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G.R. No. 74730 August 25, 1989

CALTEX PHILIPPINES, INC., petitioner, 

vs.
THE INTERMEDIATE APPELLATE COURT and HERBERT MANZANA respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the resolution of respondent Intermediate Appellate Court (now Court
of Appeals) dated January 31, 1986 vacating its prior decision dated June 29, 1984 and ordering that the records of
the case be remanded to the Court of First Instance (now Regional Trial Court) of Manila, and its resolution dated
May 19,1986 denying the motion for reconsideration.

The antecedent facts are as follows:

Private respondent Herbert Manzana purchased on credit petroleum products from petitioner Caltex Philippines,
Inc. (CALTEX, for short). As of August 31, 1969, his indebtedness to CALTEX has amounted to P361,218.66. On
October 4, 1969, Manzana executed a Deed a First Mortgage in favor of CALTEX over a parcel of land covered by
OCT No. 0-274 of the Register of Deeds of the Province of Camarines Norte to secure his debts to the latter. On
various occasions, CALTEX sent to Manzana statements of account and later demanded payment of his entire
debts. Because of Manzana's failure and refusal to pay, CALTEX filed a complaint on August 17, 1970 before the
trial court for the recovery of the whole amount of P361,218.66.

Meanwhile, on September 15, 1970, CALTEX foreclosed extrajudicially the mortgaged property. On October 30,
1970, the mortgaged property was sold at auction to CALTEX, being the only bidder, for P20,000.00 as shown by
the Sheriff s Certificate of Sale. The foreclosure was allegedly known by Manzana only on October 4, 1980 when
such fact was manifested by CALTEX in its reply to the opposition of Manzana to the motion for execution pending
appeal.

On July 23, 1980, the trial court rendered judgment ordering Manzana to pay CALTEX the amount of P353,218.66
after deducting P8,000.00 paid by Traders Insurance and Surety Company on its surety bond, with interest thereon
at 12% per annum from August 17, 1970, plus 20% thereof as attorney's fees (p. 115, Rollo).

Manzana appealed the trial court's decision to the respondent Intermediate Appellate Court raising the following
issues (p. 37, Rollo):

1. THAT PLAINTIFF APPELLEE CANNOT AVAIL BOTH OF A PERSONAL ACTION (THIS CASE) AND AN
EXTRAJUDICIAL FORECLOSURE AT THE SAME TIME AGAINST THE DEFENDANT DEFENDANT-
APPELLANT; AND,

2. THAT PLAINTIFF-APPELLEE CANNOT AVAIL OF A DEFICIENCY JUDGMENT AFTER HE HAD

EXTRAJUDICIALLY FORECLOSED ON THE PROPERTY OF DEFENDANT-APPELLANT.

It was the opinion of the respondent court that "a reading of the issues raised by the defendant-appellant shows
that the question that needs resolution is whether or not plaintiff-appellee can still avail of the complaint for the
recovery of the balance of indebtedness after having already foreclosed the property securing the same" (p.
37, Rollo).lâwphî1.ñèt
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On June 29, 1984, the respondent court rendered a decision (pp. 36-39, Rollo) affirming in toto the appealed
decision after "finding no reversible error" therein. On July 19, 1984, Manzana filed a motion for reconsideration of
said decision. In its comment to the motion for reconsideration, CALTEX prayed that "the judgment sought to be
reconsidered be modified by deducting the amount of P20,000.00 (foreclosure amount) from P353,218.66 thereby
leaving a balance of P333,218.66 representing the deficiency that plaintiff-appellee is entitled to recover from
defendant-appellant plus interest, attorney's fees and costs of suit" (p. 41, Rollo).

Acting on the motion for reconsideration, the respondent court issued a resolution dated January 31, 1986, the
dispositive portion of which reads (p. 59, Rollo):

WHEREFORE, in the interest of justice the decision of this Court promulgated June 29, 1984 is
vacated and the records are ordered remanded for purposes of determining the deficiency due
the plaintiff-appellee and for the trial court to render another and proper judgment based on the
evidence adduced by all the parties. Without pronouncement as to costs.

SO ORDERED.

The respondent court was convinced that the following consideration justified a reconsideration of its prior
decision (pp. 55-56, Rollo): "..., the action (before the trial court) cannot be said to be one for recovery of
deficiency judgment because ... (it) seeks recovery of the whole amount of indebtedness totalling P361,210.66"
(should be P361,218.66).

The motion for reconsideration filed by CALTEX was denied.

Hence, the present petition.

The issues may be limited to the following:

1) Whether or not the respondent court committed an error in giving due course to the question
whether CALTEX can avail at the same time of a personal action in court for collection of a sum of
money and the extrajudicial foreclosure of the deed of first mortgage, which was only raised for
the first time on appeal;

2) Whether or not the mere filing of a collection suit for the recovery of the debt secured by real
estate mortgage constitutes waiver of the other remedy of foreclosure;

3) Whether or not the filing of the complaint for recovery of the amount of indebtedness and the
subsequent extrajudicial foreclosure of the deed of first mortgage constitutes splitting of a single
cause of action.

FIRST ISSUE

CALTEX alleges that the only issue submitted for resolution before the trial court is whether or not Manzana was
indebted and liable to it in the sum of P361,218.66. The issue whether or not CALTEX can avail at the same time of
a personal action in court for collection of a sum of money and the extrajudicial foreclosure of the Deed of First
Mortgage, and the issue whether or not CALTEX can avail of a deficiency judgment were never raised in the
pleadings of the parties nor at any stage of the proceedings before the trial court. These were only raised by
Manzana for the first time on appeal before the respondent court.

We rule that the respondent court did not commit any error in taking cognizance of the aforestated issues,
although not raised before the trial court. The presence of strong consideration of substantial justice has led this
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Court to relax the well-entrenched rule that, except questions on jurisdiction, no question will be entertained on
appeal unless it has been raised in the court below and it is within the issues made by the parties in their pleadings
(Cordero v. Cabral, G.R. No. L- 36789, July 25, 1983, 123 SCRA 532). The compassionate spirit behind this rule will
equally apply to the other allegation of CALTEX that Manzana's indebtedness of P 361,218.66 was secured up to
the extent of P120,000.00 only although it appears that this issue is raised for the first time in this present petition.
Thus, the liberal application of the rule will favor both parties.

On the basis of the first condition enumerated in the Deed of First Mortgage, CALTEX submits that Manzana's
indebtedness of P 361,218.66 was secured up to the extent of P120,000.00 only, to wit (p. 50, Rollo):

This Mortgage is subject to the following terms and conditions:

l) The aforementioned indebtedness of THREE HUNDRED SIXTY-ONE THOUSAND TWO HUNDRED

EIGHTEEN & 66/100 (P361,218.66) of the MORTGAGOR shall be paid upon demand by the
MORTGAGEE; it being expressly understood that the limit or maximum amount secured by this
mortgage is ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00) only.

On the other hand, on the basis of the fourth paragraph of the deed and the fourth condition therein, Manzana
contends that the whole outstanding obligation of P361,218.66 was secured by the mortgage, to wit (pp. 49-
50, Rollo):

NOW, THEREFORE, for and in consideration of the said overdue, payable and demandable
indebtedness of the MORTGAGOR to the MORTGAGEE in the sum of THREE HUNDRED SIXTY-ONE
THOUSAND TWO HUNDRED EIGHTEEN PESOS & 66/100 (P361,218.66), Philippine Currency, the
foregoing premises and other x x x and valuable considerations, and to secure the faithful
performance by the MORTGAGOR of all the terms and conditions hereinafter set forth,
particularly the payment of the obligations hereby secured, the MORTGAGOR does hereby
convey BY WAY OF FIRST MORTGAGE. ...

x x x.

4) This mortgage shall remain in force to cover the afore-mentioned mentioned outstanding
indebtedness of the MORTGAGOR to the MORTGAGEE in the amount of THREE HUNDRED SIDE
ONE THOUSAND TWO HUNDRED EIGHTEEN PESOS & 66/100 (P361,218.66).

Article 1374 of the Civil Code, regarding interpretation of contracts, provides:

ART. 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.

The Deed of First Mortgage seems to contain provisions that contradict one another. However, considering all the
provisions together, the first condition cited by CALTEX is actually a specific provision while the fourth paragraph
and the fourth condition cited by Manzana are general provisions. This interpretation is bolstered by the third
WHEREAS clause and the penultimate paragraph of the deed, to wit (pp. 49-50, Rollo):

WHEREAS, the MORTGAGOR has offered to execute, sign and deliver a First Mortgage over his
property ..., only as partial security for the aforementioned overdue, payable and demandable
indebtedness of the MORTGAGOR to the MORTGAGEE, which offer of the MORTGAGOR is
accepted by the MORTGAGEE. (emphasis supplied)

x x x.
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The MORTGAGOR binds himself to complete the securities  required by the MORTGAGEE and
shall permit any authorized representative of the MORTGAGEE to inspect the mortgaged
property and all the properties offered to be mortgaged to complete the required security.'
(emphasis supplied)

We therefore hold that Manzana's indebtedness of P 361,218.66 was secured up to the extent of P120,000.00 only.

The records show that CALTEX extended to Manzana a continuing credit line, with the result that each transaction
constituted a separate obligation. We affirm the trial court's ruling with respect to the liability of Manzana to
CALTEX in the amount of P233,218.66 (P353,218.66 less P120,000.00) with interest thereon at 12% per annum
from August 17, 1970, plus 20% thereof as attorney's fees. The evidence on record, both testimonial and
documentary, clearly support such amount of indebtedness. The trial court said (pp. 114- 115, Rollo):

Plaintiffs claim that as at (sic) termination of agreement on July 27, 1970, Manzana had an
outstanding account totalling P361,218.66, appears to be confirmed by the following:

(1) On September 8, 1970, defendant Manzana, by a letter, acknowledged his indebtedness, but
asked for time to pay the unpaid balance (Exh. 'l" and "M").

(2) To secure as obligation of P 361,218.66, said defendant executed, on October 4, 1969, a Deed
of First Mortgage on a piece of land covered by O.C.T. No. 0274 of the Registry of Deeds for
Camarines Norte (Exh. "N")

Rarely can a confirmation of an account be more definitive than the foregoing.

Defendant Manzana's defenses, set up in his answer, do not appear to have merit. In the first
place, the supposed lack of liquidation is belied by the periodical statements of account showing
the corresponding running balance thru the years 1968 to 1969 (Exhs. "N" to "O-7" inclusive),
effectively constituting a form of liquidation. Secondly, the very terms used repeatedly in the
Dealer Agreement — neither pleaded nor in any manner assailed as ambiguous-are peculiar to
purchase and sale transactions and to the relationship of the parties thereto as debtor and
creditor. There is no reasonable way under the provisions thereof that Manzana can be deemed
to be either an agent or a mere collector with plaintiff bearing the risk of non-payment."

Furthermore, this case has been pending since August 17,1970 and to order its remand to the trial court will
necessarily entail additional expenses and unduly delay its disposition and the administration of justice to the
parties.

Remand of the case to the lower court for reception of evidence is not necessary if the Supreme Court can resolve
the dispute on the records before it. The common denominator in cases holding that remand of a case is not
necessary is the fact that the trial court had received all the evidence intended to be presented by both parties
(Hechanova v. Court of Appeals, G.R. No. L-48787 November 14, 1986, 145 SCRA 550).

THE SUCCEEDING DISCUSSION WILL CONCERN THE SECURED INDEBTEDNESS OF P120,000.00.

CALTEX, in effect, has made a mockery of our judicial system when it initially filed a collection suit then, during the
pendency thereof foreclosed extrajudicially the mortgaged property which secured the indebtedness and still
pursued the collection suit to the end. In this light, the actuations of CALTEX are deserving of severe criticism, to
say the least. Of importance is the doctrine laid down by this court in the leading case of Bachrach Motor, Inc. v.
Icarangal et al., 68 Phil. 287, which was applied by the respondent Court in resolving the case, where We ruled
that;
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... in the absence of express statutory provisions, a mortgage creditor may institute against the
mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In
other words, he may pursue either of the two remedies, but not both. By such election, his cause
of action can by no means be impaired, for each of the two remedies is complete in itself. Thus,
an election to bring a personal action will leave open to him all the properties of the debtor for
attachment and execution, even including the mortgaged property itself. And, if he waives such
personal action and pursues his remedy against the mortgaged property, an unsatisfied
judgment thereon would still give him the right to sue for a deficiency judgment, in which case,
all the properties of the defendant, other than the mortgaged property, are again open to him
for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of action
undiminished, and any advantages attendant to the pursuit of one or the other remedy are
purely accidental and are all under his right of election. ...

Thus, where a debt is secured by a mortgage and there is a default in payment on the part of the mortgagor, the
mortgagee has a choice of one (1) of two (2) remedies, but he cannot have both. The mortgagee may:

1) foreclosure the mortgage; or

2) file an ordinary action to collect the debt.

When the mortgagee chooses the foreclosure of the mortgage as a remedy, he enforces his lien by the sale on
foreclosure of the mortgaged property. The proceeds of the sale will be applied to the satisfaction of the debt.
With this remedy, he has a prior lien on the property. In case of a deficiency, the mortgagee has the right to claim
for the deficiency resulting from the price obtained in the sale of the real property at public auction and the
outstanding obligation at the time of the foreclosure proceedings (Soriano v. Enriquez, 24 Phil. 584; Banco de Islas
Filipinas v. Concepcion Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101).lâwphî1.ñèt

On the other hand, if the mortgagee resorts to an action to collect the debt, he thereby waives his mortgage lien.
He will have no more priority over the mortgaged property. If the judgment in the action to collect is favorable to
him, and it becomes final and executory, he can enforce said judgment by execution. He can even levy execution
on the same mortgaged property, but he will not have priority over the latter and there may be other creditors
who have better lien on the properties of the mortgagor.

CALTEX submits that the principles enunciated in the Bachrach case are not applicable nor determinative of the
case at bar for the reason that the factual circumstances obtained in the said case are totally different from the
instant case. In the Bachrach case, the plaintiff instituted an action to foreclose the mortgage after the money
judgment in its favor remained unsatisfied whereas in the present case, CALTEX initially filed a complaint for
collection of the debt and during the pendency thereof foreclosed extrajudicially the mortgage.

We disagree. Although the facts in the Bachrach case and in the present case are not identical, there is similarity in
the fact that the plaintiffs in these two cases availed of both remedies although they are entitled to a choice of
only one.

SECOND ISSUE

CALTEX alleges next that the mere act of filing a collection suit for the recovery of a debt secured by real estate
mortgage is not tantamount to an implied waiver of the mortgage lien. Under Philippine jurisdiction, there is no
statute which prohibits or precludes a mortgagee from subsequently foreclosing the real estate mortgage shortly
after the collection suit has been filed. The real estate mortgage itself does not contain any explicit provision that
the filing of a collection suit would mean waiver of the remedy of foreclosure.
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We hold otherwise. The mere act of filing a collection suit for the recovery of a debt secured by a mortgage
constitutes waiver of the other remedy of foreclosure. The rationale behind this was adequately explained in
the Bachrach case, supra:

... a rule that would authorize the plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged property, would result not
only in multiplicity of suits so offensive to justice (Soriano vs. Enriques, 24 Phil. 584) and
obnoxious to law and equity (Osorio vs. San Agustin, 25 Phil. 404), but also in subjecting the
defendant to the vexation of being sued in the place of his residence or of the residence of the
plaintiff, and then again in the place where the property lies.

In the present case, however, We shall not follow this rule to the letter but declare that it is the collection suit
which was waived and/or abandoned. This ruling is more in harmony with the principles underlying our judicial
system. It is of no moment that the collection suit was filed ahead, what is determinative is the fact that the
foreclosure proceedings ended even before the decision in the collection suit was rendered. As a matter of fact,
CALTEX informed the trial court that it had already consolidated its ownership over the property, in its reply to the
opposition of Manzana to the motion for execution pending appeal filed by it.

A corollary issue that We might as well resolve now (although not raised as an issue in the present petition, but
applying the rule in Gayos et al. v. Gayos et al., G.R. No. L-27812, September 26, 1975, 67 SCRA 146, that it is a
cherished rule of procedure that a court should always strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation) is whether or not CALTEX can still sue for a
deficiency judgment P100,000.00 (secured debt of P120,000.00 less the foreclosure amount of P20,000.00).

The collection suit filed before the trial court cannot be considered as a deficiency judgment because a deficiency
judgment has been defined as one for the balance of the indebtedness after applying the proceeds of the sale of
the mortgaged property to such indebtedness and is necessarily filed after the foreclosure proceedings. It is
significant to note that the judgment rendered by the trial court was for the full amount of the indebtedness and
the case was filed prior to the foreclosure proceedings.

In general, a deficiency judgment is in the nature of an ordinary money judgment, may constitute a cause of action
and is barred by the statute of limitations applicable to ordinary judgment (59 C.J.S. 1497). The ten (10) year period
provided in Articles 1142 and 1144 of the Civil Code applies to a suit for deficiency judgment, to wit:

Art. 1142. A mortgage action prescribes after ten years. (1964a)

Art. 1144. The following actions must be brought with ten years from the time the right of action
accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment. (n)

A suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature of a mortgage action
because its purpose is precisely to enforce the mortgage contract; it is upon a written contract and upon an
obligation of Manzana to pay the deficiency which is created by law (see Development Bank of the Philippines v.
Tomeldan et al., G.R. No. 51269, November 17, 1980, 101 SCRA 171). Therefore, since more than ten (10) years
have elapsed from the time the right of action accrued, CALTEX can no longer recover the deficiency from
Manzana.
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THIRD ISSUE

CALTEX has only one cause of action against Manzana, that is, non-payment of the debt although two choices of
remedies are available to it. As held in the Bachrach case, supra:

For non-payment of a note secured by mortgage, the creditor has a single cause of action against
the debtor. This single cause of action consists in the recovery of the credit with execution of the
security. In other words, the creditor in his action may make two demands, the payment of the
debt and the foreclosure of his mortgage. But both demands arise from the same cause, the non-
payment of the debt, and, for that reason, they constitute a single cause of action. Though the
debt and the mortgage constitute separate agreements, the latter is subsidiary to the former,
and both refer to one and the same obligation. Consequently, there exists only one cause of
action for a single breach of that obligation. Plaintiff, then, by applying the rule above stated,
cannot split up his single cause of action by filing a complaint for payment of the debt, and
thereafter another complaint for foreclosure of the mortgage. If he does so, the filing of the first
complaint will bar the subsequent complaint. By allowing the creditor to file two separate
complaint simultaneously or successively, one to recover his credit and another to foreclose his
mortgage, we will, in effect, be authorizing him plural redress for a single breach of contract at so
much cost to the courts and with so much vexation and oppression to the debtor.

ACCORDINGLY, the resolution of the respondent Intermediate Appellate Court dated January 31,1986 is SET ASIDE.
The decision of the trial court is AFFIRMED with the MODIFICATION that private respondent Herbert Manzana's
liability to petitioner Caltex Philippines, Inc. is only up to the extent of P233,218.66 with interest thereon at 12%
per annum from August 17, 1970, plus 20% thereof as attorney's fees.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griñ;o-Aquino, JJ., concur.

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BANK OF AMERICA vs AMERICAN REALTY CO. 321 SCRA 659

“In a conflict between a Philippine law and a foreign law, Philippine law prevails”

Facts:

The Bank of America granted a loan to a corporation secured by a real estate mortgage by the respondent. Upon
the loan maturity, the corporation debtor failed to pay and the petitioner bank filed 4 collection cases in the
foreign courts (England and Hong Kong) against the corporation debtors. At the same time it also filed
an extrajudicial foreclosure in the office of the Provincial Sheriff of Bulacan,Philippines on the real estate mortgage
and said was sold in a public auction. The respondent files action for damages against petitioner due to the act of
foreclosing the real estate mortgage extrajudicially despite the pending civil suits before the foreign courts to
collect the principal loan. Petitioner contends that the respondent is not made a party on the collection case
before the foreign courts for being a third party mortgagor and such actions were filed in foreign courts and thus
decisions rendered on such courts are not enforceable in the Philippines unless a separate action is filed in the
Phils to enforce such judgment and that under the English law which is the law governing in the principal
agreement, the mortgagee does not lose its security interest by filing a civil action for sum of money. The court
rendered judgment in favor of defendants declaring that the filing of civil suit on collection of a sum of money in
foreign courts constitutes a waiver on the security of the mortgages. 

ISSUE:

WON the petitioner’s act of filing a collection suit against the principal debtors before foreign courts constitutes a
waiver of the remedy of foreclosure.

RULING:

The court held that Section 4 Rule 2 of the 1997 Rules on Civil Procedure provides that “if two or more suits are
instituted on the basis of the same cause of action, the filing of one or a judgment upon the merits in any one is
available as a ground for the dismissal of the others.” A mortgagor creditor may pursue two remedies either to
institute against the mortgage debtor a personal action for collection of money or foreclosure of a mortgage but
cannot avail of both remedies. In Phil. jurisdiction these remedies are alternative and not cumulative. Thus,
choosing one remedy is a bar to avail of the other remedy. Plaintiff cannot split up a single cause of action by
filing both remedies as expressly prohibited by the rules on civil procedure.

On the contention of the petitioner that the English law should apply to the principal agreements that states that
the mortgagee does not lose its security interest by simply filing civil actions for sums of money, the court held that
a foreign law must be properly pleaded and proved as fact. If not pleaded, the court will presume that the
foreign law is the same as our local or domestic or internal law. This is the DOCTRINE OF PROCESSUAL
PRESUMPTION.

Granting however that the English law is applicable in the Phil. court, such law is contrary to sound and
established public policy of the forum which proscribes the splitting of a single cause of action , thus still cannot
be applied by the court in the case.

It is proper that Philippine law should be upheld since it is the country upon which the case is filed. Therefore the
filing of a collection case by the petitioner in foreign courts is a waiver for the remedy of foreclosure of real estate
mortgage. 
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G.R. No. 106953 August 19, 1993

CESAR SAN JOSE AND MARGARITA BATONGBAKAL, petitioners, 

vs.
HON. COURT OF APPEALS, SPS. MARCOS DE GUZMAN AND GLORIA DE GUZMAN, respondents.

Rosendo G. Tansinsin, Jr. for petitioners.

Dioscoro P. Avanceña for private respondents.

PADILLA, J.:

In this Petition for Review, Cesar San Jose and Margarita Batongbakal (hereinafter referred to as petitioner-
spouses), seek to set aside the decision of the Court of Appeals ** in C.A. G.R. No. 30769-CV entitled "Spouses
Cesar San Jose and Margarita Batongbakal vs. Spouses Marcos de Guzman and Gloria de Guzman".

The relevant facts in this case are as follows:

Petitioner-spouses filed a complaint to annul the extra-judicial foreclosure sale conducted by the Provincial Sheriff
of Bulacan of the property covered by T.C.T. No. T-159703 located in Duhat, Bocaue, Bulacan.

The land was mortgaged by the petitioner-spouses to private respondent-spouses Marcos and Gloria de Guzman
on 14 April 1972 as security for the payment of a loan of P12,000.00. For allegedly failing to comply with the
conditions of the mortgage, the private respondent-spouses extra-judicially foreclosed the mortgage and the land
was sold at a sheriff's sale held on 25 November 1975 with respondent-spouses as purchasers thereof.
Consequently, TCT No. T-159703 was cancelled and TCT No. T-30,762(M) was issued in the name of respondent-
spouses.

That there was failure to pay the loan obtained from the respondent-spouses and that the latter had the right to
foreclose the mortgage either judicially or extrajudicially are not disputed. The only issue to be resolved in this case
is whether or not the extra-judicial foreclosure sale complied with the requirements of Act No. 3135 as amended
by Act No. 4118 which governs the extra-judicial foreclosure of real estate mortgage.

Petitioner-spouses contend that the extra-judicial foreclosure sale was null and void for the following reasons:

1) The Petitioner-spouses were not notified of the extra-judicial foreclosure;

2) The Sheriff's certificate of posting of notice was not presented;

3) There was no proof that the newspaper in which the notice of extra-judicial foreclosure sale was made was one
of general circulation; and

4) The property mentioned in the Notice of Sheriff's Sale and in the minutes of auction sale was covered by TCT No.
T-169705 not by TCT No. 
T-159703, the title to the mortgaged property subject of the foreclosure sale.
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The trial court upheld the validity of the foreclosure sale. *** On appeal, the Court of Appeals in its aforecited
decision dated 20 March 1992 likewise held that the foreclosure sale was valid. A Motion for Reconsideration was
denied on 26 August 1992. Hence this petition for review.

The provision of Act No. 3135 as amended by Act No. 4118 relevant to the issues in this case is Section 3 which
states:

Sec. 3. Notice shall be given by posting notices of sale for not less that twenty (20) days in at least
three public places of the municipality or city where the property is situated, and if such property
is worth more than four hundred pesos, such notice shall also be published once a week for at
least three consecutive weeks in a newspaper of general circulation in the municipality or city.

In Tambunting v. Court of Appeals,1 the Court stressed that the statutory provisions governing publication of notice
of mortgage foreclosure sales must be strictly complied with, and that even the slightest deviations therefrom will
invalidate the notice. In the case at bar, the Notice of Sheriff's sale referred to the property covered by TCT No. T-
169705. This was the notice actually published in "The New Record" as shown by the Affidavit of Publication
executed by the Business Manager of the aforementioned publication. The trial court and the Court of Appeals
upheld the validity of the Notice based on the theory that although the property to be sold pursuant to the
foreclosure of mortgage was indeed covered by TCT No. T-159703 and not by TCT No. 
T-169705, the technical description, however, in the notice was the actual and correct technical description of the
property. Both the trial court and the Court of Appeals held that the discrepancy in the title number was "purely a
typographical error" which "did not render null and void the public auction sale held by the Sheriff. The number of
the transfer certificate as an identification of real property is not controlling. What controls is the technical
description."2

We disagree and consequently we reverse the decision of the Court of Appeals.

In the Tambunting case, 3 this Court stated that the failure to advertise a mortgage foreclosure sale in compliance
with statutory requirements constitutes a jurisdictional defect invalidating the sale and that a substantial error or
omission in a notice of sale will render the notice insufficient and vitiate the sale.

The notice of Sheriff's Sale, in this case, did not state the correct number of the transfer certificate of title of the
property to be sold. This is a substantial and fatal error which resulted in invalidating the entire Notice. That the
correct technical description appeared on the Notice does not constitute substantial compliance with the statutory
requirements. The purpose of the publication of the Notice of Sheriff's Sale is to inform all interested parties of the
date, time and place of the foreclosure sale of the real property subject thereof. Logically, this not only requires
that the correct date, time and place of the foreclosure sale appear in the notice but also that any and all
interested parties be able to determine that what is about to be sold at the foreclosure sale is the real property in
which they have an interest.

The Court is not unaware of the fact that the majority of the population do not have the necessary knowledge to
be able to understand the technical descriptions in certificates of title. It is to be noted and stressed that the Notice
is not meant only for individuals with the training to understand technical descriptions of property but also for the
layman with an interest in the property to be sold, who normally relies on the number of the certificate of title. To
hold that the publication of the correct technical description, with an incorrect title number, of the property to be
sold constitutes substantial compliance would certainly defeat the purpose of the Notice. This is not to say that a
correct statement of the title number but with an incorrect technical description in the notice of sale constitutes a
valid notice of sale. The Notice of Sheriff's Sale, to be valid, must contain the correct title number and
the correct technical description of the property to be sold.
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We need not discuss the other grounds for nullifying the foreclosure sale having found that there was no
compliance with the statutory notice requirement.

WHEREFORE, the decision of the Court of Appeals is hereby SET ASIDE and a new decision rendered:

1) Declaring the Extra-judicial Foreclosure Sale of the property of the petitioner-spouses null and void.

2) Ordering the appropriate Register of Deeds to reinstate Transfer Certificate of Title No. T-159703 in the name of
petitioner Margarita Batongbakal married to petitioner Cesar San Joso, giving it full force and effect as though it
had never been cancelled.

3) Ordering the cancellation of Transfer Certificate of Title No. 

T-30.762 (M) in the name of private respondent spouses Marcos and Gloria de Guzman for being void ab initio.

With costs against the private respondents.

SO ORDERED.

Narvasa C. J., Regalado and Nocon, JJ., concur.

Puno, J., took no part.

 
 12

G.R. No. 107075 September 1, 1994

ARMANDO S. OLIZON and ILUMINADA C. OLIZON, petitioners, 

vs.
COURT OF APPEALS and PRUDENTIAL BANK, respondents.

Roberto T. Neri for petitioners.

Magno & Associates for private respondent.

REGALADO, J.:

The factual alpha  of the present dispute was sometime in 1967 when the spouses Armando and Iluminada Olizon
obtained a loan from respondent Prudential Bank in the amount of P25,000.00 and, as security therefor, they
executed in favor of respondent bank a real estate mortgage over a parcel of land consisting of 1,000 square
meters located at Barrio Calaanan, Kalookan City and registered in their names under Transfer Certificate of Title
No. 24604 of the Registry of Deeds of Kalookan City. Unfortunately, that transaction spawned the succeeding
events hereunder chronologically narrated, eventuating in this appeal wherein we are now expected to pen the
judicial omega.

It appears from the records that the Olizon spouses failed to pay their aforestated obligation upon its maturity, so
private respondent extrajudicially foreclosed the real estate mortgage. At a public auction thereafter held on
March 11, 1975, the subject property was sold to respondent bank as the highest bidder, pursuant to which it was
issued a certificate of sale as of the same date. On March 12, 1974, the said certificate of sale was duly annotated
at the back of petitioner's Transfer Certificate of Title No. 24604.

On June 5, 1978, again due to the failure of petitioner spouses to redeem the foreclosed property within the
period of redemption, title to the property was consolidated in favor of respondent bank. 1

On January 14, 1986, respondent bank filed with the Regional Trial Court of Kalookan City a petition to reconstitute
Transfer Certificate of Title No. 24604, which was lost in the Office of the Registry of Deeds of Kalookan City, the
said proceeding being docketed as Case No. C-2746. 2

On June 11, 1986, the Regional Trial Court of Kalookan City ordered the reconstitution prayed for. As a
consequence, Transfer of Certificate of Title No. 24604 in the name of the Olizon spouses was cancelled and, in lieu
thereof, Transfer Certificate of Title No. 149858 was issued on June 5, 1987 in the name of respondent bank. 3

On November 27, 1989, respondent bank this time filed with the Regional Trial Court of Kalookan City, a petition
for the issuance of a writ of possession against petitioner spouses, docketed as LRC Case No. C-3094, 4 and which
petition was granted by the trial court on February 8, 1990. 5

On March 8, 1990, a petition, by way of opposition, was filed by petitioner spouses wherein they sought the
cancellation of the writ of possession, the nullification of the certificate of sale dated March 11, 1974, and/or the
nullification of the foreclosure proceedings. In support thereof, they alleged lack of notice of the auction sale and
lack of posting of the notice of sale as required by Section 3 of Act No. 3135, as amended.6

After trial, the court a quo issued an order dated July 16, 1990, with the following dispositive portion:

WHEREFORE, the Court hereby declares that:

 13

1. The foreclosure of the real estate mortgage executed by the spouses Olizons, as well as the
certificate of sale dated March 11, 1974 as (sic) null and void;

2. The writ of possession is hereby set aside; and

3. Ordering the Register of Deeds of Caloocan City to cancel Transfer Certificate of Title No.
149858 issued in the name of Prudential Bank and to reinstate Transfer Certificate of Title No.
24604 to (sic) spouses Armando S. Olizon and Iluminada C. Olizon.

SO ORDERED. 7

Private respondent appealed the said decision to the Court of Appeals which rendered its questioned decision in
CA—G.R. CV No. 29482, dated September 9, 1992, with a disposition of reversal, thus:

WHEREFORE, the Decision (sic) dated July 16, 1990 of the Regional Trial Court of Caloocan in LRC
Case No. 3094 is hereby REVERSED and SET ASIDE and another rendered upholding the validity of
the foreclosure sale of the real estate mortgage and the writ of possession dated February 8,
1990. 8

Petitioners have now come to us through the present petition wherein they contend that:

1. The Court of Appeals erred in reversing the trial court since

there is evidence to show that the requirements of Sec. 3, Act
No. 3135, as amended, were not complied with.

2. The Court of Appeals erred in holding that petitioners had

notice of the foreclosure sale.

3. The Court of Appeals erred in holding that petitioners had

totally abandoned the subject property, as this is not
supported by the evidence. 9

We do not find substantial merit in the petition.

Herein petitioners are now seeking the annulment of the extrajudicial foreclosure sale conducted more than 20
years ago, invoking therefor two grounds, namely, lack of personal notice to the mortgagors about the foreclosure
sale, and the failure of the mortgagee bank to comply with the posting requirement under Section 3 of Act No.
3135, as amended.

It is now a well-settled rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
necessary. 10 Section 3 of Act No. 3135 governing extrajudicial foreclosure of real estate mortgages, as amended by
Act No. 4118, requires only the posting of the notice of sale in three public places and the publication of that
notice in a newspaper of general circulation. Hence, the lack of personal notice to the mortgagors, herein
petitioners, is not a ground to set aside the foreclosure sale.

Neither can the supposed failure of respondent bank to comply with the posting requirement as provided under
the aforesaid Section 3, under the factual ambiance and circumstances which obtained in this case, be considered
a sufficient ground for annulling the aforementioned sale. We are not unaware of the rulings in some cases that,
under normal situations, the statutory provisions governing publication of notice of extrajudicial foreclosure sales
must be strictly complied with and that failure to publish the notice of auction sale as required by the statute
 14

constitutes a jurisdictional defect which invalidates the sale. However, the unusual nature of the attendant facts
and the peculiarity of the confluent circumstances involved in this case require that we rule otherwise.

Petitioners' cited authority on the requisite publication of notices is not so all-embracing as to deny justified
exceptions thereto under appropriate situations. Petitioners quote this passage from Tambunting et al. vs. Court of
Appeals, et al. 11 which is not conclusive hereon for not being exactly in point, based as it is on different facts, thus:

The rule is that statutory provisions governing publication of notice of mortgage foreclosure sales
must be strictly complied with, and that even slight deviations therefrom will invalidate the
notice and render the sale at least voidable. Interpreting Sec. 457 of the Code of Civil Procedure
(reproduced in Sec. 18[c] of Rule 39, Rules of Court and in Sec. 3 of Act No. 3135)
in Campomanes vs. Bartolome and German & Co. (38 Phil. 8081), this Court held that if a sheriff
sells without the notice prescribed by the Code of Civil Procedure induced thereto by the
judgment creditor, the sale is absolutely void and no title passes. . . . (Emphasis supplied.)

At any rate, respondent Court of Appeals has this commendable ratiocination on the aforestated twin errors
assigned by petitioners:

The decisive issue which must be resolved is whether or not the statutory requirements of notice
have been complied with in this case. Section 12 of the mortgage contract reads:

"12. All correspondence relative to this mortgage, including demand letters, summonses,
subpoenas or notifications of any judicial or extrajudicial action shall be sent to the Mortgagor at
No. 82 Naval Street, Malabon, Rizal or at the address that may hereafter be given in writing by
the Mortgagor to the Mortgagee. The mere act of sending any correspondence by mail or by
personal delivery to the said address shall be valid and effective notice to the Mortgagor for all
legal purposes, and . . . shall not excuse or relieve the mortgagor from the effects of such notice."
(Emphasis supplied.)

The foregoing stipulation is the law between petitioner and oppositors-spouses and should be
complied with faithfully.

That the mortgagors were actually notified by appellant bank of the foreclosure proceedings is
shown by its letters to the Olizons before the actual sale at public auction of the subject property,
to wit: (1) Letter dated January 16, 1973 of Atty. Octavio D. Fule, Legal Officer of appellant bank
to the Olizons informing the latter that their failure to pay their obligations will constrain
appellant bank to institute appropriate legal action against them; (2) Letter dated January 31,
1974 of Atty. Octavio D. Fule, Legal Officer of appellant bank, informing the Olizons that
Prudential Bank has filed foreclosure proceedings under Act 3135, as amended.

xxx xxx xxx

Furthermore, notice of sale was duly published in accordance with law and furnished the Olizons.
The evidence presented during the trial of the case show that the then Clerk of Court, Emma
Ona, sent a printed letter dated February 18, 1974 informing the Olizons that appellant bank had
filed an application to foreclosure their real estate mortgage and the public auction of the
mortgaged parcel of land was sent on March 11, 1974, together with a copy of the Notice of Sale.
The document is more than ten (10) years old and the absence of a registry receipt in the case
folder of the foreclosure records of the Sheriff of the City of Caloocan, does not indicate that the
Olizons did not receive a copy of the aforesaid notice of sale, it being presumed that the sheriff
performed her duties and that foreclosure proceedings are regular. . . . (Citations omitted.) 12
 15

Furthermore, unlike the situation in previous cases 13 where the foreclosure sales were annulled by reason of
failure to comply with the notice requirement under Section 3 of Act No. 3135, as amended, what is allegedly
lacking here is the posting of the notice in three public places, and not the publication thereof in a newspaper of
general circulation.

We take judicial notice of the fact that newspaper publications have more far-reaching effects than posting on
bulletin boards in public places. There is a greater probability that an announcement or notice published in a
newspaper of general circulation, which is distributed nationwide, shall have a readership of more people than
that posted in a public bulletin board, no matter how strategic its location may be, which caters only to a limited
few. Hence, the publication of the notice of sale in the newspaper of general circulation alone is more than
sufficient compliance with the notice-posting requirement of the law. By such publication, a reasonably wide
publicity had been effected such that those interested might attend the public sale, and the purpose of the law had
been thereby subserved.

The object of a notice of sale is to inform the public of the nature and condition of the property to be sold, and of
the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to prevent a
sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not affect the sufficiency
of the notice; but if mistakes or omissions occur in the notices of sale, which are calculated to deter or mislead
bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or
omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto. 14

In the instant case, the aforesaid objective was attained since there was sufficient publicity of the sale through the
newspaper publication. There is completely no showing that the property was sold for a price far below its value as
to insinuate any bad faith, nor was there any showing or even an intimation of collusion between the sheriff who
conducted the sale and respondent bank. This being so, the alleged non-compliance with the posting requirement,
even if true, will not justify the setting aside of the sale.

Moreover, herein petitioners failed to discharge the burden of proving by convincing evidence their allegation that
there was actually no compliance with the posting requirement. The foreclosure proceeding has in its favor the
presumption of regularity, 15 and the burden of evidence to rebut the same is on petitioners. Where the allegation
is an essential part of the cause of action or defense in a civil case, whether posited in an affirmative or negative
form, the burden of evidence thereon lies with the pleader. 16 Besides, the fact alone that there was no certificate
of posting attached to the sheriff's records of the extrajudicial foreclosure sale is not sufficient to prove the lack of
posting, especially in this case where the questioned act and the record thereof are already 16 years old. It is quite
unfair to now shift to respondent bank the burden of proving the fact of posting considering the length of time that
has elapsed, aside from the fact that the sheriff who conducted the public sale and who was responsible for the
posting of the notice of sale is already out of the country, with the records being silent on his present whereabouts
or the possibility of his returning here.

Indeed, even on equitable considerations alone, the presumption of regularity in the performance of official duty
must stand. As aptly found by the Court of Appeals:

. . . It is not a matter of lack of compliance with the requirements of the law, rather, it is a matter
of unavailability of certain documents due to the loss thereof, considering that more than sixteen
(16) years had lapsed from the date of the extra-judicial foreclosure of the real estate mortgage.
Indeed, the presumption of regularity in the performance of official duty by the sheriff, more
particularly, compliance with the provisions of Act 3135, as amended, has not been overturned
by the Olizons. 17

Nor are these all that we wish to expound hereon, for this is one case where we find the necessity for the
application of the equitable principle of estoppel by laches in order to avoid an injustice.
 16

Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could nor 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. 18

In the case at bar, petitioners are already considered estopped through laches from questioning the regularity of
the sale as well as the ownership of the land in question. It is evident from the records that the petition to annul
the foreclosure sale was filed by herein petitioners only after 16 long years from the date of sale and only after a
transfer certificate of title over the subject property had long been issued to respondent bank. Herein petitioners
failed to advance any justification for their prolonged inaction. It would be inequitable to allow petitioners, after
the lapse of an almost interminable period of time, to defeat an otherwise indefeasible title by the simple and
dubious expedient of invoking a purported irregularity in the foreclosure proceedings.

Although a sale under a power contained in a mortgage or trust deed has been defectively executed and the
mortgagor has the right to disaffirm the same, he may, by laches or by acts amounting to an estoppel or
ratification, cure the defect and render the sale valid. 19 Where a sale under a power is voidable at the election of
the mortgagor for some irregularity — such as that the mortgagee purchased without authority, or that there was
an inadequacy in the price obtained, a want of sufficient or proper notice, or the like — the mortgagor must
institute proceedings for avoidance within apt and reasonable time, or his laches will bar him of relief. 20 Thus, a
party seeking to set aside a foreclosure sale made under a power of sale must bring his action without
unreasonable delay. The court generally will refuse to grant relief when there has been great and unreasonable
delay, amounting to laches, in seeking its aid. 21

Besides, it has been said that in seeking to set aside a foreclosure sale, the moving party must act promptly after
he becomes aware of the facts on which he bases his complaint, and in this connection, notice of an irregularity
may be presumed from the fact that the mortgagor has knowledge of the sale, as he is thereby put on inquiry, and
is bound to use diligence in discovering any defects in the proceedings. 22 Having failed to do so, petitioners cannot
now be heard on their much belated plaints.

Moreover, it is an entrenched doctrine in our jurisdiction that registration in a public registry is notice to the whole
world. The record is a constructive notice of its contents as well as of all interest, legal and equitable, included
therein. All persons are charged with knowledge of what it contains. 23 Therefore, in the case at bar, the annotation
of the certificate of sale on petitioners' Transfer Certificate of Title No. 24604 and the filing of the affidavit of
consolidation with the Register of Deeds constituted constructive notice of both acts to herein petitioners.
Consequently, as early as March 11, 1974 24 when the certificate of sale was annotated at the back of their title,
petitioners were already charged with knowledge of the foreclosure sale, yet they still failed or refused to take the
necessary steps to protect their rights over the subject property.

It also bears stressing that petitioners entered their appearance in the Regional Trial Court of Kalookan City where
the petition for reconstitution of Transfer Certificate of Title No. 24604 was filed by respondent bank, as shown by
said court's order dated June 11, 1986. 25 It was then incumbent on petitioners to have filed an objection or
opposition to the reconstitution if they sincerely believed that the property rightfully belongs to them.
Significantly, petitioners neither moved for the reconsideration of nor appealed from the order of the lower court
granting reconstitution of title in the name of respondent bank.

Finally, the negligence or omission to assert a right within a reasonable time warrants not only a presumption that
the party entitled to assert it either had abandoned it or declined to assert it, but also casts doubt on the validity of
the claim of ownership. Such neglect to assert a right taken in conjunction with the lapse of time, more or less
great, and other circumstances causing prejudice to the adverse party, operates as a bar in a court of equity. 26 In
the present case, at no time after the debt became due and demandable and the mortgage property had been
foreclosed, or even thereafter, did petitioners offer to pay their mortgage obligation to redeem their property.
Petitioners' collective acts are, therefore, indicative of their acquiescence to and acknowledgment of the validity of
 17

the foreclosure proceedings and the sale, as well as a recognition of respondent bank's just and legal title over the
property acquired thereby.

We, therefore, cannot but concur in these observations of respondent Court:

The evidence on record, likewise show that after the foreclosure proceedings in 1974, the Olizons
had totally abandoned actual ownership over the subject property in favor of appellant bank,
leaving it to appellant bank to pay the real estate taxes over the subject property. In fact, in the
reconstitution of the owner's title in Case No. C-2746, while the Olizons entered their appearance
before the Regional Trial Court of Caloocan, they did not oppose the petition of appellant bank,
despite the fact that the certificate of sale and final deed of sale as well as consolidation of the
ownership were submitted as evidence by appellant bank in the reconstitution process. It was
only after they noticed the lack of certain documents in the possession of the sheriff that they
thought of raising technicalities. . . . 27

WHEREFORE, the instant petition is DENIED for lack of merit and the assailed judgment of respondent Court of
Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Narvasa, Padilla, Puno and Mendoza, JJ., concur.

 18

G.R. No. 170215               August 28, 2007

SPS. ESMERALDO and ELIZABETH SUICO, Petitioners, 

vs.
PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS, Respondents.

DECISION

CHICO-NAZARIO, J.:

Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank
(PNB) secured by a real estate mortgage1 on real properties in the name of the former. The petitioners were
unable to pay their obligation prompting the PNB to extrajudicially foreclose the mortgage over the subject
properties before the City Sheriff of Mandaue City under EJF Case No. 92-5-15.

The petitioners thereafter filed a Complaint against the PNB before the Regional Trial Court (RTC) of Mandaue City,
Branch 55, docketed as Civil Case No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of
Mortgage.2

The Complaint alleged that on 6 May 1992, PNB filed with the Office of the Mandaue City Sheriff a petition for the
extrajudicial foreclosure of mortgage constituted on the petitioners’ properties (subject properties) for an
outstanding loan obligation amounting to ₱1,991,770.38 as of 10 March 1992. The foreclosure case before the
Office of the Mandaue City Sheriff, which was docketed as EJF Case No. 92-5-15, covered the following properties:

TCT NO. 13196

"A parcel of land (Lot 701, plan 11-5121 Amd-2) situated at Mandaue City, bounded on the NE., and SE., by lot no.
700; on the SW. by lots nos. 688 and 702; on the NW. by lot no. 714, containing an area of 2,078 sq. m. more or
less."

TAX DECL. NO. 00553

"A parcel of land situated at Tabok, Mandaue City, Cad. Lot No. 700-C-1; bounded on the North by Lot No. 701 &
700-B; on the South by Lot No. 700-C-3; on the East by lot no. 700-C-3 and on the West by Lot no. 688, containing
an area of 200 square meters, more or less."

TAX DECL. NO. 00721

"Two (2) parcels of land situated at Tabok, Mandaue City, Cad. lot nos. 700-C-3 and 700-C-2; bounded on the North
by Lot Nos. 700-C-1 and 700-B; on the South by Lot No. 700-D; on the East by Lot Nos. 695 and 694; and on the
West by Lot Nos. 688 and 700-C-1, containing an aggregate area of 1,683 sq. m. more or less."

TAX DECL. NO. 0237

"A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-B. Bounded on the NE. by (Lot 699) 109, (Lot
No. 69) 110, on the SE (Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on the SW. (Lot 701) 113; containing an
area of .1785 HA more or less."

TAX DECL. NO. 9267

 19

"A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-A. Bounded on the NE. by (Lot 699) 109, on the
South West by (Lot 701) 113, on the SE. by (Lot 700-B) 111, and on the NW. by (lot 714) 040039; containing an area
of .1785 HA more or less."3

Petitioners claimed that during the foreclosure sale of the subject properties held on 30 October 1992, PNB, as the
lone bidder, offered a bid in the amount of ₱8,511,000.00. By virtue of the said bid, a Certificate of Sale of the
subject properties was issued by the Mandaue City Sheriff in favor of PNB. PNB did not pay to the Sheriff who
conducted the auction sale the amount of its bid which was ₱8,511,000.00 or give an accounting of how said
amount was applied against petitioners’ outstanding loan, which, as of 10 March 1992, amounted only to
₱1,991,770.38. Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding obligation as
stated in the extrajudicial foreclosure of mortgage, it was the legal duty of the winning bidder, PNB, to deliver to
the Mandaue City Sheriff the bid price or what was left thereof after deducting the amount of petitioners’
outstanding obligation. PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very
least, the amount of such bid in excess of petitioners’ outstanding obligation.

One year after the issuance of the Certificate of Sale, PNB secured a Certificate of Final Sale from the Mandaue City
Sheriff and, as a result, PNB transferred registration of all the subject properties to its name.

Owing to the failure of PNB as the winning bidder to deliver to the petitioners the amount of its bid or even just
the amount in excess of petitioners’ obligation, the latter averred that the extrajudicial foreclosure conducted over
the subject properties by the Mandaue City Sheriff, as well as the Certificate of Sale and the Certificate of Finality
of Sale of the subject properties issued by the Mandaue City Sheriff, in favor of PNB, were all null and void.

Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for:

a) Declaring the Nullity of Extra-judicial Foreclosure of Mortgage under EJF Case No. 92-5-15 including the
certificate of sale and the final deed of sale of the properties affected;

b) Order[ing] the cancellation of the certificates of titles and tax declaration already in the name of
[herein respondent] PNB and revert the same back to herein [petitioners’] name;

c) Ordering the [PNB] to pay [petitioners] moral damages amounting to more than ₱1,000,000,00;
Exemplary damages of ₱500,000.00; Litigation expenses of ₱100,000.00 and attorney’s fees of
₱300,000.00.4

PNB filed a Motion to Dismiss5 Civil Case No. MAN-2793 citing the pendency of another action between the same
parties, specifically Civil Case No. CEB-15236 before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and
Elizabeth Suico where PNB was seeking the payment of the balance of petitioners’ obligation not covered by the
proceeds of the auction sale held on 30 October 1992. PNB argued that these two cases involve the same parties.
Petitioners opposed the Motion to Dismiss filed by PNB.6 Subsequently, the Motion to Dismiss Civil Case No. MAN-
2793 was denied in the Order of the RTC dated 15 July 1997;7 thus, PNB was constrained to file its Answer.8

PNB disputed petitioners’ factual narration. PNB asserted that petitioners had other loans which had likewise
become due. Petitioners’ outstanding obligation of ₱1,991,770.38 as of 10 March 1992 was exclusive of attorney’s
fees, and other export related obligations which it did not consider due and demandable as of said date. PNB
maintained that the outstanding obligation of the petitioners under their regular and export- related loans was
already more than the bid price of ₱8,511,000.00, contradicting the claim of surplus proceeds due the petitioners.
Petitioners were well aware that their total principal outstanding obligation on the date of the auction sale was
₱5,503,293.21.
 20

PNB admitted the non-delivery of the bid price to the sheriff and the execution of the final deed of sale, but
claimed that it had not transferred in its name all the foreclosed properties because the petition to register in its
name Transfer Certificates of Title (TCT) No. 37029 and No. 13196 were still pending.

On 2 February 1999, the RTC rendered its Decision9 in Civil Case No. MAN-2793 for the declaration of nullity of the
extrajudicial foreclosure of mortgage, the dispositive portion of which states:

WHEREFORE, based on the foregoing, judgment is rendered in favor of [herein petitioners] Sps. Esmeraldo &
Elizabeth Suico and against [herein respondent], Philippine National Bank (PNB), declaring the nullity of
Extrajudicial Foreclosure of Mortgage under EJF Case No. 92-5-15, including the certificate of sale and the final
deed of sale of the subject properties; ordering the cancellation of the certificates of titles and tax declaration
already in the name of [respondent] PNB, if any, and revert the same back to the [petitioners’] name; ordering
[respondent] PNB to cause a new foreclosure proceeding, either judicially or extra-judicially.

Furnish parties thru counsels copy of this order.10

In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC reasoned that given that
petitioners had other loan obligations which had not yet matured on 10 March 1992 but became due by the date
of the auction sale on 30 October 1992, it does not justify the shortcut taken by PNB and will not excuse it from
paying to the Sheriff who conducted the auction sale the excess bid in the foreclosure sale. To allow PNB to do so
would constitute fraud, for not only is the filing fee in the said foreclosure inadequate but, worse, the same
constitutes a misrepresentation regarding the amount of the indebtedness to be paid in the foreclosure sale as
posted and published in the notice of sale.11 Such misrepresentation is fatal because in an extrajudicial foreclosure
of mortgage, notice of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates the notice.12

When the PNB appealed its case to the Court of Appeals,13 the appellate court rendered a Decision14 dated 12 April
2005, the fallo of which provides:

WHEREFORE, premises considered, the instant appeal is GRANTED. The questioned decision of the Regional Trial
Court of Mandaue City, Branch 55 dated February 2, 1999 is hereby REVERSED and SET ASIDE. Accordingly, the
extra judicial foreclosure of mortgage under EJF 92-5-15 including the certificate of sale and final deed of sale
executed appurtenant thereto are hereby declared to be valid and binding.15

In justifying reversal, the Court of Appeals held:

A careful scrutiny of the evidence extant on record would show that in a letter dated January 12, 1994,
[petitioners] expressly admitted that their outstanding principal obligation amounted to ₱5.4 Million and in fact
offered to redeem the properties at ₱6.5 Million. They eventually increased their offer at ₱7.5 Million as evidenced
by that letter dated February 4, 1994. And finally on May 16, 1994, they offered to redeem the foreclosed
properties by paying the whole amount of the obligation by installment in a period of six years. All those offers
made by the [petitioners] not only contradicted their very assertion that their obligation is merely that amount
appearing on the petition for foreclosure but are also indicative of the fact that they have admitted the validity of
the extra judicial foreclosure proceedings and in effect have cured the impugned defect. Thus, for the [petitioners]
to insist that their obligation is only over a million is unworthy of belief. Oddly enough, it is evident from their acts
that they themselves likewise believe otherwise.

Even assuming that indeed there was a surplus and the [PNB] is retaining more than the proceeds of the sale than
it is entitled, this fact alone will not affect the validity of the sale but simply gives the [petitioners] a cause of action
to recover such surplus. In fine, the failure of the [PNB] to remit the surplus, if any, is not tantamount to a non-
compliance of statutory requisites that could constitute a jurisdictional defect invalidating the sale. This situation
only gives rise to a cause of action on the part of the [petitioners] to recover the alleged surplus from the [PNB].
 21

This ruling is in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor
is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made.16

Petitioners filed a Motion for Reconsideration17 of the foregoing Decision, but the Court of Appeals was not
persuaded. It maintained the validity of the foreclosure sale and, in its Amended Decision dated 28 September
2005, it merely directed PNB to pay the deficiency in the filing fees, holding thus:

WHEREFORE, Our decision dated April 12, 2005 is hereby AMENDED. [Herein respondent PNB] is hereby required
to pay the deficiency in the filing fees due on the petition for extra judicial foreclosure sale to be based on the
actual amount of mortgage debts at the time of filing thereof. In all other respects, Our decision subject of herein
petitioners’] motion for reconsideration is hereby AFFIRMED.18

Unflinching, petitioners elevated the case before this Court via the present Petition for Review essentially seeking
the nullification of the extrajudicial foreclosure of the mortgage constituted on the subject properties. Petitioners
forward two reasons for declaring null and void the said extrajudicial foreclosure: (1) the alleged defect or
misrepresentation in the notice of sheriff’s sale; and/or (2) failure of PNB to pay and tender the price of its bid or
the surplus thereof to the sheriff.

Petitioners argue that since the Notice of Sheriff’s Sale stated that their obligation was only ₱1,991,770.38 and PNB
bidded ₱8,511,000.00, the said Notice as well as the consequent sale of the subject properties were null and void.

It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly
complied with, and that even slight deviations therefrom will invalidate the notice and render the sale at least
voidable.19 Nonetheless, we must not also lose sight of the fact that the purpose of the publication of the Notice of
Sheriff’s Sale is to inform all interested parties of the date, time and place of the foreclosure sale of the real
property subject thereof. Logically, this not only requires that the correct date, time and place of the foreclosure
sale appear in the notice, but also that any and all interested parties be able to determine that what is about to be
sold at the foreclosure sale is the real property in which they have an interest.20

Considering the purpose behind the Notice of Sheriff’s Sale, we disagree with the finding of the RTC that the
discrepancy between the amount of petitioners’ obligation as reflected in the Notice of Sale and the amount
actually due and collected from the petitioners at the time of the auction sale constitute fraud which renders the
extrajudicial foreclosure sale null and void.

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are
attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions
occur in the notices of sale, which are calculated to deter or mislead bidders, to depreciate the value of the
property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the validity of the
notice, and also to the sale made pursuant thereto.21

All these considered, we are of the view that the Notice of Sale in this case is valid. Petitioners failed to convince
this Court that the difference between the amount stated in the Notice of Sale and the amount of PNB’s bid
resulted in discouraging or misleading bidders, depreciated the value of the property or prevented it from
commanding a fair price.

The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals22 refers to a Notice of
Sheriff’s Sale which did not state the correct number of the transfer certificates of title of the property to be sold.
This Court considered the oversight as a substantial and fatal error which resulted in invalidating the entire notice.
The case of Community Savings and Loan Association, Inc. v. Court of Appeals23 is also inapplicable, because the
said case refers to an extrajudicial foreclosure tainted with fraud committed by therein petitioners, which denied
therein respondents the right to redeem the property. It actually has no reference to a Notice of Sale.
 22

We now proceed to the effect of the non-delivery by PNB of the bid price or the surplus to the petitioners.

The following antecedents are not disputed:

For failure to pay their loan obligation secured by a real estate mortgage on the subject properties, PNB foreclosed
the said mortgage. In its petition for foreclosure sale under ACT No. 3135 filed before the Mandaue City Sheriff,
PNB stated therein that petitioners’ total outstanding obligation amounted to ₱1,991,770.38.24 PNB bidded the
amount of ₱8,511,000.00. Admittedly, PNB did not pay its bid in cash or deliver the excess either to the City Sheriff
who conducted the bid or to the petitioners after deducting the difference between the amount of its bid and the
amount of petitioners’ obligation in the Notice of Sale. The petitioners then sought to declare the nullity of the
foreclosure, alleging that their loan obligation amounted only to ₱1,991,770.38 in the Notice of Sale, and that PNB
did not pay its bid in cash or deliver to petitioner the surplus, which is required under the law.25

On the other hand, PNB claims that petitioners’ loan obligation reflected in the Notice of Sale dated 10 March 1992
did not include their other obligations, which became due at the date of the auction sale on 10 October 1992; as
well as interests, penalties, other charges, and attorney’s fees due on the said obligation.26

Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial foreclosure sale provide:

SEC. 21. Judgment obligee as purchaser. – When the purchaser is the judgment obligee, and no third-party claim
has been filed, he need not pay the amount of the bid if it does not exceed the amount of his judgment. If it does,
he shall pay only the excess. (Emphasis supplied.)

SEC. 39. Obligor may pay execution against obligee. – After a writ of execution against property has been issued, a
person indebted to the judgment obligor may pay to the sheriff holding the writ of execution the amount of his
debt or so much thereof as may be necessary to satisfy the judgment, in the manner prescribed in section 9 of this
Rule, and the sheriff’s receipt shall be a sufficient discharge for the amount so paid or directed to be credited by
the judgment obligee on the execution.

Conspicously emphasized under Section 21 of Rule 39 is that if the amount of the loan is equal to the amount of
the bid, there is no need to pay the amount in cash. Same provision mandates that in the absence of a third-party
claim, the purchaser in an execution sale need not pay his bid if it does not exceed the amount of the judgment;
otherwise, he shall pay only the excess.271avvphi1

The raison de etre is that it would obviously be senseless for the Sheriff or the Notary Public conducting the
foreclosure sale to go through the idle ceremony of receiving the money and paying it back to the creditor, under
the truism that the lawmaking body did not contemplate such a pointless application of the law in requiring that
the creditor must bid under the same conditions as any other bidder. It bears stressing that the rule holds true only
where the amount of the bid represents the total amount of the mortgage debt.28

The question that needs to be addressed in this case is: considering the amount of PNB’s bid of ₱8,511,000.00 as
against the amount of the petitioners’ obligation of ₱1,991,770.38 in the Notice of Sale, is the PNB obliged to
deliver the excess?

Petitioners insist that the PNB should deliver the excess. On the other hand PNB counters that on the date of the
auction sale on 30 October 1992, petitioners’ other loan obligation already exceeded the amount of ₱1,991,770.38
in the Notice of Sale.

Rule 68, Section 4 of the Rules of Court provides:

 23

SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the mortgaged property
shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be
any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in
the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a
balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person
entitled to it.

Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:

(a) first, pay the costs

(b) secondly, pay off the mortgage debt

(c) thirdly, pay the junior encumbrancers, if any in the order of priority

(d) fourthly, give the balance to the mortgagor, his agent or the person entitled to it.29

Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first
mortgagee/senior mortgagee, the claim of the second mortgagee/junior mortgagee may be satisfied from the
surplus proceeds. The application of the proceeds from the sale of the mortgaged property to the mortgagor’s
obligation is an act of payment, not payment by dacion; hence, it is the mortgagee’s duty to return any surplus in
the selling price to the mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a mortgage
is considered a custodian of the fund and, being bound to apply it properly, is liable to the persons entitled thereto
if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable sense,
but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of
the equity of redemption.30

Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this
fact alone will not affect the validity of the sale but simply give the mortgagor a cause of action to recover such
surplus.31

In the case before us, PNB claims that petitioners’ loan obligations on the date of the auction sale were already
more than the amount of ₱1,991,770.38 in the Notice of Sale. In fact, PNB claims that on the date of the auction
sale, petitioners’ principal obligation, plus penalties, interests, attorneys fees and other charges were already
beyond the amount of its bid of ₱8,511,000.00.

After a careful review of the evidence on record, we find that the same is insufficient to support PNB’s claim.
Instead, what is available on record is petitioner’s Statement of Account as prepared by PNB and attached as
Annex A32 to its Answer with counterclaim.33 In this Statement of Account, petitioners’ principal obligation with
interest/penalty and attorney’s fees as of 30 October 1992 already amounted to ₱6,409,814.92.

Although petitioners denied the amounts reflected in the Statement of Account from PNB, they did not interpose
any defense to refute the computations therein. Petitioners’ mere denials, far from being compelling, had nothing
to offer by way of evidence. This then enfeebles the foundation of petitioners’ protestation and will not suffice to
overcome the computation of their loan obligations as presented in the Statement of Account submitted by PNB.34

Noticeably, this Statement of Account is the only piece of evidence available before us from which we can
determine the outstanding obligations of petitioners to PNB as of the date of the auction sale on 10 October 1992.

It did not escape the attention of this Court that petitioners wrote a number of letters to PNB almost two years
after the auction sale,35 in which they offered to redeem the property. In their last letter, petitioners offered to
 24

redeem their foreclosed properties for ₱9,500,000.00. However, these letters by themselves cannot be used as
bases to support PNB’s claim that petitioners’ obligation is more than its bid of ₱8,500,000.00, without any other
evidence. There was no computation presented to show how petitioners’ obligation already reached
₱9,500,000.00. Petitioners could very well have offered such an amount on the basis of the value of the foreclosed
properties rather than their total obligation to PNB. We cannot take petitioners’ offer to redeem their properties in
the amount of ₱9,500,000.00 on its face as an admission of the amount of their obligation to PNB without any
supporting evidence.

Given that the Statement of Account from PNB, being the only existing documentary evidence to support its claim,
shows that petitioners’ loan obligations to PNB as of 30 October 1992 amounted to ₱6,409,814.92, and considering
that the amount of PNB’s bid is ₱8,511,000.00, there is clearly an excess in the bid price which PNB must return,
together with the interest computed in accordance with the guidelines laid down by the court in Eastern Shipping
Lines v. Court of Appeals,36 regarding the manner of computing legal interest, viz:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, 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 date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

In Philippine National Bank v. Court of Appeals,37 it was held that:

The rate of 12% interest referred to in Cir. 416 applies only to:

Loan or forbearance of money, or to cases where money is transferred from one person to another and the
obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not
involve or which has nothing to do with loans or forbearance of any, money, goods or credit does not fall within its
coverage for such imposition is not within the ambit of the authority granted to the Central Bank. When an
obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209
of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or
forbearance of money, hence the proper imposable rate of interest is six (6%) per cent.
 25

Using the above rule as yardstick, since the responsibility of PNB arises not from a loan or forbearance of money
which bears an interest rate of 12%, the proper rate of interest for the amount which PNB must return to the
petitioners is only 6%. This interest according to Eastern Shipping shall be computed from the time of the filing of
the complaint. However, once the judgment becomes final and executory, the "interim period from the finality of
judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of
credit." Thus, in accordance with the pronouncement in Eastern Shipping, the rate of 12% per annum should be
imposed, to be computed from the time the judgment becomes final and executory until fully satisfied.

It must be emphasized, however, that our holding in this case does not preclude PNB from proving and recovering
in a proper proceeding any deficiency in the amount of petitioners’ loan obligation that may have accrued after the
date of the auction sale.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 12 April 2005 is MODIFIED in that
the PNB is directed to return to the petitioners the amount of ₱2,101,185.08 with interest computed at 6% per
annum from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if
the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time the
judgment became final and executory until fully satisfied. Costs against private respondent.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

G.R. No. L-26001            October 29, 1968

 26

PHILIPPINE NATIONAL BANK, petitioner, 

vs.
THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents.

Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner.

San Juan, Africa & Benedicto for respondents.

CONCEPCION, C.J.:

The Philippine National Bank — hereinafter referred to as the PNB — seeks the review by certiorari of a decision of
the Court of Appeals, which affirmed that of the Court of First Instance of Manila, dismissing plaintiff's complaint
against the Philippine Commercial and Industrial Bank — hereinafter referred to as the PCIB — for the recovery of
P57,415.00.

A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals show that, on
about January 15, 1962, one Augusto Lim deposited in his current account with the PCIB branch at Padre Faura,
Manila, GSIS Check No. 645915- B, in the sum of P57,415.00, drawn against the PNB; that, following an established
banking practice in the Philippines, the check was, on the same date, forwarded, for clearing, through the Central
Bank, to the PNB, which did not return said check the next day, or at any other time, but retained it and paid its
amount to the PCIB, as well as debited it against the account of the GSIS in the PNB; that, subsequently, or on
January 31, 1962, upon demand from the GSIS, said sum of P57,415.00 was re-credited to the latter's account, for
the reason that the signatures of its officers on the check were forged; and that, thereupon, or on February 2,
1962, the PNB demanded from the PCIB the refund of said sum, which the PCIB refused to do. Hence, the present
action against the PCIB, which was dismissed by the Court of First Instance of Manila, whose decision was, in turn,
affirmed by the Court of Appeals.

It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on the check, as drawer
thereof, are forged; that the person named in the check as its payee was one Mariano D. Pulido, who purportedly
indorsed it to one Manuel Go; that the check purports to have been indorsed by Manuel Go to Augusto Lim, who,
in turn, deposited it with the PCIB, on January 15, 1962; that, thereupon, the PCIB stamped the following on the
back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and
Industrial Bank," Padre Faura Branch, Manila; that, on the same date, the PCIB sent the check to the PNB, for
clearance, through the Central Bank; and that, over two (2) months before, or on November 13, 1961, the GSIS had
notified the PNB, which acknowledged receipt of the notice, that said check had been lost, and, accordingly,
requested that its payment be stopped.

In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB guilty of negligence; (2) in not
finding that the indorsements at the back of the check are forged; (3) in not finding the PCIB liable to the PNB by
virtue of the former's warranty on the back of the check; (4) in not holding that "clearing" is not "acceptance", in
contemplation of the Negotiable Instruments law; (5) in not finding that, since the check had not been accepted by
the PNB, the latter is entitled to reimbursement therefor; and (6) in denying the PNB's right to recover from the
PCIB.

The first assignment of error will be discussed later, together with the last,with which it is interrelated.

As regards the second assignment of error, the PNB argues that, since the signatures of the drawer are forged, so
must the signatures of the supposed indorsers be; but this conclusion does not necessarily follow from said
premise. Besides, there is absolutely no evidence, and the PNB has not even tried to prove that the
aforementioned indorsements are spurious. Again, the PNB refunded the amount of the check to the GSIS, on
account of the forgery in the signatures, not of the indorsers or supposed indorsers, but of the officers of the
GSIS as drawer of the instrument. In other words, the question whether or not the indorsements have been
 27

falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB,1 for, as against the
drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer,2 since the
forgery of the indorsement is notthe cause of the loss.3

With respect to the warranty on the back of the check, to which the third assignment of error refers, it should be
noted that the PCIB thereby guaranteed "all prior indorsements," not the authenticity of the signatures of the
officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.4 Said
warranty is irrelevant, therefore, to the PNB's alleged right to recover from the PCIB. It could have been availed of
by a subsequent indorsee5 or a holder in due course6 subsequent to the PCIB, but, the PNB is neither.7 Indeed,
upon payment by the PNB, as drawee, the check ceased to be a negotiable instrument, and became a mere
voucher or proof of payment.8

Referring to the fourth and fifth assignments of error, we must bear in mind that, in general, "acceptance", in the
sense in which this term is used in the Negotiable Instruments Law9 is not required for checks, for the same are
payable on demand.10 Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially
different things, for the former is "a promise to perform an act," whereas the latter is the "actual performance"
thereof.11 In the words of the Law,12 "the acceptance of a bill is the signification by the drawee of his assent to the
order of the drawer," which, in the case of checks, is the payment, on demand, of a given sum of money. Upon the
other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer and a
recognition of the drawer's obligation to pay the aforementioned sum, but, also, a compliance with such
obligation.

Let us now consider the first and the last assignments of error. The PNB maintains that the lower court erred in not
finding that the PCIB had been guilty of negligence in not discovering that the check was forged. Assuming that
there had been such negligence on the part of the PCIB, it is undeniable, however, that the PNB has, also, been
negligent, with the particularity that the PNB had been guilty of a greater degree of negligence, because it had a
previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be
stopped. Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main
or proximate cause for the corresponding loss.

In this connection, it will be recalled that the PCIB did not cash the check upon its presentation by Augusto Lim;
that the latter had merely deposited it in his current account with the PCIB; that, on the same day, the PCIB sent it,
through the Central Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the next day
or at any other time; that said failure to return the check to the PCIB implied, under the current banking practice,
that the PNB considered the check good and would honor it; that, in fact, the PNB honored the check and paid its
amount to the PCIB; and that only then did the PCIB allow Augusto Lim to draw said amount from his
aforementioned current account.

Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the
check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not
only to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim.
In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the
PCIB.13

It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or
who put it into the power of the third person to perpetrate the wrong.14

Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB) banks are equally at
fault, the court will leave the parties where it finds them.15
 28

Lastly, Section 62 of Act No. 2031 provides:

The acceptor by accepting the instrument engages that he will pay it according to the tenor of his
acceptance; and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw
the instrument; and

(b) The existence of the payee and his then capacity to indorse.

The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having previously
accepted it.16

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the Philippine National Bank. It is
so ordered.

Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ., concur.
Zaldivar, J., took no part.

G.R. No. L-23493 August 23,1978

 29

DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff-appellee, 

vs.
JOVENCIO A. ZARAGOZA and AVELINA E. ZARAGOZA, defendants-appellants.

Jose R. Espique for appellants.

Jesus A. Avencena for appellee.

ANTONIO, J.:

This is an appeal from the judgment of the Court of First instance of Manila in Civil Case No. 47325, sentencing
defendants-appellants Jovencio A. Zaragoza and Avelina E. Zaragoza to pay jointly and severally plaintiff-appellee
Development Bank of the Philippines the sum of P7,779.36, with interest thereon at a legal rate from July 10, 1957
until fully paid, plus the sum equivalent to 10% of the amount due as attorney's fees and costs of the suit.

The issues raised in this appeal are: (a) whether or not the mortgagee is entitled to claim the deficiency in
extrajudicial foreclosure of mortgage; and (b) whether or not additional interests are properly chargeable on the
balance of the indebtedness during the period from notice of sale to actual sale.

The following facts are not disputed: Appellants obtained, on July 19, 1949, a loan of P30,000 from the appellee
which was secured by a real estate mortgage. It was stipulated that upon failure of appellants to pay the
amortization due, according to the terms and conditions thereof, appellee shall have the authority to foreclose
extrajudicially the mortgaged property, pursuant to Republic Act No. 3135, as amended. Conformably to this
stipulation, upon breach of the conditions of the mortgage, appellee foreclosed extrajudicially the mortgage on
December 10, 1952, and the Provincial Sheriff of Pangasinan posted the requisite notice of the sale at public
auction of the mortgaged property.

On June 10, 1957, the property was sold at public auction to the appellee, being the highest bidder therein, for the
sum of P21,035.00. After applying the proceeds of the sale to satisfy the outstanding balance of the indebtedness
in the amount of P28,914.36, it was found that appellants still owed the appellee in the amount of P7,779.36. Suit
for the deficiency with preliminary attachment was filed by appellee against appellants on June 20, 1961. In their
answer, appellants averred that after an extrajudicial foreclosure of property, no deficiency judgment would lie
and that from the date of the foreclosure to the sale of said property, the mortgagor is no longer liable for the
interest on the loan. The aforesaid contentions of appellants were overruled by the trial court, who thereupon
rendered the aforesaid judgment in favor of the appellee. Contending that the trial court erred in resolving those
issues of law, appellants appealed directly to this court.

We find the appeal without merit.

The first issue had already been resolved in an earlier case. Thus, in Philippine Bank of Commerce v. Tomas de
Vera  1 this Court ruled that in extrajudicial foreclosure of mortgage, where the proceeds of the sale is insufficient
to cover the debt, the mortgagee is entitled to claim the deficiency from the debtor. Explaining the reasons for this
rule, the Court stated:

The sole issue to be resolved in this case is whether the trial court acted correctly in holding
appellee Bank entitled to recover from appellant the sum of P99,033.20 as deficiency arising
after the extrajudicial foreclosure, under Act No. 3135, as amended, of the mortgaged properties
in question. It is urged, on appellant's part, that since Act No. 3135, as amended, is silent as to
 30

the mortgagee's right to recover deficiency arising after an extrajudicial foreclosure sale of
mortgage, he (mortgagee) may not recover the same.

A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure) discuss
nothing, it is true, as to the mortgagee's right to recover such deficiency. But neither do we find
any provision thereunder which expressly or impliedly prohibits such recovery.

Article 2131 of the new Civil Code, on the contrary, expressly provides that 'The form, extent and
consequences of a mortgage, both as to its constitution, modification and extinguishment, and as
to other matters not included in this Chapter, shall be governed by the provisions of the
Mortgage Law and of the Land Registration Law. Under the Mortgage Law, which is still in force,
the mortgagee has the right to claim for the deficiency resulting from the price obtained in the
sale of the real property at public auction and the outstanding obligation at the time of the
foreclosure proceedings. (See Soriano v. Enriquez, 24 Phil. 584; Banco de Islas Filipinos V.
Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101). Under the Rules of Court
(Sec. 6, Rule 70), 'Upon the sale of any real property, under an order for a sale to satisfy a
mortgage or other incumbrance thereon, if there be a balance due to the plaintiff after applying
the Proceeds of the sale, the court, upon motion, should render a judgment against the
defendant for any such balance for which by the record of the case, he may be Personally liable
to the plaintiff, ...' It is true that this refers to a judicial foreclosure, but the underlying principle is
the same, that the mortgage is but a security and not a satisfaction of indebtedness.

xxx xxx xxx

Let it be noted that when the legislature intends to foreclose the right of a creditor to sue for any
deficiency resulting from the foreclosure of the security given to guarantee the obligation, it so
expressly provides. Thus, in respect to pledges, Article 2115 of the new Civil Code expressly
states: ... If the Price of the sale is less (than the amount of the principal obligation) neither shall
the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the
contrary.' Likewise, in the event of a foreclosure of a chattel mortgage on the thing sold in
installments he (the vendor) shall have no further action against the purchaser to recover any
unpaid balance Of the price. Any agreement to the contrary shall be void.' (Article 1484,
paragraph 3, Ibid.). It is then clear that in the absence of a similar provision in Act No. 3135, as
amended, it can not be concluded that the creditor loses his right given him under the Mortgage
Law and recognized in the Rules Of Court, to take action for the recovery of any unpaid balance
on the Principal obligation, simply because he has chosen to foreclose his mortgage extra-
judically pursuant to a special Power of attorney given him by the mortgagor in the mortgage
contract. As stated by this Court in Medina v. Philippine National Bank  (56 Phil. 651), a case
analogous to the one at bar, the step taken by the mortgagee-bank in resorting to extrajudicial
foreclosure under Act 3135, was merely to find a proceeding for the sale, and its action can not
be taken to mean a waiver of its right to demand the payment of the whole debt. (pp. 1028-
1030).

This rule was reiterated in Development Bank of the Philippines v. Vda de Moll. 2

In connection with the second issue, appellants argue that since the appellee held in abeyance the sale of the
property for a period of four (4) years, they alone should suffer the consequences of such delay. It was further
contended that the debtor's liability in judicial foreclosures is limited to the amount due at the time of the
foreclosure and, therefore, such should also apply to extrajudicial foreclosures. By way of refutation appellee
explained that the seemingly long interval between the date of issuance of the Sheriff's Notice of Sale and the date
of sale was due to the numerous transfers made of the date of the sale upon requests of the appellants
themselves. Each transfer is covered by a corresponding agreement for postponement, executed jointly by
 31

appellants and appellee. Certainly, under such circumstances, appellants cannot take advantage of the delay which
was their own making, to the prejudice of the other party. Apart from this consideration, it must be noted that a
foreclosure of mortgage means the termination of all rights of the mortgagor in the property covered by the
mortgage. It denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the
property and includes the sale itself. In judicial foreclosures, the "foreclosure" is not complete until the Sheriff's
Certificate is executed, acknowledged and recorded. In the absence of a Certificate of Sale, no title passes by the
foreclosure proceedings to the vendee. 3 It is only when the foreclosure proceedings are completed and the
mortgaged property sold to the purchaser that all interests of the mortgagor are cut off from the property. This
principle is applicable to extrajudicial foreclosures. Consequently, in the case at bar, prior to the completion of the
foreclosure, the mortgagor is, therefore, liable for the interest on the mortgage. 4

ACCORDINGLY, the judgment appealed from is hereby AFFIRMED. Costs against appellants.

Fernando (Chairman), Barredo, Aquino, Concepcion, Jr. and Santos, JJ., concur.
 32

G.R. No. 70987 January 30, 1987

GREGORIO Y. LIMPIN, JR. and ROGELIO SARMIENTO, petitioners, 

vs.
INTERMEDIATE APPELLATE COURT and GUILLERMO PONCE, respondents.

Danilo A. Basa for petitioners.

Sycip, Salazar, Feliciano & Hernandez Law Office and Eugenio C. Lindo for private respondent.

NARVASA, J:

Assailed in this petition for review is the decision of the Intermediate Appellate Court in A.C.-G.R. No. 02516,
entitled "Guillermo Ponce, versus Hon. Antonio P. Solano, etc., et al.," the dispositive portion of which reads —

WHEREFORE, the orders dated October 16, 1983 1 and December 19, 1983 of the respondent
court, so far as they deny the confirmation of the sale of the lots formerly covered by TCT Nos.
92836 and 92837, are SET ASIDE and the respondent court is hereby ORDERED to confirm the
sale and issue a writ of possession to the petitioner with respect to the aforesaid lots, subject to
the equity of redemption of the respondent Rogelio V. Sarmiento. Without costs.

SO ORDERED.

The conflict in claims resulting from the mortgage and subsequent sale to different persons of the same real
property, and the execution sale thereof at a still later date at the instance of yet another party, is what is chiefly
involved in the case at bar, as well as the matter of the remedies available to correct errors in the execution of a
final and executory judgment.

On February 28, 1973, four lots covered by TCTs Nos. 92836, 92837, 92839 and 92840 of the Register of Deeds of
Quezon City were mortgaged by the spouses Jose and Marcelina Aquino to Guillermo Ponce and his wife Adela
(since deceased) as security for a loan of P2,200,000.00. The mortgages were registered on March 1, 1973. Two of
the lots, those covered by TCTs Nos. 92836 and 92837, were afterwards sold in 1978 by the Aquinos to the Butuan
Bay Wood Export Corporation, which caused an adverse claim to be annotated on the certificates of title on
February 24, 1978. 2

In 1979, Gregorio Y. Limpin, Jr. obtained a money Judgement against Butuan Bay Wood Export Corporation in Civil
Case No. 10463 of the Court of First Instance of Davao. To satisfy the judgment, the lots covered by TCTs Nos.
92836 and 92837 were levied upon on September 3, 1980 and sold at public auction to Limpin as the highest
bidder for the sum of P517,485.41 on October 6, 1980. On order of the trial court, the covering titles were
cancelled and in their stead TCTs Nos. 285450 and 285451 were issued to Limpin. On November 21, 1981, Limpin
sold the two lots to Rogelio M. Sarmiento. By virtue of said sale, TCTs Nos. 285450 and 285451 were cancelled on
November 4, 1983, and replaced by TCTs Nos. 307100 and 397124 in Sarmiento's name. 3

On September 2, 1980 (a day before Limpin's levy on the two lots), Ponce filed suit against the Aquino spouses for
judicial foreclosure of the mortgage over the Aquinos' four lots. The case was docketed as Civil Case No. Q-30726
of the former Court of First Instance of Quezon City. On June 8, 1982, judgment was rendered in favor of Ponce.
After the judgment became final, the Trial Court, in an order dated September 13, 1983, directed the sale at public
auction of the four (4) mortgaged lots to satisfy the judgment. On October 12, 1983, the four lots, including those
formerly covered by TCTs Nos. 92836 and 92837, were sold to Ponce himself whose bid of P5,200,000.00 was the
 33

highest and exactly correspond to the judgment debt. On the same day, the sheriff's certificate of sale was
registered. 4

Ponce then moved for the confirmation of the sale and the issuance of a writ of possession in his favor covering an
the four lots. But the Trial Court, by order dated October 26, 1983, confirmed only the sale of the lots covered by
TCTs Nos. 02839 and 92840, refusing to confirm the sale or issue a writ of possession in regard to the lots covered
by TCTs Nos. 92836 and 92837 on the ground that those titles had already been cancelled and new ones issued to
Gregorio F. Limpin, by order of February 16, 1982 of the Court of First Instance of Davao City in Civil Case No.
10463, already referred to.

Ponce filed a motion for reconsideration and notified Limpin. Limpin however refused to participate in the hearings
contending that the Court had no jurisdiction over his person; but he did comment that the mortgage over the lots
covered by TCTs Nos. 92836 and 92837 had been released by Ponce by virtue of a "Partial Release of Real Estate
Mortgage" dated July 20, 1977. The Trial Court denied Ponce's motion for reconsideration, whereupon he sought
corrective relief by filing a special civil action for certiorari and mandamus in the Intermediate Appellate Court,
impleading Limpin and Rogelio M. Sarmiento, Limpin's vendee, as private respondents. 5

After hearing and submission by the parties of extensive memoranda as well as documentary evidence, the
respondent Appellate Court rendered the questioned decision on February 28, 1985, setting aside the judgment of
the Trial Court which denied the confirmation of the sale of the lots formerly covered by TCTs Nos. 92836 and
92837, and ordering said Court to confirm the same and issue a writ of possession to Ponce with respect thereto,
subject to Sarmiento's equity of redemption.

Hence, this petition for review, filed by Limpin and Sarmiento.

The petition should be denied.

The petitioners' contention that the action of certiorari and mandamus (instituted by Ponce in the Intermediate
Appellate Court) was not the proper remedy is not well taken. The Appellate Court disposed of this preliminary
issue as follows:

Nor is there any merit in the argument of the respondents that petitioner's remedy is to appeal
from the orders denying the motion for confirmation of the sale. The respondents claim that
these orders are final orders and cite in support of their contention the decision in Domalante vs.
Martinez, 20 SCRA 1136 (1967), where it was held that "An order of confirmation in court
foreclosure proceedings is a final order, not merely interlocutory. The right of appeal therefore,
has long been recognized." The Court was there speaking of an order confirming  the sale, as
between the parties to a mortgage, not of an order, such as the ones herein in
question, denying confirmation because a third party, not a party in the foreclosure proceedings,
asserts a right to the properties sought to be foreclosed. Only a separate proceeding, such as the
present case, could possibly determine mine the rights of such party. (See Rivero de Ortega v.
Natividad, 71 Phil. 340 (1941).lwphl@itç  6

Certain it is that courts have plenary authority and control over the execution of their final and executory
judgments and orders. 7 Indeed, once that authority i timely and properly in voked, it becomes the court's
ministerial and mandatory function to direct execution. 8

That authority lasts until the judgments are fully satisfied, subject only to the time limitations prescribed
therefor. 9With particular reference to the execution of a judgment hi a mortgage foreclosure action, the authority
to direct and effect the same exists until the confirmation of the foreclosure sale (and issuance and
implementation of the writ of possession), confirmation being the final act which disposes of the case. 10
 34

Certain it is too, that execution of final and executory judgments may no longer be contested and prevented, and
no appeal should lie therefrom; otherwise, cases would be interminable, and there would be negation of the
overmastering need to end litigations. 11

There may, to be sure, be instances when an error may be committed in the course of execution proceedings
prejudicial to the rights of a party. These instances, rare though they may be, do call for correction by a superior
court, as where —

1) the writ of executio nvaries the judgment 12

2) there has been a change in the situation of the parties making execution inequitable or unjust; 13

3) execution is sought to be enforced against property exempt from execution; 14

4) it appears that the controversy has never been submitted to the judgment of the court; 15

5) the terms of the judgment are not clear enough and there remains room for interpretation thereof; 16 or,

6) it appears that the writ of execution has been improvidently issued, or that it is defective in substance, or is
issued against the wrong party, or that the judgment debt has been paid or otherwise satisfied, or the writ was
issued without authority;17

In these exceptional circumstances, considerations of justice and equity dictate that there be some mode available
to the party aggrieved of elevating the question to a higher court, That mode of elevation may be either by appeal
(writ of error or certiorari, 18 or by a special civil action of certiorari, prohibition, or mandamus.) 19

The petitioners also question the jurisdiction of the Intermediate Appellate Court over their persons, alleging that
they were not original parties to the action for judicial foreclosure. It appears, however, that despite awareness of
this ostensible defect, they fully participated without objection in the certiorari and mandamus proceedings before
the respondent Appellate Court. Having thus voluntarily appeared and seen the case through its final resolution,
they cannot now be permitted to turn about and repudiate the Appellate Court's jurisdiction over them.

This Court has ruled:

* * * * And as we have previously quoted approvingly "a party cannot invoke the jurisdiction of a
court to secure affirmative relief against his opponent and, after obtaining or failing to obtain
such relief, repudiate or question that same jurisdiction." While the jurisdiction of a tribunal may
be challenged at any time, sound public policy bars the petitioners from so doing after having
procured that jurisdiction themselves, speculating on the fortunes of litigation.

xxx xxx xxx

The petitioners, to borrow the language of Justice Bautista Angelo, "cannot adopt a posture of
double-dealing without running afoul of the doctrine of estoppel." The principle of estoppel is in
the interest of a sound administration of the laws. It should deter those who are disposed to
trifle with the courts by taking inconsistent positions contrary to the elementary principles of
right dealing and good faith. For this reason, this Court closes the door to the petitioners'
challenge against the jurisdiction of the Court of Appellants' and will not even honor the question
with a pronouncement.20
 35

Petitioner, however, is estopped, on ground of public policy, from invoking the plea of lack of
jurisdiction after submitting itself to the jurisdiction of the Court of Appeals and assailing its
jurisdiction only after an adverse judgment was rendered against the petitioner. ... 21

The petitioners further argue that the Appellate Court erred in according superiority to the mortgage rights of
Ponce over the levy and sale in favor of petitioner Limpin and the subsequent sale of the property to petitioner
Sarmiento.

The Appellate Court correctly ruled that the rights and interests of petitioners Limpin and Sarmiento to the
property in question are subordinate to those of respondent Ponce, who holds a prior and senior lien. According to
said Court:

* * * This case is controlled by the decision in Santiago v. Dionisio, 92 Phil. 495 (1935). In
the Santiago case, Ramon San Diego mortgaged his land to Eulalia Resurreccion. Later he sold it
to Apolonia Santiago. As the mortgage debt was not paid, Resurreccion had the mortgage
foreclosed. The Supreme Court upheld the sale to Dionisio, subject, however, to the equity of
redemption of Santiago. The Court stated:

... [T]he effect of the failure to implead a subordinate lienholder or subsequent

purchaser or both is to render the foreclosure ineffective as against them, with
the result that there remains in their favor the "unforeclosed equity of
redemption." But the foreclosure is valid as between the parties to the suit.
(Ibid; 2 Moran's Rules of Court, 3rd ed., p. 239)

Applied to this case, this means that the sale to Ponce, as the highest bidder in the foreclosure
sale of the two lots in question should have been confirmed, subject to Limpin's (and now
Sarmiento's equity to redemption. As held in Santiago v. Dionisio supra, the registration of the
lands, first in the name of Limpin and later of Sarmiento, was premature. At most what they were
entitled to was the registration of their equity of redemption. 22

Moreover:

The superiority of the mortgagee's lien over that of a subsequent judgment creditor is now
expressly provided in Rule 39, Section 16 of the Revised Rules of Court, which states with regard
to the effect of levy on execution that it shall create a lien in favor of a judgment creditor over
the right title and interest of the judgment debtor in such property at the time of the levy,
subject to the liens or encumbrances then existing. 23

It is well settled that a recorded mortgage is a right in rem, a hen on the property whoever its owner may be. 24 The
recordation of the mortgage in this case put the whole world, petitioners included, on constructive notice of its
existence and warned everyone who thereafter dealt with the property on which it was constituted that he would
have to reckon with that encumbrance. Hence, Limpin's subsequent purchase of the "interests and participation"
of Butuan Bay Wood Export Corporation in the lots covered by TCTs Nos. 92836 and 92837, as well as the sale of
the same to Sarmiento on November 21, 1981, were both subject to said mortgage. On the other hand, Ponce's
purchase of the lots mortgaged to him at the foreclosure sale on October 12, 1983, was subject to no prior lien or
encumbrance, and could in no way be affected or prejudiced by a subsequent or junior lien, such as that of
Limpin. 25 Petitioner Sarmiento having acquired no better right than his predecessor-in-interest, petitioner Limpin,
his title must likewise fail.
 36

The fact that at the time Ponce foreclosed the mortgage on October 21, 1983, the lots had already been bought by
Limpin and subsequently sold to Sarmiento is of no consequence, since the settled doctrine is that the effects of
the foreclosure sale retroact to the date of registration of the mortgage, i.e., March 1, 1973 in the present case.

* * * It is well to note that the mortgage in favor of the late Ramon Eugelio was annotated on
November 13, 1952 at the back of the certificates of title in controversy, while the adverse claim
was only annotated on the same certificate more than one year later, on December 21, 1953.
Hence, the adverse claim could not effect the rights of the mortgagee; and the fact that the
foreclosure of the mortgage and the consequent public auction sale have been effected long
after the annotation of the adverse claim is of no moment, because the foreclosure sale retroacts
to the date of registration of the mortgage. 26

Anent the claim that respondent Ponce executed a deed of partial release of his mortgage on July 20, 1977, the
evidence discloses that Ponce and Jose Aquino, the mortgagor, thereafter executed separate affidavits dated
December 1, 1983, stating that the said partial release was void, not only for want of consideration but also for
lack of the signatures of Ponce's two sons who at the time of the execution of the document, were co-mortgagees
as successors and heirs of Mrs. Adela Ponce. Moreover, the Deed of Partial Release was not registered but had
simply been attached, together with the Deed of Sale of the lands to Butuan Bay Wood Export Corporation, to said
corporation's affidavit of adverse claim, the last being the document which was actually registered, on February 4,
1978 as already stated. Thus the mortgage in favor of Ponce and his late wife was still subsisting, when the notice
of levy in favor of Limpin was annotated on the original of OCTs Nos. 92836 and 92837, and even when the
execution sale in favor of Limpin pursuant to the levy was registered. Said annotation was cancelled only on
November 25, 1981, after the properties had been sold on execution to Limpin on October 6, 1981.

The petitioners finally assert that respondent Ponce did not have a right of action for foreclosure over the lots in
question in the Trial Court, much less to pursue this case, first in the respondent Intermediate Appellate Court and
now, before this Court, because as early as August 18, 1976, he and his wife had donated the lots to the Doña
Josefa Edralin Marcos Foundation and the donation had been accepted on August 31, 1976. However, that
donation was never registered, a fact that the petitioners admit. Even if this Court were inclined to take up that
issue now, though raised only for the first time, it is obvious that no resolution thereof could possibly improve the
petitioners' position as against that of the private respondent or the latter's transferee.

WHEREFORE, the petition is denied, with costs against petitioners.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Gutierrez, Jr., Cruz and Gancayco, JJ.,  * concur.
 37

G.R. No. 133079. August 9, 2005]

SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, Petitioners, 

vs.
THE HONORABLE COURT OF APPEALS; SPS. BENJAMIN SAN DIEGO and CARMENCITA
SAN DIEGO; The EX-OFFICIO SHERIFF and CLERK OF COURT of the Regional Trial Court,
Makati City; and the REGISTER OF DEEDS, Makati City, Respondent.

DECISION

GARCIA, J.:

Herein petitioners, the spouses Maximo Landrito, Jr. and Pacita Landrito, have come to this
Court via this petition for review on certiorari under Rule 45 of the Rules of Court to seek the
reversal and setting aside of the decision dated 12 December 1997 and resolution dated 10 March
1 

1998 of the Court of Appeals in CA-G.R. CV No. 48896, affirming an earlier order of the Regional
2 

Trial Court at Makati City which granted the motion to dismiss filed by the herein private
respondents, the spouses Benjamin San Diego and Carmencita San Diego, in its Civil Case No. 94-
2950, a complaint for annulment of extrajudicial foreclosure and auction sale, thereat commenced by
them against the San Diegos, the ex-officio sheriff and the Register of Deeds of Makati City.

The facts:

In July 1990, petitioners obtained a loan of ₱350,000.00 from respondent Carmencita San Diego. To
secure payment thereof, petitioners executed on 02 August 1990 in favor of the same respondent a
deed of real estate mortgage over their parcel of land located at Bayanan, Muntinlupa, Rizal and
registered in their names under Transfer Certificate of Title No. (432281) S-21000.

After making substantial payments, petitioners again obtained and were granted by Carmencita San
Diego an additional loan of One Million Pesos (₱1,000,000.00). To secure this additional loan, the
parties executed on 13 September 1991 an "Amendment of Real Estate Mortgage", whereunder
they stipulated that the loan shall be paid within six (6) months from 16 September 1991, and if not
paid within said period, the mortgagee shall have the right to declare the mortgage due and may
immediately foreclose the same judicially or extrajudicially, in accordance with law.

It appears that petitioners defaulted in paying their loan and continuously refused to comply with
their obligation despite repeated demands therefor, prompting respondent Carmencita San Diego to
send them on 27 April 1993, a final notice of demand requiring them to settle their financial
obligation which, by then, already amounted to ₱1,950,000.00.

On 30 June 1993, after her efforts to collect proved futile, respondent Carmencita San Diego filed
with the Office of the Clerk of Court and Ex-Officio Sheriff of RTC-Makati, a petition for the
extrajudicial foreclosure of the mortgage.

On 06 July 1993, said office sent to the parties a Notice of Sheriff’s Sale, therein announcing that
petitioners’ mortgaged property will be sold in a public auction to be conducted on 11 August 1993 at
10:00 o’clock in the morning, copies of which notice were posted in several conspicuous places
within the sheriff’s territorial jurisdiction.

As announced, on 11 August 1993, at 10:00 o’clock in the morning, the public auction sale was held
and the mortgaged property sold to respondent Carmencita San Diego as the highest bidder for
 38

₱2,000,000.00, as evidenced by the Sheriff’s Certificate of Sale issued in her favor on 07 October
1993.

On 29 October 1993, respondent San Diego caused the registration of the same sheriff’s certificate
of sale with the Office of the Register of Deeds, Makati City, and duly inscribed on the same date at
the dorsal side of the petitioners’ TCT No. (432281) S-21000.

With the petitioners having failed to redeem their property within the 1-year redemption period from
the date of inscription of the sheriff’s certificate of sale, as provided for in Act No. 3135, as amended,
the San Diegos caused the consolidation of title over the foreclosed property in their names.

Then, on 09 November 1994, before the Regional Trial Court at Makati City, petitioners filed their
complaint for annulment of the extrajudicial foreclosure and auction sale, with damages. In their
complaint, thereat docketed as Civil Case No. 94-2950, petitioners alleged that (1) said foreclosure
and auction sale were null and void for failure to comply with the requirements of notice and
publication, as mandated by Act 3135, as amended; (2) the mortgaged property was illegally
foreclosed in the light of the settled rule that an action to foreclose a mortgage must be limited to the
amount mentioned in the mortgage document, in this case, ₱1,000,000.00, which amount was
allegedly bloated by respondent Carmencita San Diego to ₱1,950,000.00; and (3) the San Diegos’
application for consolidation of title was premature because the husband, Benjamin San Diego,
allegedly granted them an extension of the period of redemption up to 11 November 1994.

To the complaint, respondents interposed a Motion to Dismiss, therein alleging that said complaint
failed to state a cause of action as no primary right of the petitioners had been violated since they
actually failed to exercise their right of redemption within the one-year redemption period, adding
that petitioners never took any action which may stall the running of the same period, thereby
leaving them no further right or interest in the property in question.

In an order dated 13 January 1995, the trial court granted respondents’ motion to dismiss and
accordingly dismissed petitioners’ complaint, saying that the latter’s cause of action, if any, is already
barred by laches on account of their failure or neglect for an unreasonable length of time to do that
which, by exercising due diligence, could or should have been done earlier. Further, the trial court
ruled that petitioners’ inaction constituted a waiver on their part.

Therefrom, petitioners went on appeal to the Court of Appeals in CA-G.R. CV No. 48896.

As stated at the outset hereof, the appellate court, in its decision of 12 December 1997, dismissed
petitioners’ appeal and affirmed in toto the trial court’s order of dismissal. With their motion for
reconsideration having been denied by the same court in its resolution of 10 March 1998, petitioners
3 

are now with us via the present recourse, faulting the Court of Appeals, as follows:

1. The Court of Appeals gravely erred in avoiding to resolve in the assailed Decision and in the
questioned Resolution the basic issue as to whether or not the extra-judicial foreclosure and public
auction sale of the subject parcel of land are valid and lawful when the amount stated in letter-
request or the petition for extra-judicial foreclosure and in the notice of sheriff sale doubled the
amount stipulated in the Amendment of Real Estate Mortgage;

2. The Court of Appeals has similarly committed serious error in considering that the complaint of the
petitioner is a complaint for redemption when in the caption; in the body; and in the prayer of the
complaint, petitioner spouses have sought the nullity as void ab initio the extra-judicial foreclosure
and auction sale of the subject property;
 39

3. The respondent Appellate Court likewise incredulously erred to have resolved the admissibility
and probative value of the statement of account attached as Annex "E" of the complaint when it was
not yet presented in evidence; because the stage of the case at the time the assailed dismissal order
was issued, was yet in the period of pleadings;

4. The Court of Appeals has grievously erred in affirming the assailed dismissal order by declaring
petitioner spouses to have been guilty of laches in failing to redeem during the legal period of
redemption the foreclosed parcel of land; when the cause of the failure to redeem was the illegal
increase by 100% of the original obligation, stated in the Amendment of Real Estate Mortgage and
bloating of the redemption price from Two Million Pesos (P2,000,000.00) to Three Million Four
Hundred Ninety One Thousand Two Hundred Twenty Five & 98/100 Pesos (P3,491,225.98).

We DENY.

The records indubitably show that at the time of the foreclosure sale on 11 August 1993, petitioners
were already in default in their loan obligation to respondent Carmencita San Diego.

Much earlier, or on 27 April 1993, a final notice of demand for payment had been sent to them,
despite which they still failed to pay. Hence, respondent Carmencita San Diego’s resort to
extrajudicial foreclosure, provided no less in the parties’ "Amendment of Real Estate Mortgage".

The rule has been, and still is, that in real estate mortgage, when the principal obligation is not paid
when due, the mortgagee has the right to foreclose on the mortgage and to have the mortgaged
property seized and sold with the view of applying the proceeds thereof to the payment of the
obligation.
4

Here, the validity of the extrajudicial foreclosure on 11 August 1993 was virtually confirmed by the
trial court when it dismissed petitioners’ complaint, and rightly so, what with the fact that petitioners
failed to exercise their right of redemption within the 1-year period therefor counted from the
registration of the sheriff’s certificate of sale.

It is petitioners’ main submission, however, that the very reason why they did not avail of their
redemption right is because Mrs. San Diego bloated their original loan of ₱1,000,000.00 to
₱1,950,000.00, an issue supposedly not considered and/or addressed by the appellate court in the
decision under review. In this regard, petitioners argue that the Court of Appeals, in sustaining the
extrajudicial foreclosure proceedings, thereby go against the established jurisprudence that an
action for foreclosure must be limited to the amount mentioned in the mortgage document,
₱1,000,000.00 in this case.

We do not take issue with petitioners’ submission that a mortgage may be foreclosed only for the
amount appearing in the mortgage document, more so where, as here, the mortgage contract
entered into by the parties is evidently silent on the payment of interest.

However, contrary to petitioners’ claim, the appellate court did pass upon the legal issue raised by
them, albeit ruling that petitioners had been barred by laches from raising the same. We quote from
the challenged decision:

[Petitioners] next argued that the mortgaged property was illegally foreclosed since it is a well settled
rule that an action to foreclose a mortgage must be limited to the amount mentioned in the
mortgage.
 40

The argument is without merit.

It appears from the evidence on record that despite due notice and publication of the same in a
newspaper of general circulation (Exhs. "5", "5-A" and "5-B", pp. 53-55, Record), [petitioners] did not
bother to attend the foreclosure sale nor raise any question regarding the propriety of the sale. It was
only on November 9, 1994, or more than one year from the registration of the Sheriff’s Certificate of
Sale, that [petitioners] filed the instant complaint. Clearly, [petitioners] had slept on their rights and
are therefore guilty of laches, which is defined as the failure or neglect for an unreasonable or
explained length of time to do that which, by exercising due diligence, could or should have been
done earlier, failure of which gives rise to the presumption that the person possessed of the right or
privilege has abandoned or has declined to assert the same. (Words in bracket added.)

For sure, in the very petition they filed in this case, petitioners have not offered any valid excuse
why, despite notice to them of the petition for extrajudicial foreclosure filed by the respondents, they
failed to attend the proceedings and there voiced out what they are now claiming. Truly, laches has
worked against them.

The law on redemption of mortgaged property is clear. Republic Act No. 3135 (An Act to Regulate
the Sale of Property Under Special Powers Inserted In Or Annexed to Real Estate Mortgages), as
amended by Republic Act No. 4118, provides in Section 6 thereof, thus:

"Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year
from and after the date of the sale; xxx" (Emphasis supplied)

In a long line of cases , this Court has consistently ruled that the one-year redemption period should
5 

be counted not from the date of foreclosure sale, but from the time the certificate of sale is registered
with the Register of Deeds. Here, it is not disputed that the sheriff’s certificate of sale was registered
on 29 October 1993.

And under Article 13 of the New Civil Code , a year is understood to have three hundred sixty-five
6 

(365) days each. Thus, excluding the first day and counting from 30 October 1993 (under paragraph
3 of Article 13 of the New Civil Code), and bearing in mind that 1994 was a leap year, petitioners had
only until 29 October 1994, the 365th day after registration of the sheriff’s certificate of sale on 29
October 1993, within which to redeem the foreclosed property in accordance with law. And since 29
October 1994 fell on a Saturday, petitioners had until the following working day, 31 October 1994,
within which to exercise their right of redemption.

From the foregoing, it is clear as day that even the complaint filed by the petitioners with the trial
court on 09 November 1994 was instituted beyond the 1-year redemption period. In fact, petitioners
no less acknowledged that their complaint for annulment of extrajudicial foreclosure and auction sale
was filed about eleven (11) days after the redemption period had already expired on 29 October
1994 . They merely harp on the alleged increase in the redemption price of the mortgaged property
7 

as the reason for their failure to redeem the same. However, and as already pointed out herein, they
chose not, despite notice, to appear during the foreclosure proceedings.

Of course, petitioners presently insist that they requested for and were granted an extension of time
within which to redeem their property, relying on a handwritten note allegedly written by Mrs. San
Diego’s husband on petitioners’ statement of account, indicating therein the date 11 November
1994 as the last day to pay their outstanding account in full. Even assuming, in gratia argumenti, that
 41

they were indeed granted such an extension, the hard reality, however, is that at no time at all did
petitioners make a valid offer to redeem coupled with a tender of the redemption price.

Even on this score, petitioners’ case must fall.

For, in Lazo v. Republic Surety & Insurance Co., Inc. , this Court has made it clear that it is only
8 

where, by voluntary agreement of the parties, consisting of extensions of the redemption

period, followed by commitment by the debtor to pay the redemption price at a fixed date, will
the concept of legal redemption be converted into one of conventional redemption.

Here, there is no showing whatsoever that petitioners agreed to pay the redemption price on or
before 11 November 1994, as allegedly set by Mrs. San Diego’s husband. On the contrary, their act
of filing their complaint on 09 November 1994 to declare the nullity of the foreclosure sale is
indicative of their refusal to pay the redemption price on the alleged deadline set by the husband. At
the very least, if they so believed that their loan obligation was only for ₱1,000,000.00, petitioners
should have made an offer to redeem within one (1) year from the registration of the sheriff’s
certificate of sale, together with a tender of the same amount. This, they never did.

It must be remembered that the period of redemption is not a prescriptive period but a condition
precedent provided by law to restrict the right of the person exercising redemption. Correspondingly,
if a person exercising the right of redemption has offered to redeem the property within the period
fixed, he is considered to have complied with the condition precedent prescribed by law and may
thereafter bring an action to enforce redemption. If, on the other hand, the period is allowed to lapse
before the right of redemption is exercised, then the action to enforce redemption will not prosper,
even if the action is brought within the ordinary prescriptive period. Moreover, the period within which
to redeem the property sold at a sheriff’s sale is not suspended by the institution of an action to
annul the foreclosure sale. It is clear, then, that petitioners have lost any right or interest over the
9 

subject property primarily because of their failure to redeem the same in the manner and within the
period prescribed by law. Their belated attempts to question the legality and validity of the
foreclosure proceedings and public auction must accordingly fail.

WHEREFORE, the instant petition is DENIED and the challenged decision and resolution of the
Court of Appeals AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.

Corona, J., on official leave.

 42

G.R. No. 165142               December 10, 2007

EDUARDO L. RAYO, Petitioner, 
vs.
METROPOLITAN BANK AND TRUST COMPANY AND BRANCH 223 OF THE REGIONAL TRIAL
COURT OF QUEZON CITY, Respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review assailing the Resolutions dated June 15, 20041 and August 23,
20042 of the Court of Appeals in CA-G.R. SP No. 83895 for annulment of judgment.

The pertinent facts are undisputed.

Midas Diversified Export Corp. (Midas), thru its president, Mr. Samuel U. Lee, obtained six (6) loans
from private respondent Metropolitan Bank and Trust Company (Metrobank), amounting to
₱588,870,000 as evidenced by promissory notes. To secure the payment of an ₱8,000,000 loan,
Louisville Realty & Development Corporation (Louisville), thru its president, Mr. Samuel U. Lee,
executed in favor of Metrobank, a real estate mortgage over three parcels of land situated at No. 40
Timog Ave., Brgy. Laging Handa, Quezon City, with all the buildings and improvements thereon. The
properties are covered by Transfer Certificates of Title (TCT) Nos. N-163455, N-166349 and N-
166350 issued by the Registry of Deeds of Quezon City.

When the debtor-mortgagor failed to pay, Metrobank extra-judicially foreclosed the real estate
mortgage in accordance with Act No. 3135,3 as amended. Thereafter, in a public auction, Metrobank
was the highest bidder. A Certificate of Sale4 dated December 11, 2000 was duly registered with the
Registry of Deeds of Quezon City on December 13, 2000. When Louisville refused to turn over the
real properties, on March 17, 2001, Metrobank filed before the Regional Trial Court (RTC), Branch
223, Quezon City, an ex parte petition5 for the issuance of a writ of possession docketed as LRC
Case No. Q-13915(01). After presentation of evidence ex parte, the RTC granted the petition in an
Order6 dated July 5, 2001, the dispositive portion of which reads as follows:

WHEREFORE, in consideration of the foregoing premises, the instant petition is hereby GRANTED.
Upon the filing of a bond in the amount of ONE HUNDRED THOUSAND PESOS ([₱]100,000.00), let
a Writ of Possession over the properties covered by Transfer Certificates of Title Nos. N-163455, N-
166349 & N-166350 issue in favor of the petitioner METROPOLITAN BANK & TRUST COMPANY to
be implemented by the Deputy Sheriff of Branch 223, Regional Trial Court of Quezon City by placing
the petitioner in possession over the parcels of land with all its improvements.

SO ORDERED.7

On September 24, 2001, Metrobank posted the required bond. Consequently, a writ of possession
was issued on October 9, 2001. This was partially implemented as to TCT No. N-163455, as
evidenced by the Turn-Over Receipt8dated December 13, 2002. The writ over the two remaining
properties, under TCT Nos. N-166349 and N-166350, were subsequently implemented as evidenced
by the Turn-Over Receipt9 dated December 3, 2003.
 43

Meanwhile, on April 3, 2002, petitioner Eduardo L. Rayo filed a complaint10 docketed as Civil Case
No. Q02-46514 against Metrobank for Nullification of Real Estate Mortgage Contract(s) and
Extrajudicial Foreclosure Sale, in the RTC, Branch 99, Quezon City.

On May 13, 2004, petitioner Rayo filed with the Court of Appeals a Petition11 for Annulment of
Judgment on the ground of "absolute lack of due process." Petitioner alleged that his predecessor,
Louisville, was not notified of the proceedings and that Section 712 (ex parte motion or petition for the
issuance of a writ of possession) of Act No. 3135 is unconstitutional.

On June 15, 2004, the Court of Appeals denied the petition for lack of merit. The Court of Appeals
ruled that petitioner is neither the registered owner nor the successor-in-interest of the registered
owner; hence, not a real party-in-interest. It also ruled that there is no basis to challenge the
constitutionality of Section 7 of Act No. 3135, as amended as it constitutes a collateral attack against
said provision. Further, petitioner availed of the wrong remedy in filing Civil Case No. Q02-46514.
Petitioner sought reconsideration, but was likewise denied.

Petitioner now comes before us raising the following as primary issue:

WHETHER OR NOT SECTION 7 OF ACT NO. 3135 IS CONTRARY TO THE DUE PROCESS
PROVISION OF THE PHILIPPINE CONSTITUTION CONSIDERING THAT SUCH SECTION 7 OF
THE LAW PROVIDES OR ALLOWS, ACCORDING TO THIS HONORABLE COURT, FOR AN EX-
PARTE PROCEEDING WHICH IS A "JUDICIAL PROCEEDING BROUGHT FOR THE BENEFIT
OF ONE PARTY ONLY, AND WITHOUT NOTICE TO, OR CONSENT BY ANY PERSON
ADVERSELY INTERESTED" "OR A PROCEEDING WHEREIN RELIEF IS GRANTED WITHOUT
AN OPPORTUNITY FOR THE PERSON AGAINST WHOM THE RELIEF IS SOUGHT TO BE
HEARD," AS HELD IN THE CASE OF GOVERNMENT SERVICE INSURANCE SYSTEM VS.
COURT OF APPEALS, 169 SCRA 244 @ 255, JANUARY 20, 1989.13

He also raises the following as secondary issues:

I.

WHETHER OR NOT THE PETITIONER HAS THE LEGAL PERSONALITY TO SEEK THE
ANNULMENT OF JUDGMENT IN [THE] SUBJECT LRC CASE NO. Q-13915(01).

II.

WHETHER OR NOT PRIVATE RESPONDENT VIOLATED THE RULE AGAINST FORUM-

SHOPPING WHEN IT DID NOT INFORM THE HONORABLE BRANCH 223 OF THE
REGIONAL TRIAL COURT OF QUEZON CITY REGARDING THE FILING OF CIVIL CASE
NO. Q-02-46514 FOR NULLIFICATION OF REAL ESTATE MORTGAGE CONTRACT AND
THE EXTRA-JUDICIAL FORECLOSURE SALE OF THE SAME SUBJECT REAL
PROPERTIES AND THE PENDENCY OF THE SAME BEFORE THE HONORABLE
BRANCH 99 OF THE SAME REGIONAL TRIAL COURT.14

Stated simply, the issues raised are: (1) Does petitioner have the legal personality in the annulment
of judgment proceedings? (2) Is Section 7 of Act No. 3135, as amended, unconstitutional? (3) Is
respondent guilty of forum-shopping?

Petitioner insists that contrary to the ruling of the Court of Appeals, he has the legal personality to
institute the annulment of judgment case against Metrobank, considering that the March 25, 2002
 44

deed of assignment he entered into with Louisville and Winston Linwy L. Chua makes him a co-
assignee over the subject real properties.

For its part, Metrobank claims that it was not a party to the deed of assignment among Louisville,
Chua and petitioner, hence, it has no privity of contract with petitioner Rayo. Moreover, Metrobank
points out that the real properties had already been extrajudicially foreclosed when petitioner and his
assignors executed the deed of assignment.

Under Section 2,15 Rule 3 of the Rules of Court, every action must be prosecuted or defended in the
name of the real party-in-interest, or one "who stands to be benefited or injured by the judgment in
the suit."16 A real party-in-interest is one with "a present substantial interest" which means such
interest of a party in the subject matter of the action as will entitle him, under the substantive law, to
recover if the evidence is sufficient, or that he has the legal title to demand.17

Now, is petitioner Rayo a real party-in-interest? Initially, we recognized herein petitioner as the co-
assignee of the subject real properties as shown in the March 25, 2002 deed of assignment.
However, while petitioner would be injured by the judgment in this suit, we find that petitioner has no
present substantial interest to institute the annulment of judgment proceedings and nullify the order
granting the writ of possession.

First, there was no violation of petitioner’s right to constitutional due process. In a long line of
cases,18 we have consistently ruled that the issuance of a writ of possession in favor of the purchaser
in a foreclosure sale of a mortgaged property under Section 7 of Act No. 3135, as amended is a
ministerial duty of the court. The purchaser of the foreclosed property, upon ex parte application and
the posting of the required bond, has the right to acquire possession of the foreclosed property
during the 12-month redemption period and with more reason, after the expiration of the redemption
period.

An ex parte petition for the issuance of a writ of possession under Section 7 of Act No. 3135 is not,
strictly speaking, a "judicial process" as contemplated in Article 43319 of the Civil Code. It is a judicial
proceeding for the enforcement of one’s right of possession as purchaser in a foreclosure sale. It is
not an ordinary suit filed in court, by which one party "sues another for the enforcement of a wrong or
protection of a right, or the prevention or redress of a wrong." It is a non-litigious proceeding
authorized in an extrajudicial foreclosure of mortgage pursuant to Act No. 3135, as amended, and is
brought for the benefit of one party only, and without notice to, or consent by any person adversely
interested. It is a proceeding where the relief is granted without requiring an opportunity for the
person against whom the relief is sought to be heard. No notice is needed to be served upon
persons interested in the subject property.20

Second, in the deed of assignment, petitioner also acknowledged that the subject real properties
were already sold at various extrajudicial foreclosure sales and bought by Metrobank. Clearly,
petitioner recognized the prior existing right of Metrobank as the mortgagee-purchaser over the
subject real properties.21 Actual knowledge of a prior mortgage with Metrobank is equivalent to notice
of registration22 in accordance with Article 212523 of the Civil Code. Conformably with Articles
131224 and 212625 of the Civil Code, a real right or lien in favor of Metrobank had already been
established, subsisting over the properties until the discharge of the principal obligation, whoever the
possessor(s) of the land might be.26 As petitioner is not a party whose interest is adverse to that of
Louisville, there was no bar to the issuance of a writ of possession to Metrobank. It does not matter
that petitioner was not specifically named in the writ of possession nor notified of such proceedings. 1avvphi1

Third, we also note that petitioner availed of the wrong remedy in filing Civil Case No. Q02-46514,
for nullification of real estate mortgage and extrajudicial foreclosure sale, more than six (6) months
 45

after the issuance of the writ of possession considering the mandate of Section 827 of Act No. 3135,
as amended. Hence, even petitioner’s action for annulment of judgment cannot prosper as it cannot
be a substitute for a lost remedy.

Now, petitioner is challenging the constitutionality of Section 7 of Act No. 3135, as amended. He
avers that Section 7 violates the due process clause because, by the mere filing of an ex
parte motion in the proper cadastral court, the purchaser in a foreclosure sale is allowed to obtain
possession of the foreclosed property during the redemption period.

The Court of Appeals ruled that petitioner’s attempt to challenge the constitutionality of Section 7 of
Act No. 3135, as amended, constitutes a collateral attack that is not allowed. We fully agree with the
appellate court’s ruling. For reasons of public policy, the constitutionality of a law cannot be attacked
collaterally.28

With regard to forum-shopping; forum-shopping is the filing of multiple suits involving the same
parties for the same cause of action, either simultaneously or successively, for the purpose of
obtaining a favorable judgment. It exists where the elements of litis pendentia are present or where a
final judgment in one case will amount to res judicata in another.29 The issuance of the writ of
possession being a ministerial function, and summary in nature, it cannot be said to be a judgment
on the merits. It is only an incident in the transfer of title. Hence, a separate case for annulment of
mortgage and foreclosure sale cannot be barred by litis pendentia or res judicata.30 Clearly, insofar
as LRC Case No. Q-13915(01) and Civil Case No. Q02-46514 are concerned, Metrobank is not
guilty of forum-shopping.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Resolutions dated June 15,
2004 and August 23, 2004 of the Court of Appeals in CA-G.R. SP No. 83895 are hereby
AFFIRMED. Costs against the petitioner.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice
 46

G.R. No. 121943            March 24, 2003

CHINA BANKING CORPORATION, petitioner, 

vs.
SPOUSES OSCAR and LOLITA ORDINARIO, respondents.

SANDOVAL-GUTIERREZ, J.:

For our resolution is the petition for review on certiorari of the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 40953 dated March 20, 1995 and September 6, 1995, respectively.1

Records show that, on various dates, petitioner China Banking Corporation granted three (3) loans in the
total sum of P27,353,000.00 to TransAmerican Sales and Exposition, Inc. (TransAmerican) owned and
controlled by spouses Jesus and Lorelie Garcia. The loans were secured by real estate mortgages
constituted by Jesus Garcia (with the consent of his wife) on his forty-five (45) parcels of land covered by
TCT Nos. 7289 to 7291, 7613 to 7615, 7617, 7618, and 7621 to 7657, all of the Registry of Deeds of
Quezon City. The contracts of mortgage were all registered in the same Registry.

For failure of TransAmerican to pay its loans, petitioner bank foreclosed extrajudicially the three real
estate mortgages. On August 27, 1990, the mortgaged properties were sold at public auction for
P38,004,205.01 to petitioner bank, being the highest bidder. On September 3, 1990, the Certificate of
Sale was registered in the Registry of Deeds of Quezon City.

On October 4, 1990, petitioner bank filed with the Regional Trial Court (RTC) of Quezon City, Branch 90,
an ex parteverified petition for issuance of a writ of possession, docketed as LRC Case No. Q-4534(90).

On April 10, 1991, the trial court issued an order granting the petition and placing petitioner bank in
possession of the 45 parcels of land, thus:

"ACCORDINGLY, upon posting by the petitioner China Banking Corporation of the requisite bond
in the amount of P792,000.00, let a writ of possession be issued commanding the placing in
possession of said petitioner over those parcels of land covered by Transfer Certificate of Title
Nos. 7289, 7290, 7291, 7613, 7614, 7615, 7617, 7618, 7621, 7622, 7623, 7624, 7625, 7626,
7627, 7628, 7629, 7630, 7631, 7632, 7633, 7634, 7635, 7636, 7637, 7638, 7639, 7640, 7641,
7642, 7643, 7644, 7645, 7646, 7647, 7648, 7649, 7650, 7651, 7652, 7653, 7654, 7655, 7656,
and 7657, all of the Registry of Deeds of Quezon City, together with all the improvements
thereon, ejecting therefrom Jesus V. Garcia and all persons claiming right under him."

On July 19, 1991, petitioner posted the required surety bond which was approved by the RTC.

On August 16, 1991, spouses Oscar and Lolita Ordinario, herein respondents, filed a motion for
reconsideration praying that the parcel of land with its improvement covered by TCT No. 7637 be
excluded from the above order. They alleged, among others, that they are indispensable parties in the
case, claiming that in November 1989, they purchased the land covered by TCT No. 7637 on which was
constructed their townhouse; that the petition for a writ of possession does not bind them for lack of
notice; that petitioner bank should have filed an action for recovery of possession, not an ex-parte petition
for a writ of possession since there are parties in actual possession of the lots involved; that they filed with
the Housing and Land Use Regulatory Board (HLURB) a complaint for the delivery of title and damages
against petitioner bank, Jesus Garcia and TransAmerican; and that the mortgage foreclosure cannot
prevail over their superior right as legitimate buyers of the area covered by TCT No. 7637.

On August 23, 1991, petitioner bank filed its opposition to respondents’ motion for reconsideration. It
alleged that the trial court, acting as a land registration court with limited jurisdiction, cannot pass upon
 47

the merits of respondents’ motion; that respondents should have filed a separate action; that the assailed
order dated April 10, 1991 directing the issuance of a writ of possession had become final; and that the
proceedings, being in rem, bind herein respondents.

On September 21, 1992, the trial court issued an order denying respondents’ motion for reconsideration.

On appeal by respondents, the Court of Appeals rendered the assailed Decision dated March 20, 1995,
the dispositive portion of which reads:

"WHEREFORE, the appealed order dated September 21, 1992 of the lower court in LRC Case
No. Q-4534 is SET ASIDE, and a new judgment is issued by the Court granting movants-
appellants’ motion for reconsideration to the effect of excluding from the lower court’s orders
dated April 10, 1991 and September 21, 1992, movants-appellants’ property covered by Transfer
Certificate of Title No. 7637 as the same property should not have been covered by the writ of
possession issued in the said orders of the lower court."

Petitioner bank moved for a reconsideration but it was denied by the Appellate Court in a
Resolution dated September 6, 1995.

Hence, the instant recourse, petitioner raising the following assignments of error :

"First. Respondent Court gravely erred in setting aside the order dated September 21, 1992 in
LRC Case No. Q-4534 which granted the petition ex-parte for a writ of possession of the forty-five
parcels of land to include the property covered by Transfer Certificate of Title No. 7637.

"Second. Respondent Court committed a grave error when it failed to consider that the third party
referred to in the case of PNB vs. Adil, 118 SCRA 110, is a third party actually holding the
property adversely to the owner.

"Third. Respondent Court committed a grave error when it failed to consider that the April 10,
1991 order is already final and executory, hence, can no longer be disturbed."

Under Section 7 of Act No. 3135, the purchaser in a foreclosure sale is entitled to possession of the
property.2 Thus the writ prayed for by petitioner granting it possession has to be issued as a matter of
course.3 This Court has consistently ruled that it is a ministerial duty of the trial court to grant such writ
of possession.4 No discretion is left for the trial court. Any question regarding the cancellation of the
writ or in respect of the validity and regularity of the public sale should be determined in a subsequent
proceeding as outlined in Section 8 of Act No. 3135.5Consequently, respondents’ motion for
reconsideration of the trial court’s order dated April 10, 1991 granting the writ of possession must be
denied being bereft of merit.

Section 7 of Act No. 3135, as amended,6 provides:

"Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of
First Instance (now RTC) of the province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and filed in
the form of an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the Mortgage Law
xxx, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees
specified xxx, and the court shall upon approval of the bond, order that a writ of possession issue,
 48

addressed to the sheriff of the province in which the property is situated, who shall execute said
order immediately." (underscoring supplied).

The above provision is not without exception. Under Section 33, Rule 39 of the 1997 Rules of Civil
Procedure, as amended, the possession of the foreclosed property may be awarded to the purchaser or
highest bidder "unless a third party is actually holding the property adversely to the judgment
debtor."7 Assuming arguendo that respondent spouses are adverse third parties, as they so averred,
Section 16 of the same Rule reserves to them the remedies of (1) terceria to determine whether the
sheriff has rightly or wrongly taken hold of the property not belonging to the judgment debtor or obligor
and (2) an independent "separate action" to vindicate their claim of ownership and/or possession over the
foreclosed property.8 Section 16 of Rule 39 provides:

"Sec. 16. Proceedings where property claimed by third person. – If property levied on is claimed
by any person other than the judgment obligor or his agent, and such person makes an affidavit
of his title thereto or right to the possession thereof, stating the grounds of such right or title, and
serves the same upon the officer making the levy, and copy thereof upon the judgment obligee,
the officer shall not be bound to keep the property, unless such judgment obligee, on demand of
the officer, files a bond approved by the court to indemnify the third-party claimant in a sum not
less than the value of the property levied on. In case of disagreement as to such value, the same
shall be determined by the court issuing the writ of execution. No claim for damages for the taking
or keeping of the property may be enforced against the bond unless the action therefor is filed
within one hundred twenty (120) days from the date of the filing of the bond.

"The officer shall not be liable for damages for the taking or keeping of the property, to any third
party claimant if such bond is filed. Nothing herein contained shall prevent such claimant or any
third person from vindicating his claim to the property in a separate action, or prevent the
judgment obligee from claiming damages in the same or a separate action against a third-party
claimant who filed a frivolous or plainly spurious claim. xxx."

Under the above Rule, a third-party claimant or a stranger to the foreclosure suit, like respondents herein,
can opt to file a remedy known as terceria against the sheriff or officer effecting the writ by serving on him
an affidavit of his title and a copy thereof upon the judgment creditor. By the terceria, the officer shall not
be bound to keep the property and could be answerable for damages. A third-party claimant may also
resort to an independent "separate action," the object of which is the recovery of ownership or possession
of the property seized by the sheriff, as well as damages arising from wrongful seizure and detention of
the property despite the third-party claim. If a "separate action" is the recourse, the third-party claimant
must institute in a forum of competent jurisdiction an action, distinct and separate from the action in which
the judgment is being enforced, even before or without need of filing a claim in the court that issued the
writ. Both remedies are cumulative and may be availed of independently of or separately from the other.
Availment of the terceria is not a condition sine qua non to the institution of a "separate action."9

Thus, respondents’ resort to a motion for reconsideration is obviously a procedural misstep.

We thus hold that the Court of Appeals committed palpable error when it granted respondent’s motion for
reconsideration and set aside the orders dated April 10, 1991 and September 21, 1992 of the RTC in LRC
Case No. Q-4534 (90), thus excluding the land covered by TCT No. 7637 from the coverage of the writ of
possession issued in favor of petitioner bank.

WHEREFORE, the instant petition is GRANTED. The appealed Decision and Resolution of the Court of
Appeals dated March 20, 1995 and September 6, 1995 in CA-G.R. CV No. 40953
are REVERSED and SET ASIDE. The orders of the RTC, Branch 90, Quezon City, in LRC Case No. Q-
4534 (90) directing the issuance of a writ of possession in favor of petitioner bank are AFFIRMED.

Costs against respondents.

 49

G.R. No. L-53798 November 8, 1988

ALBERTO C. ROXAS and NENITA DE GUIA, petitioners, 

vs.
MARINA BUAN, COURT OF FIRST INSTANCE OF ZAMBALES, BRANCH 1 AND THE PROVINCIAL
SHERIFF OF ZAMBALES THRU HIS DEPUTY, ATILANO G. NANQUIL, respondents.

Rodrigo v. Fontelera for petitioners.

Amado Ocampo for private respondent Marina Buan.

CORTES, J.:

In this Petition for certiorari and Prohibition with Preliminary Injunction, the petitioners question the order
of the Court of First Instance of Zambales dated January 16, 1980, placing respondent Marina Buan, the
purchaser in a foreclosure suit, in possession of a house and lot claimed to belong to the petitioner
Alberto C. Roxas.

The antecedent facts are as follows: On August 19, 1975, Arcadio Valentin constituted a Deed of Real
Estate Mortgage on a two-storey residential house and lot in favor of private respondent, Marina Buan, to
secure the loan of P78,328.08 granted by the latter to the former.

Upon failure of Valentin to pay the loan on its maturity date, Buan applied for an extrajudicial foreclosure
of mortgage which was duly published and advertised for public auction by Olongapo City Sheriff Ramon
Y. Pardo on September 29, 1977. Private respondent was the winning bidder in the auction sale and the
City Sheriff issued a Certificate of Sale duly registered with the Office of the Register of Deeds on October
26, 1977. Valentin had a period of one (1) year from the date of registration within which to redeem the
mortgaged properties. The period for the redemption of the property in question having expired without
the property being redeemed by Valentin, a Final Bill of Sale was thereafter issued by the City Sheriff or,
November 3, 1978.

After Valentin failed to deliver possession of the properties, Buan filed before the Court of First Instance of
Zambales a "Petition for the Issuance of a Writ of Possession." As this was not contested, a decision was
rendered by respondent court on June 19, 1979, the dispositive portion of which reads:

WHEREFORE, let the corresponding writ of possession be issued ordering the Provincial
Sheriff of Zambales or any of his lawful deputies to remove the respondent or any person
claiming interest under him from said house and lot located at No. 9-B Katipunan St.,
East Bajac-Bajac, Olongapo City, and to place the petitioner in possession thereon. The
respondent is also ordered to pay the petitioner the amount of P1,000.00 as reasonable
attorney's fees, plus costs of suit. [ Emphasis supplied.] [Petition, Annex "C", p. 16,
Rollo.]

A writ of possession addressed to the Provincial Sheriff of Zambales was issued on August 22, 1979. The
return on the writ as embodied in the Sheriff's Report dated August 28, 1979 showed that when Deputy
Sheriff Atilano G. Nanquil tried to execute the writ of possession, he found that petitioners were occupying
the premises and refused to vacate the same, on the alleged claim of Atty. Roxas that he bought the
house and lot in question from Valentin in the amount of P100,00.00. Atty. Roxas also told Sheriff Nanquil
that he introduced improvements consisting of one bungalow house and one store and that Valentin is no
longer residing in the premises [See Petition, Annex "F", p. 20, Rollo].
 50

In view of the petitioners' refusal to abide by the writ of possession, private respondent filed on August 30,
1979 a "Motion for Contempt" against Alberto Roxas and Nenita de Guia. On September 12, 1979, the
petitioners through counsel filed with the respondent court their answer thereto arguing that they cannot
be held guilty of contempt of court because they were not made parties to the main action.

On January 16, 1980, the respondent trial court, finding merit in petitioners' position that they could not be
declared in contempt, issued an order the dispositive portion of which reads as follows:

WHEREFORE, the petition for contempt of Court against the adverse claimant Atty.
Alberto Roxas and Mrs. Nenita de Guia is DISMISSED. The respondents Atty. Alberto
Roxas and Mrs. Nenita de Guia are, however, ordered to immediately vacate the
disputed house and lot in question within a period of fifteen (15) days from receipt of this
Order under pain of contempt of Court. [p. 31, Rollo.]

Disagreeing with the portion of the order directing them to vacate the property, petitioners filed a Motion
for Reconsideration on January 28, 1980. However, the respondent court, denied their motion on
February 28, 1980.

Thus, petitioners filed the instant petition for certiorari and prohibition on April 12, 1979. This Court issued
a Temporary Restraining Order on May 19, 1980.

The petitioners maintain that the respondent court gravely abused its discretion amounting to lack of
jurisdiction in issuing the order complained of, upon the theory that it was predicated upon a writ of
possession which was ineffective as against them, being third parties. Thus, the order is null and void.
They also insist that the private respondent should file an independent action to recover the property,
otherwise, there will be a violation of due process of law if they are not given their day in court to prove
their adverse claim.

The Court finds petitioners' contention without any legal or factual basis.

In the extrajudicial foreclosure of real estate mortgages, possession of the property may be awarded to
the purchaser at the foreclosure sale during the pendency of the period of redemption under the terms
provided in Sec. 6 of Act 3135, as amended (An Act to Regulate the Sale of Property Under Special
Powers Inserted In or Annexed to Real Estate Mortgages), or after the lapse of the redemption period,
without need of a separate and independent action [IFC Service Leasing and Acceptance Corp. v. Nera,
G.R. No. 
L-21720, January 30, 1967, 19 SCRA 181]. This is founded on his right of ownership over the property
which he purchased at the auction sale and his consequent right to be placed in possession thereof.

This rule is, however, not without exception. Under Sec. 35, Rule 39 of the Revised Rules of Court, which
was made applicable to the extrajudicial foreclosure of real estate mortgages by Sec. 6 Act No. 3135, the
possession of the mortgaged property may be awarded to a purchaser in extrajudicial foreclosures
"unless a third party is actually holding the property adversely to the judgment debtor." [Clapano v.
Gapultos, G.R. Nos. 51574-77, September 30, 1984, 132 SCRA 429, 434; Philippine National Bank v.
Adil, G.R. No. 52823, November 2, 1982, 118 SCRA 110; IFC Service Leasing and Acceptance Corp. v.
Nera, supra.] As explained by the Court in IFC Service Leasing and Acceptance Corp. v. Nera, supra:

... The applicable provision of Act No. 3135 is Section 6 which provides that, in cases in
which an extrajudicial sale is made, "redemption shall be governed by the provisions of
sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code
of Civil Procedure in so far as these are not inconsistent with the provisions of this Act."
Sections 464-466 of the Code of Civil Procedure were superseded by Sections 25-27 and
Section 31 of Rule 39 of the Rules of Court which in turn were replaced by Sections 29-
31 and Section 35 of Rule 39 of the Revised Rules of Court. Section 35 of the Revised
 51

Rules of Court expressly states that "If no redemption be made within twelve (12) months
after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession
of the property ..." The possession of the property shall be given to the purchaser or last
redemptioner by the officer unless a party is actually holding the property adversely to
the judgment debtor.  [Id. at 184-185; Emphasis in the original.]

In the instant case, respondent Deputy Sheriff Atilano G. Nanquil reported the following in his return on
the writ of possession:

This certifies that I have personally served a copy of the Writ of Possession together with
a copy of the Notice to vacate issued in the above-entitled case upon the defendant
Arcadio Valentin and upon the adverse occupants Atty. Alberto Roxas and Mrs. Nenita
de Guia on August 23, 1979.

That undersigned had explained to them the contents of said writ;

That I ordered the adverse occupants Atty. Alberto Roxas to vacate the premises of the
house and lot in question on or before August 27, 1979;

That up to the present, Atty. Alberto Roxas and Mrs. Nenita de Guia refused to vacate
the same, claiming that the house and lot in question was bought by the former from the
said defendant in the amount of P100,000.00 and he also introduced improvements
thereon consisting of one (1) bungalow house and one (1) store;

That defendant Arcadio Valentin is no longer residing on the properties in question. [p.
20, Rollo.]

Contending that petitioner Roxas is a party actually holding the property adversely to the debtor, Arcadio
Valentin, petitioners argue that under the provisions of Act No. 3135 they cannot be ordered to vacate the
property. Hence, the question of whether, under the circumstances, petitioner Roxas indeed is a party
actually holding the property adversely to Valentin.

It will be recalled that Roxas' possession of the property was premised on its alleged sale to him by
Valentin for the amount of P100,000.00. Assuming this to be true, it is readily apparent that Roxas holds
title to and possesses the property as Valentin's transferee. Any right he has to the property is necessarily
derived from that of Valentin. As transferee, he steps into the latter's shoes. Thus, in the instant case,
considering that the property had already been sold at public auction pursuant to an extrajudicial
foreclosure, the only interest that may be transferred by Valentin to Roxas is the right to redeem it within
the period prescribed by law. Roxas is therefore the successor-in-interest of Valentin, to whom the latter
had conveyed his interest in the property for the purpose of redemption [Rule 39, Sec. 29 (a) of the
Revised Rules of Court; Magno v. Viola, 61 Phil. 80 (1934); Rosete v. Prov. Sheriff of Zambales, 95 Phil.
560 (1954).] Consequently, Roxas' occupancy of the property cannot be considered adverse to Valentin.

Thus, in Belleza v. Zandaga [98 Phil. 702 (1956)], the Court held that where the purchaser in an
execution sale has already received the definitive deed of sale, he becomes the owner of the property
bought and, as absolute owner, he is entitled to its possession and cannot be excluded therefrom by one
who merely claims to be a "successor-in-interest of the judgment debtor," unless it is adjudged that the
alleged successor has a better right to the property than the purchaser at the execution sale. Stated
differently, the purchaser's right of possession is recognized only as against the judgment debtor and his
successor-in-interest but not against persons whose right of possession is adverse to the latter. The rule
was reiterated in Guevara v. Ramos [G.R. No. L-24358, March 31, 1971, 38 SCRA 194].

The rule in Belleza, although relating to the possession of property sold in execution sales under what is
now Sec. 35, Rule 39 of the Revised Rules of Court, is also applicable to the possession of property sold
 52

at extrajudicial foreclosure sales pursuant to Sec. 6 of Act No. 3135 [see IFC Service Leasing and
Acceptance Corp. v. Nera, supra]. Thus, as petitioner Roxas is not a party holding the property adversely
to Valentin, being the latter's successor-in-interest, there was no bar to the respondent trial court's
issuance of a w.-it of possession upon private respondent Buan's application.

It does not matter that petitioner Roxas was not specifically named in the writ of possession, as he merely
stepped into the shoes of Valentin, being the latter's successor-in-interest. On the other hand, petitioner
de Guia was occupying the house as Roxas' alleged tenant [Rollo, p. 24]. Moreover, respondent court's
decision granting private respondent Buan's petition for the issuance of a writ of possession ordered the
Provincial Sheriff of Zambales or any of his deputies to remove Valentin or any person claiming interest
under him" from the property [Rollo, p. 16]. Undeniably, petitioners fell under this category.

As petitioners have failed to establish that grave abuse of discretion, as would warrant the issuance of the
writ of certiorari and prohibition prayed for, tainted the issuance of the assailed order, the petition must
fail.

WHEREFORE, the petition is hereby DISMISSED and the Temporary Restraining Order issued by the
Court on May 19, 1980 is LIFTED.

SO ORDERED.

Fernan C. J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

 53

G.R. No. 154355             May 20, 2004

Spouses REMPSON SAMSON and MILAGROS SAMSON; and REMPSON REALTY &
DEVELOPMENT CORPORATION petitioners, 
vs.
Judge MAURICIO M. RIVERA, in His Capacity as Presiding Judge of the Regional Trial Court of
Antipolo City, Branch 73; Atty. JOSELITA MALIBAGO-SANTOS, in Her Capacity as Ex Officio
Sheriff, RTC of Antipolo City; and LENJUL REALTY CORPORATION, respondents.

DECISION

PANGANIBAN**, J.:

In denying the Petition, this Court applies the well-entrenched rule that the buyer in an extrajudicial
foreclosure sale is entitled to possession of the purchased property. Any question regarding the regularity
and validity of the mortgage and foreclosure sale may be determined only after the issuance of the writ of
possession.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the March 7,
2002 Resolution2 and the July 18, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP No.
69266. The March 7, 2002 Resolution disposed as follows:

"WHEREFORE, the instant petition is DISMISSED."4

The July 18, 2002 Resolution denied reconsideration.

The Facts

The pertinent facts are undisputed. Petitioner Spouses Rempson and Milagros Samson incurred from Far
East Bank and Trust Company (FEBTC) loan obligations, the principal of which amounted to fifty-five
million pesos (₱55,000,000).5 On October 10, 1994 and February 22, 1996, in order to secure the
payment of the loan obligations, Spouses Samson executed in favor of FEBTC two real estate mortgages
covering five parcels of commercial property located at Antipolo City, Rizal.6

Petitioner spouses failed to settle their loan obligations. Thus, on May 16, 2000, FEBTC filed an
Application for Extra-Judicial Foreclosure of Real Estate Mortgage7 before the Office of the Clerk of Court
and Ex-Officio Sheriff of the Regional Trial Court (RTC) of Antipolo City.8 In their application, FEBTC
requested the said office to foreclose the two mortgages extrajudicially, in the manner and form
prescribed by Act 3135, as amended, to satisfy the debt of ₱72,219,158.45, inclusive of interest, penalties
and other charges.9

Acting on the application, the Office of the Clerk of Court and Ex-Officio Sheriff issued a Notice of Sheriff
Sale dated May 19, 2000,10 setting the foreclosure sale on June 22, 2000.11 There was only one bidder
during the foreclosure sale, so in accordance with AM 99-10-05-0,12 the sheriff postponed the auction to
July 5, 2000.13

On July 5, 2000, the auction sale proceeded with two bidders participating -- FEBTC and Lenjul Realty
and Development Corporation, with the latter declared as the highest bidder in the amount of eighty
million pesos (₱80,000,000).14 On July 11, 2000, a Certificate of Sheriff’s Sale was issued confirming the
sale of the foreclosed properties to the winning bidder.15 Shortly thereafter, the Certificate of Sale was
registered with the Registry of Deeds of Antipolo City.16 On February 19, 2001, new Certificates of Title
 54

over the foreclosed properties were issued by the Register of Deeds of Antipolo City in favor of Lenjul
Realty Corporation.17

On April 3, 2001, Private Respondent Lenjul Realty filed a Petition for the Issuance of a Writ of
Possession, which sought an ex parte issuance of a writ of possession over the foreclosed
properties.18 The Petition was docketed as Land Registration Case No. 01-2698 and raffled to Branch 73
presided by Judge Mauricio M. Rivera.19 On June 11, 2001 and June 15, 2001, Spouses Samson and
Rempson Corporation filed their respective Answer/Opposition.20

While the Petition was pending, Spouses Samson and Rempson Corporation filed with the Antipolo City
RTC, an action for Annulment of Extra-Judicial Foreclosure and/or Nullification of Sale and the
Certificates of Title, plus Reconveyance and Damages with Prayer for a Temporary Restraining Order
and/or Writ of Preliminary Injunction. Petitioners filed it against Lenjul Realty Corporation, FEBTC, Bank
of the Philippine Islands, Joselita Malibao-Santos in her capacity as the clerk of court and ex officio sheriff
of the Antipolo City RTC, and the Register of Deeds of Antipolo City. The case was docketed as Civil
Case No. 01-6219 and raffled to Branch 71 presided by Judge Felix S. Caballes.21 On August 15, 2001,
upon motion of Petitioner Rempson Realty and Development Corporation, Judge Caballes issued an
Order directing the consolidation of the civil case with the land registration case.22

On September 18, 2001, Judge Rivera issued an order denying the consolidation of the Petition for Writ
of Possession and the civil case for annulment of foreclosure.23 On October 22, 2001 and December 4,
2001, respectively, Rempson Corporation and Spouses Samson moved for a reconsideration of the
September 18, 2001 Order denying consolidation.24

On November 5, 2001, Judge Rivera gave due course to the Petition for the Issuance of a Writ of
Possession and denied the Opposition of Spouses Samson and Rempson Corporation.25 Thus, they filed
their respective Motions for Reconsideration on December 4, 2001 and December 7, 2001.26

On February 11, 2002, Judge Rivera denied reconsideration of the Order giving due course to the Petition
for the Issuance of the Writ of Possession and directed the issuance of such writ of possession.27

On February 20, 2002, Judge Rivera issued an Order granting petitioners’ Motion for Reconsideration
with regard to the September 18, 2001 Order denying the consolidation of cases.28

On February 26, 2002, a Writ of Possession29 was issued directing the sheriff of the Antipolo City RTC to
place Lenjul Realty Corporation in physical possession of the foreclosed properties. On the same date,
the sheriff issued a Notice to Vacate30 addressed to Rempson Corporation, ordering it to leave the
properties on or before March 2, 2002.

On February 22, 2002, petitioners filed with the Court of Appeals the aforesaid Special Civil Action for
Certiorari with Prohibition/Mandamus under Rule 65 with an Application for Issuance of a Writ of
Preliminary Injunction and/or Temporary Restraining Order to annul the November 5, 2001 and the
February 11, 2002 Orders of Judge Rivera.31

Ruling of the Court of Appeals

The Court of Appeals ruled that certiorari was improper, because there was an adequate remedy in the
ordinary course of law. Citing Section 8 of Act No. 3135, it opined that petitioners’ remedy was to file a
petition to set aside the foreclosure sale and to cancel the writ of possession in LR Case No. 01-2698.
The CA further noted that certiorari was premature inasmuch as petitioners had failed to file a motion for
reconsideration of the Order directing the issuance of the writ of possession.32
 55

In denying the Motion for Reconsideration, the Court of Appeals held that the issuance of a writ of
possession was a ministerial function that was done upon the filing of the proper motion and the approval
of the corresponding bond.33It further ruled that prohibition did not lie to enjoin the implementation of the
writ.34

Hence this Petition.35

The Issues

In their Memorandum, petitioners assign the following issues for our consideration:

"1.) Whether or not the Court of Appeals had erroneously affirmed the ruling of x x x Judge Rivera
ordering the immediate issuance of a writ of possession in favor of private respondent Lenjul
Realty Corporation without first requiring presentation of evidence and formal offer thereof;

"2.) Whether or not the Court of Appeals had erroneously affirmed the ruling of x x x Judge Rivera
upholding the validity of the issuance of new titles over the foreclosed properties in the name of
Private Respondent Lenjul Realty Corporation despite the fact that the consolidation of ownership
therein was done prior to the expiration of the 1-year period of redemption.

"3.) Whether or not the Court of Appeals had erroneously affirmed the ruling of x x x Judge Rivera
upholding the now 3-month period of redemption for juridical mortgagors under the General
Banking Act of Year 2000 and the application of said law retroactively as to violate the equal
protection clause of the [n]ew Constitution and the prohibition therein on non-impairment of
contracts.

"4.) Whether or not the Court of Appeals had erroneously affirmed the ruling of x x x Judge Rivera
refusing consolidation of the annulment case pending in the sala of Judge Caballes with the case
below despite the fact that petitioners had already contested Private Respondent Lenjul Realty
Corporation’s presumed ownership over the foreclosed properties so that the issue of such
presumed ownership should first be resolved before the petition for writ of possession is heard.

"5.) Whether or not the Court of Appeals had erroneously affirmed the ruling of x x x Judge Rivera
giving due course to the petition for writ of possession despite the fact that Private Respondent
Lenjul Realty Corporation was not the winning bidder at the foreclosure sale, nor a transferee
and/or successor-in-interest of the rightful winning bidder Lenjul Realty and Development
Corporation.

"6.) Whether or not the Court of Appeals had erroneously affirmed the ruling of x x x Judge Rivera
ignoring and disregarding existing rules of procedure and jurisprudence that foreclosed
properties, consisting of separate lots covered by individual transfer certificates of title, should be
sold separately and not en masse.

"7.) Whether or not the Court of Appeals had erred in dismissing the special civil action for
certiorari on grounds of perceived technicalities and/or alleged procedural imperfections rather
than on its merits."36

The issues to be addressed in this case are as follows: (1) whether the trial court committed grave abuse
of discretion in granting the Petition for the Issuance of a Writ of Possession; and (2) whether the filing of
a Petition for Certiorari with the Court of Appeals was the proper remedy.

The Court’s Ruling

 56

The Petition has no merit.

First Issue:
Writ of Possession

The Court of Appeals correctly sustained the issuance of the Writ of Possession. The issuance of the Writ
is explicitly authorized by Act 313537 (as amended by Act 4118), which regulates the methods of effecting
an extrajudicial foreclosure of mortgage.38 Section 7 thereof provides:

"Section 7. Possession during redemption period. – In any sale made under the provisions of this
Act, the purchaser may petition the [Regional Trial Court] where the property or any part thereof
is situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and filed in
form of an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the Mortgage Law
or under section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of deeds in
accordance with any existing law, and in each case the clerk of the court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen
of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight
hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the property is situated, who
shall execute said order immediately."

Entitlement to Writ of Possession

Under the provision cited above, the purchaser in a foreclosure sale may apply for a writ of possession
during the redemption period by filing for that purpose an ex parte motion under oath, in the
corresponding registration or cadastral proceeding in the case of a property with torrens title. Upon the
filing of such motion and the approval of the corresponding bond, the court is expressly directed to issue
the writ.39

This Court has consistently held that the duty of the trial court to grant a writ of possession is
ministerial.40 Such writ issues as a matter of course upon the filing of the proper motion and the approval
of the corresponding bond. No discretion is left to the trial court.41 Any question regarding the regularity
and validity of the sale, as well as the consequent cancellation of the writ, is to be determined in a
subsequent proceeding as outlined in Section 8 of Act 3135.42 Such question cannot be raised to oppose
the issuance of the writ, since the proceeding is ex parte.43 The recourse is available even before the
expiration of the redemption period provided by law and the Rules of Court.44

The purchaser, who has a right to possession that extends after the expiration of the redemption
period,45 becomes the absolute owner of the property when no redemption is made. Hence, at any time
following the consolidation of ownership and the issuance of a new transfer certificate of title in the name
of the purchaser, he or she is even more entitled to possession of the property.46 In such a case, the bond
required under Section 7 of Act 3135 is no longer necessary, since possession becomes an absolute right
of the purchaser as the confirmed owner.47

The Petition for Writ of Possession Not Stayed by the Annulment Case

This Court has long settled that a pending action for annulment of mortgage or foreclosure does not stay
the issuance of a writ of possession.48 Therefore, the contention of petitioners that the RTC should have
 57

consolidated Civil Case No. 01-6219 with LR Case No. 01-2698 and resolved the annulment case prior to
the issuance of the Writ of Possession is unavailing.

Their reliance on Active Wood Products Co., Inc. v. Court of Appeals49 is misplaced. In that case, the sole
issue was the consolidation of a civil case regarding the validity of the mortgage and a land registration
case for the issuance of a writ of possession. It did not declare that the writ of possession must be stayed
until the questions on the mortgage or the foreclosure sale were resolved. Moreover, the issue of
consolidation in the present case has become moot, considering that the trial court has already granted it.

Second Issue:
Proper Remedy

The Court of Appeals correctly declared that petitioners pursued the wrong remedy. A special civil action
for certiorari could be availed of only if the lower tribunal has acted without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction; and if there is no appeal or any
other plain, speedy, and adequate remedy in the ordinary course of law.50

No Grave Abuse of Discretion

There is grave abuse when the court -- in the exercise of its judgment -- acts in a capricious, whimsical,
arbitrary or despotic manner equivalent to acting with lack of jurisdiction.51 Considering that the trial court
issued the Writ of Possession in compliance with the express provisions of Act 3135, it cannot be charged
with having acted in excess of its jurisdiction or with grave abuse of discretion.52

Since there was no grave abuse of discretion, petitioner should have filed an ordinary appeal instead of a
petition for certiorari. In GSIS v. CA,53 this Court held that "the wisdom or soundness of the x x x order
granting [the] writ of possession x x x is a matter of judgment [in] which the remedy is ordinary
appeal."54 An error of judgment committed by a court in the exercise of its legitimate jurisdiction is not the
same as "grave abuse of discretion."55Errors of judgment are correctible by appeal, while those of
jurisdiction are reviewable by certiorari.56

Available Remedy

Section 8 of Act 3135 provides the plain, speedy, and adequate remedy in opposing the issuance of a writ
of possession.57 The provision reads:

"Section 8. Setting aside of sale and writ of possession. – The debtor may, in the proceedings
in which possession was requested, but not later than thirty days after the purchaser was
given possession, petition that the sale be set aside and the writ of possession
cancelled, specifying the damages suffered by him, because the mortgage was not violated or
the sale was not made in accordance with the provisions hereof, and the court shall take
cognizance of this petition in accordance with the summary procedure provided for in section one
hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of
the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person
who obtained possession. Either of the parties may appeal from the order of the judge in
accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order of
possession shall continue in effect during the pendency of the appeal." (Emphasis supplied)

A party may petition for the setting aside of a foreclosure sale and for the cancellation of a writ of
possession in the same proceedings where the writ of possession was requested. In petitioners’ case, the
filing of the Petition is no longer necessary because the pendency of Civil Case No. 01-6219 (which was
consolidated with the present case) already challenged the foreclosure sale.
 58

Pending proceedings assailing the issuance of the writ, the purchaser in a foreclosure sale is entitled to
possession of property. If the trial court later finds merit in a petition to set the writ aside, it shall dispose in
favor of the mortgagor the bond furnished by the purchaser.58

It should also be noted that prior to the filing of a petition for certiorari, a motion for reconsideration is
generally required.59 Petitioner may have filed a Motion for Reconsideration with regard to the trial court’s
Order giving due course to the Petition, but not with regard to the Order directing the issuance of a writ of
possession.

Finally, petitioners’ allegation that the RTC issued the Writ of Possession despite failing to receive
evidence is unsupported by the record. The documents submitted to this Court show sufficient basis for
the trial court to rule accordingly. Despite the ex parte nature of the proceedings, and aside from the oral
arguments, the RTC allowed petitioners to file pleadings to oppose the Petition for the issuance of the
Writ of Possession.

Other Issues

The other issues raised by petitioners are factual matters which, subject to certain exceptions not
applicable here,60this Court does not review. Moreover, petitioners rely on factual matters on which the
trial court has yet to make any finding. The tenability of their arguments should be ventilated in Civil Case
No. 01-6219, an "Annulment of Extra-Judicial Foreclosure and/or Nullification of Sale and the Certificates
of Title, plus Reconveyance and Damages." Those factual issues cannot be ruled upon in these
proceedings.

WHEREFORE, the Petition is DENIED, and the assailed Resolutions of the Court of Appeals AFFIRMED.
Costs against petitioners.

SO ORDERED.

Davide, Jr.*, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

 59

G.R. No. L-24797             March 16, 1926

DOMICIANO TIZON, plaintiff-appellant, 
vs.
EMILIANO J. VALDEZ and LUIS MORALES, sheriff of the Province of Tarlac, defendants-appellees.

Jose G. Generoso for appellant.

Felix B. Bautista for the appellee Valdez.
No appearance for the other appellee.

STREET, J.:

This action was instituted in the Court of First Instance of the Province of Tarlac by Domiciano Tizon
against Emiliano J. Valdez and Luis Morales, the latter in the character of sheriff of Tarlac Province, for
the purpose of obtaining a declaration to the effect that the plaintiff is the owner of certain chattels,
consisting chiefly of a steam engine and boiler, described in the complaint, and to require the defendants
to deliver the same to the plaintiff, with damages for the detention thereof and costs. The trial court having
absolved the defendants from the complaint, the plaintiff appealed.

It appears that the personal property which is the subject of this action formerly belonged to one Leon
Sibal, Sr., by whom it was mortgaged, on September 14, 1920, to the defendant Valdez. On October 7,
1920, this mortgage was filed in the office of the register of the Province of Tarlac and was thereupon duly
registered in the registry of chattel mortgages. On May 18, 1921, Sibal again mortgaged the same
chattels to the plaintiff, Domiciano Tizon, whose mortgage was likewise duly registered in the chattel
mortgage registry of Tarlac in June, 1921. No question is made with respect to the validity or good faith of
either of these mortgages, but it should be stated that the mortgage to Valdez covered other property in
addition to the engine and boiler in question and the debt secured in said mortgage is recited therein to be
in the amount of P12,833.30, payable December 31, 1920, with interest from date of maturity at the rate
of 12 ½ per centum per annum, with a stipulation for 25 per centum of principal and interest to be added
in compensation for attorney's fee and expenses in case of the nonpayment of the debt at maturity. When
the stipulated date of payment arrived Sibal defaulted in the making of payment, and Valdez thereupon
instituted a civil action (case No. 2301) to recover the indebtedness, in connection with which he sued out
a writ of attachment and on June 24, 1921, caused the same to be levied upon the property which is the
subject of this action. The property, however, was not retained by the attaching officer for the reason that
Tizon gave a counter bond and lifted the attachment. The end of this civil action was that, on March 7,
1923, Valdez recovered of Sibal the sum of P19,026.24, with interest at 12 _«_ per centum per annum on
P15,187.12 from August 1, 1921. Upon this judgment Valdez caused an execution to be issued, which, on
April 24, 1924, was levied upon the property now in question, being the same property included in
Valdez's chattel mortgage.

Meanwhile Domiciano Tizon, proceeding under his own mortgage, had caused the sheriff to sell the same
property in a foreclosure proceeding conducted in conformity with the provisions of the Chattel Mortgage
law (Act No. 1508, sec. 14). The sale in these proceedings was effected on June 28, 1923, Tizon
becoming purchaser for the consideration of P1,000. As purchaser at his own foreclosure sale, Tizon
assumed possession of the property, and it was found in his possession when the sheriff levied upon it by
virtue of the execution issued in the civil case No. 2301, above mentioned. At the time this levy was
made, or soon thereafter, Tizon filed a claim with the sheriff, asserting that the property belonged to him
and was not liable to be taken upon an execution directed against Sibal. The sheriff, however, under
indemnity from Valdez, retained the property and sold it in due course at an execution sale, Valdez
becoming purchaser at the price of P500. Pursuant to this sale Valdez now took possession, and Tizon
presently instituted the present action for the purpose stated in the first paragraph of this opinion.

The facts of the case are not in dispute and the question presented is one of law purely. The trial court
correctly observed that the relation between Valdez and Tizon is that of two rival mortgagees under first
 60

and second mortgages. In the appellant's brief attention is directed to the fact that — contrary to the
requirement of the Chattel Mortgage Law — Tizon's mortgage does not set forth the fact of the existence
of the previous mortgage; and from this the conclusion seems to be drawn that Tizon's mortgage should
not be denominated a second mortgage. But it is certainly not a first mortgage, and it is inferior to
Valdez's mortgage because executed subsequent to the date when Valdez's mortgage was put of record.
The violation of law by the mortgagor in failing to mention in the second mortgage the existence of the
prior mortgage made him amenable to the penal provision contained in section 12 of the Chattel
Mortgage Law but could not affect the priority of the earlier mortgage.

The main contention of the appellant is directed to the supposed effect of the institution of a civil action by
Valdez upon the mortgage debt, and the suing out of an attachment and execution by him against the
property which was the subject of the mortgage, instead of his proceeding to foreclose his first mortgage
under the provisions of the Chattel Mortgage Law. In this connection it is claimed for the appellant that the
election of Valdez to proceed against the debtor in an ordinary civil action constituted a waiver of his
rights under the mortgage, and it is said that by this waiver the rights of Tizon under the second mortgage
became superior. This argument is based on the supposed inconsistency of the remedies by civil action
and by extrajudicial foreclosure, and in particular it is contended that the attachment lien is incompatible
with the lien of the mortgage. In support of this proposition reference is made to a line of decision from
certain American courts holding that a mortgage creditor loses his lien by attaching the property which is
subject to the mortgage. (Dix vs. Smith [Okla.], 50 L. R. A. 714.) But, as shown by the author of the
annotation appended to that case in the volume cited, that doctrine rests upon strictly technical grounds
and can only be maintained by adhering to two common-law rules neither of which prevails in this
jurisdiction, namely, first, that after the default of the mortgagor in the payment of the debt the mortgagee
has the legal title to the mortgaged property; and, secondly, that the equity of redemption which pertains
to the mortgagor is not subject to be taken in execution at the instance of his creditor. Accordingly we find
that it is only in those American jurisdictions where these antiquated ideas prevail that the courts have
adopted the rule stated in Dix vs. Smith, supra. (5 R. C. L., 459; 11 C. J., 687, 688.)

But it is the settled doctrine of this court that a chattel mortgage, though written in the form of a conditional
sale defeasible upon performance of a condition subsequent, is really no more than a mere security for a
debt and creates only a lien in favor of the creditor. (Bachrach Motor Co. vs. Summers, 42 Phil., 3.) At the
same time a writ of execution in this jurisdiction reaches both legal and equitable interests, with the result
that the equity of redemption of the mortgagor will pass to the purchaser at an execution sale. The better
rule, we think, and the rule which is certainly more in accord with other doctrines here prevailing is that
announced by the Supreme Court of Ohio in Green vs. Bass (83 Ohio St., 378; Ann. Cas. [1912], 828). It
was there declared that the owner of a senior mortgage does not, by recovering a judgment on the note
which it secures and causing execution to be levied on the mortgaged chattels, waive the priority of his
lien. And the authorities cited in the note to this case a printed in Annotated Cases show that this doctrine
generally prevails in America.

But it is suggested that the suing out of an attachment by Valdez at the beginning of his civil action to
recover upon the debt secured by his mortgage introduces a vital difference; and attention is directed to
the fact that upon suing out on attachment under section 426 of the Code of Civil Procedure the creditor is
required to make oath that he has no other sufficient security for the claim sought to be enforced by the
action. The making of such affidavit shows an election on the part of the creditor, so it is contended, to
waive the mortgage lien. This argument in our opinion is not valid for two reasons, first, because the
creditor is not required to state peremptorily under oath that he has no other security at all but only that he
has no other sufficient security; and, secondly, because this court has held that the provision which
prohibits the issuance of an attachment when there is other sufficient security has no application where
the attachment is levied upon the property constituting the security in an action to recover the debt so
secured. (Pepperell vs. Taylor, 5 Phil., 536.) From whatever angle the matter be viewed we can discover
no sound reason for holding that either the suing out of the attachment or the subsequent sale of the
property under execution had the effect of destroying the prior mortgage lien, that is, as between the
parties to this lawsuit. What Valdez may have obtained by purchasing at the execution sale, and whether
he obtained anything at all, is a different question, and one that is really not necessary to be here
 61

decided. It is enough to say that the first mortgage in favor of Valdez continues to subsist unaffected by
what happened as a result of the civil action. If anybody had been misled to his prejudice as a
consequence of the course pursued by Valdez, this would have constituted a ground of estoppel; but
nothing of the sort appears.

We have before us then the simple situation of a first mortgagee in possession attacked by the second
mortgagee after foreclosure of the second mortgage; and a little reflection will show, we think, that the
second mortgagee cannot prevail. After a first mortgage is executed there remains in the mortgagor a
mere right of redemption, and only this right passes to the second mortgagee by virtue of the second
mortgage. As between the first and second mortgagees, therefore, the second mortgagee has at most
only the right to redeem, and even when the second mortgagee goes through the formality of an
extrajudicial foreclosure, the purchaser acquires no more than the right of redemption from the first
mortgagee.

The remedy of the plaintiff in this case must therefore be limited to the right to redeem by paying off the
debt secured by the first mortgage. But the action is not directed to this end, and in the controversy over
the title the purchaser at the foreclosure sale under the second mortgage must fail. Valdez, as first
mortgagee, even supposing that he acquired nothing by his purchase at his own execution sale, is yet
entitled to possession for the purpose at least of foreclosing his first mortgage (Bachrach Motor Co., vs.
Summers, 42 Phil., 3), the lien of which, as we have already demonstrated, still subsists; and since
Valdez is entitled to possession Tizon cannot maintain an action to recover the property.

For the reasons stated the judgment appealed from must be affirmed, and it so ordered, with costs
against the appellant.

Avanceña, C.J., Malcolm, Villamor, Ostrand, Romualdez, and Villa-Real, JJ., concur.

Separate Opinions

JOHNS, J., dissenting:

The facts are well and clearly stated in the majority opinion from which it appears that on September 14,
1920, Sibal, sr., executed a chattel mortgage on the property in question to Valdez, which was duly filed
October 7, 1920. May 18, 1921, Sibal executed another chattel mortgage on the same property to the
plaintiff, which duly filed and registered in June, 1921 Both mortgages were executed in good faith and for
valuable consideration.

Upon default in payment, Valdez brought an action against Sibal to recover the amount of his debt, and in
which he made an affidavit and procured a writ of attachment, and June 24, 1921, caused the attachment
to be levied upon the property, which is the subject of this action. Valdez recovered judgment for the full
amount of his claim, issued an execution, which on April 24, 1924, was levied upon the identical property,
which is specifically described in his chattel mortgage, pending which Tizon, the plaintiff, caused the
sheriff to seize and sell the property under the provisions of his chattel mortgage, in conformity with the
provisions of the Chattel Mortgage Law, and that sale was made on June 28, 1923, at which Tizon
became the purchaser. After the purchase, Tizon took actual possession of the property. Later, the
property was again seized by the sheriff upon the execution issued upon the judgment in favor of Valdez
against Sibal. Tizon claiming the property Valdez indemnified the sheriff, and in due course sold it under
execution, at which sale Valdez became the purchaser, and took possession of the property.

It will thus be noted that this is not a dispute between Valdez and Sibal, or between Tizon and Sibal. It is a
dispute between Valdez, who held the first mortgage, and Tizon, who held the second mortgage. At this
 62

point, it will be noted that Tizon sold the property under his chattel mortgage, and that he had a legal right
to sell it, and that he became the purchaser of it at his sale. That Valdez did not sell the property under his
chattel mortgage. That for some unknown reason, he brought an action on his original debt in which he
made an affidavit for, and procured, an attachment to be issued and levied on the identical property
covered by his chattel mortgage.

The majority opinion holds that Valdez has two liens on the same property, one being an attachment, and
the other a chattel mortgage lien. That might be true as between Valdez and Sibal, but it cannot be true
as between Valdez and Tizon. When Valdez made his affidavit for an attachment, in legal effect, he said:
My debt is not secured by any lien. It was necessary for him to do that to procure the attachment. Having
made that affidavit and procured the attachment of the property upon which he had a chattel mortgage
lien, he ought to be legally estopped to now claim or assert that he did not have a chattel mortgage lien.

In the authority cited in the majority opinion, there was no attachment, and the property was seized for the
first time no execution. That is a very different case. Again, the property in dispute is personal property,
from which, after a sale, there is no redemption; another important item that is overlooked in the majority
opinion. In the notes to the case of Dix vs. Smith (50 L. R. A., 714), there is an extended discussion of the
legal question here involved, and a number of authorities are cited.

In the case of Stein vs. McAuley and McAuley (147 Iowa, 630), cited in volume 5, Ruling Case Law, p.
459, the opinion says:

III. We do not think there was a waiver of the mortgage lien, especially in view of the fact that the
attachment was dismissed and never went to trial. Had there been a sale of the property under
execution growing out of the attachment proceedings, we would have a very different proposition.
...

In the instant case, there was a sale of the property under an execution growing out of the attachment
proceeding.

It should be borne in mind that the property involved in this case is personal property, for which there is
no legal right of redemption from a sale when made, and that this is not an action between a mortgagor
and a mortgagee.

Upon a state of facts, the majority opinion does not cite the decision of any court which sustains the legal
principles which it lays down. Under it, at the time the property was sold by Tizon on his chattel mortgage,
Valdez had two liens on the same property, one under his chattel mortgage, and the other by his
attachment, which was secured by his affidavit to the effect that he did not have a chattel mortgage lien.
That is not good law.

I dissent.
 63

FIRST DIVISION

[G.R. NO. 146555 : July 3, 2007]

JOSE C. CORDOVA, Petitioner, v. REYES DAWAY LIM BERNARDO LINDO ROSALES

LAW OFFICES, ATTY. WENDELL CORONEL and the SECURITIES AND EXCHANGE
COMMISSION,*** Respondents.

DECISION

CORONA, J.:

This is a Petition for Review on Certiorari 1 of a decision2 and resolution3 of the Court of

Appeals (CA) dated July 31, 2000 and December 27, 2000, respectively, in CA-G.R. SP No.
55311.

Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine
Underwriters Finance Corporation (Philfinance) certificates of stock of Celebrity Sports Plaza
Incorporated (CSPI) and shares of stock of various other corporations. He was issued a
confirmation of sale.4 The CSPI shares were physically delivered by Philfinance to the former
Filmanbank5 and Philtrust Bank, as custodian banks, to hold these shares in behalf of and
for the benefit of petitioner.6

On June 18, 1981, Philfinance was placed under receivership by public respondent Securities
and Exchange Commission (SEC). Thereafter, private respondents Reyes Daway Lim
Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel (private respondents) were
appointed as liquidators.7 Sometime in 1991, without the knowledge and consent of
petitioner and without authority from the SEC, private respondents withdrew the CSPI
shares from the custodian banks.8 On May 27, 1996, they sold the shares to Northeast
Corporation and included the proceeds thereof in the funds of Philfinance. Petitioner learned
about the unauthorized sale of his shares only on September 10, 1996.9 He lodged a
complaint with private respondents but the latter ignored it10 prompting him to file, on May
6, 1997,11 a formal complaint against private respondents in the receivership proceedings
with the SEC, for the return of the shares.

Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for Philfinance's
creditors and investors.12 On May 13, 1997, the liquidators began the process of settling the
claims against Philfinance, from its assets.13

On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it
reconsidered this decision in a resolution dated September 24, 1999 and granted the claims
of petitioner. It held that petitioner was the owner of the CSPI shares by virtue of a
confirmation of sale (which was considered as a deed of assignment) issued to him by
Philfinance. But since the shares had already been sold and the proceeds commingled with
the other assets of Philfinance, petitioner's status was converted into that of an ordinary
creditor for the value of such shares. Thus, it ordered private respondents to pay petitioner
the amount of P5,062,500 representing 15% of the monetary value of his CSPI shares plus
interest at the legal rate from the time of their unauthorized sale.

On October 27, 1999, the SEC issued an order clarifying its September 24, 1999 resolution.
While it reiterated its earlier order to pay petitioner the amount of P5,062,500, it deleted
 64

the award of legal interest. It clarified that it never meant to award interest since this would
be unfair to the other claimants.

On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner of the
CSPI shares but the recovery of such shares had become impossible. It also declared that
the clarificatory order merely harmonized the dispositive portion with the body of the
resolution. Petitioner's motion for reconsideration was denied.

Hence this petition raising the following issues:

1) whether petitioner should be considered as a preferred (and secured) creditor of

Philfinance;

2) whether petitioner can recover the full value of his CSPI shares or merely 15% thereof
like all other ordinary creditors of Philfinance and

3) whether petitioner is entitled to legal interest.14

To resolve these issues, we first have to determine if petitioner was indeed a creditor of
Philfinance.

There is no dispute that petitioner was the owner of the CSPI shares. However, private
respondents, as liquidators of Philfinance, illegally withdrew said certificates of stock without
the knowledge and consent of petitioner and authority of the SEC.15 After selling the CSPI
shares, private respondents added the proceeds of the sale to the assets of
Philfinance.16 Under these circumstances, did the petitioner become a creditor of
Philfinance? We rule in the affirmative.

The SEC, after holding that petitioner was the owner of the shares, stated:

Petitioner is seeking the return of his CSPI shares which, for the present, is no longer
possible, considering that the same had already been sold by the respondents, the proceeds
of which are ADMITTEDLY commingled with the assets of Philfinance.

This being the case, [petitioner] is now but a claimant for the value of those shares. As a
claimant, he shall be treated as an ordinary creditor in so far as the value of those
certificates is concerned.17

The CA agreed with this and elaborated:

Much as we find both detestable and reprehensible the grossly abusive and illicit contrivance
employed by private respondents against petitioner, we, nevertheless, concur with public
respondent that the return of petitioner's CSPI shares is well-nigh impossible, if not already
an utter impossibility, inasmuch as the certificates of stocks have already been alienated or
transferred in favor of Northeast Corporation, as early as May 27, 1996, in consequence
whereof the proceeds of the sale have been transmuted into corporate assets of Philfinance,
under custodia legis, ready for distribution to its creditors and/or investors. Case law holds
that the assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver or liquidator, and shall from the moment of
such receivership or liquidation, be exempt from any order, garnishment, levy, attachment,
or execution.
 65

Concomitantly, petitioner's filing of his claim over the subject CSPI shares before the SEC in
the liquidation proceedings bound him to the terms and conditions thereof. He cannot
demand any special treatment [from] the liquidator, for this flies in the face of, and will
contravene, the Supreme Court dictum that when a corporation threatened by bankruptcy is
taken over by a receiver, all the creditors shall stand on equal footing. Not one of them
should be given preference by paying one or some [of] them ahead of the others. This is
precisely the philosophy underlying the suspension of all pending claims against the
corporation under receivership. The rule of thumb is equality in equity.18

We agree with both the SEC and the CA that petitioner had become an ordinary creditor of
Philfinance.

Certainly, petitioner had the right to demand the return of his CSPI shares.19 He in fact filed
a complaint in the liquidation proceedings in the SEC to get them back but was confronted
by an impossible situation as they had already been sold. Consequently, he sought instead
to recover their monetary value.

Petitioner's CSPI shares were specific or determinate movable properties.20 But after they
were sold, the money raised from the sale became generic21 and were commingled with the
cash and other assets of Philfinance. Unlike shares of stock, money is a generic thing. It is
designated merely by its class or genus without any particular designation or physical
segregation from all others of the same class.22 This means that once a certain amount is
added to the cash balance, one can no longer pinpoint the specific amount included which
then becomes part of a whole mass of money.

It thus became impossible to identify the exact proceeds of the sale of the CSPI shares since
they could no longer be particularly designated nor distinctly segregated from the assets of
Philfinance. Petitioner's only remedy was to file a claim on the whole mass of these assets,
to which unfortunately all of the other creditors and investors of Philfinance also had a
claim.

Petitioner's right of action against Philfinance was a "claim" properly to be litigated in the
liquidation proceedings.23 In Finasia Investments and Finance Corporation v. CA,24 we
discussed the definition of "claims" in the context of liquidation proceedings:

We agree with the public respondent that the word 'claim' as used in Sec. 6(c) of P.D. 902-
A,25 as amended, refers to debts or demands of a pecuniary nature. It means "the assertion
of a right to have money paid. It is used in special proceedings like those before [the
administrative court] on insolvency."

The word "claim" is also defined as:

Right to payment, whether or not such right is reduced to judgment, liquidated,

unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured; or right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured.26
 66

Undoubtedly, petitioner had a right to the payment of the value of his shares. His demand
was of a pecuniary nature since he was claiming the monetary value of his shares. It was in
this sense (i.e. as a claimant) that he was a creditor of Philfinance.

The Civil Code provisions on concurrence and preference of credits are applicable to the
liquidation proceedings.27 The next question is, was petitioner a preferred or ordinary
creditor under these provisions?cralaw library

Petitioner argues that he was a preferred creditor because private respondents illegally
withdrew his CSPI shares from the custodian banks and sold them without his knowledge
and consent and without authority from the SEC. He quotes Article 2241 (2) of the Civil
Code:

With reference to specific movable property of the debtor, the following claims or liens
shall be preferred:

xxx     xxx     xxx

(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials
committed in the performance of their duties, on the movables, money or securities
obtained by them;

xxx     xxx     xxx

(Emphasis supplied)cralawlibrary

He asserts that, as a preferred creditor, he was entitled to the entire monetary value of his
shares.

Petitioner's argument is incorrect. Article 2241 refers only to specific movable property. His
claim was for the payment of money, which, as already discussed, is generic property and
not specific or determinate.

Considering that petitioner did not fall under any of the provisions applicable to preferred
creditors, he was deemed an ordinary creditor under Article 2245:

Credits of any other kind or class, or by any other right or title not comprised in the four
preceding articles, shall enjoy no preference.

This being so, Article 2251 (2) states that:

Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.

Like all the other ordinary creditors or claimants against Philfinance, he was entitled to a
rate of recovery of only 15% of his money claim.

One final issue: was petitioner entitled to interest?cralaw library

The SEC argues that awarding interest to petitioner would have given petitioner an unfair
advantage or preference over the other creditors.28 Petitioner counters that he was entitled
 67

to 12% legal interest per annum under Article 2209 of the Civil Code from the time he was
deprived of the shares until fully paid.

The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v. CA:29

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty.

Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, 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 date of the judgment of the court is
made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount of finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.30 (Emphasis
supplied)cralawlibrary

Under this ruling, petitioner was not entitled to legal interest of 12% per annum (from
demand) because the amount owing to him was not a loan31 or forbearance of money.32

Neither was he entitled to legal interest of 6% per annum under Article 2209 of the Civil
Code33 since this provision applies only when there is a delay in the payment of a sum of
money.34 This was not the case here. In fact, petitioner himself manifested before the CA
that the SEC (as liquidator) had already paid him P5,062,500 representing 15%
of P33,750,000.35

Accordingly, petitioner was not entitled to interest under the law and current jurisprudence.
 68

Considering that petitioner had already received the amount of P5,062,500, the obligation
of the SEC as liquidator of Philfinance was totally extinguished.36

We note that there is an undisputed finding by the SEC and CA that private respondents
sold the subject shares without authority from the SEC. Petitioner evidently has a cause of
action against private respondents for their bad faith and unauthorized acts, and the
resulting damage caused to him.37

WHEREFORE, the petition is hereby DENIED.

SO ORDERED.
 69

FIRST DIVISION

G.R. No. 172892, June 13, 2013

PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, v. BUREAU OF INTERNAL

REVENUE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on Certiorari1  of the Decision2  and Resolution3  dated December 29, 2005
and May 5, 2006, respectively, of the Court of Appeals in CA-G.R. SP No. 80816.

In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko Sentral ng Pilipinas
(BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in the Philippines,
placed it under receivership in accordance with Section 30 of Republic Act No. 7653, otherwise known as
the “New Central Bank Act,” and designated the Philippine Deposit Insurance Corporation (PDIC) as
receiver.4

Subsequently, PDIC conducted an evaluation of RBTI’s financial condition and determined that RBTI
remained insolvent.  Thus, the Monetary Board issued Resolution No. 675 dated June 6, 1997 directing
PDIC to proceed with the liquidation of RBTI.  Accordingly and pursuant to Section 30 of the New Central
Bank Act, PDIC filed in the Regional Trial Court (RTC) of La Trinidad, Benguet a petition for assistance in
the liquidation of RBTI.  The petition was docketed as Special Proceeding Case No. 97-SP-0100 and
raffled to Branch 8.5

In an Order6 dated September 4, 1997, the trial court gave the petition due course and approved it.

As an incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as one of the
creditors of RBTI.  The BIR prayed that the proceedings be suspended until PDIC has secured a tax
clearance required under Section 52(C) of Republic Act No. 8424, otherwise known as the “Tax Reform
Act of 1997” or the “Tax Code of 1997,” which provides:cralavvonlinelawlibrary
SEC. 52. Corporation Returns. –

xxxx

(C) Return of Corporation Contemplating Dissolution or Reorganization. – Every corporation shall, within

thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution, or for the
liquidation of the whole or any part of its capital stock, including a corporation which has been notified of
possible involuntary dissolution by the Securities and Exchange Commission, or for its reorganization,
render a correct return to the Commissioner, verified under oath, setting forth the terms of such resolution
or plan and such other information as the Secretary of Finance, upon recommendation of the
commissioner, shall, by rules and regulations, prescribe.

The dissolving or reorganizing corporation shall, prior to the issuance by the Securities and Exchange
Commission of the Certificate of Dissolution or Reorganization, as may be defined by rules and
regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, secure a
certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the
Securities and Exchange Commission.
In an Order7  dated February 14, 2003, the trial court found merit in the BIR’s motion and granted
it:cralavvonlinelawlibrary
WHEREFORE, petitioner PDIC is directed to secure the necessary tax clearance provided for under
Section 45(C) of the 1993 National Internal Revenue Code and now Section 52(C) of the 1997 National
Internal Revenue Code and to secure the same from the BIR District Office No. 9, La Trinidad, Benguet.
 70

Further, petitioner PDIC is directed to submit a comprehensive liquidation report addressed to creditor
Bangko Sentral and to remit the accounts already collected from the pledged assets to said Bangko
Sentral.

Claimant Bangko Sentral may now initiate collection suits directly against the individual borrowers.

In the event that the collection efforts of Bangko Sentral against individual borrowers may fail, Bangko
Sentral shall proceed against the general assets of the Rural Bank of Tuba Benguet.

Finally, Annex “A” attached to the manifestation and motion dated November 29, 2002 [of PDIC] is
considered as partial satisfaction of the obligation of the Rural Bank of Tuba (Benguet) Inc., to Bangko
Sentral.8
PDIC moved for partial reconsideration of the Order dated February 14, 2003 with respect to the directive
for it to secure a tax clearance.  It argued that Section 52(C) of the Tax Code of 1997 does not cover
closed banking institutions as the liquidation of closed banks is governed by Section 30 of the New
Central Bank Act.  The motion was, however, denied in an Order9 dated September 16, 2003.

PDIC thereafter brought the matter to the Court of Appeals by way of a petition for Certiorari under Rule
65 of the Rules of Court.  In its petition, docketed as CA-G.R. SP No. 80816, PDIC asserted that the trial
court acted with grave abuse of discretion amounting to lack or excess of jurisdiction in applying Section
52(C) of the Tax Code of 1997 to a bank ordered closed, placed under receivership and, subsequently,
under liquidation by the Monetary Board.

In its Decision dated December 29, 2005, the appellate court agreed with the trial court that banks under
liquidation by PDIC are covered by Section 52(C) of the Tax Code of 1997.  Thus, the Court of Appeals
affirmed the Orders dated February 14, 2003 and September 16, 2003 and dismissed PDIC’s petition.11

PDIC sought reconsideration but it was denied.12

Hence, this petition.

PDIC insists that Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under
liquidation by the Monetary Board of the BSP.  It argues that closed banks placed under liquidation
pursuant to Section 30 of the New Central Bank Act are not “corporations contemplating liquidation” within
the purview of Section 52(C) of the Tax Code of 1997.  As opposed to the liquidation of all other
corporations, the Monetary Board, not the Securities and Exchange Commission (SEC), has the power to
order or approve the closure and liquidation of banks.  Section 52(C) of the Tax Code of 1997 applies
only to corporations under the supervision of the SEC.13

For its part, the BIR counters that the requirement of a tax clearance under Section 52(C) of the Tax Code
of 1997 is applicable to rural banks undergoing liquidation proceedings under Section 30 of the New
Central Bank Act.  For the BIR, the authority given to the BSP to supervise banks does not mean that all
matters regarding banks are exclusively under the power of the BSP.  Thus, banking corporations are still
subject to reasonable regulations imposed by the SEC on corporations.  The purpose of a tax clearance
requirement under Section 52(C) of the Tax Code of 1997 is to ensure the collection of income taxes due
to the government by imposing upon a corporation undergoing liquidation the obligation of reporting the
income it earned, if any, for the purpose of determining the amount of imposable tax.14

The petition succeeds.

This Court has already resolved the issue of whether Section 52(C) of the Tax Code of 1997 applies to
banks ordered placed under liquidation by the Monetary Board, that is, whether a bank placed under
liquidation has to secure a tax clearance from the BIR before the project of distribution of the assets of the
bank can be approved by the liquidation court.
 71

In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., Philippine
Deposit Insurance Corporation v. Bureau of Internal Revenue  15 ruled that Section 52(C) of the Tax Code
of 1997 is not applicable to banks ordered placed under liquidation by the Monetary Board,16  and a tax
clearance is not a prerequisite to the approval of the project of distribution of the assets of a bank under
liquidation by the PDIC.17

Thus, this Court has held that the RTC, acting as liquidation court under Section 30 of the New Central
Bank Act, commits grave abuse of discretion in ordering the PDIC, as liquidator of a bank ordered closed
by the Monetary Board, to first secure a tax clearance from the appropriate BIR Regional Office, and
holding in abeyance the approval of the project of distribution of the assets of the closed bank by virtue
thereof.18   Three reasons have been given.

First, Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the relationship between the
SEC and the BIR with respect to corporations contemplating dissolution or reorganization.  On the other
hand, banks under liquidation by the PDIC as ordered by the Monetary Board constitute a special case
governed by the special rules and procedures provided under Section 30 of the New Central Bank Act,
which does not require that a tax clearance be secured from the BIR.19   As explained in In Re: Petition
for Assistance for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet),
Inc.:cralavvonlinelawlibrary
Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 20  regulate the relations only
as between the SEC and the BIR, making a certificate of tax clearance a prior requirement before the
SEC could approve the dissolution of a corporation. x x 
x.x x x x
Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a
bank.  The said provision is silent as regards the securing of a tax clearance from the BIR. The omission,
nonetheless, cannot compel this Court to apply by analogy the tax clearance requirement of the SEC, as
stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the
dissolution of a corporation by the SEC is a totally different proceeding from the receivership and
liquidation of a bank by the BSP.  This Court cannot simply replace any reference by Section 52(C) of the
Tax Code of 1997 and the provisions of the BIR-SEC Regulations No. 1 to the “SEC” with the “BSP.”  To
do so would be to read into the law and the regulations something that is simply not there, and would be
tantamount to judicial legislation.21
Second, only a final tax return is required to satisfy the interest of the BIR in the liquidation of a closed
bank, which is the determination of the tax liabilities of a bank under liquidation by the PDIC.  In view of
the timeline of the liquidation proceedings under Section 30 of the New Central Bank Act, it is
unreasonable for the liquidation court to require that a tax clearance be first secured as a condition for the
approval of project of distribution of a bank under liquidation.22   This point has been elucidated
thus:cralavvonlinelawlibrary
[T]he alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax clearance is to enable it
to determine the tax liabilities of the closed bank.  It raised the point that since the PDIC, as receiver and
liquidator, failed to file the final return of RBBI for the year its operations were stopped, the BIR had no
way of determining whether the bank still had outstanding tax liabilities.

To our mind, what the BIR should have requested from the RTC, and what was within the discretion of the
RTC to grant, is not an order for PDIC, as liquidator of RBBI, to secure a tax clearance; but, rather, for it
to submit the final return of RBBI.  The first paragraph of Section 30(C) of the Tax Code of 1997, read in
conjunction with Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and liquidator
of RBBI, the duty to file such a return. x x x.

xxxx

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in bankruptcy, and
assignees, who operate and preserve the assets of a corporation, regardless of the circumstances or the
law by which they came to hold their positions, to file the necessary returns on behalf of the corporation
under their care.
 72

The filing by PDIC of a final tax return, on behalf of RBBI, should already address the supposed concern
of the BIR and would already enable the latter to determine if RBBI still had outstanding tax liabilities. The
unreasonableness and impossibility of requiring a tax clearance before the approval by the RTC of the
Project of Distribution of the assets of the RBBI becomes apparent when the timeline of the proceedings
is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had completely paid off his tax
liabilities.  The certificate of tax clearance attests that the taxpayer no longer has any outstanding tax
obligations to the Government.

Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be able to pay the same
because the Project of Distribution of the assets of RBBI remains unapproved by the RTC; and, if RBBI
still had outstanding tax liabilities, the BIR will not issue a tax clearance; but, without the tax clearance,
the Project of Distribution of assets, which allocates the payment for the tax liabilities, will not be approved
by the RTC.  It will be a chicken-and-egg dilemma.23
Third, it is not for this Court to fill in any gap, whether perceived or evident, in current statutes and
regulations as to the relations among the BIR, as tax collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver and liquidator of banks ordered closed by the BSP. 
It is up to the legislature to address the matter through appropriate legislation, and to the executive to
provide the regulations for its implementation.24

There is another reason.  The position of the BIR, insisting on prior compliance with the tax clearance
requirement as a condition for the approval of the project of distribution of the assets of a bank under
liquidation, is contrary to both the letter and intent of the law on liquidation of banks by the PDIC.  In this
connection, the relevant portion of Section 30 of the New Central Bank Act
provides:cralavvonlinelawlibrary
Section 30. Proceedings in Receivership and Liquidation. – x x x.

xxxx

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in
accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the liquidation of the institution. The
receiver shall:cralavvonlinelawlibrary
(1)    file ex parte with the proper regional trial court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by
the Philippine Deposit Insurance Corporation for general application to all closed banks. In case of quasi-
banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the court
shall, upon motion by the receiver after due notice, adjudicate disputed claims against the institution,
assist the enforcement of individual liabilities of the stockholders, directors and officers, and decide on
other issues as may be material to implement the liquidation plan adopted. The receiver shall pay the cost
of the proceedings from the assets of the institution.

(2)    convert the assets of the institution to money, dispose of the same to creditors and other
parties, for the purpose of paying the debts of such institution in accordance with the rules on
concurrence and preference of credit under the Civil Code of the Philippines and he may, in the
name of the institution, and with the assistance of counsel as he may retain, institute such actions as may
be necessary to collect and recover accounts and assets of, or defend any action against, the institution.
The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver and shall, from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment, or execution25.  (Emphasis
supplied.)
The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in
accordance with the rules on concurrence and preference of credit under the Civil Code. Duties, taxes,
and fees due the Government enjoy priority only when they are with reference to a specific movable
property, under Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the
 73

same Code.  However, with reference to the other real and personal property of the debtor, sometimes
referred to as “free property,” the taxes and assessments due the National Government, other than those
in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income tax, will come only in
ninth place in the order of preference.26   On the other hand, if the BIR’s contention that a tax clearance
be secured first before the project of distribution of the assets of a bank under liquidation may be
approved, then the tax liabilities will be given absolute preference in all instances, including those that do
not fall under Articles 2241(1) and 2242(1) of the Civil Code.  In order to secure a tax clearance which will
serve as proof that the taxpayer had completely paid off his tax liabilities, PDIC will be compelled to settle
and pay first all tax liabilities and deficiencies of the bank, regardless of the order of preference under the
pertinent provisions of the Civil Code.  Following the BIR’s stance, therefore, only then may the project of
distribution of the bank’s assets be approved and the other debts and claims thereafter settled, even
though under Article 2244 of the Civil Code such debts and claims enjoy preference over taxes and
assessments due the National Government. The BIR effectively wants this Court to ignore Section 30 of
the New Central Bank Act and disregard Article 2244 of the Civil Code.  However, as a court of law, this
Court has the solemn duty to apply the law. It cannot and will not give its imprimatur to a violation of the
laws.

WHEREFORE, the petition is hereby GRANTED.  The Court further rules as

follows: chanroblesvirtualawlibrary
(a) the Decision dated December 29, 2005 and Resolution dated May 5, 2006 of the Court of Appeals in
CA-G.R. SP No. 80816 are REVERSED and SET ASIDE;
(b) the Orders dated February 14, 2003 and September 16, 2003 of the Regional Trial Court of La
Trinidad, Benguet sitting as liquidation court of the closed RBTI, in Special Proceeding Case No. 97-
SP-0100 are NULLIFIED and SET ASIDE, insofar as they direct the Philippine Deposit Insurance
Corporation to secure a tax clearance, for having been rendered with grave abuse of discretion;
(c) the PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of RBTI, in accordance
with the first paragraph of Section 52(C), in connection with Section 54, of the Tax Code of 1997; and
(d) the Regional Trial Court of La Trinidad, Benguet is ORDERED to resume the liquidation proceedings
in Special Proceeding Case No. 97-SP-0100 in order to determine all the claims of the creditors,
including that of the National Government, as determined and presented by the BIR; and, pursuant to
such determination, and guided accordingly by the provisions of the Civil Code on preference of
credit, to review and approve the project of distribution of the assets of RBTI.
SO ORDERED.

Sereno, C.J., (Chairperson), Bersamin, Villarama, Jr., and Reyes, JJ., concur.