CREDIT TRANSACTIONS – PART 9: REAL MORTGAGE (Articles 2124 – 2131), ACT 3135 & FORECLOSURE OF REAL ESTATE MORTGAGE
Assigned case
G.R. No. 110053 October 16, 1995
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, 
vs.
COURT OF APPEALS, CELEBRADA MANGUBAT and
ABNER MANGUBAT, respondents.
REGALADO, J.:
This appeal by certiorari sprouted from the judgment of
respondent Court of Appeals promulgated on September 9,
1992 in CA-G.R. CV No. 28311, and its resolution dated April
7, 1993 denying petitioner's motion for reconsideration. 1 Said
adjudgments, in turn, were rooted in the factual groundwork
of this case which is laid out hereunder.
On July 20, 1981, herein petitioner Development Bank of the
Philippines (DBP) executed a "Deed of Absolute Sale" in
favor of respondent spouses Celebrada and Abner
Mangubat over a parcel of unregistered land identified as Lot
1, PSU-142380, situated in the Barrio of Toytoy, Municipality
of Garchitorena, Province of Camarines Sur, containing an
area of 55.5057 hectares, more or less.
The land, covered only by a tax declaration, is known to have
been originally owned by one Presentacion Cordovez, who,
on February 4, 1937, donated it to Luciano Sarmiento. On
June 8, 1964, Luciano Sarmiento sold the land to Pacifico
Chica.
On April 27, 1965, Pacifico Chica mortgaged the land to DBP
to secure a loan of P6,000.00. However, he defaulted in the
payment of the loan, hence DBP caused the extrajudicial
foreclosure of the mortgage. In the auction sale held on
September 9, 1970, DBP acquired the property as the
highest bidder and was issued a certificate of sale on
September 17, 1970 by the sheriff. The certificate of sale
was entered in the Book of Unregistered Property on
September 23, 1970. Pacifico Chica failed to redeem the
property, and DBP consolidated its ownership over the
same.
On October 14, 1980, respondent spouses offered to buy the
property for P18,599.99. DBP made a counter-offer of
P25,500.00 which was accepted by respondent spouses.
The parties further agreed that payment was to be made
within six months thereafter for it to be considered as cash
payment. On July 20, 1981, the deed of absolute sale, which
is now being assailed herein, was executed by DBP in favor
Averell B. Abrasaldo – II-Sanchez Roman
of respondent spouses. Said document contained a waiver of It further averred that the annulment of the sale and the
the seller's warranty against eviction.2 return of the purchase price to respondent spouses would
redound to their benefit but would result in petitioner's
prejudice, since it had already released P118,540.00 to the
Thereafter, respondent spouses applied for an industrial tree
former while it would be left without any security for the
planting loan with DBP. The latter required the former to
P140,000.00 loan; and that in the remote possibility that the
submit a certification from the Bureau of Forest Development
land is reverted to the public domain, respondent spouses
that the land is alienable and disposable. However, on
should be made to immediately pay, jointly and severally, the
October 29, 1981, said office issued a certificate attesting to
total amount of P118,540.00 with interest at 15% per annum,
the fact that the said property was classified as timberland,
plus charges and other expenses.6
hence not subject to disposition.3
On May 25, 1990, the trial court rendered judgment annulling
The loan application of respondent spouses was
the subject deed of absolute sale and ordering DBP to return
nevertheless eventually approved by DBP in the sum of
the P25,500.00 purchase price, plus interest; to reimburse to
P140,000.00, despite the aforesaid certification of the
respondent spouses the taxes paid by them, the cost of the
bureau, on the understanding of the parties that DBP would
relocation survey, incidental expenses and other damages in
work for the release of the land by the former Ministry of
the amount of P50,000.00; and to further pay them attorney's
Natural Resources. To secure payment of the loan,
fees and litigation expenses in the amount of P10,000.00,
respondent spouses executed a real estate mortgage over
and the costs of suit.7
the land on March 17, 1982, which document was registered
in the Registry of Deeds pursuant to Act No. 3344.
In its recourse to the Court of Appeals, DBP raised the
following assignment of errors:
The loan was then released to respondent spouses on a
staggered basis. After a substantial sum of P118,540.00 had
been received by private respondents, they asked for the 1. The trial court erred in declaring the
release of the remaining amount of the loan. It does not deed of absolute sale executed between
appear that their request was acted upon by DBP, ostensibly the parties canceled and annulled on the
because the release of the land from the then Ministry of ground that therein defendant-appellant
Natural Resources had not been obtained. had no title over the property subject of
the sale.
On July 7, 1983, respondent spouses, as plaintiffs, filed a
complaint against DBP in the trial court 4 seeking the 2. The trial court erred in finding that
annulment of the subject deed of absolute sale on the defendant-appellant DBP acted
ground that the object thereof was verified to be timberland fraudulently and in bad faith or that it
and, therefore, is in law an inalienable part of the public had misrepresented facts since it had
domain. They also alleged that petitioner, as defendant prior knowledge that subject property
therein, acted fraudulently and in bad faith by was part of the public domain at the time
misrepresenting itself as the absolute owner of the land and of sale to therein plaintiffs-appellees.
in incorporating the waiver of warranty against eviction in the
deed of sale.5
3. The trial court erred in finding said
plaintiffs-appellees' waiver of warranty
In its answer, DBP contended that it was actually the against eviction void.
absolute owner of the land, having purchased it for value at
an auction sale pursuant to an extrajudicial foreclosure of
4. The trial court erred awarding to
mortgage; that there was neither malice nor fraud in the sale
therein plaintiffs-appellees damages
of the land under the terms mutually agreed upon by the
arising from an alleged breach of
parties; that assuming arguendo that there was a flaw in its
contract.
title, DBP can not be held liable for anything inasmuch as
respondent spouses had full knowledge of the extent and
nature of DBP's rights, title and interest over the land.
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Assigned case
5. The trial court erred in not ordering
said plaintiffs-appellees to pay their loan
obligation to defendant-appellant DBP in
the amount of P118,540. 8
As substantially stated at the outset, respondent Court of
Appeals rendered judgment modifying the disposition of the
court below by deleting the award for damages, attorney's
fees, litigation expenses and the costs, but affirming the
same in all its other aspects. 9 On April 7, 1993, said
appellate court also denied petitioner's motion for
reconsideration. 10
Not satisfied therewith, DBP interposed the instant petition
for review on certiorari, raising the following issues:
1. Whether or not private respondent
spouses Celebrada and Abner
Mangubat should be ordered to pay
petitioner DBP their loan obligation due
under the mortgage contract executed
between them and DBP; and
2. Whether or not petitioner should
reimburse respondent spouses the
purchase price of the property and the
amount of P11,980.00 for taxes and
expenses for the relocation Survey. 11
Considering that neither party questioned the legality and
correctness of the judgment of the court a quo, as affirmed
by respondent court, ordering the annulment of the deed of
absolute sale, such decreed nullification of the document has
already achieved finality. We only need
The Court of Appeals, after an extensive discussion, found
that there had been no bad faith on the part of either party,
and this r, therefore, to dwell on the effects of that
declaration of nullity.emains uncontroverted as a fact in the
case at bar. Correspondingly, respondent court correctly
applied the rule that if both parties have no fault or are not
guilty, the restoration of what was given by each of them to
the other is consequently in order. 12 This is because the
declaration of nullity of a contract which is void ab
initio operates to restore things to the state and condition in
which they were found before the execution thereof. 13
We also find ample support for said propositions in American
jurisprudence. The effect of an application of the aforequoted
Averell B. Abrasaldo – II-Sanchez Roman
rule with respect to the right of a party to recover the amount any stage of the proceedings, since it was vigorously
given as consideration has been passed upon in the case objected to by DBP.
of Leather Manufacturers National Bank vs. Merchants
National Bank 14 where it was held that: "Whenever money is
Contrary to the claim of petitioner, the list of damages was
paid upon the representation of the receiver that he has
presented in the trial court and was correspondingly marked
either a certain title in property transferred in consideration of
as "Exhibit P." 20 The said exhibit was, thereafter, admitted by
the payment or a certain authority to receive the money paid,
the trial court but only as part of the testimonial evidence for
when in fact he has no such title or authority, then, although
private respondents, as stated in its Order dated August 16,
there be no fraud or intentional misrepresentation on his part,
1988.21
yet there is no consideration for the payment, the money
remains, in equity and good conscience, the property of the
payer and may be recovered back by him." However, despite that admission of the said list of damages
as evidence, we agree with petitioner that the same cannot
constitute sufficient legal basis for an award of P4,000.00
Therefore, the purchaser is entitled to recover the money
and P7,980.00 as reimbursement for land taxes and
paid by him where the contract is set aside by reason of the
expenses for the relocation survey, respectively. The list of
mutual material mistake of the parties as to the identity or
damages was prepared extrajudicially by respondent
quantity of the land sold. 15 And where a purchaser recovers
spouses by themselves without any supporting receipts as
the purchase money from a vendor who fails or refuses to
bases thereof or to substantiate the same. That list, per se,
deliver the title, he is entitled as a general rule to interest on
is necessarily self-serving and, on that account, should have
the money paid from the time of payment. 16
been declared inadmissible in evidence as thefactum
probans.
A contract which the law denounces as void is necessarily no
contract whatever, and the acts of the parties in an effort to
In order that damages may be recovered, the best evidence
create one can in no wise bring about a change of their legal
obtainable by the injured party must be presented. Actual or
status. The parties and the subject matter of the contract
compensatory damages cannot be presumed, but must be
remain in all particulars just as they did before any act was
duly proved, and so proved with a reasonable degree of
performed in relation thereto. 17
certainty. A court cannot rely on speculation, conjecture or
guesswork as to the fact and amount of damages, but must
An action for money had and received lies to recover back depend upon competent proof that they have been suffered
money paid on a contract, the consideration of which has and on evidence of the actual amount thereof. If the proof is
failed. 18 As a general rule, if one buys the land of another, to flimsy and unsubstantial, no damages will be awarded. 22
which the latter is supposed to have a good title, and, in
consequence of facts unknown alike to both parties, he has
Turning now to the issue of whether or not private
no title at all, equity will cancel the transaction and cause the
respondents should be made to pay petitioner their loan
purchase money to be restored to the buyer, putting both
obligation amounting to P118,540.00, we answer in the
parties in status quo. 19
affirmative.
Thus, on both local and foreign legal principles, the return by
In its legal context, the contract of loan executed between
DBP to respondent spouses of the purchase price, plus
the parties is entirely different and discrete from the deed of
corresponding interest thereon, is ineluctably called for.
sale they entered into. The annulment of the sale will not
have an effect on the existence and demandability of the
Petitioner likewise contends that the trial court and loan. One who has received money as a loan is bound to pay
respondent Court of Appeals erred in ordering the to the creditor an equal amount of the same kind and
reimbursement of taxes and the cost of the relocation survey, quality. 23
there being no factual or legal basis therefor. It argues that
private respondents merely submitted a "list of damages"
The fact that the annulment of the sale will also result in the
allegedly incurred by them, and not official receipts of
invalidity of the mortgage does not have an effect on the
expenses for taxes and said survey. Furthermore, the same
validity and efficacy of the principal obligation, for even an
list has allegedly not been identified or even presented at
obligation that is unsupported by any security of the debtor
may also be enforced by means of an ordinary action. Where
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Assigned case
a mortgage is not valid, as where it is executed by one who
is not the owner of the
property, 24 or the consideration of the contract is
25 26
simulated   or false,   the principal obligation which it
guarantees is not thereby rendered null and void. That
obligation matures and becomes demandable in accordance
with the stipulations pertaining to it.
Under the foregoing circumstances, what is lost is only the
right to foreclose the mortgage as a special remedy for
satisfying or settling the indebtedness which is the principal
obligation. In case of nullity, the mortgage deed remains as
evidence or proof of a personal obligation of the debtor, and
the amount due to the creditor may be enforced in an
ordinary personal action. 27
It was likewise incorrect for the Court of Appeals to deny the
claim of petitioner for payment of the loan on the ground that
it failed to present the promissory note therefor. While
respondent court also made the concession that its judgment
was accordingly without prejudice to the filing by petitioner of
a separate action for the collection of that amount, this does
not detract from the adverse effects of that erroneous ruling
on the proper course of action in this case.
The fact is that a reading of the mortgage
contract 28 executed by respondent spouses in favor of
petitioner, dated March 17, 1982, will readily show that it
embodies not only the mortgage but the complete terms and
conditions of the loan agreement as well. The provisions of
said contract, specifically paragraphs 16 and 28 thereof, are
so precise and clear as to thereby render unnecessary the
introduction of the promissory note which would merely serve
the same purpose.
It is also worth noting that the adjustment and allowance of
petitioner's demand by counterclaim or set-off in the present
action, rather than by another independent action, is favored
or encouraged by law. Such a practice serves to avoid
circuitry of action, multiplicity of suits, inconvenience,
expense, and unwarranted consumption of the time of the
court. The trend of judicial decisions is toward a liberal
extension of the right to avail of counterclaims or set-offs. 31
The rules on counterclaim are designed to achieve the
disposition of a whole controversy of the conflicting claims of
interested parties at one time and in one action, provided all
parties can be brought before the court and the matter
decided without prejudicing the rights of any party. 32
WHEREFORE, the judgment appealed from is hereby
MODIFIED, by deleting the award of P11,980.00 as
reimbursement for taxes and expenses for the relocation
survey, and ordering respondent spouses Celebrada and
Abner Mangubat to pay petitioner Development Bank of the
Philippines the amount of P118,540.00, representing the
total amount of the loan released to them, with interest of
15% per annum plus charges and other expenses in
accordance with their mortgage contract. In all other
respects, the said judgment of respondent Court of Appeals
is AFFIRMED.
SO ORDERED.
[G.R. No. 156295. September 23, 2003]
MARCELO R. SORIANO, petitioner, vs. SPOUSES
RICARDO and ROSALINA GALIT, respondents.
Dissatisfied, petitioner filed the instant petition for
review on certiorari.
Respondent Ricardo Galit contracted a loan from
petitioner Marcelo Soriano, in the total sum of P480,000.00,
evidenced by four promissory notes in the amount of
P120,000.00 each dated August 2, 1996;[3] August 15, 1996;
[4]
 September 4, 1996[5] and September 14, 1996.[6] This loan
was secured by a real estate mortgage over a parcel of land
covered by Original Certificate of Title No. 569. [7]After he
failed to pay his obligation, Soriano filed a complaint for sum
of money against him with
the Regional Trial Court of Balanga City, Branch 1, which
was docketed as Civil Case No. 6643.[8]
Respondents, the Spouses Ricardo and
Rosalina Galit, failed to file their answer. Hence, upon motion
of Marcelo Soriano, the trial court declared the spouses in
default and proceeded to receive evidence for
petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court
of Balanga City, Branch 1 rendered judgment[9] in favor of
petitioner Soriano, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant ordering the latter to pay:
1. the plaintiff the amount of P350,000.00 plus
12% interest to be computed from the
dates of maturity of the promissory notes
until the same are fully paid;
2. the plaintiff P20,000.00, as attorneys fees; and

3. the costs of suit.

Furthermore, respondent Celebrada Mangubat expressly
acknowledged in her testimony that she and her husband are
indebted to petitioner in the amount of P118,000.00, more or
less. 29 Admissions made by the parties in the pleadings or in
the course of the trial or other proceedings do not require
proof and can not be contradicted unless previously shown
to have been made through palpable mistake. 30
Thus, the mortgage contract which embodies the terms and
conditions of the loan obligation of respondent spouses, as
well as respondent Celebrada Mangubat's admission in open
court, are more than adequate evidence to sustain
petitioner's claim for payment of private respondents'
aforestated indebtedness and for the adjudication of DBP's
claim therefor in the very same action now before us.
DECISION
YNARES-SANTIAGO, J.: SO ORDERED.[10]
The judgment became final
Petitioner was issued a writ of possession in Civil Case
and executory. Accordingly, the trial court issued a writ of
No. 6643[1] for Sum of Money by the Regional Trial Court
execution in due course, by virtue of which, Deputy
of Balanga, Bataan, Branch 1. The writ of possession was,
however, nullified by the Court of Appeals in CA-G.R. SP No. Sheriff Renato E. Robles levied on the following real
65891[2] because it included a parcel of land which was not properties of the Galit spouses:
among those explicitly enumerated in the Certificate of Sale
issued by the Deputy Sheriff, but on which stand
1. A parcel of land covered by Original
the immovables covered by the said Certificate. Petitioner
Certificate of Title No. T-569
contends that the sale of these immovables necessarily
(Homestead Patent No. 14692) situated
encompasses the land on which they stand.
in the Bo.
of Tapulac, Orani, Bataan. Bounded on

Averell B. Abrasaldo – II-Sanchez Roman 3

CREDIT TRANSACTIONS – PART 9: REAL MORTGAGE (Articles 2124 – 2131), ACT 3135 & FORECLOSURE OF REAL ESTATE MORTGAGE
Assigned case
the SW, along line 1-2 by Lot No. 3,
Cad. 145; containing an area of THIRTY
FIVE THOUSAND SEVEN HUNDRED
FIFTY NINE (35,759) SQUARE
METERS, more or less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No.
1103 made of strong materials G.I.
roofing situated at Centro
I, Orani, Bataan, x x x containing an
area of 30 sq. meters, more or less
x x x (constructed on TCT No. T40785);
3. BODEGA constructed on Lot 1103, made of
strong materials, G.I. roofing, situated in
Centro I, Orani, Bataan, x x x with a floor
area of 42.75 sq. m. more or less x x x.
[11]
At the sale of the above-enumerated properties at
public auction held on December 23, 1998, petitioner was
the highest and only bidder with a bid price of
P483,000.00. Accordingly, on February 4, 1999, Deputy
Sheriff Robles issued a Certificate of Sale of Execution of
Real Property,[12] which reads:
CERTIFICATE OF SALE ON EXECUTION OF REAL
PROPERTY
TO ALL WHO MAY SEE THESE PRESENTS:
GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated
October 16, 1998, issued in the above-entitled case by the
HON. BENJAMIN T. VIANZON, ordering the Provincial
Sheriff of Bataan or her authorized Deputy Sheriff to cause to
be made (sic) the sum of P350,000.00 plus 12% interest to
be computed from the date of maturity of the promissory
notes until the same are fully paid; P20,000.00 as attorneys
fees plus legal expenses in the implementation of the writ of
execution, the undersigned Deputy Sheriff sold at public
auction on December 23, 1998 the rights and interests of
defendants Sps. Ricardo and Rosalina Galit, to the plaintiff
Marcelo Soriano, the highest and only bidder for the amount
of FOUR HNDRED EIGHTY THREE THOUSAND PESOS
(P483,000.00, Philippine Currency), the following real estate
properties more particularly described as follows :
Averell B. Abrasaldo – II-Sanchez Roman
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in
the Bo. of Tapulac, Orani, Bataan, x x x. Bounded on the
SW., along line 1-2 by Lot No. 3, Cad. 145, containing an
area of THIRTY FIVE THOUSAND SEVEN HUNDRED
FIFTY NINE (35,759) SQUARE METERS, more or less x x x
TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE constructed on Lot 1103, made of strong
materials G.I. roofing situated at Centro
I, Orani, Bataan x x x containing an area of 30 sq. meters,
more or less x x (constructed on TCT No. 40785)
TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02
BODEGA constructed on Lot 1103, made of strong materials
G.I. roofing situated in Centro I, Orani, Bataan, x x x with a
floor area of 42.75 sq. m. more or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and
lone bidder, Marcelo Soriano, being the plaintiff did not pay
to the Provincial Sheriff of Bataan the amount of
P483,000.00, the sale price of the above-described property
which amount was credited to partial/full satisfaction of the
judgment embodied in the writ of execution.
The period of redemption of the above described real
properties together with all the improvements thereon will
expire One (1) year from and after the registration of this
Certificate of Sale with the Register of Deeds.
This Certificate of Sheriffs Sale is issued to the highest and
lone bidder, Marcelo Soriano, under guarantees prescribed
by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of
the Certificate of Sale on Execution of Real Property with the
Registry of Deeds.
The said Certificate of Sale registered with the
Register of Deeds includes at the dorsal portion thereof the
following entry, not found in the Certificate of Sale on file with
Deputy Sheriff Renato E. Robles:[13]
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral Survey
of Orani) , with the improvements thereon, situated in the
Municipality of Orani, Bounded on the NE; by Calle P.
Gomez; on the E. by Lot No. 1104; on the SE
by Calle Washington; and on the W. by Lot 4102, containing
an area of ONE HUNDRED THIRTY NINE (139) SQUARE
METERS, more or less. All points referred to are indicated
on the plan; bearing true; declination 0 deg. 40E., date of
survey, February 191-March 1920.
On February 23, 2001, ten months from the time the
Certificate of Sale on Execution was registered with the
Registry of Deeds, petitioner moved[14] for the issuance of a
writ of possession. He averred that the one-year period of
redemption had elapsed without the respondents having
redeemed the properties sold at public auction; thus, the sale
of said properties had already become final.He also argued
that after the lapse of the redemption period, the titles to the
properties should be considered, for all legal intents and
purposes, in his name and favor.[15]
On June 4, 2001, the Regional Trial Court
of Balanga City, Branch 1 granted the motion for issuance of
writ of possession.[16] Subsequently, on July 18, 2001, a writ
of possession[17] was issued in petitioners favor which reads:
WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :
WHEREAS on February 3, 2001, the counsel for plaintiff filed
Motion for the Issuance of Writ of Possession;
WHEREAS on June 4, 2001, this court issued an order
granting the issuance of the Writ of Possession;
WHEREFORE, you are hereby commanded to place the
herein plaintiff Marcelo Soriano in possession of the property
involved in this case situated (sic) more particularly
described as:
1. STORE HOUSE constructed on Lot No. 1103
situated at Centro
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Assigned case
1, Orani, Bataan covered by TCT No.
40785;
2. BODEGA constructed on Lot No. 1103 with an
area of 42.75 square meters under Tax
Declaration No. 86 situated at Centro
1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an
area of 134 square meters known as Lot
No. 1103 of the Cadastral Survey
of Orani
In the event that the questioned writ of possession has
already been implemented, the Deputy Sheriff of
the Regional Trial Court of Balanga City, Branch 1, and
private respondent Marcelo Soriano are hereby ordered to
cause the redelivery of Transfer Certificate of Title No. T-
40785 to the petitioners.
SO ORDERED.[19]
Aggrieved, petitioner now comes to this Court
maintaining that
On the first ground, petitioner contends that
respondents were not without remedy before the trial
court. He points out that respondents could have filed a
motion for reconsideration of the Order dated June 4, 1999,
but they did not do so. Respondents could also have filed an
appeal but they, likewise, did not do so. When the writ of
possession was issued, respondents could have filed a
motion to quash the writ. Again they did not. Respondents
cannot now avail of the special civil action for certiorari as a
substitute for these remedies. They should suffer the
consequences for sleeping on their rights.
We disagree.

1.) THE SPECIAL CIVIL ACTION OF Concededly, those who seek to avail of the procedural
against the mortgagor/former owners Sps. Ricardo and CERTIORARI UNDER RULE 65 IS NOT remedies provided by the rules must adhere to the
Rosalinda (sic) Galit, her (sic) heirs, successors, assigns and THE PLAIN, SPEEDY AND ADEQUATE requirements thereof, failing which the right to do so is lost. It
all persons claiming rights and interests adverse to the REMEDY OF THE RESPONDENTS IN is, however, equally settled that the Rules of Court seek to
petitioner and make a return of this writ every thirty (30) days ASSAILING THE WRIT OF eliminate undue reliance on technical rules and to make
from receipt hereof together with all the proceedings thereon POSSESSION ISSUED BY THE litigation as inexpensive as practicable and as convenient as
until the same has been fully satisfied. LOWER COURT BUT THERE WERE can be done.[20] This is in accordance with the primary
STILL OTHER REMEDIES AVAILABLE purpose of the 1997 Rules of Civil Procedure as provided in
TO THEM AND WHICH WERE NOT Rule 1, Section 6, which reads:
WITNESS THE HONORABLE BENJAMIN T. VIANZON,
RESORTED TO LIKE THE FILING OF A
Presiding Judge, this 18th day of July 2001, at Balanga City.
MOTION FOR RECONSIDERATION
Section 6. Construction.  These rules shall be liberally
OR MOTION TO QUASH OR EVEN
construed in order to promote their objective of securing a
(Sgd) GILBERT S. ARGONZA APPEAL.
just, speedy and inexpensive determination of every action
and proceeding.[21]
IC
2.) THE HONORABLE COURT OF APPEALS
Respondents filed a petition for certiorari with the Court of GRAVELY ERRED IN DECLARAING
The rules of procedure are not to be applied in a very
Appeals, which was docketed as CA-G.R. SP No. 65891, THE CERTIFICATE OF SALE ON
rigid, technical sense and are used only to help secure
assailing the inclusion of the parcel of land covered by EXECUTION OF REAL PROPERTY AS
substantial justice. If a technical and rigid enforcement of the
Transfer Certificate of Title No. T-40785 among the list of NULL AND VOID AND
rules is made, their aim would be defeated.[22] They should
real properties in the writ of possession. [18] Respondents SUBSEQUENTLY THE WRIT OF
be liberally construed so that litigants can have ample
argued that said property was not among those sold on POSSESSION BECAUSE THE SAME
opportunity to prove their claims and thus prevent a denial of
execution by Deputy Sheriff Renato E. Robles as reflected in IS A PUBLIC DOCUMENT WHICH
justice due to technicalities.[23] Thus, in China Banking
the Certificate of Sale on Execution of Real Property. ENJOYS THE PRESUMPTION OF
Corporation v. Members of the Board of Trustees of Home
REGULARITY AND IT CANNOT BE
Development Mutual Fund,[24] it was held:
In opposition, petitioner prayed for the dismissal of the OVERCOME BY A MERE STRANGE
petition because respondent spouses failed to move for the FEELING THAT SOMETHING IS
reconsideration of the assailed order prior to the filing of the AMISS ON ITS SURFACE SIMPLY while certiorari as a remedy may not be used as a substitute
petition. Moreover, the proper remedy against the assailed BECAUSE THE TYPEWRITTEN for an appeal, especially for a lost appeal, this rule should
order of the trial court is an appeal, or a motion to quash the WORDS ON THE FRONT PAGE AND not be strictly enforced if the petition is genuinely
writ of possession. AT THE DORSAL PORTION THEREOF meritorious.[25] It has been said that where the rigid
IS DIFFERENT OR THAT IT IS application of the rules would frustrate substantial
On May 13, 2002, the Court of Appeals rendered UNLIKELY FOR THE SHERIFF TO USE justice, or bar the vindication of a legitimate grievance,
judgment as follows: THE DORSAL PORTION OF THE the courts are justified in exempting a particular case
FIRST PAGE BECAUSE THE SECOND from the operation of the rules.[26] (Emphasis ours)
WHEREFORE, the instant petition is hereby PAGE IS MERELY HALF FILLED AND
GRANTED. Accordingly, the writ of possession issued by THE NOTATION ON *STILL BE MADE
the Regional Trial Court of Balanga City, Branch 1, on 18 AT THE SECOND PAGE.
July 2001 is declared NULL and VOID.

Averell B. Abrasaldo – II-Sanchez Roman 5

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Indeed, well-known is the rule that departures from
procedure may be forgiven where they do not appear to have
impaired the substantial rights of the parties.[27] Apropos in
this regard is Cometa  v.CA,[28] where we said that  second page which was merely half-filled and could
There is no question that petitioners were remiss in attending
with dispatch to the protection of their interests as regards
the subject lots, and for that reason the case in the lower
court was dismissed on a technicality and no definitive
pronouncement on the inadequacy of the price paid for the
levied properties was ever made. In this regard, it bears
stressing that procedural rules are not to be belittled or
dismissed simply because their non-observance may have
resulted in prejudice to a partys substantive rights as in this
case. Like all rules, they are required to be followed except
when only for the most persuasive of reasons they may
be relaxed to relieve a litigant of an injustice not
commensurate with the degree of his thoughtlessness
in not complying with the procedure prescribed.
[29]
 (emphasis and italics supplied.)
In short, since rules of procedure are mere tools
designed to facilitate the attainment of justice, their strict and
rigid application which would result in technicalities that tend
to frustrate rather than promote substantial justice must
always be avoided.[30] Technicality should not be allowed to
stand in the way of equitably and completely resolving the
rights and obligations of the parties.[31]
Eschewing, therefore, the procedural objections raised
by petitioner, it behooves us to address the issue of whether
or not the questioned writ of possession is in fact a nullity
considering that it includes real property not expressly
mentioned in the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition
that since the certificate of sale is a public document, it
enjoys the presumption of regularity and all entries therein
are presumed to be done in the performance of regular
functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of
Sale on Execution of Real Properties issued on February 4,
1999 involved, namely: (a) copy which is on file with the
deputy sheriff; and (b) copy registered with the Registry of
Deeds. The object of scrutiny, however, is not the copy of the
Certificate of Sale on Execution of Real Properties issued by
the deputy sheriff on February 4, 1999, [32] but the copy
thereof subsequently registered by petitioner with the
Registry of Deeds on April 23, 1999, [33] which included an
entry on the dorsal portion of the first page thereof
Averell B. Abrasaldo – II-Sanchez Roman
describing a parcel of land covered by OCT No. T-
40785 not found in the Certificate of Sale of Real Properties
on file with the sheriff.
True, public documents by themselves may be
adequate to establish the presumption of their validity.
However, their probative weight must be evaluated not in
isolation but in conjunction with other evidence adduced by
the parties in the controversy, much more so in this case
where the contents of a copy thereof subsequently
registered for documentation purposes is being contested.
No reason has been offered how and why the questioned
entry was subsequently intercalated in the copy of the
certificate of sale subsequently registered with the Registry
of Deeds. Absent any satisfactory explanation as to why said
entry was belatedly inserted, the surreptitiousness of its
inclusion coupled with the furtive manner of its intercalation
casts serious doubt on the authenticity of petitioners copy of
the Certificate of Sale. Thus, it has been held that while a
public document like a notarized deed of sale is vested with
the presumption of regularity, this is not a guarantee of the
validity of its contents.[34]
It must be pointed out in this regard that the issuance
of a Certificate of Sale is an end result of judicial foreclosure
where statutory requirements are strictly adhered to; where
even the slightest deviations therefrom will invalidate the
proceeding[35] and the sale.[36] Among these requirements is
an explicit enumeration and correct description of what
properties are to be sold stated in the notice.
The stringence in the observance of these requirements is
such that an incorrect title number together with a correct
technical description of the property to be sold and vice
versa is deemed a substantial and fatal error which results in
the invalidation of the sale.[37]
The certificate of sale is an accurate record of what
properties were actually sold to satisfy the debt. The
strictness in the observance of accuracy and correctness in
the description of the properties renders the enumeration in
the certificate exclusive. Thus, subsequently including
properties which have not been explicitly mentioned therein
for registration purposes under suspicious circumstances
smacks of fraud. The explanation that the land on which the
properties sold is necessarily included and, hence, was
belatedly typed on the dorsal portion of the copy of the
certificate subsequently registered is at best a lame excuse
unworthy of belief.
The appellate court correctly observed that there was
a marked difference in the appearance of the typewritten
words appearing on the first page of the copy of the
Certificate of Sale registered with the Registry of
Deeds[38] and those appearing at the dorsal portion thereof.
Underscoring the irregularity of the intercalation is the clearly
devious attempt to let such an insertion pass unnoticed by
typing the same at the back of the first page instead of on the
accommodate the entry with room to spare.
The argument that the land on which the buildings
levied upon in execution is necessarily included is, likewise,
tenuous. Article 415 of the Civil Code provides:
ART. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds
adhered to the soil.
x x x x x x x x x
(3) Everything attached to an immovable in a fixed manner,
in such a way that it cannot be separated therefrom without
breaking them material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or
ornamentation, placed in buildings or on lands by the owner
of the immovable in such a manner that it reveals the
intention to attach them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said
industry or works;
(6) Animal houses, pigeon houses, beehives, fish ponds or
breeding places of similar nature, in case their owner has
placed them or preserves them with the intention to have
them permanently attached to the land, and forming a
permanent part of it; the animals in these places are also
included; 
x x x x x x x x x
(9) Docks and structures which, though floating, are intended
by their nature and object to remain at a fixed place on a
river, lake or coast;
x x x x x x x x x.
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The foregoing provision of the Civil Code enumerates
land and buildings separately. This can only mean that a
building is, by itself, considered immovable.[39] Thus, it has
been held that  Philippines (Atlantic), a single proprietorship registered with
. . . while it is true that a mortgage of land necessarily
includes, in the absence of stipulation of the improvements
thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been
built. Such mortgage would be still a real estate mortgage
for the building would still be considered immovable
property even if dealt with separately and apart from the
land.[40] (emphasis and italics supplied)
In this case, considering that what was sold by virtue
of the writ of execution issued by the trial court was merely
the storehouse and bodega constructed on the parcel of land
covered by Transfer Certificate of Title No. T-40785, which
by themselves are real properties of respondents spouses,
the same should be regarded as separate and distinct from
the conveyance of the lot on which they stand.
WHEREFORE, in view of all the foregoing, the petition
is hereby DENIED for lack of merit. The Decision dated May
13, 2002 of the Court of Appeals in CA-G.R. SP No. 65891,
which declared the writ of possession issued by
the Regional Trial Court of Balanga City, Branch 1, on July
18, 2001, null and void, is AFFIRMED in toto.
SO ORDERED.
G.R. No. 116710      June 25, 2001
DANILO D. MENDOZA, also doing business under the
name and style of ATLANTIC EXCHANGE PHILIPPINES,
petitioner,  (P40,000.00); and the last dated September 27, 1979 for
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK,
FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA
and BAYANI A. BAUTISTA, respondents.  interest rate the Bank may, at any time, without notice, raise
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Decision1 dated August 8, 1994 of the respondent Court of
Appeals (Tenth Division) in CA-G.R. CV No. 38036 reversing
the judgment2 of the Regional Trial Court (RTC) and
dismissing the complaint therein.
Averell B. Abrasaldo – II-Sanchez Roman
Petitioner Danilo D. Mendoza is engaged in the domestic
and international trading of raw materials and chemicals. He
operates under the business name Atlantic Exchange
the Department of Trade and Industry (DTI). Sometime in
1978 he was granted by respondent Philippine National Bank
(PNB) a Five Hundred Thousand Pesos (P500,000.00) credit
line and a One Million Pesos (P1,000,000.00) Letter of
Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those
which may thereinafter be granted, petitioner mortgaged to
respondent PNB the following: 1) three (3) parcels of
land3 with improvements in F. Pasco Avenue, Santolan,
Pasig; 2) his house and lot in Quezon City; and 3) several
pieces of machinery and equipment in his Pasig coco-
chemical plant.
The real estate mortgage4 provided the following escalation
clause:
(f) The rate of interest charged on the obligation
secured by this mortgage as well as the interest on
the amount which may have been advanced by the
Mortgagee in accordance with paragraph (d) of the
conditions herein stipulated shall be subject during
the life of this contract to such increase within the
rates allowed by law, as the Board of Directors of
the Mortgagee may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three (3)
promissory notes covering the Five Hundred Thousand
Pesos (P500,000.00) credit line, one dated March 8, 1979 for
Three Hundred Ten Thousand Pesos (P310,000.00); another
dated March 30, 1979 for Forty Thousand Pesos
One Hundred Fifty Thousand Pesos (P150,000.00). The said
1979 promissory notes uniformly stipulated: "with interest
thereon at the rate of 12% per annum, until paid, which
within the limits allowed by law xxx."5
Petitioner made use of his LC/TR line to purchase raw
materials from foreign importers. He signed a total of eleven
(11) documents denominated as "Application and Agreement
for Commercial Letter of Credit," 6 on various dates from
February 8 to September 11, 1979, which uniformly
contained the following clause: "Interest shall be at the rate
of 9% per annum from the date(s) of the draft(s) to the
date(s) of arrival of payment therefor in New York. The Bank,
however, reserves the right to raise the interest charges at
any time depending on whatever policy it may follow in the
future."7
In a letter dated January 3, 1980 and signed by Branch
Manager Fil S. Carreon Jr., respondent PNB advised
petitioner Mendoza that effective December 1, 1979, the
bank raised its interest rates to 14% per annum, in line with
Central Bank's Monetary Board Resolution No. 2126 dated
November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB
requesting for the restructuring of his past due accounts into
a five-year term loan and for an additional LC/TR line of Two
Million Pesos (P2,000,000.00).8 According to the letter,
because of the shut-down of his end-user companies and the
huge amount spent for the expansion of his business,
petitioner failed to pay to respondent bank his LC/TR
accounts as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong
replied on behalf of the respondent bank and required
petitioner to submit the following documents before the bank
would act on his request: 1) Audited Financial Statements for
1979 and 1980; 2) Projected cash flow (cash in - cash out)
for five (5) years detailed yearly; and 3) List of additional
machinery and equipment and proof of ownership thereof.
Cura also suggested that petitioner reduce his total loan
obligations to Three Million Pesos (P3,000,000.00) "to give
us more justification in recommending a plan of payment or
restructuring of your accounts to higher authorities of the
Bank."9
On September 25, 1981, petitioner sent another letter
addressed to PNB Vice-President Jose Salvador, regarding
his request for restructuring of his loans. He offered
respondent PNB the following proposals: 1) the disposal of
some of the mortgaged properties, more particularly, his
house and lot and a vacant lot in order to pay the overdue
trust receipts; 2) capitalization and conversion of the balance
into a 5-year term loan payable semi-annually or on annual
installments; 3) a new Two Million Pesos (P2,000,000.00)
LC/TR line in order to enable Atlantic Exchange Philippines
to operate at full capacity; 4) assignment of all his
receivables to PNB from all domestic and export sales
generated by the LC/TR line; and 5) maintenance of the
existing Five Hundred Thousand Pesos (P500,000.00) credit
line.
7
CREDIT TRANSACTIONS – PART 9: REAL MORTGAGE (Articles 2124 – 2131), ACT 3135 & FORECLOSURE OF REAL ESTATE MORTGAGE
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The petitioner testified that respondent PNB Mandaluyong
Branch found his proposal favorable and recommended the
implementation of the agreement. However, Fernando
Maramag, PNB Executive Vice-President, disapproved the
proposed release of the mortgaged properties and reduced
the proposed new LC/TR line to One Million Pesos
(P1,000,000.00).10 Petitioner claimed he was forced to agree
to these changes and that he was required to submit a new
formal proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following
revised proposals to respondent bank: 1) the restructuring of
past due accounts including interests and penalties into a 5-
year term loan, payable semi-annually with one year grace
period on the principal; 2) payment of Four Hundred
Thousand Pesos (P400,000.00) upon the approval of the
proposal; 3) reduction of penalty from 3% to 1%; 4)
capitalization of the interest component with interest rate at
16% per annum; 5) establishment of a One Million Pesos
(P1,000,000.00) LC/TR line against the mortgaged
properties; 6) assignment of all his export proceeds to
respondent bank to guarantee payment of his loans.
According to petitioner, respondent PNB approved his
proposal. He further claimed that he and his wife were asked
to sign two (2) blank promissory note forms. According to
petitioner, they were made to believe that the blank
promissory notes were to be filled out by respondent PNB to
conform with the 5-year restructuring plan allegedly agreed
upon. The first Promissory Note,11 No. 127/82, covered the
principal while the second Promissory Note,12No. 128/82,
represented the accrued interest.
Petitioner testified that respondent PNB allegedly
contravened their verbal agreement by 1) affixing dates on
the two (2) subject promissory notes to make them mature in
two (2) years instead of five (5) years as supposedly agreed
upon; 2) inserting in the first Promissory Note No. 127/82 an
interest rate of 21% instead of 18%; 3) inserting in the
second Promissory Note No. 128/82, the amount stated
therein representing the accrued interest as One Million Five
Hundred Thirty Six Thousand Four Hundred Ninety Eight
Pesos and Seventy Three Centavos (P1,536,498.73) when it
should only be Seven Hundred Sixty Thousand Three
Hundred Ninety Eight Pesos and Twenty Three Centavos
(P760,398.23) and pegging the interest rate thereon at 18%
instead of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both
dated December 29, 1982 in the principal amounts of Two
Million Six Hundred Fifty One Thousand One Hundred
Averell B. Abrasaldo – II-Sanchez Roman
Eighteen Pesos and Eighty Six Centavos (P2,651,118.86)
and One Million Five Hundred Thirty Six Thousand Seven
Hundred Ninety Eight and Seventy Three Centavos
(P1,536,798.73) respectively and marked Exhibits "BB" and
"CC" respectively, were payable on equal semi-annual
amortization and contained the following escalation clause:
x x x which interest rate the BANK may increase
within the limits allowed by law at any time
depending on whatever policy it may adopt in the
future; Provided, that, the interest rate on this note
shall be correspondingly decreased in the event
that the applicable maximum interest rate is
reduced by law or by the Monetary Board. In either
case, the adjustment in the interest rate agreed
upon shall take effect on the effectivity date of the
increase or decrease in the maximum interest rate.
xxx
It appears from the record that the subject Promissory Notes
Nos. 127/82 and 128/82 superseded and novated the three
(3) 1979 promissory notes and the eleven (11) 1979
"Application and Agreement for Commercial Letter of Credit"
which the petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new
PNB Mandaluyong Branch Manager Bayani A. Bautista
suggested that he sell the coco-chemical plant so that he
could keep up with the semi-annual amortizations. On three
(3) occasions, Bautista even showed up at the plant with
some unidentified persons who claimed that they were
interested in buying the plant.
Petitioner testified that when he confronted the PNB
management about the two (2) Promissory Notes Nos.
127/82 and 128/82 (marked Exhibits "BB" and "CC"
respectively) which he claimed were improperly filled out,
Bautista and Maramag assured him that the five-year
restructuring agreement would be implemented on the
condition that he assigns 10% of his export earnings to the
Bank.13 In a letter dated August 22, 1983, petitioner Mendoza
consented to assign 10% of the net export proceeds of a
Letter of Credit covering goods amounting to One Hundred
Fourteen Thousand Dollars ($114,000.00).14 However,
petitioner claimed that respondent PNB subsequently
debited 14% instead of 10% from his export proceeds.15
Pursuant to the escalation clauses of the subject two (2)
promissory notes, the interest rate on the principal amount in
Promissory Note No. 127/82 was increased from 21% to
29% on May 28, 1984, and to 32% on July 3, 1984 while the
interest rate on the accrued interest per Promissory Note No.
128/82 was increased from 18% to 29% on May 28, 1984,
and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 (Exhibits "BB" and "CC") as they fell
due. Respondent PNB extra-judicially foreclosed the real and
chattel mortgages, and the mortgaged properties were sold
at public auction to respondent PNB, as highest bidder, for a
total of Three Million Seven Hundred Ninety Eight Thousand
Seven Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for
specific performance, nullification of the extra-judicial
foreclosure and damages against respondents PNB,
Fernando Maramag Jr., Ricardo C. Decepida, Vice-President
for Metropolitan Branches, and Bayani A. Bautista. He
alleged that the Extrajudicial Foreclosure Sale of the
mortgaged properties was null and void since his loans were
restructured to a five-year term loan; hence, it was not yet
due and demandable; that the escalation clauses in the
subject two (2) Promissory Notes Nos. 127/82 and 128/82
were null and void, that the total amount presented by PNB
as basis of the foreclosure sale did not reflect the actual loan
obligations of the plaintiff to PNB; that Bautista purposely
delayed payments on his exports and caused delays in the
shipment of materials; that PNB withheld certain personal
properties not covered by the chattel mortgage; and that the
foreclosure of his mortgages was premature so that he was
unable to service his foreign clients, resulting in actual
damages amounting to Two Million Four Thousand Four
Hundred Sixty One Pesos (P2,004,461.00).
On March 16, 1992, the trial court rendered judgment in
favor of the petitioner and ordered the nullification of the
extrajudicial foreclosure of the real estate mortgage, the
Sheriff’s sale of the mortgaged real properties by virtue of
consolidation thereof and the cancellation of the new titles
issued to PNB; that PNB vacate the subject premises in
Pasig and turn the same over to the petitioner; and also the
nullification of the extrajudicial foreclosure and sheriff's sale
of the mortgaged chattels, and that the chattels be returned
to petitioner Mendoza if they were removed from his Pasig
premises or be paid for if they were lost or rendered
unserviceable.
The trial court also ordered respondent PNB to restructure to
five-years petitioner's principal loan of Two Million Six
Hundred Fifty One Thousand One Hundred Eighteen Pesos
8
CREDIT TRANSACTIONS – PART 9: REAL MORTGAGE (Articles 2124 – 2131), ACT 3135 & FORECLOSURE OF REAL ESTATE MORTGAGE
Assigned case
and Eighty Six Centavos (P2,651,118.86) and the
accumulated capitalized interest on the same in the amount
of Seven Hundred Sixty Thousand Three Hundred Eighty
Nine Pesos and Twenty Three Centavos (P760,389.23) as of
December 1982, and that respondent PNB should compute
the additional interest from January 1983 up to October 15,
1984 only when respondent PNB took possession of the said
properties, at the rate of 12% and 9% respectively.
The trial court also ordered respondent PNB to grant
petitioner Mendoza an additional Two Million Pesos
(P2,000,000.00) loan in order for him to have the necessary
capital to resume operation. It also ordered respondents
PNB, Bayani A. Bautista and Ricardo C. Decepida to pay to
petitioner actual damages in the amount of Two Million One
Hundred Thirteen Thousand Nine Hundred Sixty One Pesos
(P2,113,961.00) and the peso equivalent of Six Thousand
Two Hundred Fifteen Dollars ($6,215.00) at the prevailing
foreign exchange rate on October 11, 1983; and exemplary
damages in the amount of Two Hundred Thousand Pesos
(P200,000.00).
Respondent PNB appealed this decision of the trial court to
the Court of Appeals. And the Court of Appeals reversed the
decision of the trial court and dismissed the complaint.
Hence, this petition.
It is the petitioner’s contention that the PNB management
restructured his existing loan obligations to a five-year term
loan and granted him another Two Million Pesos
(P2,000,000.00) LC/TR line; that the Promissory Notes Nos.
127/82 and 128/82 evidencing a 2-year restructuring period
or with the due maturity date "December 29, 1984" were
filled out fraudulently by respondent PNB, and contrary to his
verbal agreement with respondent PNB; hence, his
indebtedness to respondent PNB was not yet due and the
extrajudicial foreclosure of his real estate and chattel
mortgages was premature. On the other hand, respondent
PNB denies that petitioner's loan obligations were
restructured to five (5) years and maintains that the subject
two (2) Promissory Notes Nos. 127/82 and 128/82 were filled
out regularly and became due as of December 29, 1984 as
shown on the face thereof.
Respondent Court of Appeals held that there is no evidence
of a promise from respondent PNB, admittedly a banking
corporation, that it had accepted the proposals of the
petitioner to have a five-year restructuring of his overdue
loan obligations. It found and held, on the basis of the
evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's
Averell B. Abrasaldo – II-Sanchez Roman
responses were not categorical that the appellee's request We are currently evaluating the proposal
had been favorably accepted by the bank." of the client to re-structure his accounts
with us into a five-year plan.
Contending that respondent PNB had allegedly approved his
proposed five-year restructuring plan, petitioner presented We hope that the above information will guide you
three (3) documents executed by respondent PNB officials. in evaluating the proposals of Mr. Danilo Mendoza.
The first document is a letter dated March 16, 1981
addressed to the petitioner and signed by Ceferino D. Cura,
xxx
Branch Manager of PNB Mandaluyong, which states:
The third document is a letter dated July 8, 1981 addressed
x x x In order to study intelligently the feasibility of
to petitioner and signed by PNB Assistant Vice-President
your above request, please submit the following
Apolonio B. Francisco.
documents/papers within thirty (30) days from the
date thereof, viz:
xxx
1. Audited Financial Statements for 1979
and 1980; Considering that your accounts/accommodations
were granted and carried in the books of our
Mandaluyong Branch, we would suggest that your
2. Projected cash flow (cash in - cash
requests and proposals be directed to Ceferino
out) for five years detailed yearly; and
Cura, Manager of our said Branch.
3. List of additional machinery and
We feel certain that Mr. Cura will be pleased to
equipment and proof of ownership
discuss matters of mutual interest with you.
thereof.
xxx
We would strongly suggest, however, that you
reduce your total obligations to at least P3 million
(principal and interest and other charges) to give Petitioner also presented a letter which he addressed to Mr.
us more justification in recommending a plan of Jose Salvador, Vice-President of the Metropolitan Branches
payment or restructuring of your accounts to of PNB, dated September 24, 1981, which reads:
higher authorities of this bank.
Re: Restructuring of our Account into a 5-year
The second document is a letter dated May 11, 1981 Term Loan and Request for the Establishment of a
addressed to Mr. S. Pe Benito, Jr., Managing Director of the P2.0 Million LC/TR Line
Technological Resources Center and signed by said PNB
Branch Manager, Ceferino D. Cura. According to petitioner,
Dear Sir:
this letter showed that respondent PNB seriously considered
the restructuring of his loan obligations to a five-year term
loan, to wit: In compliance with our discussion last September
17, we would like to formalize our proposal to
support our above requested assistance from the
xxx
Philippine National Bank.
At the request of our client, we would like to furnish
xxx
you with the following information pertinent to his
accounts with us:
xxx
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Assigned case
Again we wish to express our sincere appreciation
for your open-minded approach towards the
solution of this problem which we know and will be
beneficial and to the best interest of the bank and
mutually advantageous to your client.
xxx
Petitioner argues that he submitted the requirements
according to the instructions given to him and that upon
submission thereof, his proposed five-year restructuring plan
was deemed automatically approved by respondent PNB.  petitioner's self-serving verbal declarations, we find no
We disagree.
Nowhere in those letters is there a categorical statement that
respondent PNB had approved the petitioner’s proposed
five-year restructuring plan. It is stretching the imagination to
construe them as evidence that his proposed five-year
restructuring plan has been approved by the respondent
PNB which is admittedly a banking corporation. Only an
absolute and unqualified acceptance of a definite offer
manifests the consent necessary to perfect a contract.16 If
anything, those correspondences only prove that the parties
had not gone beyond the preparation stage, which is the
period from the start of the negotiations until the moment just
before the agreement of the parties.17
There is nothing in the record that even suggests that
respondent PNB assented to the alleged five-year
restructure of petitioner’s overdue loan obligations to PNB.
However, the trial court ruled in favor of petitioner Mendoza,
holding that since petitioner has complied with the conditions
of the alleged oral contract, the latter may not renege on its
obligation to honor the five-year restructuring period, under
the rule of promissory estoppel. Citing Ramos v. Central
Bank,18 the trial court said:
The broad general rule to the effect that a promise
to do or not to do something in the future does not
work an estoppel must be qualified, since there are
numerous cases in which an estoppel has been
predicated on promises or assurances as to future
conduct. The doctrine of ‘promissory estoppel’ is
by no means new, although the name has been
adopted only in comparatively recent years.
According to that doctrine, an estoppel may arise
from the making of a promise, even though without
consideration, if it was intended that the promise
should be relied upon and in fact it was relied
Averell B. Abrasaldo – II-Sanchez Roman
upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or
would result in other injustice. In this respect, the
reliance by the promisee is generally evidenced by
action or forbearance on his part, and the idea has
been expressed that such action or forbearance
would reasonably have been expected by the
promissor. xxx
The doctrine of promissory estoppel is an exception to the
general rule that a promise of future conduct does not
constitute an estoppel. In some jurisdictions, in order to
make out a claim of promissory estoppel, a party bears the
burden of establishing the following elements: (1) a promise
reasonably expected to induce action or forebearance; (2)
such promise did in fact induce such action or forebearance,
and (3) the party suffered detriment as a result.19
It is clear from the forgoing that the doctrine of promissory
estoppel presupposes the existence of a promise on the part
of one against whom estoppel is claimed. The promise must
be plain and unambiguous and sufficiently specific so that
the Judiciary can understand the obligation assumed and
enforce the promise according to its terms.20 For petitioner to
claim that respondent PNB is estopped to deny the five-year
restructuring plan, he must first prove that respondent PNB
had promised to approve the plan in exchange for the
submission of the proposal. As discussed earlier, no such
promise was proven, therefore, the doctrine does not apply
to the case at bar. A cause of action for promissory estoppel
does not lie where an alleged oral promise was conditional,
so that reliance upon it was not reasonable.21 It does not
operate to create liability where it does not otherwise exist.22
Since there is no basis to rule that petitioner's overdue loan
obligations were restructured to mature in a period of five (5)
years, we see no other option but to respect the two-year
period as contained in the two (2) subject Promissory Notes
Nos. 127/82 and 128/82, marked as Exhibits "BB" and "CC"
respectively which superseded and novated all prior loan
documents signed by petitioner in favor of respondent PNB.
Petitioner argues, in his memorandum, that "respondent
Court of Appeals had no basis in saying that the acceptance
of the five-year restructuring is totally absent from the
record."23 On the contrary, the subject Promissory Notes
Nos. 127/82 and 128/82 are clear on their face that they
were due on December 29, 1984 or two (2) years from the
date of the signing of the said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory Notes
Nos. 127/82 and 128/82 were signed by him in blank with the
understanding that they were to be subsequently filled out to
conform with his alleged oral agreements with PNB officials,
among which is that they were to become due only after five
(5) years. If petitioner were to be believed, the PNB officials
concerned committed a fraudulent act in filling out the
subject two (2) promissory notes in question. Private
transactions are presumed to be fair and regular. 24 The
burden of presenting evidence to overcome this presumption
falls upon petitioner. Considering that petitioner imputes a
serious act of fraud on respondent PNB, which is a banking
corporation, this court will not be satisfied with anything but
the most convincing evidence. However, apart from
sufficient proof that the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 were completed irregularly.
Therefore, we rule that the presumption has not been
rebutted.
Besides, it could be gleaned from the record that the
petitioner is an astute businessman who took care to reduce
in writing his business proposals to the respondent bank. It is
unthinkable that the same person would commit the careless
mistake of leaving his subject two (2) promissory notes in
blank in the hands of other persons. As the respondent Court
of Appeals correctly pointed out:
Surely, plaintiff-appellee who is a C.P.A and a Tax
Consultant (p. 3 TSN, January 9, 1990) will insist
that the details of the two promissory notes he and
his wife executed in 1982 should be specific to
enable them to make the precise computation in
the event of default as in the case at bench. In
fact, his alleged omission as a C.P.A. and a Tax
Consultant to insist that the two promissory notes
be filled up on important details like the rates of
interest is inconsistent with the legal presumption
of a person who takes ordinary care of his
concerns (Section 3 (c), Rule 131, Revised Rules
on Evidence).
As pointed out by the Court of Appeals, Orlando Montecillo,
Chief, Loans and Discounts, PNB Mandaluyong Branch,
testified that the said Promissory Notes Nos. 127/82 and
128/82 were completely filled out when Danilo Mendoza
signed them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan restructuring
theory, petitioner contends that respondent PNB's action of
withholding 10% from his export proceeds is proof that his
proposal had been accepted and the contract had been
partially executed. He claims that he would not have
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CREDIT TRANSACTIONS – PART 9: REAL MORTGAGE (Articles 2124 – 2131), ACT 3135 & FORECLOSURE OF REAL ESTATE MORTGAGE
Assigned case
consented to the additional burden if there were no
corresponding benefit. This contention is not well taken.
There is no credible proof that the 10% assignment of his
export proceeds was not part of the conditions of the two-
year restructuring deal. Considering that the resulting
amount obtained from this assignment of export proceeds
was not even enough to cover the interest for the
corresponding month,25 we are hard-pressed to construe it
as the required proof that respondent PNB allegedly
approved the proposed five-year restructuring of petitioner’s
overdue loan obligations.
It is interesting to note that in his Complaint, petitioner made
no mention that the assignment of his export proceeds was a
condition for the alleged approval of his proposed five-year
loan restructuring plan. The Complaint merely alleged that
"plaintiff in a sincere effort to make payments on his
obligations agreed to assign 10% of his export proceeds to
defendant PNB." This curious omission leads the court to
believe that the alleged link between the petitioner’s
assignment of export proceeds and the alleged five-year
restructuring of his overdue loans was more contrived than
real.
It appears that respondent bank increased the interest rates
on the two (2) subject Promissory Notes Nos. 127/82 and
128/82 without the prior consent of the petitioner. The
petitioner did not agree to the increase in the stipulated
interest rate of 21% per annum on Promissory Note No.
127/82 and 18% per annum on Promissory Note No. 128/82.
As held in several cases, the unilateral determination and
imposition of increased interest rates by respondent bank is
violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code.26 As held in one case:27
It is basic that there can be no contract in the true
sense in the absence of the element of agreement,
or of mutual assent of the parties. If this assent is
wanting on the part of one who contracts, his act
has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all
the parties must meet as to the proposed
modification, especially when it affects an
important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate
of interest is always a vital component, for it can
make or break a capital venture.
Averell B. Abrasaldo – II-Sanchez Roman
It has been held that no one receiving a proposal to change
a contract to which he is a party is obliged to answer the
proposal, and his silence per se cannot be construed as an
acceptance.28 Estoppel will not lie against the petitioner
regarding the increase in the stipulated interest on the
subject Promissory Notes Nos. 127/82 and 128/82 inasmuch
as he was not even informed beforehand by respondent
bank of the change in the stipulated interest rates. However,
we also note that the said two (2) subject Promissory Notes
Nos. 127/82 and 128/82 expressly provide for a penalty
charge of 3% per annum to be imposed on any unpaid
amount when due.
Petitioner prays for the release of some of his
movables29 being withheld by respondent PNB, alleging that
they were not included among the chattels he mortgaged to
respondent bank. However, petitioner did not present any
proof as to when he acquired the subject movables and
hence, we are not disposed to believe that the same were
"after-acquired" chattels not covered by the chattel and real
estate mortgages.
In asserting its rights over the subject movables, respondent
PNB relies on a common provision in the two (2) subject
Promissory Notes Nos. 127/82 and 128/82 which states:
In the event that this note is not paid at maturity or
when the same becomes due under any of the
provisions hereof, we hereby authorized the BANK
at its option and without notice, to apply to the
payment of this note, any and all moneys,
securities and things of value which may be in its
hands on deposit or otherwise belonging to me/us
and for this purpose. We hereby, jointly and
severally, irrevocably constitute and appoint the
BANK to be our true Attorney-in-Fact with full
power and authority for us in our name and behalf
and without prior notice to negotiate, sell and
transfer any moneys securities and things of value
which it may hold, by public or private sale and
apply the proceeds thereof to the payment of this
note.
It is clear, however, from the above-quoted provision of the
said promissory notes that respondent bank is authorized, in
case of default, to sell "things of value" belonging to the
mortgagor "which may be on its hands for deposit or
otherwise belonging to me/us and for this purpose." Besides
the petitioner executed not only a chattel mortgage but also a
real estate mortgage to secure his loan obligations to
respondent bank.
A stipulation in the mortgage, extending its scope and effect
to after-acquired property is valid and binding where the
after-acquired property is in renewal of, or in substitution for,
goods on hand when the mortgage was executed, or is
purchased with the proceeds of the sale of such goods. 30 As
earlier pointed out, the petitioner did not present any proof as
to when the subject movables were acquired.
More importantly, respondent bank makes a valid argument
for the retention of the subject movables. Respondent PNB
asserts that those movables were in fact "immovables by
destination" under Art. 415 (5) of the Civil Code. 31 It is an
established rule that a mortgage constituted on an
immovable includes not only the land but also the buildings,
machinery and accessories installed at the time the
mortgage was constituted as well as the buildings,
machinery and accessories belonging to the mortgagor,
installed after the constitution thereof.32
Petitioner also contends that respondent PNB’s bid prices for
this foreclosed properties in the total amount of Three Million
Seven Hundred Ninety Eight Thousand Seven Hundred
Nineteen Pesos and Fifty Centavos (P3,798,719.50), were
allegedly "unconscionable and shocking to the conscience of
men". He claims that the fair market appraisal of his
foreclosed plant site together with the improvements thereon
located in Pasig, Metro Manila amounted to Five Million Four
Hundred Forty One Thousand Six Hundred Fifty Pesos
(P5,441,650.00) while that of his house and lot in Quezon
City amounted to Seven Hundred Twenty Two Thousand
Pesos (P722,000.00) per the appraisal report dated
September 20, 1990 of Cuervo Appraisers, Inc. 33 That
contention is not well taken considering that:
1. The total of the principal amounts alone of
petitioner’s subject Promissory Notes Nos. 127/82
and 128/82 which are both overdue amounted to
Four Million One Hundred Eighty Seven Thousand
Nine Hundred Seventeen Pesos and Fifty Nine
Centavos (P 4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc.
was undertaken in September 1990, the
extrajudicial foreclosure of petitioner’s real estate
and chattel mortgages have been effected way
back on October 15, 1984, October 23, 1984 and
December 21, 1984.34 Common experience shows
that real estate values especially in Metro Manila
tend to go upward due to developments in the
locality.1âwphi1.nêt
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3. In the public auction/foreclosure sales,
respondent PNB, as mortgagee, was not obliged
to bid more than its claims or more than the
amount of petitioner’s loan obligations which are
all overdue. The foreclosed real estate and chattel
mortgages which petitioner earlier executed are
accessory contracts covering the collaterals or
security of his loans with respondent PNB. The
principal contracts are the Promissory Notes Nos.
127/82 and 128/82 which superseded and novated
the 1979 promissory notes and the 1979 eleven
(11) Applications and Agreements for Commercial
Letter of Credit.
Finally, the record shows that petitioner did not even attempt
to tender any redemption price to respondent PNB, as
highest bidder of the said foreclosed real estate properties,
during the one-year redemption period.
In view of all the foregoing, it is our view and we hold that the
extrajudicial foreclosure of petitioner’s real estate and chattel
mortgages was not premature and that it was in fact legal
and valid.
WHEREFORE, the petition is hereby DENIED. The
challenged Decision of the Court of Appeals in CA-G.R. CV
No. 38036 is AFFIRMED with modification that the increase
in the stipulated interest rates of 21% per annum and 18%
per annum appearing on Promissory Notes Nos. 127/82 and
128/82 respectively is hereby declared null and void.
SO ORDERED.
G.R. No. 177886             November 27, 2008
SPOUSES LEOPOLDO S. VIOLA and MERCEDITA
VIOLA, petitioners, 
vs.
EQUITABLE PCI BANK, INC., respondent.
DECISION
CARPIO MORALES, J.:
Via a contract denominated as "CREDIT LINE AND REAL
ESTATE MORTGAGE AGREEMENT FOR PROPERTY
LINE"1(Credit Line Agreement) executed on March 31, 1997,
Leo-Mers Commercial, Inc., as the Client, and its officers
Averell B. Abrasaldo – II-Sanchez Roman
spouses Leopoldo and Mercedita Viola (petitioners) obtained The mortgaged properties were sold on April 10, 2003
a loan through a credit line facility in the maximum amount for P4,284,000.00 at public auction to respondent, after
of P4,700,000.00 from the Philippine Commercial which a Certificate of Sale dated April 21, 20034 was issued.
International Bank (PCI Bank), which was later merged with
Equitable Bank and became known as Equitable PCI Bank,
More than five months later or on October 8, 2003,
Inc. (respondent).
petitioners filed a complaint5 for annulment of foreclosure
sale, accounting and damages before the Marikina RTC,
The Credit Line Agreement stipulated that the loan would docketed as Civil Case No. 2003-905-MK and raffled to
bear interest at the "prevailing PCIBank lending rate" per Branch 192. Petitioners alleged, inter alia, that they had
annum on the principal obligation and a "penalty fee of three made substantial payments of P3,669,210.67 receipts of
percent (3%) per month on the outstanding amount." which were issued without respondent specifying "whether
the payment was for interest, penalty or the principal
obligation;" that based on respondent’s statement of
To secure the payment of the loan, petitioners executed also
account, not a single centavo of their payments was applied
on March 31, 1997 a "Real Estate Mortgage"2 in favor of
to the principal obligation; that every time respondent sent
PCIBank over their two parcels of land covered by Transfer
them a statement of account and demand letters, they
Certificates of Title No. N-113861 (consisting of 300 square
requested for a proper accounting for the purpose of
meters, more or less ) and N-129036 (consisting of 446
determining their actual obligation, but all their requests were
square meters, more or less) of the Registry of Deeds of
unjustifiably ignored on account of which they were forced to
Marikina.
discontinue payment; that "the foreclosure proceedings and
auction sale were not only irregularly and prematurely held
Petitioners availed of the full amount of the loan. but were null and void because the mortgage debt is
Subsequently, they made partial payments which only P2,224,073.31 on the principal obligation
totaled P3,669,210.67. By respondent’s claim, petitioner had and P1,455,137.36 on the interest, or a total of
since November 24, 2000 made no further payments and only P3,679,210.67 as of April 15, 2003, but the mortgaged
despite demand, they failed to pay their outstanding properties were sold to satisfy an inflated and erroneous
obligation which, as of September 30, 2002, principal obligation of P4,783,254.69, plus 3% penalty fee
totaled P14,024,623.22, broken down as follows: per month or 33% per year and 15% interest per year, which
amounted to P14,024,623.22 as of September 30,
2002;" that "the parties never agreed and stipulated in the
(a Principal real estate mortgage contract" that the 15% interest per
) obligation P4,783,254.69 annum on the principal loan and the 3% penalty fee per
month on the outstanding amount would be covered or
secured by the mortgage; that assuming respondent could
(b Past due
impose such interest and penalty fee, the same are
) interest from
"exorbitant, unreasonable, iniquitous and unconscionable,
11/24/00 to
hence, must be reduced;" and that respondent is only
09/30/02 at
allowed to impose the legal rate of interest of 12% per
15% interest P1,345,290.38
annum on the principal loan absent any stipulation thereon.6
(c) Penalty at 3%
per month from In its Answer, respondent denied petitioners’ assertions,
03/31/98 to contending, inter alia, that the absence of stipulation in the
02/23/02 P7,896,078.15 mortgage contract securing the payment of 15% interest per
annum on the principal loan, as well as the 3% penalty fee
P14,024,623.223 (Underscoring per month on the outstanding amount, is immaterial since the
supplied) mortgage contract is "a mere accessory contract which must
take its bearings from the principal Credit Line Agreement."7
Respondent thus extrajudicially foreclosed the mortgage During the pre-trial conference, the parties defined as sole
before the Office of the Clerk of Court & Ex-Officio Provincial issue in the case whether the mortgage contract  also
Sheriff of the Regional Trial Court (RTC) of Marikina City. secured the payment of 15% interest per annum on the
principal loan of P4,700,000.00 and the 3% penalty fee per
12
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Assigned case
month on the outstanding amount, which interest and penalty
fee are stipulated only in the Credit Line Agreement.8
By Decision9 of September 14, 2005, the trial court sustained
respondent’s affirmative position on the issue but found the
questioned interest and penalty fee "excessive and
exorbitant." Thus, it equitably reduced the interest on the
principal loan from 15% to 12% per annum and the penalty
fee per month on the outstanding amount from 3%
to 1.5% per month.
Accordingly, the court nullified the foreclosure proceedings
and the Certificate of Sale subsequently issued, "without
prejudice" to the holding anew of foreclosure proceedings
based on the "re-computed amount" of the indebtedness, "if
the circumstances so warrant."
The dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered as
follows:
1) The interest on the principal loan in the amount
of Four Million Seven Hundred Thousand
(P4,700,000.00) Pesos should
be recomputed at 12% per annum;
2) The 3% per month penalty on delinquent
account as stipulated by the parties in the Credit
Line Contract dated March 31, 1997 is
hereby REDUCED to 1.5% per month;
3) The foreclosure sale conducted on April 10,
2003 by the Clerk of Court and Ex-Officio Sheriff of
Marikina, to satisfy the plaintiff’s mortgage
indebtedness, and the Certificate of Sale issued as
a consequence of the said
proceedings, are declared NULL and VOID, withou
t prejudice to the conduct of another foreclosure pr
oceedings on the basis of there-computed amount 
of the plaintiff’s indebtedness, if the circumstances 
so warrant.
No pronouncement as to costs.
SO ORDERED. (Underscoring supplied)
Averell B. Abrasaldo – II-Sanchez Roman
Petitioners filed a Motion for Partial
Reconsideration,10 contending that the penalty fee per month
on the outstanding amount should have been taken out of
the coverage of the mortgage contract as it was not
stipulated therein. By Order dated December 6, 2005, the
trial court denied the motion.
On appeal by petitioners, the Court of Appeals, by
Decision11 of February 21, 2007, dismissed the same for lack
of merit, holding that "the Real Estate Mortgage covers not
only the principal amount [of P4,700,000.00] but also the
‘interest and bank charges,’ which [phrase bank charges]
refers to the penalty charges stipulated in the Credit Line
Agreement."12
Petitioners’ Motion for Reconsideration having been denied
by Resolution13 of May 16, 2007, they filed the present
Petition for Review on Certiorari, alleging that –
THE HONORABLE COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR IN
DECIDING THE CASE NOT IN ACCORD WITH
LAW AND APPLICABLE DECISIONS OF THE
SUPREME COURT BY RULING THAT THERE
IS NOAMBIGUITY IN CONSTRUING TOGETHER
THE CREDIT LINE AND MORTGAGE
CONTRACTS WHICH
PROVIDED CONFLICTING PROVISIONS AS TO
INTEREST AND PENALTY.14
The only issue is whether the mortgage contract also
secured the penalty fee  per month on the outstanding
amount as stipulated in the Credit Line Agreement.
The Court holds not.
A mortgage must "sufficiently describe the debt sought to be
secured, which description must not be such as to mislead or
deceive, and an obligation is not secured by a mortgage
unless it comes fairly within the terms of the mortgage.15
In the case at bar, the parties executed two separate
documents on March 31, 1997 – the Credit Line
Agreement granting the Client a loan through a credit facility
in the maximum amount of P4,700,000.00, and the Real
Estate Mortgage contract securing the payment thereof.
Undisputedly, both contracts were prepared by respondent
and written in fine print, single space.
The Credit Line Agreement contains the following
stipulations on interest and delinquency charges:
A. CREDIT FACILITY
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest
on each availment against the Credit
Facility at the rate of:
PREVAILING PCIBANK
LENDING RATE
for the first interest period as defined in A(10)
hereof. x x x.
xxxx
15. DELINQUENCY
CLIENT’s account shall be considered
delinquent if the availments exceed the
amount of the line and/or in case the
Account is debited for unpaid interest
and the Available Balance is insufficient
to cover the amount debited. In such
cases, the Available Balance shall
become negative and the CLIENT shall
pay the deficiencyimmediately in
addition to collection expenses incurred
by the BANK and a penalty fee of three
percent (3%) per month of the
outstanding amount to be computed
from the day deficiency is incurred up to
the date of full payment thereon.
x x x x.16 (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:
That for and in consideration of certain loans,
credit and other banking facilities obtained x x x
from the Mortgagee, the principal amount of which
is PESOS FOUR MILLION SEVEN HUNDERED
THOUSAND ONLY (P4,700,000.00) Philippine
Currency, and for the purpose of securing the
13
CREDIT TRANSACTIONS – PART 9: REAL MORTGAGE (Articles 2124 – 2131), ACT 3135 & FORECLOSURE OF REAL ESTATE MORTGAGE
Assigned case
payment thereof, including the interest and bank
chargesaccruing thereon, the costs of collecting
the same and of taking possession of and keeping
the mortgaged propert[ies], and all other expenses
to which the Mortgagee may be put in connection
with or as an incident to this mortgage, as well as
the faithful compliance with the terms and
conditions of this agreement and of the separate
instruments under which the credits hereby
secured were obtained, the Mortgagor does
hereby constitute in favor of the Mortgagee, its
successors or assigns, a mortgage on the real
property particularly described, and the location of
which is set forth, in the list appearing at the back
hereof and/or appended hereto, of which the
Mortgagor declare that he is the absolute owner
and the one in possession thereof, free and clear
of any liens, encumbrances and adverse
claims.17 (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract
does not specifically mention that, aside from the principal
loan obligation, it also secures the payment of "a penalty fee
of three percent (3%) per month of the outstanding amount
to be computed from the day deficiency is incurred up to the
date of full payment thereon," which penalty as the above-
quoted portion of the Credit Line Agreement expressly
stipulates.
Since an action to foreclose "must be limited to the amount
mentioned in the mortgage"18 and the penalty fee of 3% per
month of the outstanding obligation is not mentioned in the
mortgage, it must be excluded from the computation of the
amount secured by the mortgage.
The ruling of the Court of Appeals in its assailed Decision
that the phrase "including the interest and bank charges" in
the mortgage contract "refers to the penalty
charges stipulated in the Credit Line Agreement" is
unavailing.
"Penalty fee" is entirely different from "bank charges." The
phrase "bank charges" is normally understood to refer to
compensation for services. A "penalty fee" is likened to a
compensation for damages in case of breach of the
obligation. Being penal in nature, such fee must
be specific and fixed by the contracting parties, unlike in the
present case which slaps
a 3% penalty fee per month of the outstanding amount of
the obligation.
Averell B. Abrasaldo – II-Sanchez Roman
Moreover, the "penalty fee" does not belong to the species of
obligation enumerated in the mortgage contract, namely:
"loans, credit and other banking facilities obtained x x x from
the Mortgagee, . . . including the interest and bank charges, .
. . the costs of collecting the same and of taking possession
of and keeping the mortgaged properties, and all other
expenses to which the Mortgagee may be put in connection
with or as an incident to this mortgage . . ."
In Philippine Bank of Communications v. Court of
Appeals19 which raised a similar issue, this Court held:
The sole issue in this case is whether, in the
foreclosure of a real estate mortgage, the penalties
stipulated in two promissory notes secured by the
mortgage may be charged against the mortgagors
as part of the sums secured, although the
mortgage contract does not mention the said
penalties.
xxxx
We immediately discern that the mortgage contract
does not at all mention the penalties stipulated in
the promissory notes. However, the petitioner
insists that the penalties are covered by the
following provision of the mortgage contract:
This mortgage is given as security for
the payment to the MORTGAGEE on
demand or at maturity, as the case may
be, of all promissory notes, letters of
credit, trust receipts, bills of exchange,
drafts, overdrafts and all other
obligations of every kind already
incurred or which hereafter may be
incurred….
xxxx
The Court is unconvinced, for the cases relied
upon by the petitioner are inapplicable. x x x.
xxxx
The mortgage contract is also one of adhesion as
it was prepared solely by the petitioner and the
only participation of the other party was the affixing
of his signature or "adhesion" thereto. Being a
contract of adhesion, the mortgage is to be strictly
construed against the petitioner, the party which
prepared the agreement.
A reading, not only of the earlier quoted provision,
but of the entire mortgage contract yields no
mention of penalty charges. Construing this
silence strictly against the petitioner, it can fairly be
concluded that the petitioner did not intend to
include the penalties on the promissory notes in
the secured amount. This explains the finding by
the trial court, as affirmed by the Court of Appeals,
that "penalties and charges are not due for want of
stipulation in the mortgage contract."
Indeed, a mortgage must sufficiently describe
the debt sought to be secured , which description
must not be such as to mislead or deceive, and  an
obligation is not secured by a mortgage unless
it comes fairly within the terms of the
mortgage. In this case, the mortgage contract
provides that it secures notes and other evidences
of indebtedness. Under the rule of ejusdem
generis, where a description of things of a
particular class or kind is "accompanied by words
of a generic character, the generic words will
usually be limited to things of a kindred nature with
those particularly enumerated . . . " A penalty
charge does not belong to the species of
obligations enumerated in the mortgage,
hence, the said contract cannot be understood
to secure the penalty.20(Emphasis and
underscoring supplied)
Respondent’s contention that the absence in the
mortgage contract of a stipulation securing the
payment of the 3% penalty fee per month on the
outstanding amount is of no consequence, the
deed of mortgage being merely an "accessory
contract" that "must take its bearings from the
principal Credit Line Agreement,"21 fails. Such
absence is significant as it
creates an ambiguity between the two contracts, which
ambiguity must be resolved in favor of petitioners and
against respondent who drafted the contracts. Again, as
stressed by the Court in Philippine Bank of Communications:
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Assigned case
There is also sufficient authority to declare that any
ambiguity in a contract whose terms are
susceptible of different interpretations must be
read against the party who drafted it.
A mortgage and a note secured by it are deemed
parts of one transaction and are construed
together, thus, an ambiguity is created when the
notes provide for the payment of a penalty but
the mortgage contract does not. Construing the
ambiguity against the petitioner, it follows that  no
penalty was intended to be covered by the
mortgage. The mortgage contract consisted of
three pages with no less than seventeen
conditions in fine print; it included provisions for
interest and attorney’s fees similar to those in the
promissory notes; and it even provided for the
payment of taxes and insurance charges. Plainly,
the petitioner can be as specific as it wants to be,
yet it simply did not specify nor even allude to, that
the penalty in the promissory notes would be
secured by the mortgage. This can then only be
interpreted to mean that the petitioner had no
design of including the penalty in the amount
secured.22 (Emphasis and underscoring supplied)
WHEREFORE, the assailed Court of Appeals Decision of
February 21, 2007 and Resolution of May 16, 2007 in CA-
G.R. SP No. CA-G.R. CV No. 86412 affirming the trial court’s
decision are, in light of the foregoing
disquisition, AFFIRMED withMODIFICATION in that the
"penalty fee" per month of the outstanding obligation
is excluded in the computation of the amount secured by the
Real Estate Mortgage executed by petitioners in
respondent’s favor.
SO ORDERED.
G.R. No. 168736             April 19, 2006
SPOUSES ADELINA S. CUYCO and FELICIANO U.
CUYCO, Petitioners, 
vs.
SPOUSES RENATO CUYCO and FILIPINA
CUYCO, Respondents.  renders judgment on the Complaint in favor of the plaintiffs
DECISION
YNARES-SANTIAGO, J.:
Averell B. Abrasaldo – II-Sanchez Roman
This petition for review on certiorari assails the Decision1 of
the Court of Appeals (CA) in CA G.R. CV No. 62352 dated
November 5, 2003 which modified the Decision2 of the
Regional Trial Court (RTC) of Quezon City, Branch 105 in
Civil Case No. Q-97-32130 dated January 27, 1999, as well
as the Resolution3 dated June 28, 2005 denying the motion
for reconsideration thereof.
The facts of the case are as follows:
Petitioners, spouses Adelina and Feliciano Cuyco, obtained
a loan in the amount of P1,500,000.00 from respondents,
spouses Renato and Filipina Cuyco, payable within one year
at 18% interest per annum, and secured by a Real Estate
Mortgage4 over a parcel of land with improvements thereon
situated in Cubao, Quezon City covered by TCT No. RT-
43723 (188321).5
Subsequently, petitioners obtained additional loans from the
respondents in the aggregate amount of P1,250,000.00,
broken down as follows: (1) P150,000.00 on May 30, 1992;
(2) P150,000.00 on July 1, 1992; (3) P500,000.00 on
September 5, 1992; (4) P200,000.00 on October 29, 1992;
and (5) P250,000.00 on January 13, 1993.6
Petitioners made payments amounting to P291,700.00,7 but
failed to settle their outstanding loan obligations. Thus, on
September 10, 1997, respondents filed a complaint8 for
foreclosure of mortgage with the RTC of Quezon City, which
was docketed as Civil Case No. Q-97-32130. They alleged
that petitioners’ loans were secured by the real estate
mortgage; that as of August 31, 1997, their indebtedness
amounted to P6,967,241.14, inclusive of the 18% interest
compounded monthly; and that petitioners’ refusal to settle
the same entitles the respondents to foreclose the real estate
mortgage. 
Petitioners filed a motion to dismiss9 on the ground that the
complaint states no cause of action which was denied by the
RTC10 for lack of merit.
In their answer,11 petitioners admitted their loan obligations
but argued that only the original loan of P1,500,000.00 was
secured by the real estate mortgage at 18% per annum and
that there was no agreement that the same will be
compounded monthly.
On January 27, 1999, the RTC rendered judgment12 in favor
of the respondents, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the Court
renders judgment on the Complaint in favor of the plaintiffs
and hereby orders the defendants to pay to the Court or to
the plaintiffs the amounts of P6,332,019.84, plus interest until
fully paid, P25,000.00 as attorney’s fees, and costs of suit,
within a period of one hundred and twenty (120) days from
the entry of judgment, and in case of default of such payment
and upon proper motion, the property shall be ordered sold
at public auction to satisfy the judgment. Further,
defendants[’] counterclaim is dismissed.
SO ORDERED.13
Petitioners appealed to the CA reiterating their previous
claim that only the amount of P1,500,000.00 was secured by
the real estate mortgage.14 They also contended that the
RTC erred in ordering the foreclosure of the real estate
mortgage to satisfy the total indebtedness of P6,532,019.84,
as of January 10, 1999, plus interest until fully paid, and in
imposing legal interest of 12% per annum on the stipulated
interest of 18% from the filing of the case until fully paid.15
On November 5, 2003, the CA partially granted the petition
and modified the RTC decision insofar as the amount of the
loan obligations secured by the real estate mortgage. It held
that by express intention of the parties, the real estate
mortgage secured the original P1,500,000.00 loan and the
subsequent loans of P150,000.00 and P500,000.00 obtained
on July 1, 1992 and September 5, 1992, respectively. As
regards the loans obtained on May 31, 1992, October 29,
1992 and January 13, 1993 in the amounts of P150,000.00,
P200,000.00 and P250,000.00, respectively, the appellate
tribunal held that the parties never intended the same to be
secured by the real estate mortgage. The Court of Appeals
also found that the trial court properly imposed 12% legal
interest on the stipulated interest from the date of filing of the
complaint. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is PARTIALLY GRANTED.
The assailed decision of the Regional Trial Court of Quezon
City, Branch 105, in Civil Case No. Q-97-32130 is hereby
MODIFIED to read:
"WHEREFORE, in the light of the foregoing, the Court
and hereby orders the defendants to pay to the Court or to
the plaintiffs the amount of P2,149,113.92[,] representing the
total outstanding principal loan of the said defendants, plus
the stipulated interest at the rate of 18% per annum accruing
thereon until fully paid, within a period of one hundred and
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Assigned case
twenty days from the entry of judgment, and in case of
default of such payment and upon motion, the property,
subject of the real estate mortgage contract, shall be ordered
sold at public auction in satisfaction of the mortgage
debts.1avvphil.net
Defendants are further, ordered to pay the plaintiffs the
following:
1. the legal interest at the rate of 12% per annum
on the stipulated interest of 18% per annum,
computed from the filing of the complaint until fully
paid;
2. the sum of P25,000.00 as and for attorney’s
fees; and
3. the costs of suit."
SO ORDERED.16
Hence, the instant petition for review on the sole issue:
WHETHER OR NOT PETITIONERS MUST PAY
RESPONDENTS LEGAL INTEREST OF 12% PER ANNUM
ON THE STIPULATED INTEREST OF 18% PER ANNUM,
COMPUTED FROM THE FILING OF THE COMPLAINT
UNTIL FULL PAID.17
Petitioners contend that the imposition of the 12% legal
interest per annum on the stipulated interest of 18% per
annum computed from the filing of the complaint until fully
paid was not provided in the real estate mortgage contract,
thus, the same has no legal basis.  time the quantification of damages may be
We are not persuaded.  The actual base for the computation of legal
While a contract is the law between the parties, 18 it is also
settled that an existing law enters into and forms part of a
valid contract without the need for the parties expressly
making reference to it.19 Thus, the lower courts correctly
applied Article 2212 of the Civil Code as the basis for the
imposition of the legal interest on the stipulated interest due.
It reads:
Averell B. Abrasaldo – II-Sanchez Roman
Art. 2212. Interest due shall earn legal interest from the time In the case at bar, the evidence shows that petitioners
it is judicially demanded, although the obligation may be obtained several loans from the respondent, some of which
silent upon this point. as held by the CA were secured by real estate mortgage and
earned an interest of 18% per annum. Upon default thereof,
respondents demanded payment from the petitioners by
The foregoing provision has been incorporated in the
filing an action for foreclosure of the real estate mortgage.
comprehensive summary of existing rules on the
Clearly, the case falls under the rule stated in paragraph 1. 
computation of legal interest enunciated by the Court
in Eastern Shipping Lines, Inc. v. Court of Appeals,20 to wit:
Applying the rules in the computation of interest, the principal
amount of loans subject of the real estate mortgage must
1. When an obligation is breached, and it consists
earn the stipulated interest of 18% per
in the payment of a sum of money, i.e., a loan or
annum, which interest, as long as unpaid, also earns legal
forbearance of money, the interest due should be
interest of 12% per annum, computed from the date of the
that which may have been stipulated in
filing of the complaint on September 10, 1997 until finality of
writing. Furthermore, the interest due shall itself
the Court’s Decision. Such interest is not due to stipulation
earn legal interest from the time it is judicially
but due to the mandate of the law21 as embodied in Article
demanded. In the absence of stipulation, the rate
2212 of the Civil Code. From such date of finality, the total
of interest shall be 12% per annum to be
amount due shall earn interest of 12% per annum until
computed from default, i.e., from judicial or
satisfied.22
extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
Certainly, the computed interest from the filing of the
complaint on September 10, 1997 would no longer be true
2. When an obligation, not constituting a loan or
upon the finality of this Court’s decision. In accordance with
forbearance of money, is breached, an interest on
the rules laid down in Eastern Shipping Lines, Inc. v. Court
the amount of damages awarded may be imposed
of Appeals, we derive the following formula23 for the RTC’s
at the discretion of the court at the rate of 6% per
guidance:
annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or
until the demand can be established with TOTAL AMOUNT DUE = [principal + interest +
reasonable certainty. Accordingly, where the interest on interest] - partial payments made
demand is established with reasonable certainty,
the interest shall begin to run from the time the
Interest = principal x 18 % per annum x no. of
claim is made judicially or extrajudicially (Art. 1169,
years from due date until finality of judgment
Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is
made, the interest shall begin to run only from the Interest on interest = Interest computed as of the
date the judgment of the court is made (at which filing of the complaint (September 10, 1997) x 12%
x no. of years until finality of judgment
deemed to have been reasonably ascertained).
Total amount due as of the date of finality of judgment will
interest shall, in any case, be on the amount finally
earn an interest of 12% per annum until fully paid.
adjudged.
In Rizal Commercial Banking Corporation v. Alfa RTW
3. When the judgment of the court awarding a
Manufacturing Corporation,24 this Court held that the total
sum of money becomes final and executory,
amount due on the contracts of loan may be easily
the rate of legal interest, whether the case falls
determined by the trial court through a simple mathematical
under paragraph 1 or paragraph 2, above, shall
computation based on the formula specified above.
be 12% per annum from such finality until its
Mathematics is an exact science, the application of which
satisfaction, this interim period being deemed
needs no further proof from the parties.
to be by then an equivalent to a forbearance of
credit. (Emphasis supplied)
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Assigned case
As regards what loans were secured by the real estate
mortgage, respondents contended that all five additional
loans were intended by the parties to be secured by the real
estate mortgage. Thus, the CA erred in ruling that only two of
the five additional loans were secured by the real estate
mortgage when the documents evidencing said loans would
show at least three loans were secured by the real estate
mortgage, namely: (1) P150,000.00 obtained on May 31,
1992; (2) P150,000.00 obtained on July 1, 1992; and (3)
P500,000.00 obtained on September 5, 1992.25
In their Reply, petitioners alleged that their petition only
raised the sole issue of interest on the interest due, thus, by
not filing their own petition for review, respondents waived
their privilege to bring matters for the Court’s review that do
not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall
consider only the assigned errors, however, it is equally
settled that the Court is clothed with ample authority to
review matters not assigned as errors in an appeal, if it finds
that their consideration is necessary to arrive at a just
disposition of the case.26
Moreover, as an exception to the rule that findings of facts of
the CA are conclusive and binding on the Court, 27 an
independent evaluation of facts may be done by it when the
findings of facts are conflicting,28 as in this case. 
The RTC held that all the additional loans were secured by
the real estate mortgage, thus:
There is, therefore, a preponderance of evidence to show
that the parties agreed that the additional loans would be
against the mortgaged property. It is of no moment that the
Deed of Mortgage (Exh. B) was not amended and thereafter
annotated at the back of the title (Exh. C) because under
Article 2125 of the Civil Code, if the instrument of mortgage
is not recorded, the mortgage is nevertheless binding
between the parties. It is extremely difficult for the court to
perceive that the plaintiffs required the defendants to execute
a mortgage on the first loan and thereafter fail to do so on
the succeeding loans. Such contrary behavior is unlikely.29
The CA modified the RTC decision holding that:  by the real estate mortgage contract. Consequently, we rule
However, the real estate mortgage contract was
supplemented by the express intention of the mortgagors
(defendants-appellants) to secure the subsequent loans they
Averell B. Abrasaldo – II-Sanchez Roman
obtained from the mortgagees (plaintiffs-appellees), on 01
July 1992, in the amount of P150,000.00, and on 05
September 1992, in the amount of P500,000.00. The
mortgagors’ (defendants-appellants) intention to secure a
larger amount than that stated in the real estate mortgage
contract was unmistakable in the acknowledgment receipts
they issued on the said loans. The acknowledgment receipts
read:
"July 1, [1]992
"Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck #
498243 in the amount of P150,000.00 July 1/92 as additional
loan against mortgaged property TCT No. RT-43723
(188321) Q.C.
(SGD) Adelina S. Cuyco"
"Sept. 05/92
"Received from Mr. R. Cuyco the amount of P500,000.00
(five hundred thousand) PCIB Ck # 468657 as additional
loan from mortgage property TCT RT-43723.
(SGD) Adelina S. Cuyco"
In such case, the specific amount mentioned in the real
estate mortgage contract no longer controls. By express
intention of the mortgagors (defendants-appellants) the real
estate mortgage contract, as supplemented, secures the
P1,500,000.00 loan obtained on 25 November 1991; the
P150,000.00 loan obtained on 01 July 1992; and the
P500,000.00 loan obtained on 05 September 1992. All these
loans are subject to stipulated interest of 18% per annum
provided in the real estate mortgage contract.
With respect to the other subsequent loans of the
defendants-appellants in the amount of P150,000.00,
obtained on 31 May 1992; in the amount of P200,000.00,
obtained on 29 October 1992; and, in the amount of
P250,000.00, obtained on 13 January 1993, nothing in the
records remotely suggests that the mortgagor (defendants-
appellants), likewise, intended the said loans to be secured
that the trial court did err in declaring said loans to be
secured by the real estate mortgage contract.30
As a general rule, a mortgage liability is usually limited to the
amount mentioned in the contract.31 However, the amounts
named as consideration in a contract of mortgage do not limit
the amount for which the mortgage may stand as security if
from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered. This
stipulation is valid and binding between the parties and is
known in American Jurisprudence as the "blanket mortgage
clause," also known as a "dragnet clause." 32
A "dragnet clause" operates as a convenience and
accommodation to the borrowers as it makes available
additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et
cetera.33
While a real estate mortgage may exceptionally secure
future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation
is not secured by a mortgage unless it comes fairly within the
terms of the mortgage contract.34
The pertinent provisions of the November 26, 1991 real
estate mortgage reads:
That the MORTGAGOR is indebted unto the MORTGAGEE
in the sum of ONE MILLION FIVE THOUSAND PESOS (sic)
(1,500,000.00) Philippine Currency, receipt whereof is
hereby acknowledged and confessed, payable within a
period of one year, with interest at the rate of eighteen
percent (18%) per annum;
That for and in consideration of said indebtedness, the
MORTGAGOR does hereby convey and deliver by way of
MORTGAGE unto said MORTGAGEE, the latter’s heirs and
assigns, the following realty together with all the
improvements thereon and situated at Cubao, Quezon City,
and described as follows:
xxxx
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Assigned case
PROVIDED HOWEVER, that should the MORTGAGOR duly
pay or cause to be paid unto the MORTGAGEE or his heirs
and assigns, the said indebtedness of ONE MILLION FIVE
HUNDRED THOUSAND PESOS (1,500,000.00), Philippine
Currency, together with the agreed interest thereon, within
the agreed term of one year on a monthly basis then this
MORTGAGE shall be discharged, and rendered of no force
and effect, otherwise it shall subsist and be subject to
foreclosure in the manner and form provided by law.
Lastly, the CA held that to discharge the real estate
mortgage, payment only of the principal and the stipulated
interest of 18% per annum is sufficient as the mortgage
document does not contain a stipulation that the legal
interest on the stipulated interest due, attorney’s fees, and
costs of suit must be paid first before the same may be
discharged.37
We do not agree.
the formula specified above, (2) the legal interest of 12% per
annum on the total amount due from such finality until fully
paid, (3) the reasonable amount of P25,000.00 as attorney’s
fees, and (4) the costs of suit, within a period of not less than
90 days nor more than 120 days from the entry of judgment,
and in case of default of such payment the property shall be
sold at public auction to satisfy the judgment. 
SO ORDERED.

It is clear from a perusal of the aforequoted real estate

Section 2, Rule 68 of the Rules of Court provides:
mortgage that there is no stipulation that the mortgaged
realty shall also secure future loans and advancements.
Thus, what applies is the general rule above stated.  SEC. 2. Judgment on foreclosure for payment or sale. —
If upon the trial in such action the court shall find the facts set
forth in the complaint to be true, it shall ascertain the
Even if the parties intended the additional loans of
amount due to the plaintiff upon the mortgage debt or
P150,000.00 obtained on May 30, 1992, P150,000.00
obligation, including interest and other charges as
obtained on July 1, 1992, and P500,00.00 obtained on
approved by the court, and costs, and shall render
September 5, 1992 to be secured by the same real estate
judgment for the sum so found due and order that the same
mortgage, as shown in the acknowledgement receipts, it is
be paid to the court or to the judgment obligee within a
not sufficient in law to bind the realty for it was not made
period of not less than ninety (90) days nor more than one
substantially in the form prescribed by law.
hundred twenty (120) days from the entry of judgment, and
that in default of such payment the property shall be sold at
In order to constitute a legal mortgage, it must be executed public auction to satisfy the judgment. (Emphasis added)
in a public document, besides being recorded. A provision in
a private document, although denominating the agreement
Indeed, the above provision of the Rules of Court provides
as one of mortgage, cannot be considered as it is not
that the mortgaged property may be charged not only for the
susceptible of inscription in the property registry. A mortgage
mortgage debt or obligation but also for the interest, other
in legal form is not constituted by a private document, even if
charges and costs approved by the court. Thus, to discharge
such mortgage be accompanied with delivery of possession
the real estate mortgage, petitioners must pay the
of the mortgage property.35 Besides, by express provisions of
respondents (1) the total amount due, as computed in
Section 127 of Act No. 496, a mortgage affecting land,
accordance with the formula indicated above, that is, the
whether registered under said Act or not registered at all, is
principal loan of P1,500,000.00, the stipulated interest of
not deemed to be sufficient in law nor may it be effective to
18%, the interest on the stipulated interest due of 12%
encumber or bind the land unless made substantially in the
computed from the filing of the complaint until finality of the
form therein prescribed. It is required, among other things,
decision less partial payments made, (2) the 12% legal
that the document be signed by the mortgagor executing the
interest on the total amount due from finality until fully
same, in the presence of two witnesses, and acknowledged
satisfied, (3) the reasonable attorney’s fees of P25,000.00
as his free act and deed before a notary public. A mortgage
and (4) the costs of suit, within the period specified by the
constituted by means of a private document obviously does
Rules. Should the petitioners default in the payment thereof,
not comply with such legal requirements.36
the property shall be sold at public auction to satisfy the
judgment. 
What the parties could have done in order to bind the realty
for the additional loans was to execute a new real estate
WHEREFORE, in view of the foregoing, the Decision of the
mortgage or to amend the old mortgage conformably with the
Court of Appeals in CA G.R. CV No. 62352 dated November
form prescribed by the law. Failing to do so, the realty cannot
5, 2003, which modified the Decision of the Regional Trial
be bound by such additional loans, which may be recovered
Court of Quezon City, Branch 105, in Civil Case No. Q-97-
by the respondents in an ordinary action for collection of
32130, is AFFIRMED with the MODIFICATIONS that
sums of money. 
petitioners are ordered to pay the respondents (1) the total
amount due, as computed by the RTC in accordance with

Averell B. Abrasaldo – II-Sanchez Roman 18