Metropolitan Bank and Trust Company vs.

Centro
Development Corporation

August 1994, when petitioner was appointed as

successor-trustee of BPI in the MTI.

FACTS: In a special meeting of the board of directors

of respondent Centro Development Corporation
(Centro), its president Go Eng Uy was authorized to
mortgage its properties and assets to secure the
medium term loan of P84 million of Lucky Two
Corporation and Lucky Two Repacking. The properties
and assets consisted of a parcel of land with a building
and
improvements.
This
authorization
was
subsequently approved on the same day by the
stockholders. Maria Jacinta V. Go, the corporate
secretary, issued a Secretarys Certificate.

San Carlos obtained loans in the total principal amount

of P812,793,513.23 from petitioner Metrobank.

Thus, on 21 March 1990, respondent Centro,

represented by Go Eng Uy, executed a Mortgage Trust
Indenture (MTI) with the Bank of the Philippines Islands
(BPI). Under the MTI, respondent Centro, together with
its affiliates Lucky Two Corporation and Lucky Two
Repacking or Go Eng Uy, expressed its desire to obtain
from time to time loans and other credit
accommodations from certain creditors for corporate
and other business purposes. To secure these
obligations from different creditors, respondent Centro
constituted a continuing mortgage on all or
substantially all of its properties and assets
enumerated above unto and in favor of BPI, the
trustee. Should respondent Centro or any of its
affiliates fail to pay their obligations when due, the
trustee shall cause the foreclosure of the mortgaged
property.
On 31 March 1993, Centro and BPI amended the MTI to
allow an additional loan of P36 million and to include
San Carlos Milling Company, Inc. (San Carlos) as a
borrower in addition to Centro, Lucky Two Corp. and
Lucky Two Repacking. Then, on 28 July 1994 Centro and
BPI again amended the MTI for another loan of P24
million, bringing the total obligation to P144 million.
Meanwhile, respondent Centro, represented by Go Eng
Uy, approached petitioner Metropolitan Bank and Trust
Company (Metrobank) sometime in 1994 and proposed
that the latter assume the role of successor-trustee of
the existing MTI.
Petitioner and respondent Centro executed the assailed
MTI, amending the previous agreements by appointing
the former as the successor-trustee of BPI. It is worth
noting that this MTI did not amend the amount of the
total obligations covered by the previous MTIs.
It was only sometime in 1998 that respondents herein,
Chongking Kehyeng, Manuel Co Kehyeng and Quirino
Kehyeng, allegedly discovered that the properties of
respondent Centro had been mortgaged, and that the
MTI that had been executed appointing petitioner as
trustee.
The Kehyengs allegedly questioned the mortgage of
the properties through letters addressed to Go Eng Uy
and Jacinta Go. They alleged that they were not aware
of any board or stockholders meeting held on 12

San Carlos failed to pay these outstanding obligations

despite demand. Thus, petitioner, as trustee of the MTI,
enforced the conditions thereof and initiated
foreclosure proceedings on the mortgaged properties.
On 22 June 2000, petitioner Metrobank filed a Petition
for Extrajudicial Foreclosure of Mortgage with the
executive judge of the RTC of Makati City. Petitioner
alleged that the total amount of the Promissory Notes
that San Carlos executed in favor of the former.
Before the scheduled foreclosure date, respondents
herein filed a Complaint for the annulment of the 27
September 1994 MTI with a prayer for a temporary
restraining order (TRO) and preliminary injunction with
the RTC Makati. The Complaint was against petitioner,
Go Eng Uy, Alexander V. Go, Ramon V. Go, Maria Jacinta
Go and Enriqueto Magpantay.
Go, Maria Jacinta Go and Enriqueto Magpantay. The
bone of contention in Civil Case No. 00942 was that
since the mortgaged properties constituted all or
substantially all of the corporate assets, the
amendment of the MTI failed to meet the requirements
of Section 40 of the Corporation Code on notice and
voting requirements. Under this provision, in order for a
corporation to mortgage all or substantially all of its
properties and assets, it should be authorized by the
vote of its stockholders representing at least 2/3 of the
outstanding capital stock in a meeting held for that
purpose. Furthermore, there must be a written notice
of the proposed action and of the time and place of the
meeting. Thus, respondents alleged, the representation
of Go Eng Uy that he was authorized by the board of
directors and/or stockholders of Centro was false.
RTC dismissed the complaint. It held that the evidence
presented by respondents was insufficient to support
their claim that there were no meetings held
authorizing the mortgage of Centros properties. It
noted that the stocks of respondents Kehyeng
constituted only 30% of the outstanding capital stock,
while the Go family owned the majority 70%, which
represented more than the 2/3 vote required by
Section 40 of the Corporation Code.
On appeal, CA issued a Resolution denying the
application for the issuance of a writ of preliminary
injunction.
Respondents Centro and San Carlos filed a Complaint
with the RTC of Makati City. They prayed for the
nullification of the foreclosure proceedings and prayed
for the issuance of a TRO/injunction. While this case
was pending, the clerk of court and the ex officio sheriff
of the RTC of Makati City held an auction sale of the
disputed property, during which petitioner was
adjudged as the highest bidder.
Complaint was then amended and petitioners filed an
amended complaint but was denied by the RTC.

During this time, CA-G.R. CV No. 80778, which involved

the legality of the MTI, was still pending. CA held
partially granted (reversed and set aside)
A different Division of the CA rendered a Decision
denying the Petition in CA-G.R. SP No. 84447. That
Petition had questioned the Decision of Branch 56 of
the RTC of Makati City denying a Petition to enjoin the
foreclosure of the mortgaged properties on the ground
that respondents Centro and San Carlos had failed to
show any clear right of the RTC to issue an injunctive
writ. The CA further ruled that the foreclosure of the
property became a matter of right on the part of
petitioner because of respondents failure to pay the
loans due.
Hence this petition.
ISSUE: Whether laches has already attached, such
that respondents can no longer question the MTI.
HELD: Laches is defined as the failure or neglect for an
unreasonable and unexplained length of time to do
that which, by exercising due diligence, could or should
have been done earlier it is negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned it or declined to assert it. 24 In the case
at bar, the RTC in Civil Case No. 00942 held that laches
attached when respondents allowed eight (8) years to
pass before questioning the mortgage, which was
constituted in 1990. Thus, the trial court said:
As it appears now, the mortgage on the land and
building of Centro was first constituted in 1990 in favor
of [the] Bank of the Philippine Islands. Individual
plaintiffs stated that discovery of the mortgage was
sometime in 1998, (par. 6, Affidavit of Chongking
Kehyeng). He was in the Board of Directors of Centro
and he holds office at the fourth floor of the building on
the mortgaged property. There is evidence that the
holding of meetings of the Board of Directors was
irregular and purely reportorial.
Considering that as shown by plaintiffs evidence,
conduct of business in Centro was informal, vigilance
over its property was required from all individual
plaintiffs, particularly plaintiff Chongking Kehyeng who
sits in the Board of Directors. Periodic inquiries and
verification of documents pertaining to corporate
properties should have been done and the existence of
the mortgage was verifiable. A simple inquiry about the
status of the title, information on the title number and
actual verification with the Register of Deedsa task
which can be accomplished in an hour or twowill
provide information about the existence of the
mortgage. None of the individual plaintiffs did this.
The inaction of the plaintiffs for which no explanation
was submitted resulted in the acquisition of rights by
the defendant Bank adverse to them. Such neglect,
taken in conjunction with the lapse of time of about
eight (8) years operates as a bar.
A perusal of the TCTs of the subject properties would
reveal that only the values of the mortgage securing

the loans totalling P144 million were annotated, based

on the MTIs executed on 21 March 1990, 31 March
1993 and 28 July 1994. As for the last annotation, it
only stated that petitioner was the successor-trustee to
all obligations due to the creditors. Respondents, in
their Complaint, did not question these mortgages
constituted by the MTIs executed on 21 March 1990, 31
March 1993 and 28 July 1994, respectively. What they
questioned was the additional loans granted to San
Carlos after the execution of the 27 September 1994
MTI and the foreclosure of the mortgage resulting from
the non-payment of San Carlos obligations. Thus,
contrary to the finding of the trial court, only four years
had lapsed from the execution of the 27 September
1994 MTI when respondents questioned the mortgage
allegedly constituted to cover these loans.
Furthermore, as mentioned earlier, the TCTs were not
accordingly annotated to cover these additional loans.
Also, the mortgage of the property securing all the
loans were not disclosed in Centros financial
statements for the years 1991 to 1998. 27 Thus,
absent any proof that the individual respondents were
notified of the stockholders meeting on 12 August
1994 or that they were present during the meeting,
these respondents could not have been informed of the
alleged additional loans and the corresponding
mortgage constituted over the properties.
It cannot therefore be said that laches had attached
and that respondents were already barred from
assailing the MTI in 1998.
Rural Bank of Sta. Barbara (Iloilo), vs. Centeno
FACTS: Spouses Gregorio and Rosario Centeno (Sps.
Centeno) were the previous owners of the subject lots.
During that time, they mortgaged the foregoing
properties in favor of petitioner Rural Bank of Sta.
Barbara (Iloilo), Inc. as security for a P1,753.65 loan.
Sps. Centeno, however, defaulted on the loan,
prompting petitioner to cause the extrajudicial
foreclosure of the said mortgage. Consequently, the
subject lots were sold to petitioner being the highest
bidder at the auction sale.
Sps. Centeno failed to redeem the subject lots within
the one (1) year redemption period pursuant to Section
6 of Act No. 3135. Nonetheless, they still continued
with the possession and cultivation of the aforesaid
properties. Sometime in 1983, respondent Gerry
Centeno, son of Sps. Centeno, took over the cultivation
of the same. On March 14, 1988, he purchased the said
lots from his parents. Accordingly, Rosario Centeno
paid the capital gains taxes on the sale transaction and
tax declarations were eventually issued in the name of
respondent. While the latter was in possession of the
subject lots, petitioner secured on November 25, 1997
a Final Deed of Sale thereof and in 1998, was able to
obtain the corresponding tax declarations in its name.
Petitioner filed a petition for the issuance of a writ of
possession before the RTC, claiming entitlement to the
said writ by virtue of the Final Deed of Sale covering
the subject lots. Respondent opposed the petition,

asserting that he purchased and has, in fact, been in

actual, open and exclusive possession of the same
properties for at least fifteen (15) years. He further
averred that the foreclosure sale was null and void
owing to the forged signatures in the real estate
mortgage. Moreover, he claims that petitioners rights
over the subject lots had already prescribed.

acquire all the rights, title, interest and claim of the

judgment obligor to the property as of the time of the
levy. The possession of the property shall be
given to the purchaser or last redemptioner by
the same officer unless a third party is actually
holding the property adversely to the judgment
obligor.

RTC rendered its Decision finding petitioner to be the

lawful owner of the subject lots whose rights became
absolute due to respondents failure to redeem the
same.

In China Banking Corporation v. Lozada, the Court held

that the phrase a third party who is actually holding
the property adversely to the judgment obligor
contemplates a situation in which a third party holds
the property by adverse title or right, such as that of a
coowner, tenant or usufructuary. The co-owner,
agricultural tenant, and usufructuary possess the
property in their own right, and they are not merely the
successor or transferee of the right of possession of
another co-owner or the owner of the property.
Notably, the property should not only be possessed by
a third party, but also held by the third party adversely
to the judgment obligor.

CA reversed. It considered respondent as a third party

who is actually holding the property adverse to the
judgment obligor and as such, has the right to ventilate
his claims in a proper judicial proceeding i.e., an
ejectment suit or reinvindicatory action.
ISSUE: WON petitioner is entitled to a writ of
possession over the subject lots.
HELD: The petition is meritorious.
It is well-established that after consolidation of title in
the purchasers name for failure of the mortgagor to
redeem the property, the purchasers right to
possession ripens into the absolute right of a confirmed
owner. At that point, the issuance of a writ of
possession, upon proper application and proof of title,
to a purchaser in an extrajudicial foreclosure sale
becomes merely a ministerial function, unless it
appears that the property is in possession of a third
party claiming a right adverse to that of the mortgagor.
Sec 33 xxx
Upon the expiration of the right of redemption, the
purchaser or redemptioner shall be substituted to and

In this case, respondent acquired the subject lots from

his parents, Sps. Centeno, on March 14, 1988 after
they were purchased by petitioner and its Certificate of
Sale at Public Auction was registered with the Register
of Deeds of Iloilo City in 1971. It cannot therefore be
disputed that respondent is a mere successor-in-interest of Sps. Centeno. Consequently, he cannot be
deemed as a third party who is actually holding the
property adversely to the judgment obligor under
legal contemplation. Hence, the RTC had the ministerial
duty to issueas it did issuethe said writ in
petitioners favor.