THIRD DIVISION

[G.R. NO. 155173 : November 23, 2004]

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON

CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION
and PHILIP ROSEBERG, Petitioners, v. CONTINENTAL CEMENT CORPORATION,
GREGORY T. LIM and ANTHONY A. MARIANO, Respondents.

DECISION

PANGANIBAN, J.:

May defendants in civil cases implead in their counterclaims persons who were not
parties to the original complaints? This is the main question to be answered in this
controversy.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify
the May 22, 20022 and the September 3, 2002 Orders3 of the Regional Trial Court (RTC)
of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the
first assailed Order reads:

"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to
dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr.
Mariano captioned as their counterclaims are dismissed."4

The second challenged Order denied petitioners' Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI)
executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement
Philippines, Inc. (Lafarge) - - on behalf of its affiliates and other qualified entities,
including Petitioner Luzon Continental Land Corporation (LCLC) - - agreed to purchase
the cement business of Respondent Continental Cement Corporation (CCC). On October
21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time of
the foregoing transactions, petitioners were well aware that CCC had a case pending
with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset
Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might adjudge against CCC, the
parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price
a portion of the contract price in the amount of P117,020,846.84 - - the equivalent of
US$2,799,140. This amount was to be deposited in an interest-bearing account in the
First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR
No. 119712.

However, petitioners allegedly refused to apply the sum to the payment to APT, despite
the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the
repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result
in the foreclosure, not just of its properties covered by the SPA with Lafarge but of
several other properties as well, CCC filed before the Regional Trial Court of Quezon City
on June 20, 2000, a "Complaint with Application for Preliminary Attachment" against
petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed, among
others, that petitioners be directed to pay the "APT Retained Amount" referred to in
Clause 2 (c) of the SPA.

Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition
on forum-shopping. Respondent CCC had allegedly made the same claim it was raising
in Civil Case No. Q-00-41103 in another action, which involved the same parties and
which was filed earlier before the International Chamber of Commerce. After the trial
court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated
the matter before the Court of Appeals in CA-GR SP No. 68688.

In the meantime, to avoid being in default and without prejudice to the outcome of their
appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam
before the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the
allegations in the Complaint. They prayed - - by way of compulsory counterclaims
against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its
corporate secretary Anthony A. Mariano - - for the sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as moral
damages, and (d) P5,000,000 each as attorney's fees plus costs of suit.

Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless"
Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad
faith. Relying on this Court's pronouncement in Sapugay v. CA,5 petitioners prayed that
both Lim and Mariano be held "jointly and solidarily" liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved
to dismiss petitioners' compulsory counterclaims on grounds that essentially constituted
the very issues for resolution in the instant Petition.

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed
petitioners' counterclaims for several reasons, among which were the following: a) the
counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling
in Sapugay was not applicable; and c) petitioners' Answer with Counterclaims violated
procedural rules on the proper joinder of causes of action.6

Acting on the Motion for Reconsideration filed by petitioners, the trial court - - in an
Amended Order dated September 3, 20027 - - admitted some errors in its May 22, 2002
Order, particularly in its pronouncement that their counterclaim had been pleaded
against Lim and Mariano only. However, the RTC clarified that it was dismissing the
counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included
CCC.

Hence this Petition.8

Issues

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

"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has
no personality to move to dismiss petitioners' compulsory counterclaims on Respondents
Lim and Mariano's behalf.
"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims
against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of
Appeals is inapplicable here; and (iii) petitioners violated the rule on joinder of causes of
action."9

For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court's Ruling

The Petition is meritorious.

First Issue:

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory

Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any
claim which a defending party may have against an opposing party." They are generally
allowed in order to avoid a multiplicity of suits and to facilitate the disposition of the
whole controversy in a single action, such that the defendant's demand may be adjudged
by a counterclaim rather than by an independent suit. The only limitations to this
principle are (1) that the court should have jurisdiction over the subject matter of the
counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence
is essential for its adjudication.10

A counterclaim may either be permissive or compulsory. It is permissive "if it does not

arise out of or is not necessarily connected with the subject matter of the opposing
party's claim."11 A permissive counterclaim is essentially an independent claim that
may be filed separately in another case.

A counterclaim is compulsory when its object "arises out of or is necessarily connected

with the transaction or occurrence constituting the subject matter of the opposing
party's claim and does not require for its adjudication the presence of third parties of
whom the court cannot acquire jurisdiction."12

Unlike permissive counterclaims, compulsory counterclaims should be set up in the

same action; otherwise, they would be barred forever. NAMARCO v. Federation of United
Namarco Distributors13 laid down the following criteria to determine whether a
counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the
claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent
suit on defendant's claim, absent the compulsory counterclaim rule? 3) Will
substantially the same evidence support or refute plaintiff's claim as well as defendant's
counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A
positive answer to all four questions would indicate that the counterclaim is compulsory.

Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation,15

the "compelling test of compulsoriness" characterizes a counterclaim as compulsory if
there should exist a "logical relationship" between the main claim and the counterclaim.
There exists such a relationship when conducting separate trials of the respective claims
of the parties would entail substantial duplication of time and effort by the parties and
the court; when the multiple claims involve the same factual and legal issues; or when
the claims are offshoots of the same basic controversy between the parties.
We shall now examine the nature of petitioners' counterclaims against respondents with
the use of the foregoing parameters.

Petitioners base their counterclaim on the following allegations:

"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the
bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no
right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim
was motivated by his personal interests as one of the owners of plaintiff while Anthony
A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which
reason he disregarded the fact that plaintiff is without any valid cause.

"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint
tortfeasors in the commission of the acts complained of in this answer and in the
compulsory counterclaims pleaded below. As such they should be held jointly and
solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant
to the Supreme Court's decision in Sapugay v. Mobil.

xxxxxxxxx

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless
case has compelled the defendants to engage the services of counsel for a fee and to
incur costs of litigation, in amounts to be proved at trial, but in no case less than P5
million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano
should be held jointly and solidarily liable.

"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the
reputations of the defendants and they should be held jointly and solidarily liable to
them for moral damages of P100 million each.

"In order to serve as an example for the public good and to deter similar baseless, bad
faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held
jointly and solidarily liable to the defendants for exemplary damages of P100 million
each." 16

The above allegations show that petitioners' counterclaims for damages were the result
of respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of
Attachment in bad faith. Tiu Po v. Bautista17 involved the issue of whether the
counterclaim that sought moral, actual and exemplary damages and attorney's fees
against respondents on account of their "malicious and unfounded" complaint was
compulsory. In that case, we held as follows:

"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory

counterclaim. They are damages claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be pleaded in the same
action; otherwise, petitioners would be precluded by the judgment from invoking the
same in an independent action. The pronouncement in Papa v. Banaag (17 SCRA 1081)
(1966) is in point:

"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in

consequence of the debtor's action, are also compulsory counterclaim barred by the
dismissal of the debtor's action. They cannot be claimed in a subsequent action by the
creditor against the debtor."

"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of
an independent action, it is the same evidence that sustains petitioners' counterclaim
that will refute private respondent's own claim for damages. This is an additional factor
that characterizes petitioners' counterclaim as compulsory."18

Moreover, using the "compelling test of compulsoriness," we find that, clearly, the
recovery of petitioners' counterclaims is contingent upon the case filed by respondents;
thus, conducting separate trials thereon will result in a substantial duplication of the
time and effort of the court and the parties.

Since the counterclaim for damages is compulsory, it must be set up in the same action;
otherwise, it would be barred forever. If it is filed concurrently with the main action but
in a different proceeding, it would be abated on the ground of litis pendentia; if filed
subsequently, it would meet the same fate on the ground of res judicata.19

Sapugay v. Court of Appeals Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case. In Sapugay,

Respondent Mobil Philippines filed before the trial court of Pasig an action for replevin
against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the supposed
failure of the couple to keep their end of their Dealership Agreement. In their Answer
with Counterclaim, petitioners alleged that after incurring expenses in anticipation of
the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that
it had refused. It claimed that they still had to post a surety bond which, initially fixed at
P200,000, was later raised to P700,000.

The spouses exerted all efforts to secure a bond, but the bonding companies required a
copy of the Dealership Agreement, which respondent continued to withhold from them.
Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had
intended all along to award the dealership to Island Air Product Corporation.

In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its
manager - - Ricardo P. Cardenas - - as defendants. They prayed that judgment be
rendered, holding both jointly and severally liable for pre-operation expenses, rental,
storage, guarding fees, and unrealized profit including damages. After both Mobil and
Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a
"Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on
Defendant's Counterclaim."

Among the issues raised in Sapugay was whether Cardenas, who was not a party to the
original action, might nevertheless be impleaded in the counterclaim. We disposed of
this issue as follows:

"A counterclaim is defined as any claim for money or other relief which a defending party
may have against an opposing party. However, the general rule that a defendant cannot
by a counterclaim bring into the action any claim against persons other than the
plaintiff admits of an exception under Section 14, Rule 6 which provides that 'when the
presence of parties other than those to the original action is required for the granting of
complete relief in the determination of a counterclaim or cross-claim, the court shall
order them to be brought in as defendants, if jurisdiction over them can be obtained.'
The inclusion, therefore, of Cardenas in petitioners' counterclaim is sanctioned by the
rules."20

The prerogative of bringing in new parties to the action at any stage before judgment is
intended to accord complete relief to all of them in a single action and to avert a
duplicity and even a multiplicity of suits thereby.

In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot
be included in a counterclaim, except when no complete relief can be had. They add that
"[i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to
obtain complete relief from Respondent CCC as plaintiff in the lower court. This is
because Respondent CCC as a corporation with a separate [legal personality] has the
juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano."21

We disagree. The inclusion of a corporate officer or stockholder - - Cardenas in Sapugay

or Lim and Mariano in the instant case - - is not premised on the assumption that the
plaintiff corporation does not have the financial ability to answer for damages, such that
it has to share its liability with individual defendants. Rather, such inclusion is based on
the allegations of fraud and bad faith on the part of the corporate officer or stockholder.
These allegations may warrant the piercing of the veil of corporate fiction, so that the
said individual may not seek refuge therein, but may be held individually and personally
liable for his or her actions.

In Tramat Mercantile v. Court of Appeals,22 the Court held that generally, it should only
be the corporation that could properly be held liable. However, circumstances may
warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if
the said individual is found guilty of bad faith or gross negligence in directing corporate
affairs.

Remo Jr. v. IAC23 has stressed that while a corporation is an entity separate and
distinct from its stockholders, the corporate fiction may be disregarded if "used to defeat
public convenience, justify a wrong, protect fraud, or defend crime." In these instances,
"the law will regard the corporation as an association of persons, or in case of two
corporations, will merge them into one." Thus, there is no debate on whether, in alleging
bad faith on the part of Lim and Mariano the counterclaims had in effect made them
"indispensable parties" thereto; based on the alleged facts, both are clearly parties in
interest to the counterclaim.24

Respondents further assert that "Messrs. Lim and Mariano cannot be held personally
liable [because their assailed acts] are within the powers granted to them by the proper
board resolutions; therefore, it is not a personal decision but rather that of the
corporation as represented by its board of directors."25 The foregoing assertion,
however, is a matter of defense that should be threshed out during the trial; whether or
not "fraud" is extant under the circumstances is an issue that must be established by
convincing evidence.26

Suability and liability are two distinct matters. While the Court does rule that the
counterclaims against Respondent CCC's president and manager may be properly filed,
the determination of whether both can in fact be held jointly and severally liable with
respondent corporation is entirely another issue that should be ruled upon by the trial
court.

However, while a compulsory counterclaim may implead persons not parties to the
original complaint, the general rule - - a defendant in a compulsory counterclaim need
not file any responsive pleading, as it is deemed to have adopted the allegations in the
complaint as its answer - - does not apply. The filing of a responsive pleading is deemed
a voluntary submission to the jurisdiction of the court; a new party impleaded by the
plaintiff in a compulsory counterclaim cannot be considered to have automatically and
unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in
mischievous consequences whereby a party may be indiscriminately impleaded as a
defendant in a compulsory counterclaim; and judgment rendered against it without its
knowledge, much less participation in the proceedings, in blatant disregard of
rudimentary due process requirements.

The correct procedure in instances such as this is for the trial court, per Section 12 of
Rule 6 of the Rules of Court, to "order [such impleaded parties] to be brought in as
defendants, if jurisdiction over them can be obtained," by directing that summons be
served on them. In this manner, they can be properly appraised of and answer the
charges against them. Only upon service of summons can the trial court obtain
jurisdiction over them.

In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did
not file any responsive pleading to the counterclaim leveled against him. Nevertheless,
the Court gave due consideration to certain factual circumstances, particularly the trial
court's treatment of the Complaint as the Answer of Cardenas to the compulsory
counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to
make any objection despite his active participation in the proceedings. It was held thus:

"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against
him on the ground of lack of jurisdiction. While it is a settled rule that the issue of
jurisdiction may be raised even for the first time on appeal, this does not obtain in the
instant case. Although it was only Mobil which filed an opposition to the motion to
declare in default, the fact that the trial court denied said motion, both as to Mobil and
Cardenas on the ground that Mobil's complaint should be considered as the answer to
petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the
trial court treated the opposition as having been filed in behalf of both Mobil and
Cardenas and that the latter had adopted as his answer the allegations raised in the
complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny
the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not
unaware of said incidents and the proceedings therein as he testified and was present
during trial, not to speak of the fact that as manager of Mobil he would necessarily be
interested in the case and could readily have access to the records and the pleadings
filed therein.

"By adopting as his answer the allegations in the complaint which seeks affirmative
relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his
person and submitted thereto. He may not now be heard to repudiate or question that
jurisdiction."27

Such factual circumstances are unavailing in the instant case. The records do not show
that Respondents Lim and Mariano are either aware of the counterclaims filed against
them, or that they have actively participated in the proceedings involving them. Further,
in dismissing the counterclaims against the individual respondents, the court a quo - -
unlike in Sapugay - - cannot be said to have treated Respondent CCC's Motion to
Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable
Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of
causes of action. It argues that while the original Complaint was a suit for specific
performance based on a contract, the counterclaim for damages was based on the
tortuous acts of respondents.28 In its Motion to Dismiss, CCC cites Section 5 of Rule 2
and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:

"Section 5. Joinder of causes of action. - A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an opposing
party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of
parties; x x x"

Section 6. Permissive joinder of parties. - All persons in whom or against whom any right
to relief in respect to or arising out of the same transaction or series of transactions is
alleged to exist whether jointly, severally, or in the alternative, may, except as otherwise
provided in these Rules, join as plaintiffs or be joined as defendants in one complaint,
where any question of law or fact common to all such plaintiffs or to all such defendants
may arise in the action; but the court may make such orders as may be just to prevent
any plaintiff or defendant from being embarrassed or put to expense in connection with
any proceedings in which he may have no interest."

The foregoing procedural rules are founded on practicality and convenience. They are
meant to discourage duplicity and multiplicity of suits. This objective is negated by
insisting - - as the court a quo has done - - that the compulsory counterclaim for
damages be dismissed, only to have it possibly re-filed in a separate proceeding. More
important, as we have stated earlier, Respondents Lim and Mariano are real parties in
interest to the compulsory counterclaim; it is imperative that they be joined therein.
Section 7 of Rule 3 provides:

"Compulsory joinder of indispensable parties. - Parties in interest without whom no final

determination can be had of an action shall be joined either as plaintiffs or defendants."

Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are
being consistent with the solidary nature of the liability alleged therein.

Second Issue:

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and
Mariano as "joint and solidary," petitioners prayed:

"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

"1. Dismissing the complaint in its entirety;

"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily
to pay defendant actual damages in the sum of at least P2,700,000.00;

"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily
to pay the defendants LPI, LCLC, COC and Roseberg:
"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; andcralawlibrary

"c. Attorney's fees and costs of suit of at least P5 million each.

Other reliefs just and equitable are likewise prayed for."29

Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint"

means mancum or mancomunada or pro rata obligation; on the other hand, "solidary
obligations" may be used interchangeably with "joint and several" or "several." Thus,
petitioners' usage of the term "joint and solidary" is confusing and ambiguous.

The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if

proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered joint, except when otherwise
expressly stated or when the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary. We have
assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,30
in which we held:

"x x x The difficulty in the contention of the appellants is that they fail to recognize that
the basis of the present action is tort. They fail to recognize the universal doctrine that
each joint tort feasor is not only individually liable for the tort in which he participates,
but is also jointly liable with his tort feasors. x x x

"It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet
the commission of a tort, or who approve of it after it is done, if done for their benefit.
They are each liable as principals, to the same extent and in the same manner as if they
had performed the wrongful act themselves. x x x

"Joint tort feasors are jointly and severally liable for the tort which they commit. The
persons injured may sue all of them or any number less than all. Each is liable for the
whole damages caused by all, and all together are jointly liable for the whole damage. It
is no defense for one sued alone, that the others who participated in the wrongful act are
not joined with him as defendants; nor is it any excuse for him that his participation in
the tort was insignificant as compared to that of the others. x x x

"Joint tort feasors are not liable pro rata. The damages can not be apportioned among
them, except among themselves. They cannot insist upon an apportionment, for the
purpose of each paying an aliquot part. They are jointly and severally liable for the whole
amount. x x x

"A payment in full for the damage done, by one of the joint tort feasors, of course
satisfies any claim which might exist against the others. There can be but satisfaction.
The release of one of the joint tort feasors by agreement generally operates to discharge
all. x x x

"Of course the court during trial may find that some of the alleged tort feasors are liable
and that others are not liable. The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true even though they are
charged jointly and severally."
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a
"solidary" or "joint and several" obligation, the relationship between the active and the
passive subjects is so close that each of them must comply with or demand the
fulfillment of the whole obligation.31 The fact that the liability sought against the CCC is
for specific performance and tort, while that sought against the individual respondents is
based solely on tort does not negate the solidary nature of their liability for tortuous acts
alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:

"Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions."

The solidary character of respondents' alleged liability is precisely why credence cannot
be given to petitioners' assertion. According to such assertion, Respondent CCC cannot
move to dismiss the counterclaims on grounds that pertain solely to its individual co-
debtors.32 In cases filed by the creditor, a solidary debtor may invoke defenses arising
from the nature of the obligation, from circumstances personal to it, or even from those
personal to its co-debtors. Article 1222 of the Civil Code provides:

"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which
are derived from the nature of the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which personally belong to the others, he
may avail himself thereof only as regards that part of the debt for which the latter are
responsible." (Emphasis supplied).

The act of Respondent CCC as a solidary debtor - - that of filing a motion to dismiss the
counterclaim on grounds that pertain only to its individual co-debtors - - is therefore
allowed.

However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent
CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the
counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be
declared in default. Jurisprudence teaches that if the issues raised in the compulsory
counterclaim are so intertwined with the allegations in the complaint, such issues are
deemed automatically joined.33 Counterclaims that are only for damages and attorney's
fees and that arise from the filing of the complaint shall be considered as special
defenses and need not be answered.34

CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano
Not Allowed

While Respondent CCC can move to dismiss the counterclaims against it by raising
grounds that pertain to individual defendants Lim and Mariano, it cannot file the same
Motion on their behalf for the simple reason that it lacks the requisite authority to do so.
A corporation has a legal personality entirely separate and distinct from that of its
officers and cannot act for and on their behalf, without being so authorized. Thus,
unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory
counterclaim filed by Respondent CCC has no force and effect as to them.

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano
are compulsory.
2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A.
Mariano, even if both were not parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may
include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless,
the same Motion cannot be deemed to have been filed on behalf of the said co-
defendants.

4. Summons must be served on Respondents Lim and Mariano before the trial court can
obtain jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court
of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in
petitioners' Answer with Compulsory Counterclaims and to cause the service of
summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs.

SO ORDERED.

Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.

Corona, J., on leave.

Endnotes:

1 Rollo, pp. 18-53.

2 Id., pp. 55-58. Penned by Judge Agustin S. Dizon.

3 Id., pp. 59-61.

4 RTC Order dated May 22, 2002, p. 4; rollo, p. 58.

5 183 SCRA 464, March 21, 1990.

6 RTC Order dated May 22, 2002; rollo, pp. 9-12.

7 Rollo, pp. 59-61.

8 This case was deemed submitted for decision on November 13, 2003, upon receipt by
this Court of Petitioners' Memorandum signed by Atty. Norma Margarita B. Patacsil of
the Sycip Salazar Hernandez & Gatmaitan Law Firm. Respondent CCC's Memorandum,
signed by Attys. Rodolf C. Britanico and Melanie T. Chua of the Pangilinan Britanico
Sarmiento & Franco Law Offices, was received by the Court on October 10, 2003.

9 Rollo, p. 383.

10 See Section 7, Rule 6 of the 1997 Rules of Civil Procedure.

11 Lopez v. Gloria, 40 Phil. 26, August 30, 1919, per Torres, J.

12 See Section 7, Rule 6 of the 1997 Rules of Civil Procedure.

13 151 Phil. 338, January 31, 1973.

14 344 Phil. 811, September 24, 1997.

15 350 SCRA 113, January 23, 2001.

16 Answer and Counterclaim ad Cautelam, pp. 7-9; rollo, (Annex-L) pp. 190-192.

17 191 Phil. 17, March 17, 1981.

18 Id., p. 20, per Melencio-Herrera, J.

19 Metals Engineering Resources v. Court of Appeals, 203 SCRA 273, October 28, 1991.

20 Sapugay v. CA, supra on pp. 469-470, per Regalado, J. Section 14, Rule 6 is now
Section 12, Rule 6 under the 1997 Rules of Civil Procedure.

21 Respondents' Memorandum, p. 11; rollo, p. 360.

22 238 SCRA 14, November 7, 1994.

23 172 SCRA 405, April 18, 1989, p. 408, per Gancayao, J.

24 Section 2 of Rule 3 of the 1997 Rules of Civil Procedure:

"Real party-in-interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended
in the name of the real party in interest."

Section 7 of Rule 3 of the 1997 Rules of Civil Procedure:

"Compulsory Joinder of indispensable parties. Parties in interest without whom no final

determination can be had of an action shall be joined either as plaintiffs or defendants."

25 Respondent CCC's Memorandum, p. 12-13; rollo, pp. 361-362.

26 Remo Jr. v. IAC, supra.

27 Sapugay v. Court of Appeals; supra, pp. 470-471.

28 See Respondent CCC's Memorandum, pp. 11-12; rollo, pp. 360-361.

29 Answer and Compulsory Counterclaims ad Cautelan, p. 9; rollo, p. 192.

30 22 Phil. 42, February 27, 1912, per Johnson, J. The pronouncement in Worcester
was later reiterated in Perfecto v. Contreras, 28 Phil. 538, December 2, 1914; Versoza
and Ruiz, Remetria y Cia v. Lim, 45 Phil. 416, November 15, 1923.

31 Paras, Civil Code of the Phil.ippines, Annotated, Vol. IV, 10th ed., pp. 215-216 (citing
8 Manresa 194), 216. See Article 1207 of the Civil Code, which defines solidary
obligations as follows:

"The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity."

32 The grounds raised by Respondent CCC in its Motion to Dismiss the counterclaim
solely pertain to Lim and Mariano:

a) Lim and Mariano were not parties to the original Complaint and cannot therefore be
impleaded in the counterclaim.

b) Lim and Mariano were mere officials of CCC; their assailed acts, done by virtue of a
Board Resolution, were corporate acts for which they cannot be made personally liable.
(Motion to Dismiss dated December 29, 2001; rollo, pp. 220-225.

33 Gojo v. Goyola, 35 SCRA 557, October 30, 1970.

34 Worcester v. Lorenzana, July 31, 1953.

THIRD DIVISION

G.R. No. 193890 March 11, 2015

ESTANISLAO and AFRICA SINAMBAN, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari1 of the Decision2 dated May 19,
2010 of the Court of Appeals (CA) in CA-G.R. CV. No. 66274 modifying the Decision3
dated July 30, 1999 of the Regional Trial Court (RTC) of San Fernando City, Pampanga,
Branch 45 for Sum of Money in Civil Case No. 11708.

Factual Antecedents

On February 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses
Manalastas) executed a Real Estate Mortgage (REM)4 in favor of respondent China
Banking Corporation (Chinabank) over two real estate properties covered by Transfer
Certificate of Title Nos. 173532-R and 173533-R, Registry of Deeds of Pampanga, to
secure a loan from Chinabank of ₱700,000.00 intended as working capital in their rice
milling business. During the next few years, they executed several amendments to the
mortgage contract progressively increasing their credit line secured by the aforesaid
mortgage. Thus, from ₱700,000.00 in 1990, their loan limit was increased to
₱1,140,000.00 on October 31, 1990, then to ₱1,300,000.00 on March 4, 1991, and then
to2,450,000.00 on March 23, 1994.5 The spouses Manalastas executed several
promissory notes (PNs) in favor of Chinabank. In two of the PNs, petitioners Estanislao
and Africa Sinamban (spouses Sinamban) signed as co-makers.

On November 18, 1998, Chinabank filed a Complaint for sum of money, docketed as
Civil Case No. 11708, against the spouses Manalastas and the spouses Sinamban
(collectively called the defendants) before the RTC. The complaint alleged that they
reneged on their loan obligations under the PNs which the spouses Manalastas executed
in favor of Chinabank on different dates, namely:

1. PN No. OACL 634-95, dated April 24, 1995, for a loan principal of ₱1,800,000.00, with
interest at 23% per annum; the spouses Manalastas signed alone as makers.7

2. PN No. OACL 636-95, dated May 23, 1995, for a loan principal of 325,000.00, with
interest at 21% per annum; the spouses Sinamban signed as solidary co-makers;8

3. PN No. CLF 5-93, dated February 26, 1991, for a loan principal of ₱1,300,000.00, with
interest at 22.5% per annum; only Estanislao Sinamban signed as solidary co-maker.9

All of the three promissory notes carried an acceleration clause stating that if the
borrowers failed to pay any stipulated interest, installment or loan amortization as they
accrued, the notes shall, at the option of Chinabank and without need of notice,
immediately become due and demandable. A penalty clause also provides that an
additional amount shall be paid equivalent to 1/10 of 1% per day of the total amount
due from date of default until fully paid, and the further sum of 10% of the total amount
due, inclusive of interests, charges and penalties, as and for attorney’s fees and costs.10

In Chinabank’s Statement of Account11 dated May 18, 1998, reproduced below, the
outstanding balances of the three loans are broken down, as follows:

(a) PN No. OACL 636-95 has an outstanding principal of ₱325,000.00, cumulative

interest of ₱184,679.00, and cumulative penalties of ₱258,050.00, or a total amount due
of ₱767,729.00; (b) PN No. OACL 634-95 has an outstanding principal of ₱1,800,000.00,
cumulative interest of ₱1,035,787.50, and cumulative penalties of 1,429,200.00, or a
total amount due of 4,264,987.50; and

(c) PN No. CLF 5-93 has an outstanding principal of ₱148,255.08, cumulative interest of
₱64,461.84, and cumulative penalties of ₱156,541.58, or a total amount due of
₱369,258.50. Note that from the original amount of ₱1,300,000.00, the loan principal
had been reduced to only ₱148,255.08 as of May 18, 1998.12
CHINA BANKING CORPORATION
San Fernando, Pampanga
SPS. DANILO & MAGDALENA MANALASTAS
STATEMENT OF ACCOUNT
As of May 18, 1998

PN NUMBER
----------------------- PRINCIPAL
----------------------- INTEREST
----------------------- 36%
PENALTY FEE
----------------------- TOTAL
-----------------------
OACL 636-95 325,000.00 184,679.00 258,050.00 767,729.00
OACL 634-95 1,800,000.00 1,035,787.50 1,429,200.00 4,264,987.50
CLF 005-93 148,255.08
----------------------- 64,461.84
----------------------- 156,541.58
----------------------- 369,258.50
-----------------------
TOTAL P2,273,255.08 1,284,928.34 1,843,791.58 5,401,975.00
TOTAL AMOUNT DUE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,401,975.00
PLUS 10% ATTORNEY’S FEE - - - - - - - - - - - - - - - - - - - - - - - - - -540,197.50
-----------------------
5,942,172.50
ADD: OTHER EXPENSES
INSURANCE PREMIUM 22,618.37
POSTING OF NOTICE OF SALE 700.00
PUBLICATION FEE 17,500.00
REGISTRATION OF CERTIFICATE OF SALE (MISC.) 1,000.00
REGISTRATION OF CERTIFICATE OF SALE (REGISTER OF DEEDS)

Registration fee 10,923.00

Entry fee 30.00
Legal fund 20.00
BIR certification 60.00
Doc. stamps tax 69,000.00
Capital Gains tax 276,000.00 356,033.00
-----------------------
EXPENSES INCURRED ON OCULAR INSPECTION MADE ON
TCT#173532-R & TCT#173533-R 404.00
ATTORNEY’S FEE 18,000.00
416,255.37
LESS: BID PRICE 4,600,000.00
-----------
GRAND TOTAL - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,758,427.87
13
On the basis of the above statement of account, and pursuant to the promissory notes,
Chinabank instituted extrajudicial foreclosure proceedings against the mortgage
security. The foreclosure sale was held on May 18, 1998, with Chinabank offering the
highest bid of ₱4,600,000.00, but by then the defendants’ total obligations on the three
promissory notes had risen to ₱5,401,975.00, before attorney’s fees of 10% and auction
expenses, leaving a loan deficiency of ₱1,758,427.87.14 Thus, in the complaint before
the RTC, Chinabank prayed to direct the defendants to jointly and severally settle the
said deficiency, plus 12% interest per annum after May 18, 1998,15 the date of the
auction sale.16

The spouses Sinamban, in their Answer17 dated February 26, 1999, averred that they
do not recall having executed PN No. OACL 636-95 for ₱325,000.00 on May 23, 1995, or
PN No. CLF 5-93 for ₱1,300,000.00 on February 26, 1991, and had no participation in
the execution of PN No. OACL 634-95 for ₱1,800,000.00 on April 24, 1995. They however
admitted that they signed some PN forms as co-makers upon the request of the spouses
Manalastas who are their relatives; although they insisted that they derived no money or
other benefits from the loans. They denied knowing about the mortgage security
provided by the spouses Manalastas, or that the latter defaulted on their loans. They
also refused to acknowledge the loan deficiency of ₱1,758,427.87 on the PNs, insisting
that the mortgage collateral was worth more than ₱10,000,000.00, enough to answer for
all the loans, interests and penalties. They also claimed that they were not notified of the
auction sale, and denied that they knew about the Certificate of Sale18 and the
Statement of Account dated May 18, 1998, and insisted that Chinabank manipulated
the foreclosure sale to exclude them therefrom. By way of counterclaim, the Spouses
Sinamban prayed for damages and attorney’s fees of 25%, plus litigation expenses and
costs of suit.

The spouses Manalastas were declared in default in the RTC Order19 dated April 6,
1999, and Chinabank was allowed to present evidence ex parte as against them, but at
the pre-trial conference held on July 5, 1999, the spouses Sinamban and their counsel
also did not appear;20 hence, in the Order21 dated July 5, 1999, the RTC allowed
Chinabank to present evidence ex parte against the defendants before the Branch Clerk
of Court. During the testimony of Rosario D. Yabut, Branch Manager of Chinabank-San
Fernando Branch, all the foregoing facts were adduced and confirmed, particularly the
identity of the pertinent loan documents and the signatures of the defendants. On July
21, 1999, the court admitted the exhibits of Chinabank and declared the case submitted
for decision.22

Ruling of the RTC

On July 30, 1999, the RTC rendered its Decision23 with the following dispositive
portion: WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff China Banking Corporation and against defendant Sps. Danilo and Magdalena
Manalastas and defendant Sps. Estanislao and Africa Sinamban to jointly and severally
pay [Chinabank] the amount of ₱1,758,427.87, representing the deficiency between the
acquisition cost of the foreclosed real estate properties and the outstanding obligation of
defendants at the time of the foreclosure sale; interest at the legal rate of 12% per
annum from and after May 18, 1998; attorney’s fees equivalent to 10% of the aforesaid
deficiency amount and the litigation and costs of suit.

SO ORDERED.24

On Motion for Reconsideration25 of the spouses Sinamban dated August 27, 1999, to
which Chinabank filed an Opposition26 dated September 14, 1999, the RTC in its
Order27 dated October 22, 1999 set aside the Decision dated July 30, 1999 with respect
to the spouses Sinamban, in this wise:

As it is undisputed that Exhibit "B" (Promissory Note dated April 24, 1995 in the amount
of ₱1,800,000.00), was not signed by the Spouses Sinamban it would not be equitable
that the said defendants be made solidarily liable for the payment of the said note as co-
makers of their co-defendants Spouses Manalastas who are the one[s] principally liable
thereto. Prescinding from this premise, the movant spouses could only be held liable for
the two (2) promissory notes they have signed, Promissory Notes dated May 23, 1995 in
the amount of ₱325,000.00 and February 26, 1991 in the amount of ₱1,300,000.00,
Exhibits "A" and "C", respectively. As the total amount of the said notes is only
₱1,625,000.00, so even if we would add the interests due thereon, there is no way that
the said outstanding loan exceed[s] the acquisition cost of the foreclosed real estate
properties subject hereof in the amount of ₱4,600,000.00.It would appear then that the
Spouses Sinamban could not be held liable for the deficiency in the amount of
₱1,758,427.87 which should justly be borne alone by the defendant Spouses
Manalastas. Guided by law and equity on the matter, the court will not hesitate to
amend a portion of its assailed decision to serve the interest of justice.

WHEREFORE, premises considered, the decision dated July 30, 1999 is hereby
Reconsidered and Set Aside with respect to the Spouses Estanislao and Africa Sinamban
hereby Relieving them from any liability arising from the said Decision which is affirmed
in toto with respect to Spouses Manalastas.

SO ORDERED.28 (Emphases ours)

The RTC ruled that the proceeds of the auction were sufficient to answer for the two PNs
co-signed by the spouses Sinamban, including interest and penalties thereon, and
therefore the spouses Manalastas should solely assume the deficiency of ₱1,758,427.87.
Chinabank moved for reconsideration on November 11, 1999,29 to which the spouses
Sinamban filed their comment/opposition on November 23, 1999.30

On December 8, 1999, the RTC set aside its Order dated October 22, 1999 and
reinstated its Decision dated July 30, 1999, with modification, as follows:31

WHEREFORE, premises considered, the instant Motion for Reconsideration of plaintiff is

Granted.

Order dated October 22, 1999 is hereby Set Aside.

Accordingly, the dispositive portion of the Decision dated July 30, 1999 is hereby
Modified to read as follows:

WHEREFORE, premises considered, judgment [is] hereby rendered in favor of plaintiff

China Banking Corporation and against the defendant Sps. Danilo and Magdalena
Manalastas and defendant Sps. Estanislao and Africa Sinamban, ordering them to pay
as follows:

1. For defendant Sps. Danilo and Magdalena Manalastas, the amount of ₱1,758,427.87,
the deficiency between the acquisition cost of the foreclosed real properties and their
outstanding obligation;

2. For defendant Sps. Sinamban a percentage of ₱1,758,427.87, jointly and severally

with the defendant Sps. [Manalastas] only on two (2) promissory notes;

3. The corresponding interests thereon at legal rate;

4. Attorney’s fees; and

5. Costs of suit.
SO ORDERED.32

This time the RTC held that the spouses Sinamban must, solidarily with the spouses
Manalastas, proportionately answer for the loan deficiency pertaining to the two PNs
they co-signed, since the mortgage security provided by the spouses Manalastas secured
all three PNs and thus also benefited them as co-makers. But since they did not co-sign
PN No. OACL 634-95, the deficiency judgment pertaining thereto will be the sole liability
of the spouses Manalastas.

Ruling of the CA

From the Order dated December 8, 1999 of the RTC, the spouses Sinamban appealed to
the CA on January 4, 2000, docketed as CA-G.R. CV. No. 66274, interposing the
following errors of the RTC, viz:

THE LOWER COURT ERRED WHENIT HELD DEFENDANTSAPPELLANTS SPS.

SINAMBAN LIABLE TO PAY A PERCENTAGE OF ₱1,758,427.87, JOINTLY AND
SEVERALLY WITH THE DEFENDANTS SPS. MANALASTAS ON THE TWO PROMISSORY
NOTES (EXHIBITS ‘C’ AND ‘A’).

II

THE LOWER COURT ERRED WHEN IT RECONSIDERED AND SET ASIDE ITS
PREVIOUS ORDER DATED 22 OCTOBER 1999 RELIEVING DEFENDANTS-APPELLANTS
SPS. SINAMBAN FROM ANY LIABILITY ARISING FROM THE DECISION DATED 30 JULY
1999.

III

THE LOWER COURT ERRED WHEN IT RENDERED THE VAGUE ORDER OF 8

DECEMBER 1999 (ANNEX ‘B’ HEREOF).33

On May 19, 2010, the CA rendered judgment denying the appeal, the fallo of which
reads: WHEREFORE, considering the foregoing disquisition, the appeal is DENIED. The
Decision dated 30 July 1999 and the Order dated 08 December 1999 of the Regional
Trial Court of San Fernando, Pampanga, Branch 45 in Civil Case No. 11708are hereby
AFFIRMED with MODIFICATION in that:

1. Sps. Danilo and Magdalena Manalastas are solidarily liable for the deficiency amount
of Php507,741.62 (inclusive of 10% attorney’s fees) on Promissory Note No. OACL 634-
95 dated 24 April 1995;

2. Sps. Estanislao and Africa Sinamban are solidarily liable with Sps. Danilo and
Magdalena Manalastas for the amount of Php844,501.90 (inclusive of 10% attorney’s
fees) on Promissory Note No. OACL00636-95 dated 23 May 1995;

3. Estanislao Sinamban and Sps. Danilo and Magdalena Manalastas are solidarily liable
for the amount of Php406,184.35 (inclusive of 10% attorney’s fees) on Promissory Note
No. CLF 5-93 dated 26 February 1991; and
4. The foregoing amounts shall bear interest at the rate of 12% per annum from 18
November 1998 until fully paid.

SO ORDERED.34 (Some emphasis ours)

Petition for Review to the Supreme Court

In this petition for review, the spouses Sinamban seek to be completely relieved of any
liability on the PNs, solidary or otherwise, by interposing the following issues:

5.1 Whether or not the Honorable Court of Appeals erred in not considering that the
Sps. Sinamban’s obligations under PN# OACL 636-95 dated May 23, 1995 in the
principal sum of Php325,000.00 and PN# CLF 5-93 dated February 26, 1991 in the
principal sum of Php1,300,000.00 are more onerous and burdensome on their part as
mere sureties (co-makers) of their co-defendants-spouses Danilo and Magdalena
Manalastas’ (hereinafter referred to as the "Sps. Manalastas") obligations over the same,
compared to the Sps. Manalastas’ sole obligation under PN# OACL 634-95 dated 24
April 1995 in the principal amount of Php1,800,000.00, such that the proceeds of the
auction sale of the properties securing all the three (3) promissory notes should first be
applied to satisfy the promissory notes signed by the Sps. Sinamban; and

5.2 Whether or not the Honorable Court of Appeals erred in not considering the facts
indubitably showing that it is the Sps. Sinamban, as the debtors, and not the
respondent bank, who are given the choice under Article 1252 of the Civil Code to have
the proceeds of the auction sale applied as payments to their obligations under PN#
OACL 636-95 dated 23 May 1995 and PN# CLF 5-93 dated 26 February 1991.35

Ruling of the Court

The Court modifies the CA decision.

A co-maker of a PN who binds

himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.

"A promissory note is a solemn acknowledgment of a debt and a formal commitment to

repay it on the date and under the conditions agreed upon by the borrower and the
lender. A person who signs such an instrument is bound to honor it as a legitimate
obligation duly assumed by him through the signature he affixes thereto as a token of
his good faith. If he reneges on his promise without cause, he forfeits the sympathy and
assistance of this Court and deserves instead its sharp repudiation."36

Employing words of common commercial usage and well-accepted legal significance, the
three subject PNs uniformly describe the solidary nature and extent of the obligation
assumed by each of the defendants in Civil Case No. 11708, to wit:

"FOR VALUE RECEIVED, I/We jointly and severally promise to pay to the CHINA
BANKING CORPORATION or its order the sum of PESOS x x x[.]"37 (Emphasis ours)

According to Article 2047 of the Civil Code,38 if a person binds himself solidarily with
the principal debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4,
Chapter 3,Title I, Book IV) on joint and solidary obligations shall be observed. Thus,
where there is a concurrence of two or more creditors or of two or more debtors in one
and the same obligation, Article 1207 provides that among them, "[t]here is a solidary
liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity." It is settled that when the obligor or obligors
undertake to be "jointly and severally" liable, it means that the obligation is solidary.39
In this case, the spouses Sinamban expressly bound themselves to be jointly and
severally, or solidarily, liable with the principal makers of the PNs, the spouses
Manalastas.

Moreover, as the CA pointed out, in Paragraph 5 of the PNs, the borrowers and their co-
makers expressly authorized Chinabank, as follows:

[T]o apply to the payment of this note and/or any other particular obligation or
obligations of all or any one of us to the CHINA BANKING CORPORATION as the said
Corporation may select, irrespective of the dates of maturity, whether or not said
obligations are then due, any or all moneys, securities and things of value which are now
or which may hereafter be in its hands on deposit or otherwise to the credit of, or
belonging to, all or any one of us, and the CHINA BANKING CORPORATION is hereby
authorized to sell at public or private sale such securities or things of value for the
purpose of applying their proceeds to such payments.40

Pursuant to Article 1216 of the Civil

Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.

The PNs were executed to acknowledge each loan obtained from the credit line extended
by Chinabank, which the principal makers and true beneficiaries, the spouses
Manalastas, secured with a REM they executed over their properties. As the RTC noted
in its Order dated December 8, 1999, "the real estate mortgage was constituted to secure
all the three (3) promissory notes," concluding that "[j]ust as the liability of the [spouses]
Sinamban was lessened by the foreclosure proceedings, so must they also share in the
deficiency judgment, in proportion to the PNs they co-signed with the [spouses]
Manalastas, but notthe entire deficiency judgment of ₱1,758,427.87."41

Significantly, in modifying the RTC’s second amended decision, which provides for the
pro rata distribution of the loan deficiency of ₱1,758,427.87, the CA first applied the
entire net proceeds of the auction sale of ₱4,183,744.63 (after auction expenses of
₱416,255.37), to PN No. OACL 634-95, which on May 18, 1998 had an outstanding
balance of ₱4,264,987.50, inclusive of interest and penalties, plus 10% attorney’s fees,
or a total of ₱4,691,486.25. Thus, ₱4,691,486.25 less ₱4,183,744.63 leaves a deficiency
on PN No. OACL 634-95 of ₱507,741.62, which is due solely from the spouses
Manalastas.

As for PN No. OACL 636-95, the CA ordered the spouses Sinamban to pay, solidarily
with the spouses Manalastas, the entire amount due thereon, ₱844,501.90, consisting of
the loan principal of ₱767,729.00 plus accrued interest, penalties and 10% attorney’s
fees; concerning PN No. CLF 5-93, the CA ordered the spouses Sinamban to pay,
solidarily with the spouses Manalastas, the amount of ₱406,184.35, consisting of the
balance of the loan principal of ₱369,258.50 plus accrued interest, penalties and 10%
attorney’s fees. The CA further ordered the payment of 12% interest per annum from
November 18, 1998, the date of judicial demand, until fully paid, on the above
deficiencies.

Article 1216 of the Civil Code provides that "[t]he creditor may proceed against any one
of the solidary debtors or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected." Article 125242 of
the Civil Code does not apply, as urged by the petitioners, because in the said article the
situation contemplated is that of a debtor with several debts due, whereas the reverse is
true, with each solidary debt imputable to several debtors.

While the CA correctly noted that the choice is given to the solidary creditor to determine
against whom he wishes to enforce payment, the CA stated that Chinabank, in the
exercise of the aforesaid option, chose to apply the net proceeds of the extrajudicial
foreclosure sale first to the PN solely signed by spouses Manalastas.43 Thus, the net
proceeds were applied first to PN No. OACL 634-95 in the principal amount of
₱1,800,000.00, instead of pro rata to all three PNs due.

The Court finds this factual conclusion of the CA not supported by any evidence or any
previous arrangement.1âwphi1 To the contrary, as clearly shown in its Statement of
Account dated May 18, 1998, Chinabank opted to apply the entire auction proceeds to
the aggregate amount of the three PNs due, ₱5,401,975.00 (before attorney’s fees and
auction expenses). Had it chosen to enforce the debts as ruled by the CA, the Statement
of Account would have shown that the loan due on PN No. OACL 634-95 which is
₱4,691,486.25, should have been deducted first from the net auction proceeds of
₱4,183,744.63, arriving at a deficiency of ₱507,741.62on PN No. OACL 634-95 alone;
thereby, leaving no remainder of the proceeds available to partially settle the other two
PNs. As it appears, the auction proceeds are not even sufficient to cover just PN No.
OACL 634-95 alone.

But as the Court has noted, by deducting the auction proceeds from the aggregate
amount of the three loans due, Chinabank in effect opted to apply the entire proceeds of
the auction simultaneously to all the three loans. This implies that each PN will assume
a pro rata portion of the resulting deficiency on the total indebtedness as bears upon
each PN’s outstanding balance. Contrary to the spouses Sinamban’s insistence, none of
the three PNs is more onerous than the others to justify applying the proceeds according
to Article 1254 of the Civil Code, in relation to Articles 1252 and 1253.44 Since each
loan, represented by each PN, was obtained under a single credit line extended by
Chinabank for the working capital requirements of the spouses Manalastas’ rice milling
business, which credit line was secured also by a single REM over their properties, then
each PN is simultaneously covered by the same mortgage security, the foreclosure of
which will also benefit them proportionately. No PN enjoys any priority or preference in
payment over the others, with the only difference being that the spouses Sinamban are
solidarily liable for the deficiency on two of them.

Pursuant, then, to the order or manner of application of the auction proceeds chosen by
Chinabank, the solidary liability of the defendants pertaining to each PN shall be as
follows:
a) PN No. OACL 634-95, with a balance as of May 18, 1998 of ₱4,264,987.50: its share
in the total deficiency is computed as the ratio of ₱4,264,987.50 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or ₱1,388,320.55, (not ₱507,741.62 as found by the CA);

b) PN No. OACL 636-95, with a balance of ₱767,729.00 as of May 18, 1998: its share in
the deficiency is computed as the ratio of ₱767,729.00 to ₱5,401,975.00, multiplied by
₱1,758,427.87, or ₱249,907.87, (not ₱844,501.90 as computed by the CA);

c) PN No. CLF 5-93, with an outstanding balance of ₱369,258.50 as of May 18, 1998: its
share in the deficiency is computed as the ratio of ₱369,258.50 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or ₱120,199.45, (not ₱406,184.35 as found by the CA).

In short, in the CA decision, the spouses Manalastas would be solely liable on PN No.
OACL 634-95 for only ₱507,741.62(instead of the much bigger amount of
₱1,388,320.55which this Court found), whereas the spouses Sinamban would be
solidarily liable with the spouses Manalastas for a total deficiency of ₱1,250,686.25 on
PN No. OACL 636-95 and PN No. CLF 5-93. But under the Court’s interpretation, the
spouses Sinamban are solidarily liable with the spouses Manalastas for only
₱370,107.32on the said two PNs, for a significant difference of ₱880,578.93.

Pursuant to Monetary Board

Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.

The subject three PNs bear interests ranging from 21% to 23% per annum, exclusive of
penalty of 1% on the overdue amount per month of delay, whereas in its complaint,
Chinabank prayed to recover only the legal rate of 12% on whatever judgment it could
obtain. Meanwhile, the Monetary Board of the Bangko Sentral ng Pilipinas in its
Resolution No. 796 dated May 16, 2013, and now embodied in Monetary Board Circular
No. 799, has effective July 1, 2013 reduced to 6%, from 12%, the legal rate of interest for
the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of stipulation.45 Since Chinabank demanded only the legal,
not the stipulated, interest rate on the deficiency and attorney’s fees due, the defendants
will solidarily pay interest on their shares in the deficiency at the rate of 12% from
November 18, 1998 to June 30, 2013, and 6% from July 1, 2013 until fully paid.
WHEREFORE, the Decision of the Court of Appeals dated May 19, 2010 in CA-G.R. CV
No. 66274 is MODIFIED. The Decision dated July 30, 1999 and the Order dated
December 8, 1999 of the Regional Trial Court of San Fernando City, Pampanga, Branch
45 in Civil Case No. 11708 are hereby AFFIRMED with MODIFICATIONS as follows:

1. Spouses Danilo and Magdalena Manalastas are solidarily liable for the deficiency
amount of 1,388,320.55 (inclusive of 10% attorney’s fees) on Promissory Note No. OACL
634-95 dated April 24, 1995;

2. Spouses Estanislao and Africa Sinamban are solidarily liable with spouses Danilo and
Magdalena Manalastas for the deficiency amount of ₱249,907.87(inclusive of 10%
attorney’s fees) on Promissory Note No. OACL 636-95 dated May 23, 1995;
3. Estanislao Sinamban and spouses Danilo and Magdalena Manalastas are solidarily
liable for the deficiency amount of ₱120,199.45 (inclusive of 10% attorney’s fees) on
Promissory Note No. CLF 5-93 dated February 26, 1991; and

4. The foregoing amounts shall bear interest at the rate of twelve percent (12%) per
annum from November 18, 1998 to June 30, 2013, and six percent (6%) per annum
from July 1, 2013 until fully paid.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

DIOSDADO M. PERALTA
Associate Justice MARTIN S. VILLARAMA, JR.
Associate Justice
FRANCIS H. JARDELEZA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION

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

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

1 Rollo, pp. 9-26.

2 Penned by Associate Justice Celia C. Librea-Leagogo, with Associate Justices

Remedios A. Salazar-Fernando and Michael P. Elbinias, concurring; id. at 28-53.

3 Issued by Judge Adelaida Ala-Medina; id. at 101-104.

4 Id. at 64-66.

5 Id. at 67-72.

6 Id. at 56-60.

7 Id. at 61.

8 Id. at 62.

9 Id. at 63.

10 Id. at 57.

11 Id. at 75.

12 Id.

13 Id.

14 Id. at 58-59.

15 But note that the PNs stipulated interest rates from 21% to 23% per annum, plus a
penalty of 1% per month of delay.

16 Rollo, p. 59.

17 Id. at 79-82.

18 Id. at 73-74.

19 Id. at 89.

20 Id. at 97.

21 Id.

22 Id. at 98.

23 Id. at 101-104.

24 Id. at 104.

25 Id. at 105-110.

26 Id. at 115-119.

27 Id. at 120-122.

28 Id. at 121-122.

29 Id. at 123-126.

30 Id. at 127-128.
31 Id. at 131-133.

32 Id. at 132-133.

33 Id. at 39-40.

34 Id. at 49-50.

35 Id. at 18-19.

36 Sierra v. Court of Appeals, G.R. No. 90270, July 24, 1992, 211 SCRA 785, 795.

37 Rollo, pp. 61-63.

38 Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship.

39 Crystal v. Bank of the Philippine Islands, G.R. No. 172428, November 28, 2008, 572
SCRA 697, 703. See also Escaño v. Ortigas, Jr., 553 Phil. 24, 39 (2007).

40 Rollo, pp. 61-63.

41 Id. at 132.

42 ART. 1252. He who has various debts of the same kind in favor of one and the same
creditor, may declare at the time of making the payment, to which of them the same
must be applied. Unless the parties so stipulate, or when the application of payment is
made by the party for whose benefit the term has been constituted, application shall not
be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment
is made, the former cannot complain of the same, unless there is a cause for invalidating
the contract.

43 Rollo, p. 47.

44 Art. 1252. He who has various debts of the same kind in favor of one and the same
creditor, may declare at the time of making the payment, to which of them the same
must be applied. Unless the parties so stipulate, or when the application of payment is
made by the party for whose benefit the term has been constituted, application shall not
be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment
is made, the former cannot complain of the same, unless there is a cause for invalidating
the contract.

Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered.
Art. 1254. When the payment cannot be applied in accordance with the preceding rules,
or if

application can not be inferred from other circumstances, the debt which is most
onerous to the debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all
of them proportionately.

45 S.C. Megaworld Construction and Development Corporation v. Parada, G.R. No.

183804, September 11, 2013, 705 SCRA 584, 608; Nacar v. Gallery Frames, G.R. No.
189871, August 13, 2013, 703 SCRA 439, 455-456.
THIRD DIVISION

G.R. No. 205271, September 02, 2015

LAND BANK OF THE PHILIPPINES, Petitioner, v. BELLE CORPORATION,

Respondent.

DECISION

PERALTA, J.:

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure
(Rules) seeks to reverse the November 23, 2011 Decision1 and January 17, 2013
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 84075, which annulled and
set aside the April 12, 2004 Decision3 of the Regional Trial Court (RTC), Branch 18,
Tagaytay City, Cavite, in Civil Case No. TG-1672.

Respondent Belle Corporation (respondent) is a publicly-listed company primarily

engaged in the development and operation of several leisure and recreational projects in
Tagaytay City, Cavite, such as the Tagaytay Highlands. On November 20, 1996, it filed a
Complaint, docketed as Civil Case No. TG-1672, for quieting of title and damages with
prayer for temporary restraining order and/or preliminary mandatory injunction against
Florosa A. Bautista (Bautista) and the Register of Deeds of Tagaytay City.4 Allegedly,
respondent is the registered owner in possession of four (4) parcels of land known as
Lots 1 to 4 of the consolidation and subdivision plan Pcs-04-010666 containing an
aggregate area of 317,918 square meters, located at Barangay Sungay, Tagaytay City,
under Transfer Certificate of Title(TCT) Nos. P-1863 to P-1866. On October 31, 1996, it
received a demand letter5 from Bautista's counsel which ordered the immediate
stoppage of its occupation and use of a substantial portion of the land that she
purportedly owns. She claimed that respondent had illegally constructed a road on said
property without her prior notice or permission. Before a response could be sent,
Bautista caused the posting of a signboard on the entrance access road to Tagaytay
Highlands International Golf Club and the Country Club of Tagaytay Highlands,
notifying the public as follows:ChanRoblesvirtualLawlibrary

Please be informed that based on a geodetic re-survey a substantial portion of this

entrance road leading to Tagaytay Highlands was found to be inside the perimeter of a
private property covered by TCT No. P-671.

Effective November 1, 1996, the registered owner of TCT No. P-671 will enforce her rights
and entry and/or exit to her property without her prior consent and approval will be
strictly prohibited.6

A copy of TCT No. P-671 showed that it emanated from Original Certificate of Title (OCT)
No. OP-283 which, in tum, appears to have been issued pursuant to Free Patent No. (IV-
4) 12573 on January 20, 1977 and registered on February 4, 1977.7 Respondent thus
sought to cancel the free patent for being null and void, constituting a cloud on its own
title.

To support its cause, respondent averred that its title over a portion of the subject lot
was originally registered as early as March 30, 1959 in the name of Tagaytay
Development Company and Patricia S. Montemayor under OCT No. 0-216, pursuant to
Decree No. N-70245 issued on November 12, 1958 in Land Registration Case No. 426
(LRC Record No. 52607).8 By reason of Montemayor's death, OCT No. 0-216 was
cancelled by TCT No. T-2770, which was registered on September 21, 1960 in favor of
Tagaytay Development Company and the heirs of Montemayor.9 The land covered by
TCT No. T-2770 was thereafter partitioned and subdivided into five lots, two of which,
Lot Nos. 1-C and 2-B of the subdivision plan (LRC) Psd-9174, were assigned to Tagaytay
Development Company in whose name TCT T-2773 was registered on September 27,
1960.10 Then, on July 12, 1991, TCT No. T-24616 cancelled and replaced TCT T-2773
in the name of Tagaytay Highlands Corporation.11 From 1989 to 1991, respondent
began purchasing lands adjoining the property for its various development projects in
the area. To gain access to these properties, it constructed an eight-meter wide road, the
entrance to which passes through a portion of the property. On November 29, 1993,
Tagaytay Highlands Corporation and respondent merged, with the latter as the surviving
corporation.12 In July 1995, Lot Nos. 1-C and 2-B covered by TCT No. T-24616 were
consolidated with Lots 1 and 2 (Psu- 109694) covered by TCT No. P-578.13 After, the
consolidated parcels of land were subdivided into five lots under consolidation and
subdivision plan Pcs-04-010666. In view of this, TCT Nos. T-24616 and P-578 were
cancelled and replaced by TCT Nos. P-1863 to P-1867, which were registered on
December 12, 1995.14cralawrednad

On May 5, 1997, Bautista filed an Answer with Compulsory Counterclaims and

Opposition to the Prayer for Issuance of Preliminary Mandatory Injunction.15 She
countered that respondent should be bound and strictly comply with the verification
survey of the Department of Environment and Natural Resources (DENR) Regional Office
No. IV, which was conducted pursuant to the parties' Joint Request for Verification
Survey dated January 20, 1997.16 The survey concluded that, if the dates of original
registration are to be considered as frame of reference, it is respondent's title which
actually overlapped with Bautista's property.17 Specifically, Lot 1 of Pcs-04-010666
under TCT No. P-1863 extended beyond Lot 4123-B of Psd-04-051856 under TCT No. P-
671. Likewise, Bautista claimed that as shown on the face of TCT No. P-1863 said title
originated not from OCT No. 0-216 but from OCT No. OP-287 pursuant to a Free Patent
issued in the name of Paz M. Del Rosario, which was granted by the President of the
Philippines on January 27, 1977 and registered on February 14, 1977.

Trial on the merits ensued. During the presentation of evidence by the defense,
respondent was informed that Bautista is no longer the owner of the property covered by
TCT No. P-671 as it was already foreclosed by petitioner Land Bank of the Philippines;
that TCT No. P-3663 was issued in the bank's name; and, that the notice of lis pendens
annotated in TCT No. P-671 was not carried over to the new title.

On June 21, 2001, respondent filed a Motion for Leave to File Amended Petition18
impleading petitioner as indispensable party. Allegedly, on August 19, 1994, Bautista
mortgaged to petitioner the land covered by TCT No. P-671 in order to secure a loan
amounting to 10,000,000.00. Bautista defaulted in her obligation resulting in the
foreclosure of the property on October. 15, 1997, with respect to which respondent was
not aware or notified. Upon Bautista's failure to redeem the property and petitioner's
consolidation of ownership, TCT No. P-671 was cancelled and TCT No. P-3663 was
registered on June 9, 1999.

The trial court granted respondent's motion.19 Upon receiving the summons, petitioner
filed an Answer (With Special and Affirmative Defenses, Compulsory Counterclaim,
Cross Claim and Opposition to Injunction).20 Later, an Amended Answer was filed to
include a Third Party Complaint against Liezel's Garments, Inc., represented by its
President and General Manager Dolores Bautista.21cralawrednad
Claiming that it is an innocent mortgagee for value, petitioner asserted that it observed
due diligence and prudence expected of it as a banking institution. It pointed out that
prior to the approval of the loan application, its representative verified the status of the
collateral covered by TCT No. P-671, which revealed t at the subject property was
registered in the name of Bautista and that the same is free and clear of any lien or
encumbrance. Also, upon ocular inspection, no adverse ownership or interest was found.
Therefore, in the absence of anything to excite or arouse suspicion, petitioner is legally
justified to rely on the mortgagor and what appears on the face of her certificate of title.

By way of Crossclaim, petitioner alleged that when Bautista sought to mortgage the
subject property, its representatives were made to believe that no other person/s
has/have an interest thereon and that she has a clean and valid title thereto; and that
without such representation, petitioner would not have allowed or consented to the
mortgage. Thus, in the event that the trial court holds that respondent has a sufficient
cause of action, Bautista should be directed to pay the sum of P16,327,991.40
representing unpaid principal, interests, penalties, other charges, and any and all
damages which may be suffered as a consequence.

Lastly, to support its Third Party Complaint, petitioner contended that Liezel 's
Garments, Inc. should be made to pay its outstanding obligation of 16,327,991.40,
pursuant to the Omnibus Credit Line Agreement dated August 16, 1994 and August 30,
1995,22 both of which were secured by a real estate mortgage23 involving the disputed
property. As evidence of the availments/releases made, it allegedly executed in favor of
petitioner promissory notes amounting to P7,672.091.11 and P3,000,000.00 on June
30, 1995 and September 30, 1995, respectively.24cralawrednad

In response, Liezel 's Garments, Inc. filed an Answer (To the Third Party
Complaint)25cralawred It stressed that the subject property is free from all forms of liens
and encumbrances when the mortgage contract was executed with petitioner, since
Bautista was then its absolute and lawful owner with a clean and valid title. It reiterated
petitioner's position that there is nothing from Bautista's title which could arouse
suspicion and, by reason thereof, the bank has no obligation to look beyond what
appears on the face of the certificate of title.

After trial, the RTC ruled against respondent. The dispositive portion of the April 12,
2004 Decision ordered:cralawlawlibrary

WHEREFORE, premises considered[,] the TCT No. P-1863 issued to petitioner Belle
Corporation is hereby declared VOID, in so far as the 7,693 square meters that
overlapped the property owned by private respondent Florosa A. Bautista, covered with
TCT No. T-671. Therefore, the Register of Deeds of Tagaytay City is ordered to CANCEL
the said TCT No. P-1863 issued to Belle Corporation and to issue another one to
petitioner deleting that overlapping portions of 7,693 square meter described in the
technical descriptions submitted to that effect which is already a part and parcel of that
land covered by Florosa A. Bautista under TCT No. T-671.

No cost.

SO ORDERED.26

The trial court relied on the testimony of Engr. Robert C. Pangyarihan, who, in
conducting the DENR verification survey, based his findings on what appeared to be the
dates of registration of the mother titles of the contending parties. It held that the land
belonging to respondent, which is covered by TCT No. P-1863 and originally registered
on February 14, 1977, overlapped the land belonging to Bautista, which is covered by
TCT No. T-671 and originally registered on February 4, 1977. And since the title of
Bautista was issued earlier than that of respondent, the 7,693 sq. m. overlapping
portion was already private property and ceased to be part of the public domain.

Upon appeal by respondent, the RTC Decision was annulled and set aside. The fallo of
the CA Decision dated November 23,2011 stated:ChanRoblesvirtualLawlibrary

WHEREFORE, premises considered, the instant Appeal is GRANTED. The assailed

Decision of the court a quo is hereby ANNULLED AND SET ASIDE and a new one
entered declaring

petitioner-appellant Belle Corporation as the legitimate owner of the disputed property;

and

void Ab Initio Transfer Certificate of Title No. P-671 issued to respondent-appellee

Bautista and the derivative Transfer Certificate of Title No. P-3663 issued to respondent-
appellee Land Bank of the Philippines.
Furthermore, this Court is ordering -
the Register of Deeds of Tagaytay City to cancel the respective Certificates of Title of
respondent-appellee Florosa A. Bautista and respondent-appellee Land Bank of the
Philippines;

the Register of Deeds of Tagaytay City to correct the entries contained in the Transfer
Certificate of Title No. P-1863 of petitioner-appellant Belle Corporation pertinent to this
case;

respondent-appellee Florosa A. Bautista and Third Party Defendant Liezel's Garments,

Inc. to jointly pay respondent appellee Land Bank of the Philippines the amount of
Sixteen Million Three Hundred Twenty Seven Thousand Nine Hundred Ninety-One Pesos
and 40/100 (P16,327,991.40), the amount for which the disputed property was sold to
respondent appellee Land Bank of the Philippines at the public auction[;] [and)

Respondents-appellees Florosa A. Bautista and Land Bank to jointly and severally pay
petitioner-appellant Belle Corporation the amount of One Hundred Thousand Pesos
(P100,000.00) by way of attorney's fees.
All other claims are denied for lack of merit.

SO ORDERED.27

Based on the testimonies of Reynaldo Dy-Reyes, who is from the Register of Deeds of
Tagaytay City, and Engr. Pangyarihan, the CA opined that respondent was able to prove
by sufficient evidence that its mother title is OCT No. 0-216 and not OCT No. OP-287, as
erroneously written in TCT Nos. P-1863 to P-1867. Notably, the lot covered by OCT No.
OP-287 and its derivative title, TCT No. P-578, which is the purported immediate source
of TCT No. P-1863, only contains an area of 92,539 sq. m. compared with the 313,951
sq. m. area covered by TCT No. P-1863. It was further pointed out that, contrary to the
stubborn insistence of Bautista, there is no proof showing that respondent expressly
waived its right to contest the result of the verification survey conducted by the DENR
regional office. For the appellate court, the parties only wanted to establish the fact of
encroachment when they commissioned Engr. Pangyarihan to conduct the survey, and
that if they intended to be bound by his declaration, they would have made an express
agreement to that effect.
The CA did not find merit in the contention that petitioner is a mortgagee in good faith.
It noted that not once did the bank claim that it investigated the status of the subject
property despite the fact that the same forms part of the ingress and egress of the well-
known Tagaytay Highlands since 1990 or several years before it accepted the property as
collateral from Bautista. Since its negligence was the primary, immediate and overriding
reason, petitioner must bear the loss of the disputed property. Nonetheless, this is
without prejudice to the recovery of P16,327,991.40 from Bautista and Liezel's
Garments, Inc., who both did not refute the said amount.

Finally, while denying respondent's prayer for actual and moral damages, the CA
granted its claim for attorney's fees "given that this case has already dragged on for
years and [respondent] has obviously spent a considerable amount of money to protect
its interest in this case."

On January 17, 2013, the CA resolved to deny petitioner's motion for reconsideration.
For the purpose of clarity, however, it modified the November 23, 2011 Decision to
read:ChanRoblesvirtualLawlibrary

WHEREFORE, premises considered, the instant Appeal is GRANTED. The assailed

Decision of the court a quo is hereby ANNULLED AND SET ASIDE and a new one
entered declaring
petitioner-appellant Belle Corporation as the legitimate owner of the disputed property;
and

void Ab Initio Transfer Certificate of Title No. P-671 issued to respondent-appellee

Bautista and the derivative Transfer Certificate of Title No. P-3663 issued to respondent-
appellee Land Bank of the Philippines, insofar as tile seven thousand six hundred
ninety-tltree sqmtre meter (7,693 sq. m.) portion thereof which overlapped the land of
petitioner-appellant Belle Corporation.
Furthermore, this Court is ordering
the Register of Deeds of Tagaytay City to cancel the respective Certificates of Title of
respondent-appellee Florosa A. Bautista and respondent-appellee Land Bank of the
Philippines and issue new ones to reflect the actual measurement of the lot registered
under Transfer Certificate of Title No. P-671 (and its derivative title, Transfer Certificate
of Title No. P-3663) after deducting the seven thousand six hundred ninety-three square
meter (7,693 sq. m.) portion thereof which overlapped the land of petitioner-appellant
Belle Corporation;

the Register of Deeds of Tagaytay City to correct the entries contained in the Transfer
Certificate of Title No. P-1863 of petitioner-appellant Belle Corporation pertinent to this
case;

respondent-appellee Florosa A. Bautista and Third Party Defendant Liezel's Garments,

Inc. to jointly pay respondent appellee Landbank of the Philippines the amount of
Sixteen Million Three Hundred Twenty Seven Thousand Nine Hundred Ninety-One Pesos
and 40/100 (P16,327,991.40), the amount for which the disputed property was sold to
respondent appellee Landbank of the Philippines at the public auction[;] [and]

Respondents-appellees Florosa A. Bautista and Landbank to jointly and severally pay

petitioner-appellant Belle Corporation the amount of One Hundred Thousand Pesos
(P100,000.00) by way of attorney's fees.
All other claims are denied for lack of merit.
SO ORDERED.28

Hence, this petition which raises the fol1owing issues:ChanRoblesvirtualLawlibrary

A.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

HOLDING THAT BELLE CORPORATION IS NOT BOUND BY THE FINDINGS AND
CONCLUSIONS OF THE EXPERT WITNESS WHO WAS COMMISSIONED (BY BELLE
CORI-'ORATION AND BAUTISTA) TO CONDUCT A JOINT VERIFICATION SURVEY OF
THE DISPUTED PROPERTY.

B.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIJ3LE ERROR Wl-IEN IT FAILED TO APPLY SECTION 44, RULE 130 OF THE
RULES OF COURT (ENTRIES IN OFFICIAL RECORDS) ON THE TITLE COVERING THE
DISPUTED PROPERTY.

C.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

FINDING THAT LAND BANK IS NOT A MORTGAGEE IN GOOD FAITH.

D.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS CORRECTLY APPLIED THE

LAW WHEN IT AWARDED ATTORNEY'S FEES TO THE RESPONDENT.29

The petition is unmeritorious.

We agree with respondent that the entries written in TCT No. T-1863 to T-1867 failed to
accurately record the origin of said titles. Having depended on erroneous entries stated
on the face of said titles, the result of the verification survey issued by Engr.
Pangyarihan is, as a consequence, a mistake insofar as it states which between TCT No.
T-1863 and TCT No. P-671 has precedence.

During the course of the trial, the testimonies of witnesses30 and the certificates of title
admitted in evidence established that the origin of respondent's title over the parcels of
land covered by TCT Nos. P-1863 to 1867 could be traced back from OCT Nos. 0-216
and 55 and not OCT No. OP-287 as petitioner repeatedly argues.

OCT No. 0-216 was registered on March 30, 1959 in the name of Tagaytay Development
Company and Patricia S. Montemayor. It covered a 473,782 sq. m. parcels of land
particularly designated as Lot Nos. 1 and 2, plan Psu-103653-Amd.-2 Swo-29594, L.R.
Case No. 426, L.R.C. Record No. 52607. By reason of Montemayor's death, OCT No. 0-
216 was later cancelled by TCT No. T-2770, which was registered on September 21,
1960 in favor of Tagaytay Development Co., Santiago B. Montemayor, and Angelina M.
Samson.31 Thereafter, the land covered by TCT No. T-2770 was partitioned and
subdivided into five lots in connection with the plan (LRC) Psd-9174.32 Two lots,
particularly Lot Nos. 1-C and 2-B of the subdivision plan (LRC) Psd-9174, being portions
of Lot 1, Psu-103653-Amd., Swo-29594, LRC Record No. 52607, with a total area of
231,891 sq. m. were assigned to Tagaytay Development Company in whose name TCT T-
2773 was registered on September 27, 1960.33 Cancelling TCT T-2773 was TCT No. T-
24616, which was registered on July 12, 1991 in the name ofTagaytay Highlands
Corporation.34cralawrednad

On the other hand, OCT No. 55 was in the name of Hammon H. Buck, married to Mary
B. Norman pursuant to Decree No. 753837 registered on July 31, 1941.35 It included,
among others, Lot Nos. 1 and 2 of plan Psu-109694 which have a combined land area of
93,268 sq. m.36 OCT No. 55 was cancelled with the registration of TCT No. RT-192 (202)
on September 22, 1941 in the name of Tagaytay Development Company.37 Later, on
July 12, 1991, TCT No. RT-192 (202) was cancelled and, in lieu thereof, TCT T-24614
was registered in favor of Tagaytay Highlands Corporation.38 The properties described in
the certificate were thereafter consolidated with the properties mentioned in TCT No. T-
26415 and then subdivided into 14 lots.39 Consequently, TCT No. TCT T-24614 was
cancelled and TCT Nos. T-29566 to T-29579 were registered on September 19,
1994.40cralawrednad

Per Entry No. 60717/24616 of TCT No. T-24616,41 it was indicated that said title was
cancelled by TCT Nos. T-31615 to T-31617. This should not be so since TCT Nos. T-
31615 to T-31617 pertain to Lots 4088-A to 4088-C, respectively, of the subdivision plan
Psd-04-080540, being portions of Lot 4088, Cad-355, with a total land area of 92,539
sq. m.42 What should have been recorded instead is that TCT Nos. T-31615 to T-31617
are derived from TCT P-578, which was technically described as Lot 4088, Cad-355
covering exactly the same land area. TCT P-578 originated from OCT OP-287 pursuant
to Free Patent No. 579975 issued on January 27, 1977 in favor of Paz M. Del Rosario
and registered on February 14, 1977. Likewise erroneous is the notation43 in TCT P-578
that it was cancelled by virtue of the issuance of TCT Nos. P-1863 to P-1867.
Conspicuously, TCT Nos. P-1863 to P-1867 cover lots with total land area of 325,159 sq.
m.44 Thus, there is merit to respondent's stand that the Register of Deeds mistakenly
mixed-up the entries on the title source of TCT Nos. T-31615 to T-31617, on one hand,
and TCT Nos. P-1863 to P-1867, on the other, since these titles were simultaneously
registered on December 12, 1995 at 10:45 a.m.

TCT Nos. P-1863 to P-1867 cover Lots 1 to 5, respectively, of the consolidation and
subdivision plan Pcs-04-010666.45 As shown by the plan, Lots 1-C and 1-B (LRC) Psd
9174 and Lots 1 and 2, Psu-109694 were consolidated and subdivided to form the
parcels of land covered by TCT Nos. P-1863 to 1867. Lots 1-C and 1-B (LRC) Psd 9174
and Lot 1 and 2 Psu-109694 have an area of231,891 sq. m. and 93,268 sq. m.,
respectively. The sum of both is 325,159 sq. m., which is total area being covered by TCT
Nos. P-1863 to P-1867.

Undoubtedly, the origins of TCT Nos. P-1863 to P-1867 are OCT Nos. 0-216 and 55.
Whether the 7,693 sq. m. overlapping portion is actually located in Lots 1-C and 1-B
(LRC) Psd 91 74 or in Lots 1 and 2, Psu-1 09694 is no longer material. Either way,
respondent's title over such portion must prevail since OCT No. 0-216 and OCT No. 55
were registered on March 30, 1959 and July 31, 1941, respectively. In comparison, OCT
No. OP-283, which is the mother title of TCT No. P-671 in the name of Bautista, was
registered much later on February 4, 1977.

Having finally settled that respondent is the rightful owner of the contested 7,693 sq. m.
portion of the lot covered by TCT No. P-1863, We now resolve the issue of whether
petitioner is a mortgagee in good faith and for value.

According to petitioner, prior to the approval of the loan application of Liezel 's
Garments, Inc., the subject property was duly verified as free from any lien or
encumbrance. As a matter of course, the same was inspected for purposes of collateral
valuation. An ocular inspection revealed that there was no person in possession of the
same prior to the granting of the loan. It could not have known or suspected that there
was another person claiming the property since the disputed property was accepted as
collateral in August 1994, or before the filing of the case in November 1996, and, by
then, there was no annotation of adverse claim inscribed on the title. Moreover, the
overlapped portion is not the same as an encumbrance that would render the inclusion
thereof in the real estate mortgage between Bautista and petitioner null and void.

Like the CA, We rule for respondent.

In general, the issue of whether a mortgagee is in good faith cannot be entertained in a

Rule 45 petition. This is because the ascertainment of good faith or the lack thereof, and
the determination of negligence are factual matters which lay outside the scope af a peti
ion for review on certiorari.46 Good faith, or the lack of it, is a question of intention. In
ascertaining intention, courts are necessarily controlled. by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be
determined.47 Considering that the RTC was siler1t on the matter while the CA ruled
against petitioner, this Court shall make its own determination.

When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or
mortgagees for value is applied more strictly.48 Being in the business of extending loans
secured by real estate mortgage, banks are presumed to be familiar with the rules on
land registration.49 Since the banking business is impressed with public interest, they
are expected to be more cautious, to exercise a higher degree of diligence, care and
prudence, than private individuals in their dealings, even those involving registered
lands.50 Banks may not simply rely on the face of the certificate of title.51 Hence, they
cannot assume that, simply because the title offered as security is on its face free of any
encumbrances or lien, they are relieved of the responsibility of taking further steps to
verify the title and inspect the properties to be mortgaged.52 As expected, the
ascertainment of the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of a bank's operations.53 It is of judicial
notice that the standard practice for banks before approving a loan is to send its
representatives to the property offered as collateral to assess its actual condition, verify
the genuineness of the title, and investigate who is/are its real owner/s and actual
possessors.54cralawrednad

It the instant case, petitioner readily admitted that during the appraisal and inspection
of the property on January 11, 1994 it duly noted the observation that the subject
property was traversed by an access road leading to the Tagaytay Highlands Golf Course.
However, it concluded, albeit erroneously, that the access road is still a part of TCT No.
P-671 because its existence cannot be established despite verifications conducted by its
property appraisers with the DENR's Land Management Section Region IV and Tax
Mapping Section of the Tagaytay City Assessor's Office due to lack of records of any
survey plan delineating the portion occupied by the said road from the subject
property."55cralawrednad

A person who deliberately ignores a significant fact that could create suspicion in an
otherwise reasonable person is not a mortgagee in good faith. A mortgagee cannot close
his eyes to facts which should put a reasonable man on his guard and claim that he
acted in good faith under the belief that there was no defect in the title of the mortgagor.
His mere refusal to believe that such defect exists or the willful closing of his eyes to the
possibility of the existence of a defect in the mortgagor's title will not make him an
innocent mortgagee for value if it afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defect as would have led to its discovery
had he acted with that measure of precaution which may reasonably be required of a
prudent man in a like situation.

Here, the facts show that petitioner disregarded circumstances that should have aroused
its suspicion. After encountering a dead end in the DENR's Land Management Section'
Region IV and the Tax Mapping Section of the Tagaytay City Assessor's Office, it
manifestly failed to inquire further on the identity of possible adverse claimants and the
status of their occupancy. Had petitioner earnestly probed, by simply talking to Bautista
or asking the possessors/owner of adjacent lots as regards the presence of the traversing
access road, it. could have. easily discovered the opposing claim of respondent, which is
a known real estate developer in the area. Indeed, failing to make such inquiry would
hardly be consistent with any pretense of good faith. Given the suspicious-provoking
presence of the concrete road on the mortgaged lot, it behooved petitioner to conduct a
more exhaustive investigation on the history of Bautista's title. The acceptance of the
mortgaged property; notwithstanding the existence of an actual and visible improvement
thereon constitutes gross negligence amounting to bad faith.56 Where the mortgagee
acted with haste in granting the mortgage loan and did not ascertain the ownership of
the land being mortgaged it cannot be considered an innocent
mortgagee.57cralawrednad

Granting, for the sake of argument, that petitioner is a mortgagee in good faith, still it.
cannot be said that it is an innocent purchaser for value.

A purchaser in good faith is defined as one who buys a property without notice that
some other person has a right to, or interest in, the property and pays full and fair price
at the time of purchase or before he has notice of the claim or interest of other persons
in the property.
When a prospective buyer is faced with facts and circumstances as to arouse his
suspicion, he must take precautionary steps to qualify as a purchaser in good faith. In
Spouses Mathay v. CA, we determined the duty of a prospective
buyer:ChanRoblesvirtualLawlibrary

Although it is a recognized principle that a person dealing on a registered land need not
go beyond its certificate of title, it is also a firmly settled rule that where there are
circumstances which would put a party on guard and prompt him to investigate or
inspect the property being sold to him, such as the presence of occupants/tenants
thereon, it is of course, expected from the purchaser of a valued piece of land to inquire
first into the status or nature of possession of the occupants, i.e., whether or not the
occupants possess the land en concepto de dueño, in the concept of the owner. As is the
common practice in the real estate industry, an ocular inspection of the premises
involved is a safeguard a cautious and prudent purchaser usually takes. Should he find
out that the land he intends to buy is occupied by anybody else other than the seller
who, as in this case, is not in actual possession, it would then be incumbent upon the
purchaser to verify the extent of the occupant's possessory rights. The failure of a
prospective buyer to take such precautionary steps would mean negligence on his part
and would thereby preclude him from claiming or invoking the rights of a purchaser in
good faith.58

Even if there was yet no annotated notice of lis pendens at the time the lot covered by
TCT P-671 was mortgaged, such notice already existed when petitioner purchased the lot
during the foreclosure sale. The notice of lis pendens was inscribed on TCT P-671 on
November 20, 1996, the same day when Civil Case No. TG-1672 was filed, while the
public auction was held on September 1 0, 1997.59cralawrednad
The foregoing considered, by reason of its bad faith, there is no merit on petitioner's
conviction that attorney's fee cannot be recovered as cost in this case.

One important matter, however. It cannot escape Our notice that the CA ordered
Bautista and Liezel's Garments, Inc. to jointly pay petitioner 16,327,991.40, the amount
for which the disputed property was sold to petitioner at public auction. Only the bank
filed a petition for review before Us, which, as expected, did not raise the issue of
propriety of such order. This notwithstanding, We deem it proper to rectify the directive.
The Supreme Court is clothed with ample authority to review an issue, even not
assigned as an error on appeal if it finds that its consideration is necessary in arriving at
a just decision and complete resolution of the case or to serve the interests of justice.

It must be emphasized that Bautista, who by now may have already turned 87 years
old,60 is considered as a third-party or accommodation mortgagor. She mortgaged her
property to stand as security for the indebtedness of Liezel 's Garments, Inc. She is not a
party to the principal obligation but merely secured the latter by mortgaging her own
property. In fact, it was only Dolores E. Bautista, theh the President and General
Manager of Liezel's Garments, Inc., who was the sole signatory of the Omnibus Credit
Line Agreement dated August 16, 1994 and August 30, 199561 as well as the
promissory note dated June 30, 1995 and September 30, 1995.62 In Cerna v. Court of
Appeals,63 it was held:ChanRoblesvirtualLawlibrary

There is x x x no legal provision nor jurisprudence in our jurisdiction which makes a

third person who secures the fulfillment of another's obligation by mortgaging his own
property to be solidarily bound with the principal obligor. x x x. The signatory to the
principal contract- loan - remains to be primarily bound. It is only upon the default of
the latter that the creditor may have recourse on the mortgagors by foreclosing the
mortgaged properties in lieu of an action for the recovery of the amount of the loan. And
the liability of the third-party mortgagors extends only to the property mortgaged.
Should there be any deficiency, the creditor has recourse on the principal debtor.64

Neither petitioner nor Liezel's Garments, Inc. presented proof that Bautista is a director,
officer or employee of Liezel's Garments, Inc. Although Bautista acted as such, it is a
basic rule that a corporation is a juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf and from the people
comprising it, who, in general, are not personally liable for obligations incurred by the
corporation unless the veil of corporate fiction is pierced to justify that it is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues.65cralawrednad

WHEREFORE, premises considered, the petition is DENIED. The November 23, 2011
Decision and January 17, 2013 Resolution of the Court of Appeals in CA-G.R. CV No.
84075, which annulled the April 12, 2004 Decision of the Regional Trial Court, Branch
18, Tagaytay City, Cavite, in Civil Case No. TG-1672, are hereby AFFIRMED WITH
MODIFICATION. Only Liezel 's Garments, Inc. is liable to pay petitioner with the amount
of P16,327,991.40, which represents the sum for which the disputed property was sold
to petitioner at public auction.

SO ORDERED.chanrobles virtuallawlibrary

Velasco, Jr., (Chairperson), Villarama, Jr. Perez*, and Jardeleza, JJ., concur.

Endnotes:
* Designated Acting Member in lieu of Associate Justice Bienvenido L. Reyes, per Special
Order No. 2112 dated July 16, 2015.

1 Penned by Associate Justice Rodil V. Zalameda, with Associate Justices Rebecca De

Quia- Salvador and Normandie B. Pizarro concurring; rollo, pp. 34-66.

2Rollo, pp. 67-71.

3 Penned by Assisting Judge Reuben P. Dela Cruz, rollo, pp. 72-104.

4 Records, pp. 1-10.

5 Id. at 284-0.

6 ld at 284-E.

7 Id. at 282-283, 498, 552-556.

8 Id at 256-257.

9 Id. at 258-259.

10 Id. at 260-261.

11 Id. at 262-263.

12 Id. at 287.

13 Id. at 266-267.

14 Id at 233-242.

15 Id. at 71-81.

16 Id. at 284-H to K, 499-502.

17 Id. at 284-1, 499.

18 Id. at 342-356.

19 Id. at 401.

20 Id. at 412-418.

21 Id. at 427-435.

22 Id. at 541-544, 547-551.

23 Id. at 545-546.

24 Id. at 448-451.

25cralawred Id. at 459-462.

26Rollo, pp. I 03-104.

27 Id. at 64-65. (Emphasis in the original)

28 Id. at 70-71. (Emphasis ours)

29 Id. at 18.

30 Engr. Rogelio Robang (Technical Assistant to the President of respondent), Reynaldo

Dy-Reyes (Land Registration Examiner of the Register of Deeds of Tagaytay City) and
Engr. Robert C. Pangyarihan (Chief of the Surveys Division-Land Management Sector of
DENR Region IV).

31 Records, p. 256 (back page).

32 Id. at 257.

33 Id. at 259.

34 Id. at 261.

35 Id. at 271-272.

36 Id. at274.

37 Id. at 275-277.

38 Id. at 278-280.

39 Id. at 280.

40 Id.

41 Id. at 263.

42 Id. at 268-270.

43 Id. at 267.

44 The land areas of TCT Nos. P-1863 to P-1867 are 313,951 sq. m., 1,465 sq. 111. 124
sq. m., 2,378 sq. m., and 7,241 sq. m., respectively.

45 Records, p. 284.

46 Arguelles v. Malarayat Rural Bank, Inc., G.R. No. 200468, March 19, 2014, 719
SCRA 563, 571 and Land Bank of the Philippines v. Poblete, G.R. No. 196577, February
25, 2013, 691 SCRA 613, 625.

47 Land Bank of the Philippines v. Poblete, supra, at 626.

48Heirs of Gregorio Lopez v. Development Bank of the Philippines, G.R. No. 193551,
November 19, 2014.

49Erasusta, Jr. v. Court of Appeals, 527 Phil. 639, 652 (2006).

50 Heirs of Gregorio Lopez v. Development Bank of the Philippines, G.R. No. 193551,
November 19, 2014; Arguelles v. Malarayat Rural Bank, Inc., supra note 46, at 573; and
PNB v. Corpuz, 626 Phil. 410, 413 (2010).

51Heirs of Gregorio Lopez v. Development Bank of the Philippines, G.R. No. 193551,
November 19, 2014.

52Land Bank of the Philippines v. Poblete, supra note 46, at 626.

53 Philippine Amanah Bank (now AI-Amanah Islamic Investment Bank of the

Philippines, also known as Islamic Bank) v. Contreras:, G.R. No. 173168, September 29,
2014, 736 SCRA 567, 580.

54Land Bank of the Philippines v. Poblete, supra note 46, at 627; Alana v. Planter's
Development Bank, 667 Phil. 81, 89-90 (2011); Philippine National Bank v. Corpuz, 626
Phil. 410, 413 (20 I 0); Erasusta, Jr. v. Court of Appeals, 527 Phil. 639, 651 (2006); and
PNB v. Heirs of Militar, 504 Phil. 634, 644 (2005).

55 CA rollo, p. 208.

56Erasusta, Jr. v. Court of Appeals, supra note 54.

57 See Arguelles v. Malarayat Rural Bank, Inc., supra note 46, at 576, citing Land Bank
of the Philippines v. Poblete, supra note 46, at 628.

58Homeowners Savings and Loan Bank v. Felonia, G.R. No. 189477, February 26, 2014,
717 SCRA 358, 367-368.

59 Records, pp. 555, 560.

60 See CA rollo, p. 245.

61 Records, pp. 541-544, 547-551.

62 Id. at 448-451.

63 G.R. No. 48359, March 30, 1993, 220 SCRA 517.

64 Cerna v. Court of Appeals, supra, at 522-523, as cited in Bank of America v.

American Realty Corp., 378 Phil. 1279, 1291 (1999).

65Heirs of Fe Tan Uy v. International Exchange Bank, G.R. No. 166282, February 13,
2013, SCRA 519, 525-526.