Republic V.

Bagtas (1962)

G.R. No. L-17474 October 25, 1962

Laws Applicable: Commodatum
Lessons Applicable:

FACTS:

 May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi

with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding purposes subject to a

breeding fee of 10% of the book value of the bulls

 May 7, 1949: Jose requested for a renewal for another year for the three bulls but only one bull was approved while the others are to be

returned

 March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value of the 3 bulls

 October 17, 1950: he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor

General.

 October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to be returned or their book value without deductions

should be paid not later than October 31, 1950 which he was not able to do

 December 20, 1950: An action at the CFI was commenced against Jose praying that he be ordered to return the 3 bulls or to pay their book

value of P3,241.45 and the unpaid breeding fee of P199.62, both with interests, and costs

 July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in

Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources

and the President of the Philippines, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.

 RTC: granted the action

 December 1958: granted an ex-parte motion for the appointment of a special sheriff to serve the writ outside Manila

 December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on October 23, 1951 and administratrix of his estate, was

notified

 January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26, 1952 evidenced by recipt and the 3rd bull died from

gunshot wound inflicted during a Huk raid and prayed that the writ of execution be quashed and that a writ of preliminary injunction be issued. 

ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable for the loss due to force majeure due to delay.

HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs

 If contract was commodatum then Bureau of Animal Industry retained ownership or title to the bull it should suffer its loss due to force majeure.

A contract of commodatum is essentially gratuitous.  If the breeding fee be considered a compensation, then the contract would be a lease of the

bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued

possession of the bull after the expiry of the contract.  And even if the contract be commodatum, still the appellant is liable if he keeps it longer than

the period stipulated

 the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned because it was killed

while in the custody of the administratrix of his estate

 Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the CFI, the

money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court

for payment by the appellant, the administratrix appointed by the court.

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner, 

COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents
G.R. No. 80294-95 September 21, 1988

Keywords: Recovery of possession, commodatum, adverse possession

Summary: Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for registration of title over Lots 1, 2, 3, and 4, said
Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc.
The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and
title thereto since their predecessors’ house was borrowed by petitioner Vicar after the church and the convent were destroyed.. After trial on the merits,
the land registration court promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4. The Heirs of Juan Valdez appealed
the decision of the land registration court to the then Court of Appeals, The Court of Appeals reversed the decision. Thereupon, the VICAR filed with the
Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his application for registration of Lots 2 and 3.

Facts: 

-  1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the court an application for the registration of title over lots 1, 2, 3
and 4 situated in Poblacion Central, Benguet, said lots being used as sites of the Catholic Church, building, convents, high school building, school
gymnasium, dormitories, social hall and stonewalls.

- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership over lots 1, 2 and 3. (2 separate civil cases)

- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4. Upon appeal by the private respondents (heirs), the
decision of the lower court was reversed. Title for lots 2 and 3 were cancelled.

- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his  application for registration
of Lots 2 and 3.
During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership of the land in question (Lot 3) by their
predecessor-in-interest, Egmidio Octaviano; his written demand to Vicar for the return of the land to them; and the reasonable rentals for the use of
the land at P10,000 per month. On the other hand, Vicar presented the Register of Deeds for the Province of Benguet, Atty. Sison, who testified that the
land in question is not covered by any title in the name of Egmidio Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons. Brasseur
when the heirs admitted that the witness if called to the witness stand, would testify that Vicar has been in possession of Lot 3, for 75 years continuously
and peacefully and has constructed permanent structures thereon.

Issue: 
1. WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum, a gratuitous loan for use.

2. Whether or not the failure to return the subject matter of commodatum constitutes an adverse possession on the part of the owner

Held: 
1. YES. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were
destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the
bailee.

2. No. The bailees’ failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The
bailee held in trust the property subject matter of commodatum.

Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.

Ratio: The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2
and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just
title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also
by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary evidence to support the same and the
alleged purchases were never mentioned in the application for registration.

Ruling: WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R.
Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs against petitioner

Sia vs. Court of Appeals G.R. No. 102970, May 13, 1990

 Facts:   

1. Plaintiff rented a Safety Box of Security Bank wherein he placed his collection of stamps pursuant to a contract denominated as a Lease Agreement.
The said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its
aforesaid Binondo Branch.

2. During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank’s premises, seeped into the safety deposit box leased
by the plaintiff and caused, according damage to his stamps collection. Security Bank rejected the plaintiff’s claim for compensation for his damaged
stamps collection so plaintiff instituted an action for damages against the defendant bank.

3. Security Bank contended that its contract with the Sia over safety deposit box was one of lease and not of deposit and, therefore, governed by the
lease agreement - Par. 9-the liability of the bank by reason of the lease, is limited to the exercise of the diligence required to prevent the opening of the
safe by any person other than the Renter xxx; Par. 13- The Bank is not a depository of the contents of the safe and it has neither the possession nor the
control of the same.
4. SB further avers that even without such a limitation of liability, it should still be absolved from any responsibility for the damages since the damage
was occasioned by a fortuitous event and that the respondent bank was free from any participation in the aggravation of the injury.

5. The trial court ruled in favor of the petitioner but was reversed by the CA.

 Issue/Ruling:

1. Whether the contract entered into was for deposit or a lease, thus, what law shall govern?

Summary: Not governed by provisions on Lease or Deposit but by provisions on Obligations since it is considered as a SPECIAL DEPOSIT.

- In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, the Court explicitly rejected the contention that a contract for the use of
a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did it fully subscribe to the view that it is a contract of
deposit to be strictly governed by the Civil Code provision on deposit. It declared that it is a special kind of deposit.

- The prevailing rule in American jurisprudence — that the relation between a bank renting out safe deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit 15 — has been adopted in this jurisdiction, thus:

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the
United States has been adopted.

Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides:

"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may
perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . ."(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of  deposit, i.e., the receiving in custody of funds, documents and other
valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function.

2. Whether the stipulations in the Agreement valid?

- The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil
Code on OBLIGATIONS. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good
father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing
deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy.

- Conditions Nos. 13 and 14 are declared as void as they are contrary to law and public policy. Said provisions are inconsistent with the respondent
Bank's responsibility as a depositary under Section 72 (a) of the General Banking Act. The company, in renting safe-deposit boxes, cannot exempt
itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for the purpose.

METROPOLITAN BANK AND TRUST COMPANY vs S.F Naguiat Enterprises Inc

G.R. No. 178407, March 18, 2015

LEONEN, J.

FACTS: S.F. Naguiat obtained a loan from Metrobank in the amount of P1,575,000.00. The loan was likewise secured by the 1997 real estate mortgage
by virtue of the Agreement on Existing Mortgage executed between the parties on March 15, 2004. On July 7, 2005, S.F. Naguiat filed a Petition for
Voluntary Insolvency with Application for the Appointment of a Receiver pursuant to Act No. 1956, as amended, before the Regional Trial Court of
Angeles City and which was raffled to Branch 56. Among the assets declared in the Petition was the property covered by TCT No. 58676 (one of the
properties mortgaged to Metrobank). Presiding Judge Irin Zenaida S. Buan issued the Order15 dated July 12, 2005, declaring S.F. Naguiat insolvent;
directing the Deputy Sheriff to take possession of all the properties of S.F. Naguiat until the appointment of a receiver/assignee; and forbidding payment
of any debts due, delivery of properties, and transfer of any of its properties.

Pending the appointment of a receiver, Judge Buan directed the creditors, including Metrobank, to file their respective Comments on the Petition. In lieu
of a Comment, Metrobank filed a Manifestation and Motion informing the court of Metrobank's decision to withdraw from the insolvency proceedings
because it intended to extrajudicially foreclose the mortgaged property to satisfy its claim against S.F. Naguiat. On November 8, 2005, Metrobank
instituted an extrajudicial foreclosure proceeding against the mortgaged property and sold the property at a public auction held on December 9, 2005 to
Phoenix Global Energy, Inc., the highest bidder. Afterwards, Sheriff Claude B. Balasbas prepared the Certificate of Sale and submitted it for approval to
Clerk of Court Vicente S. Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum. However, Executive Judge Gabitan-Erum issued the Order
denying her approval of the Certificate of Sale in view of the July 12, 2005 Order issued by the insolvency court. Metrobank's subsequent Motion for
Reconsideration was also denied. Metrobank filed a Petition for certiorari and mandamus before the Court of Appeals on June 22, 2006. S.F. Naguiat
filed its Manifestation stating that it was not interposing any objection to the Petition and requested that the issues raised in the Petition be resolved
without objection and argument on its part.

The Court of Appeals rendered its Decision dismissing the Petition on the basis of Metrobank's failure to obtain the permission of the insolvency court to
extrajudicially foreclose the mortgaged property. The Court of Appeals declared that a suspension of the foreclosure proceedings is in order, until an
assignee is elected or appointed by the insolvency court so as to afford the insolvent debtor proper representation in the foreclosure proceedings.
Metrobank filed a Motion for Reconsideration and Clarification, which was denied by the Court of Appeals. The Court of Appeals held that leave of court
must be obtained from the insolvency court whether the foreclosure suit was instituted judicially or extrajudicially so as to afford the insolvent estate's
proper representation in such action and to avoid the dissipation of the insolvent debtor's assets in possession of the insolvency court without the latter's
knowledge.

ISSUE: Whether or not, prior leave of the insolvency court is necessary before a secured creditor, like petitioner Metropolitan Bank and Trust Company,
can extrajudicially foreclose the mortgaged property?

HELD: YES. The foreclosure and sale of the mortgaged property of the debtor, without leave of court, contravene the provisions of Act No. 1956 and
violate the Order dated July 12, 2005 of the insolvency court which declared S.F. Naguiat insolvent and forbidden from making any transfer of any of its
properties to any person.

It is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent debtor completely within the jurisdiction and control of the insolvency
court without the intervention of any other court in the insolvent debtor's concerns or in the administration of the estate. It was considered to be of prime
importance that the insolvency proceedings follow their course as speedily as possible in order that a discharge, if the insolvent debtor is entitled to it,
should be decreed without unreasonable delay. Proceedings of this nature cannot proceed properly or with due dispatch unless they are controlled
absolutely by the court having charge thereof. Act No. 1956 impliedly requires a secured creditor to ask the permission of the insolvent court before said
creditor can foreclose the mortgaged property.

With the declaration of insolvency of the debtor, insolvency courts obtain full and complete jurisdiction over all property of the insolvent and of all claims
by and against it. It follows that the insolvency court has exclusive jurisdiction to deal with the property of the insolvent. Consequently, after the
mortgagor-debtor has been declared insolvent and the insolvency court has acquired control of his estate, a mortgagee may not, without the permission
of the insolvency court, institute proceedings to enforce its lien. In so doing, it would interfere with the insolvency court's possession and orderly
administration of the insolvent's properties.
 SPOUSES SALVADOR ABELLA v. SPOUSES ROMEO ABELLA
G.R. No. 195166, July 08, 2015

LEONEN, J.

FACTS: Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and damages against respondents Spouses Romeo and
Annie Abella wherein it was alleged that respondents obtained a loan from them in the amount of P500K. The loan was evidenced by an
acknowledgment receipt dated March 22, 1999 and was payable within one (1) year. Petitioners added that respondents were able to pay a total of
P200K—P100K paid on two separate occasions—leaving an unpaid balance of P300K.

In their Answer, respondents alleged that the amount involved did not pertain to a loan but was part of the capital for a joint venture involving the lending
of money when respondents that they were approached by petitioners, who proposed that if respondents were to "undertake the management of
whatever money [petitioners] would give them, [petitioners] would get 2.5% a month with a 2.5% service fee to [respondents]." Moreover, they claimed
that the entire amount of P500,000.00 was disposed of in accordance with their agreed terms and conditions and that petitioners terminated the joint
venture, prompting them to collect from the joint venture's borrowers. They were, however, able to collect only to the extent of P200,000.00; hence, the
P300,000.00 balance remained unpaid.
The RTC ruled in favor of petitioners. On respondents' appeal, the Court of Appeals ruled that while respondents had indeed entered into a simple loan
with petitioners, respondents were no longer liable to pay the outstanding amount of P300,000.00.

ISSUE1: What contract was entered into by the parties?

HELD1: Respondents entered into a simple loan or mutuum, rather than a joint venture, with petitioners.

Respondents' claims, as articulated in their testimonies before the trial court, cannot prevail over the clear terms of the document attesting to the relation
of the parties. "If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control.”

ISSUE2: Whether interest accrued on respondents' loan from petitioner and if in the affirmative, at what rate?

HELD2: First issue - Guided by the decision in Nacar v. Gallery Frames: In the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be
twelve percent (12%) per annum — as reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks
and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB
Circular No. 799 — but will now be six percent (6%) per annum effective July 1, 2013.

It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.

G.R. No. 191174 Paradigm Development Corporation of the Philippines vs. Bank of the Philippine Islands
 

Facts: Sengkon Trading (Sengkon), a sole proprietorship, obtained a loan from Far East Bank and Trust Company (FEBTC) under a credit facility.
FEBTC again granted Sengkon another credit facility. Two real estate mortgage (REM) contracts were executed by PDCP’s President to partially secure
Sengkon’s obligations under this Credit Line.

Sengkon defaulted in the payment of its loan obligations. FEBTC demanded payment from PDCP. Negotiations were put on hold because BPI acquired
FEBTC and assumed the rights and obligations of the latter.

Upon verification with the Registry of Deeds, PDCP discovered that FEBTC extra-judicially foreclosed the first and second mortgage without notice to it
as mortgagor and sold the mortgaged properties to FEBTC as the lone bidder. Thereafter, the corresponding Certificate of Sale was registered. PDCP
filed a Complaint for Annulment of Mortgage, Foreclosure, Certificate of Sale and Damages. PDCP alleged that FEBTC assured it that the mortgaged
properties will only secure the Credit Line sub-facility of the Omnibus Line. With this understanding, PDCP President allegedly agreed to sign on two
separate dates a pro-forma and blank REM. PDCP, however, claimed that it had no intent to be bound under the second REM, which was not intended
to be a separate contract, but only a means to reduce registration expenses. According to PDCP, when FEBTC registered both REMs, even if the intent
was only to register one, the validity of both REMs was vitiated by lack of consent. PDCP claims that said intent is supported by the fact that the REMs
were constituted merely as “partial security” for Sengkon’s obligations and therefore there was really no intent to be bound under both – but only in one –
REM.

The RTC rendered its Decision nullifying the REMs and the foreclosure proceedings. The CA reversed the RTC’s ruling.

Issues:

(1) Whether or not the validity of both REMs was vitiated by lack of consent.

(2) Whether or not the foreclosure proceedings are valid.

Ruling:

(1) No. To begin with, the registration of the REM contract is not essential to its validity under Article 2085. In relation thereto, Article 2125 of the Civil
Code reads:

Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document
in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.

The codal provision is clear and explicit. Even if the instrument were not recorded, “the mortgage is nevertheless binding between the parties.”

Hence, even assuming that the parties indeed agreed to register only one of the two REMs, the subsequent registration of both REMs did not affect an
already validly executed REM if there was no other basis for the declaration of its nullity. That the REMs were intended merely as “partial security” does
not make PDCP’s argument more plausible because as aptly observed by the CA, the PDCP’s act of surrendering all the titles to the properties to
FEBTC clearly establishes PDCP’ s intent to mortgage all of the four properties in favor of FEBTC to secure Sengkon’s obligation under the Credit Line.

PDCP’s Amended Complaint is essentially premised on the supposed fraud employed on it by FEBTC consisting of the latter’s assurances that the
REMs it already signed would not be registered.

In Solidbank Corporation v. Mindanao Ferroalloy Corporation, the Court discussed the nature of fraud that would annul or avoid a contract, thus:

Fraud refers to all kinds of deception – whether through insidious machination, manipulation, concealment or misrepresentation- that would lead an
ordinarily prudent person into error after taking the circumstances into account. In contracts, a fraud known as dolo causante or causal fraud is basically
a deception used by one party prior to or simultaneous with the contract, in order to secure the consent of the other. Needless to say, the deceit
employed must be serious. In contradistinction, only some particular or accident of the obligation is referred to by incidental fraud or dolo incidente, or
that which is not serious in character and without which the other party would have entered into the contract anyway.

Under Article 1344 of the Civil Code, the fraud must be serious to annul or avoid a contract and render it voidable. This fraud or deception must be so
material that had it not been present, the defrauded party would not have entered into the contract.

In the present case, even if FEBTC represented that it will not register one of the REMs, PDCP cannot disown the REMs it executed after FEBTC
reneged on its alleged promise. As earlier stated, with or without the registration of the REMs, as between the parties thereto, the same is valid and
PDCP is already bound thereby. The signature of PDCP’s President coupled with its act of surrendering the titles to the four properties to FEBTC is
proof that no fraud existed in the execution of the contract. Arguably at most, FEBTC’s act of registering the mortgage only amounted to dolo
incidente which is not the kind of fraud that avoids a contract.

(2) No. FEBTC’s failure to comply with its contractual obligation to send notice to PDCP of the foreclosure sale is fatal to the validity of the foreclosure
proceedings. In Metropolitan Bank v. Wong, the Court ruled that while as a rule, personal notice to the mortgagor is not required, such notice may be
subject of a contractual stipulation, the breach of which is sufficient to nullify the foreclosure sale.

Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which petitioner might take on the subject property, thus
according him the opportunity to safeguard his rights.

Thus, we restate: the general rule is that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary and posting and
publication will suffice. Sec. 3 of Act 3135 governing extra-judicial foreclosure of [REMs], as amended by Act 4118, requires only posting of the notice of
sale in three public places and the publication of that notice in a newspaper of general circulation. The exception is when the parties stipulate that
personal notice is additionally required to be given the mortgagor. Failure to abide by the general rule, or its exception, renders the foreclosure
proceedings null and void
G.R. No. 192971
FLORO MERCENE vs. GOVERNMENT SERVICE INSURANCE SYSTEM
MARTIRES, J.
January 10, 2018

FACTS: 
On 19 January 1965, petitioner Floro Mercene (Mercene) obtained a loan from respondent Government Service Insurance System (GSIS) in the amount
of ₱29,500.00. As security, a real estate mortgage was executed over Mercene's property in Quezon City, registered under Transfer Certificate of Title
No. 90535. The mortgage was registered and annotated on the title on 24 March 1965
On 14 May 1968, Mercene contracted another loan with GSIS for the amount of ₱14,500.00. The loan was likewise secured by a real estate mortgage
on the same parcel of land. The following day, the loan was registered and duly annotated on the title.
On 11 June 2004, Mercene opted to file a complaint for Quieting of Title against GSIS. He alleged that: since 1968 until the time the complaint was filed,
GSIS never exercised its rights as a mortgagee; the real estate mortgage over his property constituted a cloud on the title; GSIS' right to foreclose had
prescribed. In its answer, GSIS assailed that the complaint failed to state a cause of action and that prescription does not run against it because it is a
government entity.
During the pre-trial conference, Mercene manifested that he would file a motion for judgment on the pleadings. There being no objection, the RTC
granted the motion for judgment on the pleadings. 
In its 15 September 2005 decision, the RTC granted Mercene's complaint and ordered the cancellation of the mortgages annotated on the title. It ruled
that the real estate mortgages annotated on the title constituted a cloud thereto, because the annotations appeared to be valid but was ineffective and
prejudicial to the title. The trial court opined that GSIS' right as a mortgagee had prescribed because more than ten (10) years had lapsed from the time
the cause of action had accrued. The R TC stated that prescription ran against GSIS because it is a juridical person with a separate personality, and with
the power to sue and be sued.
In its 30 January 2015 decision, the CA reversed the RTC decision. The appellate court posited that the trial court erred in declaring that GSIS' right to
foreclose the mortgaged properties had prescribed. It highlighted that Mercene's complaint neither alleged the maturity date of the loans, nor the fact
that a demand for payment was made. The CA explained that prescription commences only upon the accrual of the cause of action, and that a cause of
action in a written contract accrues only when there is an actual breach or violation. Thus, the appellate court surmised that no prescription had set in
against GSIS because it has not made a demand to Mercene.
Mercene moved for reconsideration, but the same was denied by the CA in its assailed 7 April 2011 resolution.

ISSUE:
(1) Whether or not the CA erred in considering issues not raised before the trial court;
(2) Whether or not the CA errred in disregarding the judicial admission allegedly made by GSIS
(3) Whether or not the CA erred in ruling that the real estate mortgages had yet to prescribe.
HELD: 

(1) NO.
Mercene assails the CA decision for entertaining issues that were not addressed by the trial court. He claims that for the first time on appeal, GSIS
raised the issue on whether the loans were still effective in view of his nonpayment. A reading of the CA decision, however, reveals that the appellate
court did not dwell on the issue of nonpayment, but instead ruled that prescription had not commenced because the cause of action had not yet accrued.
Hence, it concluded that the complaint failed to state a cause of action. The appellate court did not focus on the question of payment precisely because
it was raised for the first time on appeal. It is noteworthy that, in its answer, GSIS raised the affirmative defense that Mercene's complaint failed to state
a cause of action.

(2) YES.
The Court agrees with Mercene that material averments not specifically denied are deemed admitted. Nonetheless, his conclusion that GSIS judicially
admitted that its right to foreclose had prescribed is erroneous. It must be remembered that conclusions of fact and law stated in the complaint are not
deemed admitted by the failure to make a specific denial. This is true considering that only ultimate facts must be alleged in any pleading and only
material allegation of facts need to be specifically denied.
A conclusion of law is a legal inference on a question of law made as a result of a factual showing where no further evidence is required. The allegation
of prescription in Mercene's complaint is a mere conclusion of law.
In the same vein, labelling-an obligation to have prescribed without specifying the circumstances behind it is a mere conclusion of law. As would be
discussed further, the fact that GSIS had not instituted any action within ten (10) years after the loan had been contracted is insufficient to hold that
prescription had set in. Thus, even if GSIS' denial would not be considered as a specific denial, only the fact that GSIS had not commenced any action,
would be deemed admitted at the most. This is true considering that the circumstances to establish prescription against GSIS have not been alleged with
particularity.

(3) NO.
In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al.,  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.
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.
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.
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.