philmay Property, Inc. (PPI), which was
thereafter issued a Certificate of Sale17 dated July 30, 1998.18

On September 7, 1998, Sps. Tarrosa filed a complaint19 for declaration of nullity

and invalidity of the foreclosure of real estate and of public auction sale
proceedings and damages with prayer for preliminary injunction against Maybank,
PPI, Sheriff Villanueva, and the Registry of Deeds of San Carlos City, Negros
Occidental (RD-San Carlos), before the RTC, docketed as Civil Case No. 98-
10451. They averred, inter alia, that: (a) the second loan was a clean or unsecured
loan; (b) after receiving the final demand letter, they tried to pay the second loan,
including the agreed interests and charges, but Maybank unjustly refused their
offers of payment; and (c) Maybank’s right to foreclose had prescribed or is barred
by laches.20

On the other hand, Maybank and PPI countered21 that: (a) the second loan was
secured by the same real estate mortgage under a continuing security provision
therein; (b) when the loan became past due, Sps. Tarrosa promised to pay and
negotiated for a restructuring of their loan, but failed to pay despite demands; and
(c) Sps. Tarrosa’s positive acknowledgment and admission of their indebtedness
controverts the defense of prescription.22

The RTC Ruling

4
In a Decision23 dated June 16, 2005, the RTC held that the second loan was subject
to the continuing security provision in the real estate mortgage.24 However, it ruled
that Maybank’s right to foreclose, reckoned from the time the mortgage
indebtedness became due and payable on March 11, 1984, had already prescribed,
considering the lack of any timely judicial action, written extrajudicial demand or
written acknowledgment by the debtor of his debt that could interrupt the
prescriptive period.25 Accordingly, it declared the extrajudicial foreclosure
proceedings affecting the subject property as null and void, and ordered Maybank
to pay Sps. Tarrosa moral and exemplary damages, as well as attorney’s fees and
litigation expenses.26 Maybank filed a motion for reconsideration27 which was,
however, denied in an Order28 dated December 9, 2005, prompting it to appeal29 to
the CA.

The CA Ruling

In a Decision30 dated November 29, 2013, the CA affirmed the RTC ruling that
Maybank’s right to foreclose the real estate mortgage over the subject property is
already barred by prescription. It held that the prescriptive period should be
reckoned from March 11, 1984 when the second loan had become past due and
remained unpaid since demand was not a condition sine qua non for the accrual of
the latter’s right to foreclose under paragraph 5 of the real estate mortgage. It
observed that Maybank failed to present evidence of any timely written
extrajudicial demand or written acknowledgment by the debtors of their debt that
could have effectively interrupted the running of the prescriptive period.31

Undaunted, Maybank moved for reconsideration,32 which was denied in a

Resolution33 dated May 13, 2014; hence this petition.

The Issues Before the Court

The essential issue for the Court’s resolution is whether or not the CA committed
reversible error in finding that Maybank’s right to foreclose the real estate
mortgage over the subject property was barred by prescription.

The Court’s Ruling

The petition is meritorious.

An action to enforce a right arising from a mortgage should be enforced

within ten (10) years from the time the right of action accrues, i.e., when the
mortgagor defaults in the payment of his obligation to the mortgagee;
otherwise, it will be barred by prescription and the mortgagee will lose his
rights under the mortgage.34 However, mere delinquency in payment does not
necessarily mean delay in the legal concept. To be in default is different from mere
delay in the grammatical sense, because it involves the beginning of a special
condition or status which has its own peculiar effects or results.35

In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially,36 unless demand is

5
not necessary – i.e., when there is an express stipulation to that effect; where the
law so provides; when the period is the controlling motive or the principal
inducement for the creation of the obligation; and where demand would be useless.
Moreover, it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period lapses, default will
commence.37 Thus, it is only when demand to pay is unnecessary in case of the
aforementioned circumstances, or when required, such demand is made and
subsequently refused that the mortgagor can be considered in default and the
mortgagee obtains the right to file an action to collect the debt or foreclose the
mortgage.38

In the present case, both the CA and the RTC reckoned the accrual of Maybank’s
cause of action to foreclose the real estate mortgage over the subject property from
the maturity of the second loan on May 11, 1984.1âwphi1 The CA further held that
demand was unnecessary for the accrual of the cause of action in light of paragraph
5 of the real estate mortgage, which pertinently provides:

5. In the event that the Mortgagor herein should fail or refuse to pay any of the
sums of money secured by this mortgage, or any part thereof, in accordance with
the terms and conditions herein set forth, or should he/it fail to perform any of the
conditions stipulated herein, then and in any such case, the Mortgagee shall have
the right, at its election to foreclose this mortgage, [x x x].39

However, this provision merely articulated Maybank’s right to elect foreclosure

upon Sps. Tarrosa’s failure or refusal to comply with the obligation secured, which
is one of the rights duly accorded to mortgagees in a similar situation.40 In no way
did it affect the general parameters of default, particularly the need of prior
demand under Article 116941 of the Civil Code, considering that it did not
expressly declare: (a) that demand shall not be necessary in order that the
mortgagor may be in default; or (b) that default shall commence upon mere failure
to pay on the maturity date of the loan. Hence, the CA erred in construing the
above provision as one through which the parties had dispensed with demand as a
condition sine qua non for the accrual of Maybank's right to foreclose the real
estate mortgage over the subject property, and thereby, mistakenly reckoned such
right from the maturity date of the loan on March 11, 1984. In the absence of
showing that demand is unnecessary for the loan obligation to become due and
demandable, Maybank's right to foreclose the real estate mortgage accrued only
after the lapse of the period indicated in its final demand letter for Sps. Tarrosa to
pay, i.e., after the lapse of five (5) days from receipt of the final demand letter
dated March 4, 1998.42 Consequently, both the CA and the RTC committed
reversible error in declaring that Maybank's right to foreclose the real estate
mortgage had already prescribed.

Thus, considering that the existence of the loan had been admitted, the default on
the part of the debtors-mortgagors had been duly established, and the foreclosure
proceedings had been initiated within the prescriptive period as afore-discussed,
the Court finds no reason to nullify the extrajudicial foreclosure sale of the subject
property.

6
WHEREFORE, the petition is GRANTED. The Decision dated November 29,
2013 and the Resolution dated May 13, 2014 of the Court of Appeals in CA-G.R.
CV No. 02211 are hereby REVERSED AND SET ASIDE. The complaint in
Civil Case No. 98-10451 is DISMISSED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE
LUCAS P. BERSAMIN
CASTRO
Associate Justice
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes
1
"PNB-Republic Planters Bank" in some parts of the records.
2
Rollo, pp. 10-29.
3
Id. at 32-40. Penned by Associate Justice Edgardo L. Delos Santos with
Associate Justices Pamela Ann Abella Maxino and Maria Elisa Sempio Diy
concurring.
4
Id. at 4 I-42. Penned by Associate Justice Edgardo L. Delos Santos with
Associate Justices Ramon Paul L. Hernando and Pamela Ann Abella Maxino
concurring.
5
Records, pp. 390-413. Penned by Judge Ray Alan T. Drilon.

7
6
Id. at 180-183.
7
Id. at 178-179.
8
See id. at 4, 183, and 391.
9
See id. at 391 and 395.
10
See id. at 407-408.
11
See id. at 396-397. See also rollo, p. 33.
12
Records, p. 199.
13
Rollo, p. 34.
14
Records, p. 29.
15
See Application for Foreclosure of Real Estate Mortgage under R.A.
3135, as Amended; id. at 184-186.
16
See Notice of Extra Judicial Sale dated July 1, 1998; id. at 187.
17
Id. at 188-189.
18
See rollo, p. 34.
19
Dated September 1, 1998; records, pp. 2-11.
20
See id. at 4-7.
21
See Answer dated January 21, 1999; id. at 28-34.
22
See id. at 28-30 and 180. The real estate mortgage specifically provided
that the same is being executed:

[F]or and in consideration of certain loans, overdrafts and other credit

accommodations obtained from [REPUBLIC PLANTERS BANK],
and to secure the payment of the same and those that may hereafter be
obtained x x x as well as those [REPUBLIC PLANTERS BANK]
may extend to [Sps. Tarrosa], including interest and expenses or any
other obligation owing to [REPUBLIC PLANTERS BANK] x x x.
23
Id. at 390-413.
24
See id. at 405.
25
See id. at 407-408.
26
See id. at 412-413.
27
Dated July 15, 2005. Id. at 414-425.
8
28
Id. at 479-486.
29
See Notice of Appeal dated December 13, 2005; id. at 493-494.
30
Rollo, pp. 32-40.
31
See id. at 36-39.
32
See motion for reconsideration dated January 16, 2014; CA rollo, pp. 160-
168.
33
Rollo, pp. 41-42.
34
Cando v. Sps. Olazo, 547 Phil. 630, 637 (2007).
35
See Social Security System v. Moonwalk Development and Housing
Corporation, G.R. No. 73345, April 7, 1993, 221 SCRA 119, 128; citation
omitted.
36
Cruz v. Gruspe, G.R. No. 191431, March 13, 2013, 693 SCRA 415, 421-
422.
37
See Rivera v. Sps. Chua, G.R. Nos. 184458 and 184472, January 14, 2015.
See also Article 1169 of the Civil Code.
38
DBP v. Licuanan, 545 Phil. 544, 554 (2007).
39
Rollo, p. 39.
40
In Caltex Philippines, Inc. v. Intermediate Appellate Court, 257 Phil. 753,
764 (1989), it was held:

[W]here a debt is secured by a mortgage and there is a default in

payment on the part of the mortgagor, the mortgagee has a choice of
one (1) of two (2) remedies, but he cannot have both. The mortgagee
may:

1) foreclose the mortgage; or

2) file an ordinary action to collect the debt.

When the mortgagee chooses the foreclosure of the mortgage as a

remedy, he enforces his lien by the sale on foreclosure of the
mortgaged property. The proceeds of the sale will be applied to the
satisfaction of the debt. With this remedy, he has a prior lien on the
property. In case of a deficiency, the mortgagee has the right to claim
for the deficiency resulting from the price obtained in the sale of the
real property at public auction and the outstanding obligation at the
time of the foreclosure proceedings x x x.
41
Article 1169 of the Civil Code reads:

9
 Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order

that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered
it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does

not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
42
Records, p. 199.

G.R. No. 167724 June 27, 2006

BPI FAMILY SAVINGS BANK, INC., Petitioner,

vs.
MARGARITA VDA. DE COSCOLLUELA, Respondent.

As gleaned from the plain terms of the real estate mortgage, the real estate of
respondent served as continuing security liable for future advancements or
obligations beyond the amount of P7,000,000.00. The mortgage partakes of the
nature of contract for future advancements. As explained by this Court in the early
case of Lim Julian v. Lutero:56

The rule, of course, is well settled that an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage. The exact amount, however, for
which the mortgage is given need not always be specifically named. The amount
for which the mortgage is given may be stated in definite or general terms, as is
frequently the case in mortgages to secure future advancements. The amount
named in the mortgage does not limit the amount for which it may stand as
security, if, from the four corners of the document, the intent to secure future
10
indebtedness or future advancements is apparent. Where the plain terms, of the
mortgage, evidence such an intent, they will control as against a contention of the
mortgagor that it was the understanding of the parties that the mortgage was
security only for the specific amount named. (Citizens’ Savings Bank v. Kock, 117
Mich. 225). In that case, the amount mentioned in the mortgage was $7,000. The
mortgage, however, contained a provision that "the mortgagors agree to pay said
mortgagee any sum of money which they may now or hereafter owe said
mortgagee." At the time the action of foreclosure was brought, the mortgagors
owed the mortgagee the sum of $21,522. The defendants contended that the
amount to be recovered in an action to foreclose should be limited to the amount
named in the mortgage. The court held that the amount named as consideration for
the mortgage did not limit the amount for which the mortgage stood as security, if,
from the whole instrument the intent to secure future indebtedness could be
gathered. The court held that a mortgage to cover future advances is valid.
(Michigan Insurance Co. v. Brown, 11 Mich. 265; Jones on Mortgages, 1, sec. 373;
Keyes v. Bump’s Administrator, 59 Vt. 391; Fisher v. Otis, 3 Pin. 78; Brown v.
Kiefer, 71 N.Y. 610; Douglas v. Reynolds, 7 Peters [U.S.] 113; Shores v. Doherty,
65 Wis. 153)

11