MORTGAGE was not attached thereto.

Judge Lipana-Reyes settled the motion in favor of

5
UNIONBANK and dismissed the complaint on 17 October 1994.

6
Aggrieved, private respondents filed a motion for reconsideration of the
.R. No. 133366 August 5, 1999 dismissal on 20 October 1994 and prayed that they be permitted to amend
their verified complaint to comply with the requisites of Circular 4-94. Upon
UNIONBANK OF THE PHILIPPINES, petitioner, the appointment of Judge Lipana-Reyes to the CA, pairing Judge Agustin S.
vs. Dizon took over the case and on 15 November 1994 allowed private
THE COURT OF APPEALS and FERMINA S. DARIO and REYNALDO S. respondents to incorporate the mandatory formal requirements of SC
DARIO, respondents. Administrative Circular 4-94 to their complaint.

DAVIDE, JR., CJ.: In the meantime, without notifying private respondents, UNIONBANK
consolidated its title over the foreclosed property on 24 October 1994, TCT
No. 41828 was cancelled and TCT No. 120929 in UNIONBANK's name was
Unionbank of the Philippines (hereafter UNIONBANK) appeals, by way of issued in its stead.
1
certiorari, the Decision of the Court of Appeals (CA) of 26 June 1997 and its
2
Resolution of 7 April 1998 . The CA nullified the Regional Trial Court's (RTC) 7
3
Order of 7 August 1995 denying private respondents' application for Private respondents filed an amended complaint on 9 December 1994,
preliminary injunction as UNIONBANK's consolidation of ownership divested alleging that they, not the mortgagors, are the true owners of the property
mortgaged and insisting on the invalidity of both the mortgage and its
private respondents of their property without due process of law. It also
subsequent extrajudicial foreclosure. They claimed that the original title, TCT
ordered the register of deeds to cancel UNIONBANK's title and the trial court
to hear private respondents prayer for injunctive relief.1âwphi1.nêt No. 61571, was entrusted to a certain Atty. Reynaldo Singson preparatory to
its administrative reconstitution after a fire gutted the Quezon City Hall
building. Mortgagor Leopoldo, private respondent Fermina's son, obtained
This case stemmed from a real estate mortgage executed on 17 December the property from Atty. Singson, had the title reconstituted under his name
1991 by spouses Leopoldo and Jessica Dario (hereafter mortgagors) in favor without private respondents' knowledge, executed an ante-dated deed of
of UNIONBANK to secure a P3 million loan, including interest and other sale in his favor and mortgaged the property to UNIONBANK.
charges. The mortgage covered a Quezon City property with Transfer
Certificate of Title (TCT) No. 41828 in Leopoldo Dario's name and was
annotated on the title on 18 December 1991. For non-payment of the On 19 December 1994, Judge Ignacio M. Capulong to whom this case was
assigned admitted the aforementioned amended complaint and set the
principal obligation, UNIONBANK extrajudicially foreclosed the property
application for writ of preliminary injunction for hearing. After UNIONBANK's
mortgaged on 12 August 1993 and sold the same at public auction, with itself
motion for reconsideration of said Order was denied on 17 January 1995, it
posting the highest bid.
filed a petition for certiorari with the CA questioning the admission of the
amended complaint. The CA upheld Judge Capulong's order admitting the
On 4 October 1994, one week before the one-year redemption period amended complaint on 24 April 1995, UNIONBANK thereafter elevated its
expired, private respondents filed a complaint with the RTC of Quezon City cause to this Court.
against the mortgagors, UNIONBANK, the Register of Deeds and the City
Sheriff of Quezon City. Docketed as Civil Case No. Q-94-21830, the
Meanwhile, on 9 February 1995 UNIONBANK filed its answer ad cautelam
complaint was for annulment of sale and real estate mortgage reconveyance
and prayer for restraining notice of lis pendens was annotated on the title. asserting its status as an innocent mortgagee for value whose right or lien
upon the property mortgaged must be respected even if, the mortgagor
obtained his title through fraud. It also averred that the action had become
On 10 October 1994, RTC, Branch 81, through Presiding Judge (later CA "moot and academic by the consolidation of the foreclosed property on 24
Justice) Celia Lipana-Reyes, issued a temporary restraining order (TRO) October 1994" in its name, resulting to the issuance of TCT No. 120929 by
enjoining the redemption of property within the statutory period and its the Register of Deeds of Quezon City. In reaction to UNIONBANK's
consolidation under UNIONBANK's name. At a hearing four days later, revelation, private respondents moved to declare UNIONBANK's counsel in
UNIONBANK's counsel orally moved for dismissal of the complaint alleging indirect contempt attacking his disobedience to the TRO.
4
that a certification of non-forum shopping-is prescribed by SC-Circular 4-94
On 19 May 1995, private respondents moved to declare the other defendants property with the redemption period having expired and there having been no
in default for their non-filing of responsive pleadings within the mandatory redemptioners. UNIONBANK contends that the TRO which provisionally
period and to set the application for preliminary injunction and indirect enjoined the tolling of the redemption period was automatically dissolved
contempt for pre-trial and trial. upon dismissal of the complaint on 17 October 1994. Conformably,
consolidation of title in its name and the issuance of TCT No. 120929
On 14 June 1995 the second division of this Court denied the petition for rendered further proceedings on the application for injunction academic.
certiorari, which it considered as a petition for review under Rule 45, "for Moreover, the alleged fraudulent mortgage was facilitated through private
failure to show that the CA had committed any reversible error" in judgment. respondents' negligence so they must bear the loss. It also contends that
since private respondents had filed several pleadings, due process, being an
opportunity to be heard either through pleadings or oral arguments, was
In its 19 August 1995 Order, the RTC held the mortgagors and the City
observed.
Sheriff of Quezon City in default and sustained UNIONBANK's contention
that the act sought to be enjoined had been enforced, negating the need of
hearing the application for preliminary injunction. Private respondents filed a Private respondents maintain that UNIONBANK's consolidation of the title in
lengthy motion for reconsideration to this Order. its name was in bad faith, vitiated a standing court order, is against the law,
thus void ab initio. The application for preliminary injunction was not rendered
moot and academic by consolidation, which took place during the lifetime of
The annulment case was re-raffled to Branch 227 under Presiding Judge
Vicente Q. Roxas upon the creation of new salas. Judge Roxas, on 25 March the TRO, and did not follow the proper legal procedure due to the
surreptitious manner it was accomplished. By treating the application for
1996, denied the motion to reconsider the 19 August 1995 Order but
suggested that private respondents amend their application from prohibitory preliminary injunction as moot and academic and denying the motion for
to mandatory injunction. indirect contempt without hearing, the RTC order ran afoul with the
requirements of due process.
As private respondents were unable to amend their application, the RTC
Two main issues can be gleaned from the posturing and claims of the
denied the motion for reconsideration and their motion for indirect contempt,
"in the interest of free speech and tolerance" on 9 July 1996. Asserting grave parties, to wit, was the consolidation of title in UNIONBANK's name proper,
and was the dismissal of the application for preliminary prohibitory injunction
abuse of discretion, private respondents brought the denial of their motion for
valid.
reconsideration with the Court of Appeals on 6 September 1996.

After considering the arguments presented by the parties, the CA ruled that The issues must be answered in the affirmative.
despite its knowledge that the ownership of the property was being
questioned, UNIONBANK took advantage of private respondents' procedural UNIONBANK's consolidation of title over the property on 24 October 1994
error by consolidating title to the property, which "smack[ed] of bad faith" and was proper, though precipitate. Contrary to private respondents' allegation
"evince[d] a reprobate disposition of the part of its counsel to advance his UNIONBANK violated no standing court order. The only bar to consolidation
client's cause by fair means or foul." As a result thereof the transfer of title was the temporary restraining order issued by Justice Lipana-Reyes on 10
8 October 1994 which effectively halted the tolling of the redemption period 7
was vitiated by non-adherence to procedural due process.
days short of its expiration. When private respondents' original complaint was
dismissed on 17 October 1994 for failure to append a certification of non-
On 26 June 1997, CA nullified the consolidation of ownership, ordered the
forum shopping, the TRO, as an ancillary order that cannot stand
Register of Deeds to cancel the certificate of title in UNIONBANK's name and
independent of the main proceeding, became functus officio. Thus the tolling
to reinstate TCT No. 41828 with the notice of lis pendens annotated at the
back. The CA also set aside the portion of the assailed RTC Orders that of the 12-month redemption period, interrupted by the filing of the complaint
declared private respondents' prayer for writ of preliminary injunction as moot and the TRO, recommenced and eventually expired 7 days thereafter or on
24 October 1994, the date of the disputed consolidation.
and academic. UNIONBANK's motion for reconsideration of the above-
mentioned decision was likewise rejected for lack of merit on 7 April 1998.
The motion for reconsideration and to amend complaint filed by private
Hence, UNIONBANK came to this Court claiming to be a mortgagee in good respondent on 20 October 1994 was of no moment, this Court recognizing
faith and for value with a right to consolidate ownership over the foreclosed that "a dismissal, discontinuance or non-suit of an action in which a
restraining order or temporary injunction has been granted operates as a There is, moreover, nothing erroneous with the denial of private respondents'
9
dissolution of the restraining order or temporary injunction," regardless of application for preliminary prohibitory injunction. The acts complained of have
whether the period for filing a motion for reconsideration of the order already been consummated. It is impossible to restrain the performance of
10
dismissing the case or appeal therefrom has expired. The rationale therefor consummated acts through the issuance of prohibitory injunction. When the
is that even in cases where an appeal is taken from a judgment dismissing act sought to be prevented had long been consummated, the remedy of
18
an action on the merits, the appeal does not suspend the judgment, hence injunction could no longer be entertained, hearing the application for
the general rule applies that a temporary injunction terminates automatically preliminary injunction would just be an exercise in futility.
11
on the dismissal of the action.
In addition, to be entitled to the injunctive writ, movant must show that there
We disagree with the appellate court's observation that consolidation exists a right to be protected which is directly threatened by an act sought to
deprived private respondents of their property without due process. It is be enjoined. Furthermore, there must be a showing that the invasion of the
settled that the buyer in a foreclosure sale becomes the absolute owner of right is material and substantial and that there is an urgent and paramount
19
the property purchased if it is not redeemed during the period of one year necessity for the writ to prevent a serious damage. The injunctive remedy
12
after the registration of the sale. Consolidation took place as a matter of prevents a threatened or continuous irremediable injury to some of the
right since there was no redemption of the foreclosed property and the TRO parties before their claim can be thoroughly investigated and advisedly
expired upon dismissal of the complaint. UNIONBANK need not have adjudicated; it is resorted to only when there is a pressing necessity to avoid
informed private respondent that it was consolidaint its title over the property, injurious consequences which cannot be remedied under any standard
20
upon the expiration of the redemption period, without the judgment debtor compensation.
having made use of his right of redemption, the ownership of the property
13
sold becomes consolidated in the purchaser. Notice to the mortgagors and In the case at bar, the consolidation of ownership over the mortgaged
with more reason, to private respondents who are not even parties to the property in favor of UNIONBANK and the issuance of a new title in its name
mortgage contract nor to the extra judicial sale is not necessary. during the pendency of an action for annulment and reconveyance will not
cause irreparable injury to private respondents who are plaintiffs in the said
In real estate mortgage, when the principal obligation is not paid when due, preliminary injunction. This is because .as purchaser at a public auction,
the mortgage has the right to foreclose the mortgage and to have the UNIONBANK is only substituted to and acquires the right, title, interest and
property seized and sold with a view to applying the proceeds to the payment claim of the judgment debtors or mortgagors to the property at the time of
14 21
of the principal obligation. Foreclosure may be effected either judicially or levy. Perforce, the judgment in the main action for reconveyance will not be
extrajudicially. rendered ineffectual by the consolidation of ownership and the issuance of
title in the name of UNIONBANK.
In a public bidding during extra-judicial foreclosure, the creditor —mortgagee,
trustee, or other person authorized to act for the creditor may participate and More importantly, with the main action for reconveyance pending before the
purchase the mortgaged property as any other bidder. Thereafter the RTC, the notice of lis pendens, which despite consolidation remains
mortgagor has one year within which to redeem the property from and after annotated on UNIONBANK's transfer certificate of title subject to the
15
registration of sale with the Register of Deeds. In case of non-redemption, outcome of the litigation, sufficiently protects private respondents interest
the purchaser at foreclosure sale shall file with the Register of Deeds, either over the property. A transferee pendente lite stands exactly in the shoes of
a final deed of sale executed by the person authorized by virtue of the power the transferor and is bound by any judgment or decree which may be
of attorney embodied in the deed or mortgage, or his sworn statement rendered for or against the transferor. Once a notice of lis pendens has been
attesting to the fact of non-redemption; whereupon, the Register of Deeds duly registered, any cancellation or issuance of the title of the land involved
Shall issue a new certificate of title in favor of the purchaser after the owner's as well as any subsequent transaction affecting the same, would have to be
16
duplicate of the certificate has been previously delivered and canceled. subject to the outcome of the litigation. In other words, upon the termination
Thus, upon failure to redeem foreclosed realty, consolidation of title becomes of the litigation there can be no risk of losing the property or any part thereof
17
a matter of right on the part of the auction buyer, and the issuance of a as a result of any conveyance of the land or any encumbrance that may be
22
certificate of title in favor of the purchaser becomes ministerial upon the made thereon posterior to the filing of the notice of lis pendens.
Register of Deeds.
Finally, as to the issue of who between private respondents and
UNIONBANK is negligent and hence must bear the loss, the same is not the
proper subject of the present petition and can only be resolved by the trial
court after the trial on the merit of the main case.

WHEREFORE, the assailed Decision of the Court of Appeals of 26 June

1997 nullifying the consolidation of ownership and ordering the Register of
Deeds of Quezon City to cancel TCT No. 120929 and reinstate TCT No.
41828 is hereby REVERSED and SET ASIDE. The order of the trial court
dated 7 August 1999, declaring UNIONBANK's prayer for writ of preliminary
injunction moot and academic, is hereby REINSTATED. Let this case be
remanded to the Regional Trial Court for trial on the merits.

No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.

Puno, Kapunan, Pardo and Santiago, JJ., concur.

SECOND DIVISION registered with the Registry of Deeds of Oriental Mindoro only on January 9,
4
1975.
G.R. No. L-77468 August 25, 1999
On June 26, 1975, an affidavit of consolidation of ownership was executed
EDUARDO LUCENA and NATIVIDAD PARALES, petitioners, by the Rural Bank of Naujan through its manager, private respondent Rogelio
vs. P. Pineda. The affidavit of consolidation was subsequently registered by
COURT OF APPEALS and RURAL BANK OF NAUJAN, INC., ROGELIO private respondent Reynaldo Mambil in his capacity as acting Register of
PINEDA, MARIANITO BAJA, PATRICIA ARAJA, BRAULIO BAGUS, Deeds on July 8, 1975, under Entry No. 134351. Transfer Certificate of Title
REYNALBO MAMBIL and RAMON GARCIA, respondents. No. T-41512 in the name of the petitioners was thus cancelled and Transfer
Certificate of Title No. T-68547 of the Registry of Deeds of Oriental Mindoro
QUISUMBING, J.: was then issued in favor of the rural bank also on July 8, 1975. Thereafter,
on July 14, 1975, a deed of sale was executed by the rural bank through its
manager whereby the subject property was sold to private respondent
This is a petition for review of the Decision dated January 20, 1987 of the spouses Marianito Baja and Patricia Araja, resulting in the cancellation of
Court of Appeals in CA - G.R. CV No. 65526-R entitled Eduardo Lucena, et TCT No. T-68547 and the subsequent issuance of TCT No. T-68680 in the
al. vs. Rural Bank of Naujan, Inc., et al. as well as its Resolution dated name of said respondents. Said deed of sale dated July 14, 1975 was
1
February 16, 1987 denying petitioners' motion for reconsideration. The accepted and registered by private respondent Ramon G. Garcia, then acting
assailed decision reversed the judgment of the then Court of First Instance of Register of Deeds of Oriental Mindoro.
5
Oriental Mindoro in Civil Case No. R-3004, "Eduardo Lucena, et al. vs. Rural
Bank of Naujan, et al. (Reconveyance with Damages)" and dismissed herein
2 On January 12, 1977, petitioners filed a complaint for reconveyance and
petitioners' complaint.
damages against private respondents before the then Court of First Instance
of Oriental Mindoro, to recover the subject property from private respondents
The factual antecedents are as follows:. and to compel the latter to compensate them for damages and losses
6
suffered. After trial, the court a quo promulgated its decision dated
Petitioners allege they are the registered owners of a parcel of land located September 12, 1978, ruling in sum that there was no valid foreclosure sale of
at the barrio of Mag-asawang Tubig, Municipality of Naujan, Oriental the subject property. The dispositive portion thereof reads:
Mindoro, covered by Transfer Certificate of Title No. T-41512 of the Registry
of Deeds of Oriental Mindoro. On October 29, 1969, petitioner Eduardo WHEREFORE, in view of the foregoing the Court believes and so holds that
Lucena obtained a loan from the private respondent Rural Bank of Naujan, the preponderance of evidence militates in favor of the plaintiffs and against
Inc. in the amount of three-thousand pesos (P3,000.00) secured by a real the defendants, and the Court renders judgment, to wit:
estate mortgage constituted on said parcel of land. On October 1, 1970, after
the loan had matured, petitioners paid to the Rural Bank of Naujan, Inc., the
(1) Orders the defendants Marianito Baja and Patricia Araja to
sum of two-thousand six pesos and ninety centavos (P2,006.90) in partial
satisfaction of their debt, thereby leaving a balance of one-thousand pesos reconvey the parcel of land registered in their name under TCT No.
(P1,000.00) in its favor.1âwphi1.nêt T-68680 of the Register of Deeds of Oriental Mindoro in favor of
herein plaintiffs Eduardo Lucena and Natividad Parales, free from all
liens and encumbrances, except the remaining unpaid balance
On May 7, 1974, after previous demand by the rural bank for the petitioners including accrued interest thereon in favor of the Rural Bank of
to settle the balance of their matured loan went unheeded, the subject Naujan, Inc.;
property was extrajudicially foreclosed and sold at public auction where the
rural bank as highest bidder acquired the property. Prior to the auction sale,
(2) Orders the Rural Bank of Naujan, Inc. and its manager Rogelio
notices of foreclosure were posted in at least three conspicuous public
Pineda, jointly and severally, to pay the herein plaintiffs actual
places in the municipality where the subject property was located, as
3 damages in the amount of P17,500.00 for unrealized rentals from
indicated in the affidavit of posting dated May 6, 1974. No notices were
subject property;
posted in the barrio where the property was located, nor were any published
in a newspaper of general circulation. The Certificate of Sale dated May 7,
1974 issued by private respondent Deputy Sheriff Braulio Bagus was
 (3) Orders the Rural Bank of Naujan, Inc. and its manager Rogelio THE DOOR FOR LEGAL REDEMPTION; SO THAT AN ACTION FOR
Pineda, jointly and severally, to pay herein plaintiffs moral damages RECONVEYANCE, BECAME THE PROPER REMEDY.
in the amount of P10,000.00;
(4) THE AFFIDAVIT OF CONSOLIDATION OF OWNERSHIP HEREIN WAS
9
(4) Orders the Rural Bank of Naujan, Inc. and its manager Rogelio NULL AND VOID FOR LACK OF NOTARIZATION.
Pineda, jointly and severally, to pay plaintiffs attorney's fees in the
amount of P5,000.00, and to pay the costs of suit. We find that the pertinent issues to be resolved are: (1) whether or not a valid
foreclosure sale of the subject property was conducted and (2) whether or
7
SO ORDERED. not reconveyance and damages is the proper remedy available to petitioners.

Not satisfied with the judgment, both petitioners and private respondents With respect to the first issue, this Court has ruled that failure to comply with
elevated the case to the Court of Appeals. On January 20, 1987, the statutory requirements as to publication of notice of auction sale constitutes a
10
respondent court rendered its decision reversing and setting aside the trial jurisdictional defect which invalidates the sale. Even slight deviations
11
court's judgment. It ruled in sum that (a) posting of notices in the barrio therefrom are not allowed. Section 5 of Republic Act No. 720 as amended
12
where the property is situated is not required, as all the law requires is by Republic Act No. 5939 provides:
posting in the municipality or city where the property is located; (b) there is
no need to publish the notice of auction sale in a newspaper of general The foreclosure of mortgages covering loans granted by rural banks
circulation, because the balance of the loan was only one-thousand pesos shall be exempt from the publication in newspapers were the total
(P1,000.00); (c) personal notice of the auction sale to the petitioners was not amount of the loan, including interests due and unpaid, does not
required; (d) the trial court was correct in holding that the date of registration exceed three thousand pesos. It shall be sufficient publication in
of the sheriff's certificate of sale and not the date of the sale itself was the such cases if the notices of foreclosure are posted in at least three of
reckoning point for the start of the one-year redemption period of the the most conspicuous public places in the municipality and barrio
petitioners; and (e) the petitioners did not redeem their property within the were the land mortgaged is situated during the period of sixty days
one-year period from the date of registration of the certificate of sale, and immediately preceding the public auction. Proof of publication as
having lost their right of redemption, cannot squirm their way out of their required herein shall be accomplished by affidavit of the sheriff or
8
predicament by asking for reconveyance of the subject property. officer conducting the foreclosure sale and shall be attached with the
records of the case: . . . . (emphasis supplied)
Petitioners now seek recourse through this petition. They assign the following
errors: In the case at bar, the affidavit of posting executed by the sheriff states that
notices of the public auction sale were posted in three (3) conspicuous public
(1) ABSENCE OF POSTING OF NOTICES IN THE BARRIO OF places in the municipality such as (1) the bulletin board of the Municipal
MAGASAWANG TUBIG, WHERE THE LAND IS LOCATED, AS REQUIRED Building (2) the Public Market and (3) the Bus Station. There is no indication
BY REPUBLIC ACT NO. 5939, RENDERED NULL AND VOID THE SALE IN that notices were posted in the barrio where the subject property lies. Clearly,
QUESTION. there was a failure to publish the notices of auction sale as required by law.

13
(2) PUBLICATION WAS A REQUISITE SINE QUA NON IN THIS CASE, In Roxas vs. Court of Appeals, this Court has ruled that the foreclosure and
BECAUSE THE AMOUNT OF THE LOAN WAS P3,000.00; HENCE, public auction sale of a parcel of land foreclosed by a rural bank were null
PARAGRAPH 3, SECTION 5 OF REPUBLIC ACT NO. 720, WAS NOT and void when there was failure to post notices of auction sale in the barrio
APPLICABLE, BECAUSE THE LAW DOES NOT SPEAK OF THE where the subject property was located. This Court finds that the same
"BALANCE UNPAID" BUT THE "AMOUNT OF THE LOAN". situation obtains in the case at bar. Further still, there was a failure on the
part of private respondents to publish notices of foreclosure sale in a
(3) THE PREMATURE AND FRAUDULENT CONSOLIDATION OF newspaper of general circulation. Section 5 of R.A. 720 as amended by R.A.
OWNERSHIP AND MALICIOUS IMMEDIATE SALE OF THE LAND IN 5939 provides that such foreclosures are exempt from the publication
QUESTION IN FAVOR OF MARIANITO BAJA AND PATRICIA ARAJA requirement when the total amount of the loan including interests due and
BEFORE THE EXPIRATION OF THE PERIOD OF REDEMPTION CLOSED unpaid does not exceed three-thousand pesos (P3,000.00). The law clearly
refers to the total amount of the loan along with interests and not merely the eyes to the possibility of the existence of a defect in his vendor's title, will not
balance thereof, as stressed by the use of the word "total." At the time of make him an innocent purchaser for value, if it afterwards develops that the
foreclosure, the total amount of petitioners' loan including interests due and title was in fact defective, and it appears that he had such notice of the defect
unpaid was P3,006.90. Publication of notices of auction sale in a newspaper as would have led to its discovery had he acted with that measure of
was thus necessary. precaution which may reasonably be required of a prudent man in a like
19
situation.
In light of private respondents' failure to comply with the statutory
requirements of notice and publication, we rule that the foreclosure and In the case at bar, Marianito Baja testified on cross-examination that Victor
public auction sale of petitioners' property are null and void. Hence, the Rural Atienza, Baja's cousin and petitioners' tenant on the subject property,
20
Bank of Naujan did not acquire valid title to the property in question. This informed him of the rural bank's intention to sell the land in question. He
reversal of the Court of Appeals disposes of the other errors assigned by said that from the time this information was relayed to him until the execution
petitioners. of the deed of sale by the bank in favor of the Baja spouses on July 14, 1975,
21
a period of about half a year elapsed. He further stated that upon learning
Anent the second issue, the above conclusion requires a determination of from Victor Atienza that the property was being sold, he immediately went to
whether or not petitioners are entitled to a reconveyance of their property. If the rural bank to verify this information, as well as ascertain if the land was
22
the property has not yet passed to an innocent purchaser for value, an action titled. Baja also said that before the deed of sale was executed on July 14,
14 1975, he made his offer to buy the property from the bank about one month
for reconveyance is still available. It is a condition sine qua non for an 23
action for reconveyance to prosper that the property should not have passed before said date. On direct examination, however, Baja claimed that he
15 verified the title to the subject property to be in the rural bank's name before
to the hands of an innocent purchaser for value. He is considered an 24
innocent purchaser who acquired the property for a valuable consideration the sale was effected.
16
not knowing that the title of the vendor or grantor was null and void. Good
faith or its absence must thus be established on the part of spouses From the records, it appears that title to the property was issued in the rural
Marianito Baja and Patricia Araja at the time that they purchased the subject bank's name only on July 8, 1975, when the bank's affidavit of consolidation
property from the Rural Bank of Naujan. of ownership dated June 26, 1975 was registered with the Registry of Deeds
25
of Oriental Mindoro. Said registration was the operative act to prompt the
Good faith, or the lack of it, is in the last analysis a question of intention; but Register of Deeds to cancel the title in the name of petitioners and to issue a
in ascertaining the intention by which one is actuated on a given occasion, new one in the name of the rural bank. Hence, if Marianito Baja claims to
we are necessarily controlled by the evidence as to the conduct and outward have offered to buy the property one month before July 14, 1975, or
17 sometime in the middle of June of that year, he must have noticed that the
acts by which alone the inward motive may, with safety, be determined. To
determine whether or not the Baja spouses were in good faith at the time title was not yet in the rural bank's name. More so, he also would have
they purchased the subject property from the Rural Bank of Naujan thus noticed that the title was not yet in the bank's name when he verified the
entails a review of the evidence on record. status of the property and the title thereto immediately after Victor Atienza
told him that the property was being sold, which, according to him, was about
half a year before July 14, 1975.
The trial court concluded that Marianito Baja and Patricia Araja were
purchasers in bad faith. The trial court noted that when Marianito Baja
verified the title of the subject property at the rural bank, he must have What Baja should have noticed, if we follow his own chronological estimates,
noticed that the certificate of sale was registered with the Office of the was that the title was still in the petitioners' name when he verified the status
Register of Deeds only on January 9, 1975, so that he is presumed to know of the land in question. Thus, he must have seen that the certificate of
that the petitioners had at least one year from that date or up to January 8, auction sale was registered only on January 9, 1975. As the trial court has
18 said, he is presumed by law to know that the petitioners had one year from
1976 to redeem the subject property.
this date or until January 8, 1976 to redeem the subject property.
It is a well-settled rule that a purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in In addition, Baja was completely aware of the fact that Victor Atienza was a
good faith under the belief that there was no defect in the title of the vendor. tenant of the petitioners. Hence, at the time the property in question was
His mere refusal to believe that such defect exists, or his willful closing of his being sold to him by the rural bank, possession thereof was with the
petitioners, exercised through their tenant Victor Atienza. In Santiago vs.
 26
Court of Appeals, we cited De Guzman, Jr. vs. Court of Appeals (156 was to instruct Victor Atienza to inform Lucena of the proposed sale of the
SCRA 701 [1987]): property. He did not instruct Atienza, however, to make inquiries concerning
the status of the property. Furthermore, Baja's claim that he saw that title to
The failure of appellees to take the ordinary precautions which a the property was in the name of the rural bank prior to the sale is not
prudent man would have taken under the circumstances, specially in credible. Granting arguendo that the title was in the name of the rural bank
buying a piece of land in the actual, visible and public possession of when he first saw it, he nonetheless had notice that the possession of the
another person, other than the vendor, constitutes gross negligence property was with persons other than the vendors thereof. It was thus
amounting to bad faith. incumbent upon him to look beyond the title to the subject property and make
the necessary inquiries. This he neglected to do.
In this connection, it has been held that were, as in this case, the
land sold is in the possession of a person other than the vendor, the When the Baja spouses purchased the subject property from the rural bank
purchaser is required to go beyond the certificate of title and ma[k]e on July 14, 1975, they did so well within the one-year redemption period of
inquiries concerning the rights of the actual possessor. (Incala vs. petitioners. In doing so, not only did said respondents have notice of a defect
Mendoza, CA-G.R. No. 13677-R, November 9, 1965; De Jesus vs. in the title of the rural bank over the subject property, but by purchasing the
Revilla, CA-G.R. No. 13562-R, October 5, 1965; Martelino vs. latter, they also closed the door on the petitioners' right to redeem it.
Manikan, CA-G.R. No. 32792-R, June 22, 1956) Accordingly, we adopt the finding of the lower court that said respondents
purchased the subject property in bad faith. We rule that petitioners are
entitled to a reconveyance of the property as it has not yet passed to an
xxx xxx xxx
innocent purchaser for value.
One who purchases real property which is in the actual possession
In their petition, petitioners also pray that this Court render a decision
of another should, at least make some inquiry concerning the right of
pursuant to their prayers as appellants in the Court of Appeals. Essentially,
those in possession. The actual possession by other than the vendor
petitioners implored the respondent court to raise the amount of damages
should, at least put the purchaser upon inquiry. He can scarcely, in
the absence of such inquiry, be regarded as a bona fide purchaser awarded them by the trial court and to find private respondents Braulio
Bagus, Reynaldo Mambil and Ramon Garcia liable for damages as well.
as against such possessors" (Conspecto vs. Fruto, 31 Phil. 144)."
Petitioners also asked for the inclusion of exemplary damages and litigation
fees in the award.
xxx xxx xxx
We find that there is no substantial reason to modify the trial court's award of
Marianito Baja testified on cross-examination that he was working for about damages. There is no convincing proof to support petitioners' allegations that
half a year in another area about a hundred meters away from the subject private respondents Braulio Bagus, Reynaldo Mambil and Ramon Garcia
27
property before the same was offered to him for sale. Her thus had visual performed their duties as Deputy Provincial Sheriff and Registers of Deeds
notice that petitioners' tenant Victor Atienza was working on the land in with unlawful intent and in bad faith. Furthermore, petitioners' allegations as
question. He also learned from Atienza that petitioner Eduardo Lucena was to the amount of unrealized rentals due them as actual damages are mere
28
the landlord of the former. In fact, prior to the date that he acquired the assertions unsupported by factual evidence. In determining actual damages,
property, Baja instructed Atienza to inform said petitioner that the rural bank the court cannot rely on mere assertions, speculations, conjectures or
29
was selling the property to him. Baja, however, never communicated guesswork but must depend on competent proof and on the best evidence
directly with petitioner Eduardo Lucena, nor did he receive any response obtainable regarding the actual amount of loss.
32
30
coming from said petitioner. He did learn, however, that Lucena scolded
Victor Atienza when the latter went to see him, indicating that he was aware
of said petitioner's aversion to the sale of the property by the rural bank.
31 There is also no sound basis for increasing the award of moral damages.
The well-entrenched rule is that the grant of moral damages depends upon
33
the discretion of the court based on the circumstances of each case. We
All things considered, Marianito Baja did not make any reasonable inquiry find that the trial court exercised its sound discretion in awarding actual and
regarding the status of the land in question, despite being aware that the moral damages as it did to the petitioners, as well as in not granting the
property was still in the possession of the petitioners. He did not even make exemplary damages for lack of sufficient basis.
any effort to communicate directly with petitioner Eduardo Lucena. All he did
WHEREFORE, the petition is hereby GRANTED. The decision of the Court
of Appeals dated January 20, 1987 is hereby SET ASIDE; and the decision
of the CFI of Oriental Mindoro dated September 12, 1978, is hereby
REINSTATED and AFFIRMED.1âwphi1.nêt

Costs against private respondents.

SO ORDERED.
FIRST DIVISION
On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the
[G.R. No. 125838. June 10, 2003.] Office of the Sheriff, Regional Trial Court of Iriga City, an Application for
Extra-judicial Foreclosure of Real Estate and Chattel Mortgages.
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. COURT OF
APPEALS and EMERALD RESORT HOTEL CORPORATION, Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the
Respondents. required notices of public auction sale of the personal and real properties.
However, Sheriffs Ramos and Galeon failed to execute the corresponding
DECISION certificates of posting of the notices. On 10 July 1986, the auction sale of the
personal properties proceeded.

CARPIO, J.: The Office of the Sheriff scheduled on 12 August 1986 the public auction
sale of the real properties. The Bicol Tribune published on 18 July 1986, 25
July 1986 and 1 August 1986 the notice of auction sale of the real properties.
The Case However, the Office of the Sheriff postponed the auction sale on 12 August
1986 to 11 September 1986 at the request of ERHC. DBP did not republish
the notice of the rescheduled auction sale because DBP and ERHC signed
This petition for review on certiorari 1 seeks to reverse the Joint Decision 2 of an agreement to postpone the 12 August 1986 auction sale. 6 ERHC,
the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31 however, disputes the authority of Jaime Nuevas who signed the agreement
January 1996 and the Resolution dated 30 July 1996 denying the motion for for ERHC.
reconsideration. The Court of Appeals affirmed the Decision 3 of the
Regional Trial Court of Iriga City, Branch 36, declaring the foreclosure of the In a letter dated 24 November 1986, ERHC informed DBP of its intention to
mortgaged properties void for failure to comply with the statutory lease the foreclosed properties. 7
requisites.chanrob1es virtua1 1aw 1ibrary
On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City
The Facts a complaint for annulment of the foreclosure sale of the personal and real
properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC
alleged that the foreclosure was void mainly because (1) DBP failed to
Private respondent Emerald Resort Hotel Corporation ("ERHC") obtained a comply with the procedural requirements prescribed by law; and (2) the
loan from petitioner Development Bank of the Philippines ("DBP"). DBP foreclosure was premature. ERHC maintained that the loan was not yet due
released the loan of P3,500,000.00 in three installments: P2,000,000.00 on and demandable because the DBP had restructured the loan.
27 September 1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on
14 September 1976. To secure the loan, ERHC mortgaged its personal and DBP moved to dismiss the complaint because it stated no cause of action
real properties to DBP. and ERHC had waived the alleged procedural defenses. The trial court
denied the motion to dismiss. Consequently, DBP filed its answer, claiming
On 18 March 1981, DBP approved a restructuring of ERHC’s loan subject to that it complied with the legal requirements for a valid foreclosure. DBP
certain conditions. 4 On 25 August 1981, DBP allegedly cancelled the further claimed that it cancelled the conditional restructuring of ERHC’s loan
restructuring agreement for ERHC’s failure to comply with some of the because ERHC failed to comply with some material conditions of the
material conditions 5 of the agreement. restructuring agreement.

Subsequently, ERHC delivered to DBP three stock certificates of ERHC Meanwhile, acting on ERHC’s application for the issuance of a writ of
aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC preliminary injunction, the trial court granted the writ on 20 August 1990.
first delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering Accordingly, the trial court enjoined DBP from enforcing the legal effects of
1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock the foreclosure of both the chattel and real estate mortgages.
Certificate No. 31 covering 691,052 shares, and on 27 November 1981 Stock
Certificate No. 32 covering 923,852 shares. Thereafter, trial on the merits ensued. After the parties presented their
evidence, the trial court rendered a Decision 8 dated 28 January 1992, the The Court of Appeals sustained the trial court’s ruling that the foreclosure
dispositive portion of which reads:chanrob1es virtual 1aw library was void. The Court of Appeals affirmed the trial court’s finding that DBP
failed to comply with the posting and publication requirements under the
WHEREFORE, premises considered, judgment is hereby rendered in favor applicable laws. The Court of Appeals held that the non-execution of the
of the plaintiff corporation and against the defendants:chanrob1es virtual 1aw certificate of posting of the notices of auction sale and the non-republication
library of the notice of the rescheduled 11 September 1986 auction sale invalidated
the foreclosure.
1. Declaring as null and void the foreclosure and auction sale of the personal
properties of plaintiff corporation held on July 10, 1986; The Court of Appeals also found that the parties perfected the restructuring
agreement and that ERHC substantially complied with its conditions based
2. Declaring as null and void the foreclosure and auction sale of the real on the following "circumstances" :chanrob1es virtual 1aw library
properties of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT
No. RT-1076 (19981); TCT No. RT-1077 (22367) and TCT No. 10244 of the (a) The transmittal letter dated October 20, 1981 which relates to the
Register of Deeds of Camarines Sur (now Iriga City) in the auction sale progress of the restructuring of the mortgage account of Emerald Resort
thereof held on September 11, 1986, and all the improvements therein; Hotel Corporation and that the same has been approved by the SEC (Exh.
"D")
3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to
cancel the annotations of the Sheriff’s Certificate of Sale on the aforestated (b) The transfer of shares of stocks to appellant DBP, the value of which are
titles as null and void and without any legal effect; broken as follows:chanrob1es virtual 1aw library

4. Ordering the defendant Development Bank of the Philippines to comply 1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs.
with the restructuring of plaintiff corporation’s loans retroactively as though "D" and "D-1");
the foreclosure had not taken place in the interest of justice and equity; and
2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F"
5. Ordering the defendant DBP to pay plaintiff corporation moral damages in and "F-1");
the amount of P500,000.00 for initiating what was a clearly illegal foreclosure
and causing the said plaintiff corporation to suffer needlessly anguish, 3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs.
opprobrium and disrepute as a consequence thereto. "M" and "M-5").

SO ORDERED. (c) The acceptance of the foregoing by the DBP without raising the fact of
delay as embodied in condition no. 7 of Exh. "B" .
Both ERHC and DBP appealed the trial court’s decision to the Court of
Appeals. ERHC anchored its appeal on the insufficiency of the moral (d) No rejection was made by the defendant-appellant DBP at the time the
damages awarded by the trial court and the absence of any award of shares of stocks were being held by the latter.
temperate, nominal or exemplary damages. DBP’s appeal, on the other
hand, assailed the decision as well as the order dismissing its petition for a (e) The belated rejection of the shares of stocks was interposed only at the
writ of possession. time the instant suit was filed which was long after the expiration of the 90-
day period extended by DBP to Emerald.
The Court of Appeals, which consolidated the appeals, affirmed the decision
of the trial court. 9 DBP filed a Motion for Reconsideration which the Court of (f) No rejection was also made when plaintiff corporation did not avail of the
Appeals denied. 10 additional loan which was allegedly part of the package accommodation. 11

Hence, this petition. The Court of Appeals also affirmed the trial court’s award of moral damages
but denied ERHC’s claim for temperate and exemplary damages. The Court
The Ruling of the Court of Appeals of Appeals found that DBP’s intrusion, assisted by sheriffs and several armed
men, into Hotel Ibalon and the sheriffs’ inventory of the hotel’s furniture and
fixtures caused fear and anxiety to the hotel owner, staff and guests. These Appeals. 14 In the present case, the foreclosing sheriffs failed to execute the
acts, according to the Court of Appeals, debased the hotel’s goodwill and certificate of posting of the auction sale notices. However, this fact alone
undermined its viability warranting the award of moral damages. does not prove that the sheriffs failed to post the required notices. As held in
Bohanan, "the fact alone that there is no certificate of posting attached to the
Finding the foreclosure void, the Court of Appeals also denied DBP’s petition sheriff’s records is not sufficient to prove the lack of posting." 15
for a deficiency claim and a writ of possession.
Based on the records, DBP presented sufficient evidence to prove that the
The Issues sheriffs posted the notices of the extrajudicial sale. The trial and appellate
courts glaringly erred and gravely abused its discretion in disregarding the
sheriffs’ partial report and the sheriffs’ certificate of sale executed after the
DBP presents the following issues for resolution:chanrob1es virtual 1aw auction sale. A careful examination of these two documents clearly shows
library that the foreclosing sheriffs posted the required notices of sale.

1. Whether DBP complied with the posting and publication requirements The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and
under applicable laws for a valid foreclosure. Deputy Sheriff Ruperto Galeon states in part:chanrob1es virtual 1aw library

2. Whether the restructuring agreement between DBP and ERHC was That on July 1, 1986, the undersigned sheriffs posted the notice of public
perfected and implemented by the parties before the foreclosure. auction sale of chattel mortgage in the conspicuous places, and at the Iriga
City Hall Bulletin Board, including Ibalon Hotel, Iriga City . . .. 16 (Emphasis
3. Whether ERHC’s offer to lease the foreclosed properties constitutes a supplied)
waiver of its right to question the validity of the foreclosure.
Similarly, the certificate of sale of the real properties signed by both Sheriff
4. Whether the award of moral damages to ERHC, a juridical person, is Ramos and Deputy Sheriff Galeon on 11 September 1986 states in
proper. part:chanrob1es virtual 1aw library

The Court’s Ruling I, FURTHERMORE CERTIFY that the Notice of Sale was published in
BICOL TRIBUNE, a newspaper of general circulation in the province of
Camarines Sur, for three (3) consecutive weeks and three (3) copies of the
The petition is partly meritorious. notices of sale were posted in three (3) public places of the City where the
properties are located for no less than twenty (20) days before the sale. 17
First Issue: Compliance with the posting and publication requirements under (Emphasis supplied)
applicable laws
Deputy Sheriff Galeon also testified that he, together with Sheriff Ramos, 18
Posting requirement under Acts Nos. 3135 and 1508 actually posted the notices of sale. 19 Indisputably, there is clear and
convincing evidence of the posting of the notices of sale. What the law
In alleging that the foreclosure was valid, DBP maintains that it complied with requires is the posting of the notice of sale, which is present in this case, and
the mandatory posting requirement under applicable laws. 12 DBP insists not the execution of the certificate of posting.
that the non-execution of the certificate of posting of the auction sale notices
did not invalidate the foreclosure. Moreover, ERHC bore the burden of presenting evidence that the sheriffs
failed to post the notices of sale. 20 In the absence of contrary evidence, as
We agree. in this case, the presumption prevails that the sheriffs performed their official
duty of posting the notices of sale. Consequently, we hold that the non-
This Court ruled in Cristobal v. Court of Appeals 13 that a certificate of execution of the certificate of posting cannot nullify the foreclosure of the
posting is not required, much less considered indispensable for the validity of chattel and real estate mortgages in the instant case.chanrob1es virtua1 1aw
an extrajudicial foreclosure sale of real property under Act No. 3135. 1ibrary
Cristobal merely reiterated the doctrine laid down in Bohanan v. Court of
Publication requirement under Act No. 3135 Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.
Having shown that there was posting of the notices of auction sale, we shall
now resolve whether there was publication of the notice of sale of the real x x x
properties in compliance with Act No. 3135. 21

There is no question that DBP published the notice of auction sale scheduled Publication, therefore, is required to give the foreclosure sale a reasonably
on 12 August 1986. However, no auction sale took place on 12 August 1986 wide publicity such that those interested might attend the public sale. To
because DBP, at the instance of ERHC, agreed to postpone the same to 11 allow the parties to waive this jurisdictional requirement would result in
September 1986. DBP contends that the agreement to postpone dispensed converting into a private sale what ought to be a public auction.
with the need to publish again the notice of auction sale. Thus, DBP did not
anymore publish the notice of the 11 September 1986 auction sale. DBP DBP further asserts that Section 24, Rule 39 of the Rules of Court, which
insists that the law does not require republication of the notice of a allows adjournment of execution sales by agreement of the parties, applies to
rescheduled auction sale. Consequently, DBP argues vigorously that the the present case. Section 24 of Rule 39 provides:chanrob1es virtual 1aw
extrajudicial foreclosure of the real estate mortgage is valid. library

We do not agree. Sec. 24. Adjournment of Sale — By written consent of debtor and creditor,
the officer may adjourn any sale upon execution to any date agreed upon in
The Court held recently in Ouano v. Court of Appeals 22 that republication in writing by the parties. Without such agreement, he may adjourn the sale from
the manner prescribed by Act No. 3135 is necessary for the validity of a day to day, if it becomes necessary to do so for lack of time to complete the
postponed extrajudicial foreclosure sale. Another publication is required in sale on the day fixed in the notice.
case the auction sale is rescheduled, and the absence of such republication
invalidates the foreclosure sale. The Court ruled in Ouano that Section 24 of Rule 39 does not apply to
extrajudicial foreclosure sales, thus:chanrob1es virtual 1aw library
The Court also ruled in Ouano that the parties have no right to waive the
publication requirement in Act No. 3135. The Court declared Petitioner submits that the language of the abovecited provision 23 implies
thus:chanrob1es virtual 1aw library that the written request of the parties suffices to authorize the sheriff to reset
the sale without republication or reposting.
Petitioner further contends that republication may be waived voluntarily by
the parties. At the outset, distinction should be made of the three different kinds of sales
under the law, namely: an ordinary execution sale, a judicial foreclosure sale,
This argument has no basis in law. The issue of whether republication may and an extrajudicial foreclosure sale. An ordinary execution sale is governed
be waived is not novel, as we have passed upon the same query in by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the
Philippine National Bank v. Nepomuceno Productions Inc. Petitioner therein Rules of Court applies in cases of judicial foreclosure sale. On the other
sought extrajudicial foreclosure of respondent’s mortgaged properties with hand, Act No. 3135, as amended by Act No. 4118 otherwise known as "An
the Sheriff’s Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the Act to Regulate the Sale of Property under Special Powers Inserted in or
auction sale was rescheduled several times without republication of the Annexed to Real Estate Mortgages" applies in cases of extrajudicial
notice of sale, as stipulated in their Agreements to Postpone Sale. Finally, foreclosure sale. A different set of law applies to each class of sale
the auction sale proceeded on December 20, 1976, with petitioner as the mentioned. The cited provision in the Rules of Court hence does not apply to
highest bidder. Aggrieved, respondents sued to nullify the foreclosure sale. an extrajudicial foreclosure sale. (Emphasis supplied)
The trial court declared the sale void for non-compliance with Act No. 3135.
This decision was affirmed in toto by the Court of Appeals. Upholding the DBP also maintains that ERHC’s act of requesting postponement of the 12
conclusions of the trial and appellate courts, we held:chanrob1es virtual 1aw August 1986 auction sale estops ERHC from challenging the absence of
library publication of the notice of the rescheduled auction sale.

We do not agree.
 "SHERIFF" (Emphasis supplied)
ERHC indeed requested postponement of the auction sale scheduled on 12
August 1986. 24 However, the records are bereft of any evidence that ERHC The last paragraph of the prescribed notice of sale allows the holding of a
requested the postponement without need of republication of the notice of rescheduled auction sale without reposting or republication of the notice.
sale. In Philippine National Bank v. Nepomuceno Productions Inc., 25 the However, the rescheduled auction sale will only be valid if the rescheduled
Court held that:chanrob1es virtual 1aw library date of auction is clearly specified in the prior notice of sale. The absence of
this information in the prior notice of sale will render the rescheduled auction
. . . To request postponement of the sale is one thing; to request it without sale void for lack of reposting or republication. If the notice of auction sale
need of compliance with the statutory requirements is another. Respondents, contains this particular information, whether or not the parties agreed to such
therefore, did not commit any act that would have estopped them from rescheduled date, there is no more need for the reposting or republication of
questioning the validity of the foreclosure sale for non-compliance with Act the notice of the rescheduled auction sale.
No. 3135. . . .
The Office of the Court Administrator issued Circular No. 7-2002 pursuant to
The form of the notice of extrajudicial sale is now prescribed in Circular No. the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as
7-2002 26 issued by the Office of the Court Administrator on 22 January amended by the Resolutions of 30 January 2001 and 7 August 2001. The
2002. Section 4(a) of Circular No. 7-2002 provides that:chanrob1es virtual Court issued these Resolutions for two reasons.
1aw library
First, the Court seeks to minimize the expenses which the mortgagee incurs
Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of in publishing the notice of extrajudicial sale. With the added information in the
mortgage was raffled shall do the following:chanrob1es virtual 1aw library notice of sale, the mortgagee need not cause the reposting and republication
of the notice of the rescheduled auction sale. There is no violation of the
a. Prepare a Notice of Extra-judicial Sale using the following notice requirements under Acts Nos. 3135 and 1508 precisely because the
form:jgc:chanrobles.com.ph interested parties as well as the public are informed of the schedule of the
next auction sale, if the first auction sale does not proceed. Therefore, the
"NOTICE OF EXTRA-JUDICIAL SALE" purpose of a notice of sale, which is to notify the mortgagor and the public of
the foreclosure sale, is satisfied.
"Upon extra-judicial petition for sale under Act 3135/1508 filed __________
against (name and address of Mortgagor/s) to satisfy the mortgage Second, the Court hopes to deter the practice of some mortgagors in
indebtedness which as of ___________ amounts to P ________ excluding requesting postponement of the auction sale of real properties, then later
penalties, charges, attorney’s fees and expenses of foreclosure, the attacking the validity of the foreclosure for lack of republication. This practice
undersigned or his duly authorized deputy will sell at public auction on (date will only force mortgagees to deny outright requests for postponement by
of sale) _________ at 10:00 A.M. or soon thereafter at the main entrance of mortgagors since it will only mean added publication expense on the part of
the ___________________ (place of sale) to the highest bidder, for cash or mortgagees. Such development will eventually work against mortgagors
manager’s check and in Philippine Currency, the following property with all its because mortgagees will hesitate to grant postponements to mortgagors.
improvements, to wit:jgc:chanrobles.com.ph
In the instant case, there is no information in the notice of auction sale of any
"(Description of Property") date of a rescheduled auction sale. Even if such information were stated in
the notice of sale, the reposting and republication of the notice of sale would
"All sealed bids must be submitted to the undersigned on the above stated still be necessary because Circular No. 7-2002 took effect only on 22 April
time and date."cralaw virtua1aw library 2002. There were no such guidelines in effect during the questioned
foreclosure.
"In the event the public auction should not take place on the said date, it shall
be held on _______________ without further notice."cralaw virtua1aw library Clearly, DBP failed to comply with the publication requirement under Act No.
3135. There was no publication of the notice of the rescheduled auction sale
_____________(date) of the real properties. Therefore, the extrajudicial foreclosure of the real
estate mortgage is void.
DBP, however, complied with the mandatory posting of the notices of the 2. A third additional loan of Six Hundred Seventy-Nine Thousand Pesos
auction sale of the personal properties. Under the Chattel Mortgage Law, 27 (P679,000.00), payable quarterly under the same restructured terms of the
the only requirement is posting of the notice of auction sale. There was no original and two (2) additional loans, at 18% interest per annum; and
postponement of the auction sale of the personal properties and the
foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of 3. Restructuring of the firm’s total outstanding principal obligation of
the chattel mortgage in the instant case suffers from no procedural P3,500,000.00 in the form of extension of grace period on principal
infirmity.chanrob1es virtua1 1aw 1ibrary repayment from two (2) years to nine (9) years to make a maximum loan
term of nineteen (19) years, regular amortizations to commence three (3)
Second Issue: Perfection and implementation of the restructuring agreement months after the end of the extended grace period on October 31, 1985 and
between DBP and ERHC payable quarterly at the following interest rates:chanrob1es virtual 1aw
library
ERHC consistently argues that its restructuring agreement with DBP was
perfected and even implemented by the parties. ERHC maintains that the Original Loan - P1,425,800 at 16% interest per annum
delivery of its certificates of stocks to DBP was part of its compliance with the
conditions of the restructuring agreement. - 574,200 at 18% interest per annum

We do not agree. 1st Additional Loan - 1,000,000 at 18% interest per annum

Contrary to ERHC’s allegations and the Court of Appeals’ findings, the - 500,000 at 18% interest per annum
restructuring agreement was never perfected. ERHC failed to comply with
the material conditions for the perfection of the restructuring agreement. As ————
specified in DBP Resolution No. 956 dated 19 March 1981 28 approving the
restructuring agreement, the following are the conditions for the restructuring Total - P3,500,000
agreement:chanrob1es virtual 1aw library
subject to the following terms and conditions:chanrob1es virtual 1aw library
RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) —
Conversion Into Common and/or Preferred Shares of P2,786,000.00 A. For the P679,000.00 Additional Loan
Representing 40% of the Total Outstanding Obligations; a Third Additional
Loan of P679,000.00 and Restructuring of the Account. a. That subject-firm shall first pay the amount of P473.00 to reduce its total
arrearages on interest and other charges of P3,465,473.00 as of May 15,
x x x 1980 to P3,465,000.00; and

b. That the proceeds of this additional loan shall be applied to subject-firm’s

In view thereof and as favorably recommended by the Manager of the accrued interest and other charges due DBP as of May 15, 1980 not
Industrial Projects Department III in her memorandum dated February 24, otherwise covered by the proposed equity conversion of P2,786,000.00.
1981, the Board, upon motion made and duly seconded, APPROVED in
favor of Emerald Resort Hotel Corporation (Hotel Ibalon) the B. For Both Additional Loan and Restructuring
following:chanrob1es virtual 1aw library
a. That a quasi-reorganization shall first be undertaken for the purpose of
1. Immediate conversion into common and/or preferred shares at borrower’s eliminating existing deficits, which should be formally authorized by the
option, of P2,786,000.00 representing 40% of the total outstanding obligation stockholders of the corporation, should comply with legal requirements, and
as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of should be approved by the Securities and Exchange Commission which sees
outstanding principal balance of P3,500,000.00 and total arrearages on to it that the rights of creditors are not prejudiced.
interest and other charges of P3,465,000.00, the conversion price to be
equal to the par value of the shares; x x x
 In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to
e. That subject-firm shall apply with SEC for an amendment of its authorized assign 67 percent of its outstanding shares to DBP. Thus, ERHC’s reply
capitalization to include preferred shares in case immediate conversion into letter, signed by its President Atty. Jose C. Reyes, states in part:chanrob1es
equity of 40% of the total outstanding obligation as of May 15, 1980 will virtual 1aw library
include preferred shares.chanrob1es virtua1 1aw 1ibrary
With reference to your letter dated 17 April 1985 which could not be
x x x (Emphasis supplied) seasonably acted upon on account of my absence from the country for
medical reasons, I am pleased to inform your goodself of the action taken on
A careful review of the facts and the evidence presented by the parties the various items thereon enumerated, to wit:chanrob1es virtual 1aw library
discloses that ERHC failed to comply with the terms and conditions set forth
in DBP Resolution No. 956. 1. . . .

First, ERHC failed to comply with the important condition of converting into 2. Assignment of 67% of outstanding voting shares.
equity 40 percent of its outstanding debt to DBP. ERHC did not present any
evidence to show that it complied with this particular requirement. While it is We are ready to bring up the assigned shares in favor of DBP to 67% of the
true that ERHC delivered to DBP certificates of stocks, it was to comply with corporation’s outstanding voting shares of 4,917,500 as of December 31,
ERHC’s commitment under the original mortgage contracts. 29 ERHC 1982 or total of 3,294,725 shares.
committed to pledge or assign to DBP at least 67 percent of its outstanding
shares to secure the original loan accommodation. The original mortgage The corporation will maintain its previous assignment of 911,800 shares.
contracts contain the following condition:chanrob1es virtual 1aw library
Moreover, the corporation is agreeable that Stock Certificate No. 030 for
x x x 1,862,148 shares which had been transferred to DBP be considered as an
alternative compliance to the raising of DBP’s assigned shares to the full
67% or 3,294,725 shares. Your formal conformity to this arrangement is
c. By an assignment to the Mortgagee of not less than 67% of the total likewise requested.
subscribed and outstanding voting shares of the company. The said
percentages of shares assigned shall be maintained at all times and the said Finally, the corporation will further assign to DBP another 520,777 shares in
assignment to subsist for as long as the Assignee may deem necessary exchange of Stock Certificate No. 032 for 923,852 shares which was
during the existence of the Mortgagee’s approved accommodation. . . . 30 transferred to DBP conditionally. This Stock Certificate has to be surrendered
to the corporation for cancellation before we can issue by way of further
On 17 April 1985, DBP informed ERHC that it had not complied with the assignment the 520,777 shares. In short, the 3 blocks of shares mentioned
condition in the original mortgage contract on the assignment of 67 percent above would result as follows:chanrob1es virtual 1aw library
of its outstanding shares to DBP. The letter of DBP states in part:chanrob1es
virtual 1aw library 1. 911,800 shares

2. The condition requiring ERHC to assign in favor of DBP at least 67% of 2. 1,862,148 shares
the subscribed and outstanding voting shares of company has not been met.
3. 520,777 shares
Of the 4,917,500 outstanding voting shares as of December 31, 1982, only
911,800 shares have been assigned instead of 3,294,725 (67% of ——————
4,917,000), more of the outstanding voting shares have increased. 31
Total — 3,294,725 shares of 67% outstanding voting shares
The deficiency of 2,382,925 shares (3,294,725 - 911,800) may however be
covered by the 2,786,000 shares you transferred in the name of DBP as an x x x. 32
alternative compliance with 65% requirement. (Emphasis supplied)
Clearly, when ERHC delivered the certificates of stocks, it was to comply with It will thus be noted from the foregoing communications that we have exerted
ERHC’s commitment under the original mortgage contracts, not the our utmost best to comply with the conditions for the re-structuring of our
restructuring agreement. loan accounts and all have been complied, with the exception of the quasi-
reorganization, for reasons beyond our legal control since it is the SEC that
Besides, there is a vast difference between an assignment of shares to DBP passes upon the question as to whether or not we meet the SEC guidelines
by existing stockholders and conversion of DBP’s loan into equity of ERHC. for a quasi-reorganization. Unfortunately, for the reasons stated in Annex "H"
In the first, the paid-up capital of ERHC remains the same. In the latter, the and the enclosures thereto, the SEC felt that ERHC was not within their
paid-up capital of ERHC, as well as its liabilities, changes in that the liabilities guidelines for a quasi-reorganization. 33 (Emphasis supplied)
are transferred to the capital account to the extent of the conversion. The
latter case, which is the conversion of debt into equity required under the The quasi-reorganization is required specifically to eliminate ERHC’s existing
restructuring agreement, never happened. The delivery to DBP of stock deficits. However, the SEC must first approve the quasi-reorganization which
certificates representing 3,294,725 ERHC shares did not reduce the liabilities approval ERHC admittedly failed to secure. Through no fault of DBP, SEC
of ERHC. The reason for the requirement to convert P2,786,000.00 in disapproved ERHC’s application for quasi-reorganization.chanrob1es virtua1
liabilities of ERHC into equity was to reduce ERHC’s debt to equity ratio, 1aw 1ibrary
which the assignment and delivery of the stock certificates did not and could
not have achieved. Considering that ERHC failed to comply with the material conditions of the
restructuring agreement, the agreement was never implemented or even
Second, ERHC did not avail of the P679,000.00 additional loan, despite this perfected. The perfection and implementation of the restructuring agreement
being a material condition of the restructuring agreement. ERHC could not were expressly subject to the following conditions embodied in DBP
simply refuse to avail of the additional loan because the proceeds of this loan Resolution No. 956 and in DBP’s notice of approval to ERHC,
were to pay the balance of ERHC’s accrued interest and other charges due respectively:chanrob1es virtual 1aw library
DBP as of 15 May 1980. Clearly, ERHC’s refusal to avail of the additional
loan, intended to up-date ERHC’s loan account, prevented the perfection of t. . . . Implementation of the restructuring scheme as approved shall take
the restructuring agreement. effect upon compliance with the terms and conditions and with all the legal
and documentation requirements; 34
Lastly, ERHC failed to comply with the quasi-reorganization requirement, as
clearly admitted in ERHC’s letter dated 3 November 1982 to DBP, x x x
thus:chanrob1es virtual 1aw library

3. On July 31, 1981, we once more communicated with your Naga Branch 7. All documents for this loan approval shall be executed and perfected
advising of the Emerald Resort Hotel Corporation’s Stockholders Resolution within 90 days from the date of this notice; otherwise, this accommodation
approving the quasi-reorganization and the Petition filed with the Securities shall be automatically cancelled. 35
and Exchange Commission requesting approval of the corporation’s
resolution on quasi-reorganization and the transfer of 1,862,148 shares in The trial and appellate courts gravely misapprehended the facts and made
favor of the DBP, copy whereof is attached as Annex "C" ; manifestly mistaken inferences in finding that the parties had perfected the
restructuring agreement. Consequently, when DBP filed the application for
4. On September 7, 1981, we received by personal delivery a letter from extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was
Manager Mario C. Leaño, copy whereof is attached as Annex "D." In our already in default in paying its debt to DBP.chanrob1es virtua1 1aw 1ibrary
conversation had on this occasion, I reiterated our request in our letter dated
19 June 1981 that in view of the circumstances affecting our papers in the Third Issue: ERHC’s offer to lease the foreclosed properties
Securities and Exchange Commission there was need to extend our period
of compliance. ERHC offered to lease from DBP the foreclosed properties after the auction
sale. DBP argues that when ERHC offered to lease from DBP the foreclosed
x x x properties, ERHC waived its right to question the validity of the foreclosure.

We do not agree.
To constitute a waiver, the intent to waive must be shown clearly and The award of moral damages cannot be granted in favor of a corporation
convincingly. 36 A mere offer to lease the foreclosed properties cannot because, being an artificial person and having existence only in legal
constitute a waiver of ERHC’s right to contest the validity of the foreclosure contemplation, it has no feelings, no emotions, no senses. It cannot,
on the ground of non-compliance with the statutory requisites. ERHC’s offer therefore, experience physical suffering and mental anguish, which can be
to lease does not relinquish ERHC’s right to challenge the validity of the experienced only by one having a nervous system. The statement in People
foreclosure. The offer to lease the foreclosed properties cannot validate or v. Manero and Mambulao Lumber Co. v. PNB that a corporation may recover
ratify a void foreclosure. ERHC’s intention to lease the foreclosed properties moral damages if it "has a good reputation that is debased, resulting in social
cannot simply outweigh DBP’s failure to comply with the statutory requisite humiliation" is an obiter dictum. On this score alone the award for damages
for a valid extrajudicial foreclosure. As the Court of Appeals correctly ruled, must be set aside, since RBS is a corporation. 39
"there can be no waiver of the posting and publication requirements in
foreclosure proceedings because the same is contrary to law and public WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV
order."cralaw virtua1aw library Nos. 38569 and 38604 is AFFIRMED with MODIFICATION. The extrajudicial
foreclosure of the chattel mortgage is valid whereas the extrajudicial
Fourth Issue: Award of moral damages foreclosure of the real estate mortgage is void. The award of moral damages
is deleted for lack of basis. No costs.chanrob1es virtua1 1aw 1ibrary
DBP maintains that ERHC, a juridical person, is not entitled to moral
damages. ERHC counters that its reputation was debased when the sheriffs SO ORDERED.
and several armed men intruded into Hotel Ibalon’s premises and inventoried
the furniture and fixtures in the hotel. Davide, Jr., C.J., Vitug, Ynares-Santiago and Azcuna, JJ., concur.

The Court of Appeals erred in awarding moral damages to ERHC. The Court Endnotes:
of Appeals’ sole basis for its ruling is a quoted portion of the testimony of
ERHC’s President, Atty. Jose Reyes. The testimony was not even offered to
prove the justification and amount of damages which ERHC claims against
DBP. In other words, ERHC failed to present evidence to warrant the award
of moral damages. In a long line of decisions, this Court has held that the
claimant for moral damages must present concrete proof to justify its award,
thus:chanrob1es virtual 1aw library

. . . while no proof of pecuniary loss is necessary in order that moral

damages may be awarded, the amount of indemnity being left to the
discretion of the court (Art. 2216), it is, nevertheless, essential that the
claimant satisfactorily prove the existence of the factual basis of the damage
(Art. 2217) and its causal relation to defendant’s acts. This is so because
moral damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer. 37 (Emphasis
supplied)

In the body of its decision, the trial court gave no basis to justify the award of
moral damages. The trial court simply awarded moral damages in the
dispositive portion of its decision. 38

Moreover, as a general rule, moral damages are not awarded to a

corporation, thus:chanrob1es virtual 1aw library
 10
FIRST DIVISION (₱3,517,380), as evidenced by the several promissory notes, all of which
were due on 14 March 1983.
G.R. No. 134406 November 15, 2000
The RABATs failed to pay their outstanding balance on due date.
PHILIPPINE NATIONAL BANK, petitioner,
11
vs. In its letter of 24 July 1986, in response to the letter of the RABATs of 16
SPOUSES FRANCISCO and MERCED RABAT, respondents. June 1986 requesting for more time within which to arrive at a viable
proposal for the settlement of their account, PNB informed the RABATs that
DECISION their request has been denied and gave the RABATs until 30 August 1986 to
settle their account. The PNB sent the letter to 197 Wilson Street, San Juan,
DAVIDE, JR., C.J.: Metro Manila.

For failure of the RABATs to pay their obligation, the PNB filed a petition for
In its petition for review, petitioner Philippine National Bank (hereafter PNB)
the extrajudicial foreclosure of the real estate mortgage executed by the
seeks the reversal of the decision of 29 July 1998 of the Court of Appeals in
1 RABATs. After due notice and publication, the mortgaged parcels of land
CA-GR. CV No. 49800, which affirmed the decision of 14 June 1994 of the
2 were sold at a public auction held on 20 February 1987 and 14 April 1987.
Regional Trial Court of Manila, Branch 14, in Civil Case No. 92-61122. 12
The PNB was the lone and highest bidder with a bid of ₱3,874,800.00.
The factual and procedural antecedents which gave rise to this appeal are
As the proceeds of the public auction were not enough to satisfy the entire
hereunder summarized.
obligation of the RABATs, the PNB sent anew demand letters. The letter
13
dated 15 November 1990 was sent to the RABATs at 197 Wilson Street,
On 25 August 1979, respondent spouses Francisco and Merced Rabat 14
San Juan, Metro Manila; while another dated 30 August 1991 was sent to
3
(hereafter RABATs) applied for a loan with PNB. Subsequently, the RABATs the RABATs at 197 Wilson Street, Greenhills, San Juan, Metro Manila, and
were granted on 14 January 1980 a medium-term loan of ₱4.0 Million to also in Mati, Davao Oriental.
4
mature three years from the date of implementation.
Upon failure of the RABATs to comply with the demand to settle their
On 28 January 1980, the RABATs signed a Credit Agreement and executed remaining outstanding obligation which then stood at ₱14,745,398.25,
15
5
a Real Estate Mortgage over twelve (12) parcels of land which stipulated including interest, penalties and other charges, PNB eventually filed on 5
that the loan would be subject to interest at the rate of 17% per annum, plus May 1992 a complaint for a sum of money before the Regional Trial Court of
the appropriate service charge and penalty charge of 3% per annum on any Manila. The case was docketed as Civil Case No. 92-61122, which was
6
amount remaining unpaid or not renewed when due. assigned to Branch 14 thereof.

On 25 September 1980, the RABATs executed another document 16

The RABATs filed their answer with counterclaim on 28 July 1992 to which
denominated as "Amendment to the Credit Agreement" purposely to increase 17
PNB filed its Reply and Answer to Counterclaim. On 2 January 1993, the
the interest rate from 17% to 21% per annum, inclusive of service charge and 18
RABATs filed an amended answer. The RABATs admitted their loan
a penalty charge of 3% per annum to be imposed on any amount remaining availments from PNB and their default in the payment thereof. However, they
7
unpaid or not renewed when due. They also executed another Real Estate assailed the validity of the auction sales for want of notice to them before and
8
Mortgage over nine (9) parcels of land as additional security for their after the foreclosure sales.
9
medium-term loan of Four Million (₱4.0 M). These parcels of land are
agricultural, commercial and residential lots situated in Mati, Davao Oriental.
They further added that as residents of Mati, Davao Oriental since 1970 up to
the present, they never received any notice nor heard about the foreclosure
The several availments of the loan accommodation on various dates by the proceeding in spite of the claim of PNB that the foreclosure proceeding had
RABATs reached the aggregate amount of THREE MILLION FIVE been duly published in the San Pedro Times, which is not a newspaper of
HUNDRED SEVENTEEN THOUSAND THREE HUNDRED EIGHTY general circulation.
The RABATs likewise averred that the bid price was grossly inadequate and The first issue was resolved against the RABATs who claimed that the
unconscionable. foreclosure was void due to lack of notice to them at their address in Mati,
Davao Oriental, and that there was no publication of the notice in a
Lastly, the RABATs attacked the validity of the accumulated interest and newspaper of general circulation. It held that the mortgage contract did not
penalty charges because since their properties were sold in 1987, and yet specifically require that personal service of notice of foreclosure sale be
PNB waited until 1992 before filing the case. Consequently, the RABATs given to them and that the San Pedro Times which published the notice of
contended that they should not be made to suffer for the interest and penalty foreclosure sale is a newspaper of general circulation as certified by the
charges from May 1987 up to the present. Otherwise, PNB would be allowed Sheriff and as shown in the affidavit of its publisher.
to profit from its questionable scheme.
Nevertheless, the trial court agreed with the RABATs that the two auction
The PNB filed on 5 February 1993 its Reply to the Amended Answer and sales were void in view of the gross inadequacy of the price, which is
19 shocking to the conscience. It ratiocinated thus:
Answer to Counterclaim.

After appropriate proceedings, the trial court rendered on 14 June 1994 a Certainly, the price of ₱6.00/sq.m. for the properties sold in the first auction
20
decision, whose dispositive portion reads as follows: sale and ₱3.00/sq.m. for the properties sold in the second auction sale are
too low as compared with ₱80.00 which according to Atty. Sibala was the
price per square meter of the properties in 1986.
WHEREFORE, and in view of the foregoing considerations, judgment is
hereby rendered dismissing the complaint.
The evidence show that the foreclosed propert[ies] are near the Municipal
building, public market, provincial capital of Davao Oriental, the provincial
On the counterclaim, the two (2) auction sales of the mortgaged properties
hospital of Davao Oriental, and the Sibala Village Subdivision wherein the
are hereby set aside and ordering the plaintiff to reconvey to the defendants
last sold at ₱200.00 per square meter. The prices paid for are indeed too low
the remaining properties after the sale [of] sufficient properties for the
satisfaction of the obligation of the defendants. as [to] be shocking to the conscience.

On the third and fourth issue, the trial court ruled:

The parties will bear their respective cost.

So ordered. … although the movant’s properties were sold in 1987, the plaintiff waited
until 1992 before filing this case, hence, the tremendous accumulation of
interest and penalty charges. The plaintiff has not given any plausible
The trial court addressed these five issues: explanation for the delay, hence, it may be presumed that the plaintiff had
deliberately delayed the filing of this case in order that it can collect more
1. The validity of the foreclosure proceedings; interest and penalty charges. Consequently, the defendants should not be
made to suffer for the interest and penalty charges from May 1987 up to the
2. The validity of the auction sales; present. Otherwise, the plaintiff would be allowed to profit from its
questionable scheme. Therefore, the defendants should not only be made to
3. The validity of the penalty charges and the interest answer for their loan in the amount of P4,000,000.00 plus interest up to May
charged by the plaintiff; 1987.

4. Whether or not the defendants should be liable for the The defendants further claim that the interest and penalty charges should be
interests and penalty charges from the date of the auction 21% and 3% respectively pursuant to the provision of the amended credit
sales up to the filing of this case; and accommodation; that the acceleration close should not be enforced as it is in
nature of a contract of adhesion. The amendment to the credit
accommodation is not a contract of adhesion. A contract of adhesion is one
5. Whether or not the plaintiff is entitled to deficiency
solely prepared by one of the parties where the other party had no
judgment.
participation, but merely gives his asset [sic] by adhering thereto. It is a take
it or leave it situation. Standardized contract form offered to consumers of An examination of the exhibits show that the defendant-appellees given
goods and services on essentially (take it or leave it) basis without affording address is Mati, Davao Oriental and not 197 Wilson Street, Greenhills, San
consumer realistic opportunity to bargain and under such conditions that Juan, Metro Manila as alleged by the plaintiff-appellant (Exhibit C to J, pp.
consumers cannot obtain desires products or services except by acquiescing 208, 217, 220, 229, 236-239, Records). Records further show that all
in form contract. Distinctive feature of adhesion contract is that weaker party subsequent communications by plaintiff-appellant was sent to defendant-
has no realistic choice up to its term. (Cubic Corporation versus Marty, Dist., appellees address at Wilson Street, Greenhills, San Juan. This was the very
185 C.A. 3d 438-229 Cal/Rptr. 828, 833; Standard Oil Co. of California reason why defendant-appellees were not aware of the foreclosure
versus Perkins, C.A. Or. 347 F. 2d 379, 383.). proceedings.

Anent the last issue, the trial court ruled that while a mortgagee is entitled to As correctly found out by the trial court, there is a need for the setting aside
a deficiency judgment, it would be premature to adjudge it in the case since of the two (2) auction sales hence, there is yet no deficiency judgment to
the two auction sales in question are null and void. speak of.

Only PNB appealed from the judgment to the Court of Appeals. Its appeal WHEREFORE, the decision of the trial court dated 14 June 1994, is hereby
was docketed as CA-G.R. CV No. 49800. affirmed in toto.

In its Appellant’s Brief filed in CA-G.R. CV No. 49800, PNB raised the SO ORDERED.
21
following issues:
Unsatisfied with the decision, the PNB seasonably filed before us the present
I petition raising the lone issue of:

WHETHER OR NOT THE TRIAL COURT ERRED IN WHETHER OR NOT THE COURT OF APPEALS MAY REVIEW AND PASS
NULLIFYING THE SHERIFF'S AUCTION SALE ON THE UPON THE TRIAL COURT’S FINDING AND CONCLUSION ON AN ISSUE
GROUND THAT THE PNB'S WINNING BID IS VERY LOW WHICH WAS NEVER RAISED ON APPEAL, AND, THEREFORE, HAD
ATTAINED FINALITY
II
In support thereof, PNB argues:
WHETHER OR NOT THE TRIAL COURT ERRED IN
RULING THAT THE DEFENDANTS-APPELLEES ARE NOT 1. THE COURT OF APPEALS HAS SO FAR DEPARTED
LIABLE TO PAY INTEREST AND PENALTY CHARGES FROM THE ACCEPTED AND USUAL COURSE OF
AFTER THE AUCTION SALES UP TO THE FILING OF JUDICIAL PROCEEDINGS WHEN IT DECIDED AND
THIS CASE. RESOLVED A QUESTION/OR ISSUE NOT RAISED IN
PETITIONER PNB’S APPEAL;
22
In their Appellees’ Brief, the RABATs prayed for the appellate court to affirm
in toto the decision of the trial court. 2. THE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION WHEN IT REVERSED THE
23 FINDING AND CONCLUSION OF THE TRIAL COURT ON
On 29 June 1998, the Court of Appeals rendered a decision affirming the
trial court's ruling nullifying the auction sales, but on a different ground. AN ISSUE WHICH HAD ALREADY ATTAINED FINALITY.

The Court of Appeals discovered that the RABATs did not actually receive PNB maintains that pursuant to Section 8 of Rule 51 of the 1997 Rules of
personal notices concerning the foreclosure proceedings. Hence, they could Civil Procedure no error which does not affect the jurisdiction over the
not have known of said foreclosure sales. It pronounced and decreed, thus: subject matter or the validity of the judgment appealed from or the
proceedings therein will be considered unless stated in the assignment of
errors, or closely related to or dependent on an assigned error and properly
argued on the Brief, save as the court may pass upon plain errors and SEC. 8. Questions that may be decided. -- No error which does not affect the
clerical errors. jurisdiction over the subject matter or the validity of the judgment appealed
from or the proceedings therein will be considered unless stated in the
PNB adds that nowhere in its Appellant’s Brief did it raise the issue of "lack of assignment of errors, or closely related to or dependent on an assigned error
notice" to the RABATs. Such being the case, in addition to the fact that the and properly argued in the brief, save as the court pass upon plain errors and
RABATs did not appeal from the decision, the trial court’s rejection of the clerical errors.
RABATs’ claim of lack of personal notice regarding the foreclosure
24
proceedings had already attained finality. The RABATs can no longer obtain In his book, Mr. Justice Florenz D. Regalado commented on this section,
from the appellate court any affirmative relief other than the ones granted in thus:
the decision of the court below.
1. Sec. 8, which is an amendment of the former Sec. 7 of this Rule, now
PNB concludes that the Court of Appeals committed grave abuse of includes some substantial changes in the rules on assignment of errors. The
discretion amounting to lack of jurisdiction when it resolved an issue which basic procedural rule is that only errors claimed and assigned by a party will
was not raised in the appeal and the ruling on which by the trial court had be considered by the court, except errors affecting its jurisdiction over the
already become final. subject matter. To this exception has now been added errors affecting the
validity of the judgment appealed from or the proceedings therein.
In their Comment filed on 18 November 1998, the RABATs assert that the
petition is "procedurally defective, presents no justiciable question and Also, even if the error complained of by a party is not expressly stated in his
categorically frivolous." They point out that while the petition is designated as assignment of errors but the same is closely related to or dependent on an
one under Rule 45 of the 1997 Rules of Civil Procedure, yet it is predicated assigned error and properly argued in his brief, such error may now be
on grounds involving question of law and lack or excess of jurisdiction, under considered by the court. These changes are of jurisprudential origin.
Rule 65. The PNB cannot be allowed to avail simultaneously of both
remedies. 2. The procedure in the Supreme Court being generally the same as that in
the Court of Appeals, unless otherwise indicated (see Secs. 2 and 4, Rule
Anent the want of justiciable question, the RABATs maintain that this case 56), it has been held that the latter is clothed with ample authority to review
involves the simple and fundamental issue of the validity of the auction sales matters, even if they are not assigned as errors on appeal, if it finds that their
conducted by PNB, which hinges on compliance "with the requirements set consideration is necessary in arriving at a just decision of the case. Also, an
forth under Republic Act (sic) 3135, governing extrajudicial foreclosure, as unassigned error closely related to an error properly assigned (PCIB vs. CA,
amended by Republic Act No. 4148 (publication, posting and notices) and et al., L-34931, Mar. 18, 1988), or upon which the determination of the
the reasonableness of the bid price," which should be "considered jointly for question raised by error properly assigned is dependent, will be considered
a judicious resolution of the … controversy/issue." by the appellate court notwithstanding the failure to assign it as error
(Ortigas, Jr. vs. Lufthansa German Airlines, L-28773, June 30, 1975; Soco
Consequently, the RABATs conclude that the Court of Appeals cannot be vs. Militante, et al., G.R. No. 58961, June 28, 1983).
faulted for ruling on a material fact whose consideration is essential to a
complete determination of the rights and obligations of the parties. It may also be observed that under Sec. 8 of this Rule, the appellate court is
authorized to consider a plain error, although it was not specifically assigned
On 16 March 1999, the PNB filed its Reply to the Comment of the RABATs. by the appellant (Dilag vs. Heirs of Resurreccion, 76 Phil. 649), otherwise it
would be sacrificing substance for technicalities.
In our resolution of 21 April 1999 we gave due course to the petition and
required the parties to submit their respective memoranda which they It may at once be noticed that the exceptions are for the benefit of the
complied with. appellant and not for the appellee.

Section 8, Rule 51 of the 1997 Rules of Civil Procedure expressly provides: The RABATs did not appeal from the decision of the trial court.1âwphi1 As a
matter of fact, in their Appellee’s Brief filed with the Court of Appeals they
prayed that said decision be affirmed in toto. As against the RABATs the trial
court’s findings of fact and conclusion are already settled and final. More
specifically, they are deemed to have unqualifiedly agreed with the trial court
that the foreclosure proceedings were valid in all respects, except as to the
bid price.

On the other hand, PNB, the sole appellant, never raised the issue of lack of
personal notice to the RABATs. Neither is such issue closely related to or
dependent on PNB's assigned error on appeal nor is it an exception to
Section 8 of Rule 51.

Needless to stress, the Court of Appeals erred in resolving PNB’s appeal on

the basis of an issue which was not raised on appeal and whose resolution
thereon by the trial court has long become firm and final against the party
adversely affected by the resolution.

Even granting arguendo that the issue of personal notice may be raised, still
we cannot agree with the Court of Appeals. In the first place, in extrajudicial
25
foreclosure sales, personal notice to the mortgagor is not necessary.
Section 3 of Act No. 3135 reads:

Section 3. Notice shall be given by posting of the sale for not less than
twenty days in at least three public places of the municipality or city where
the property is situated, and if such property is worth more than four hundred
pesos, such notice shall be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality
or city.1âwphi1

Clearly personal notice to the mortgagor is not required. Second, the

requirements of posting and publication in a newspaper of general circulation
were duly complied with by the PNB as correctly found by the trial court, to
which we accord great respect. A question of non-compliance with the notice
and publication requirements of an extrajudicial foreclosure sale is a factual
issue and the resolution thereof by the trial court is binding and conclusive
26
upon us absent any showing of grave abuse of discretion.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals of 29 July 1998 in CA-G.R. CV No. 49800 is hereby SET ASIDE.
The Court of Appeals is directed to DECIDE, with reasonable dispatch, CA-
G.R. CV No. 49800 on the basis of the errors raised by petitioner Philippine
National Bank in its Appellant’s Brief.

No pronouncement as to costs.

Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. L-51768 September 14, 1990 When the issues were joined a pre-trial was conducted and the Court issued
the following pre-trial order, to wit:
PRUDENTIAL BANK, plaintiff-appellee,
vs. With the admission in the answer of paragraphs 1 to 5 of the complaint, the
RENATO M. MARTINEZ and VIRGINIA J. MARTINEZ, defendants- parties believed that there are no controversies as to the facts. From the
appellants. point of view of the defendants, they will submit the case on the following
issues: (1) Whether plaintiff can still collect the deficiencies after the extra-
Magno & Associates for plaintiff-appellee. judicial foreclosure of mortgage; (2) What should be the basis of the
computation of the attorney's fees? Should it be the principal or should the
Beltran, Beltran & Beltran for defendants-appellants. 10% be based on the principal plus interest; and (3) Whether the plaintiff can
still collect attorney's fees in its effort to recover the deficiencies. However,
plaintiff, counsel believes there is only one issue and that is whether any
deficiency amount can be collected after extra-judicial foreclosure of
mortgage.
MEDIALDEA, J.:
WHEREFORE, it is hereby ordered that the parties be given a period of thirty
This case is certified to Us by the Court of Appeals in its Resolution dated (30) days from today within which to file their respective memoranda
August 30, 1979, for the reason that only pure questions of law are involved. simultaneously.

The Court of Appeals adopted the findings of fact of the trial court as follows: SO ORDERED. (Rollo, pp. 30-32)

This is a case for sum of money filed by plaintiff Prudential Bank against On July 8, 1977 the lower Court rendered a decision, the dispositive portion
defendants Renato M. Martinez and Virginia J. Martinez, seeking to recover of which reads:
a deficiency of P25,775.10 with daily interest thereon of P15.35.
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
The plaintiff in its complaint alleged that on January 27 and February 2, 1970 against the defendants, ordering the latter to pay the former, jointly and
defendants obtained a loan from the plaintiff in the total sum of P48,000.00 severally, the amounts of P25,775.10 with daily interest thereon of P15.85
and in consideration thereof, the said defendants executed on said dates from September 10, 1976 until fully paid and P2,500.00 for and as attorney's
promissory notes in favor of the plaintiff, promising to pay jointly and fees, plus costs of suit. (Records, p. 18)
severally, the sum of P48,000.00 on or before January 27, 1971 with interest
thereon at 12% per annum, partially secured by a real estate mortgage on Thereupon, defendants appealed to the Court of Appeals with these two
the property covered by Transfer Certificate of Title No. 97467 of the assignments of errors, namely —
Register of Deeds of Manila; that the loan became due and defendant
defaulted despite plaintiffs demand letters; that as a consequence, the
I
mortgage was extra-judicially foreclosed; that the plaintiff was the highest
and lone bidder at the auction sale, for the sum of P52,760.00; that after
deducting therefrom the attorney's fees, registration fees, sheriffs fees, and THE LOWER COURT ERRED IN HOLDING THAT THE PLAINTIFF-
publication expense, there still remained a balance of P25,775.10 due to APPELLEE 19 ENTITLED TO RECOVER THE DEFICIENCY IN THE SUM
plaintiff, which plaintiff now seeks to recover plus interest and attorney's fees. OF P 25,775.1 0 AFTER THE EXTRA-JUDICIAL FORECLOSURE OF
MORTGAGE TO SATISFY THE INDEBTEDNESS, AND AFTER THE
MORTGAGED PROPERTY HAD BEEN CONVEYED TO THE PLAINTIFF-
The defendants admit the allegations in the complaint, except paragraphs 8
and 9 thereof and alleged that plaintiff has no cause of action and therefor APPELLEE IN SATISFACTION OF THE LOANS.
not entitled to recover and pray for P3,000.00 attorney's fees plus costs of
litigation in the amount of P1,000.00. II
THE LOWER COURT ERRED IN AWARDING THE SUM OF P2,500.00 AS Article 2131 of the new Civil Code, on the contrary, expressly provides that
ATTORNEYS FEES TO PLAINTIFF-APPELLEE. (Appellants' Brief, p. 9, 'The form, extent and consequences of a mortgage, both as to its
Rollo) constitution, modification and extinguishment, and as to other matters not
included in this Chapter, shall be governed by the provisions of the Mortgage
Appellants argue that the Legislature never intended to grant to a mortgagee Law and of the Land Registration Law.' Under the Mortgage Law, which is
the right to recover the deficiency arising from an extrajudicial foreclosure of still in force, the mortgagee has the right to claim for the deficiency resulting
mortgage inasmuch as such recovery is not a natural right of the mortgagee, from the price obtained in the sale of the real property at public auction and
hence, the need to expressly grant the same in a judicial foreclosure the outstanding obligation at the time of the foreclosure proceedings. (See
proceedings; that consequently, an express prohibition against such claim Soriano v. Enriquez, 24 Phil. 584; Banco de Islas Filipinos v. Concepcion e
would be quite superfluous and that besides, there is no need to enumerate Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101). Under the Rules
negative remedies or solutions in the law. Further, they aver that if of Court (Sec. 6, Rule 70),"Upon the sale of any real property, under an order
mortgagees were allowed such right, the debtors would be at the mercy of for a sale to satisfy a mortgage or other incumbrance thereon, if there be a
their creditors considering the summary nature of extrajudicial foreclosure balance due to the plaintiff after applying the proceeds of the sale, the court,
proceedings. They, likewise, point to the limited readership of auction sale upon motion, should render a judgment against the defendant for any such
notices which lead to the sale of mortgaged properties for much less than balance for which, by the record of the case, he may be personally liable to
their actual value notwithstanding that the mortgage value of the said the plaintiff, ..." It is true that this refers to a judicial foreclosure, but the
properties is higher than its fair market value. Finally, appellants assail the underlying principle is the same, that the mortgage is but a security and not a
award of attorney's fees in the sum of P2,500.00 as unconscionable. They satisfaction of indebtedness. ...
claim that the computation of the attorney's fees should have been based on
the terms of promissory note which provided for a ten percent (10%) award Let it be noted that when the legislature intends to foreclose the right of a
of the principal obligation; and that since the attorney's fees were already creditor to sue for any deficiency resulting from the foreclosure of the security
collected by the appellee when it foreclosed the mortgage, such fees should given to guarantee the obligation, it so expressly provides. Thus, in respect
no longer be awarded in this case. (Appellants Brief, pp. 4-11, Rollo, p. 9) to pledges, Article 2115 of the new Civil Code expressly states: ... If the price
of the sale is less (than the amount of the principal obligation) neither shall
We affirm. the creditor be entitled to recover the deficiency, notwithstanding any
stipulation to the contrary. "Likewise in the event of the foreclosure of a
chattel mortgage on the thing sold in installments 'he (the vendor) shall have
We have already ruled in several cases that in extrajudicial foreclosure of
no further action against the purchaser to recover any unpaid balance of the
mortgage, where the proceeds of the sale are insufficient to pay the debt, the
price. Any agreement to the contrary shall be void" (Article 1484, paragraph
mortgagee has the right to recover the deficiency from the debtor (Philippine
Bank of Commerce v. De Vera, L-18816, December 29, 1962, 6 SCRA 1026; 3, Ibid). It is then clear that in the absence of a similar provision in Act No.
Development Bank of the Philippines v. Vda. de Moll L25802, January 31, 3135, as amended, it can not be concluded that the creditor loses his right
given him under the Mortgage Law and recognized in the Rules of Court, to
1972, 43 SCRA 82; Development Bank of the Philippines v. Murang, L-
take action for the recovery of any unpaid balance on the principal obligation,
29130, August 8,1975, 66 SCRA 141; Development Bank of the Philippines
simply because he has chosen to foreclose his mortgage extra- judicially
v. Zaragoza, L-23493, August 23, 1978, 84 SCRA 668; and DBP v.
pursuant to a special power of attorney given him by the mortgagor in the
Tomeldan, G.R. No. 51269, November 17,1980, 101 SCRA 171). A careful
scrutiny of the arguments presented in the case at bar yields no substantial mortgage contract, (pp. 1029-1030)
and convincing reasons for Us to depart from Our previous ruling. Appellants'
arguments merely rehashed the objections already considered and overruled Moreover, the fact that the mortgaged property is sold at an amount less than
in the aforementioned cases. Thus, in Philippine Bank of Commerce v. De its actual market value should not militate against the right to such recovery.
Vera (supra), We declared that: We fail to see any disadvantage going for the mortgagor. On the contrary, a
mortgagor stands to gain with a reduced price because he possesses the
A reading of the provisions of Act No. 3135, as amended (re extrajudicial right of redemption. When there is the right to redeem, inadequacy of price
should not be material, because the judgment debtor may reacquire the
foreclosure) discloses nothing, it is true, as to the mortgagee's right to
property or also sell his right to redeem and thus recover the loss he claims
recover such deficiency. But neither do we find any provision thereunder
to have suffered by the reason of the price obtained at the auction sale (De
which expressly or impliedly prohibits such recovery.
Leon v. Salvador, L-30871, December 28, 1970 and Bernabe v. Cruz, et al.,
L-31603, December 28, 1970; 36 SCRA 567). Generally, in forced sales, low
prices are usually offered and the mere inadequacy of the price obtained at
the sheriffs sale unless shocking to the conscience will not be sufficient to set
aside a sale if there is no showing that in the event of a regular sale, a better
price can be obtained (Ponce de Leon v. Rehabilitation Finance Corporation,
L-24571, December 18, 1970, 36 SCRA 289).

Lastly, We find that the award of attorney's fees is proper. It can not be
disputed that the proceedings in the extrajudicial foreclosure and the
deficiency suit are altogether different. The first is extrajudicial and summary
in nature while the second is a court action. Hence, the efforts exerted by the
lawyer in these two separate courses of action should be recognized.
Besides, the basis of the extrajudicial foreclosure proceeding was the Deed
of Real Estate Mortgage, particularly condition No. 7 thereof, where the
parties stipulated for a ten percent (10%) attorney's fees to be collected in
the event that the mortgage is foreclosed or a legal action is taken to
foreclose the mortgage (Appellee's Brief, Rollo, p. 9, italics supplied).
However, the proceeds in that sale were insufficient to pay the debt
contained in the appellant's promissory note. The appellee was, therefore,
constrained to file a deficiency suit, an eventuality not covered by the Deed
of Real Estate Mortgage. Necessarily, the basis of this case is the
promissory note executed by the appellants. We find that the note itself
shows that appellants obligated themselves to pay the sum of ten percent as
attorney's fees whether incurred or not, exclusive of cost and other expenses
of collection (Records, p. 7). Clearly, the trial court's award of attorney's fees
was not without basis. The amount of P2,500.00 awarded as attorney's fees
being less than ten percent (10%) of the deficiency sued for is just and
proper in the premises.

ACCORDINGLY, the decision appealed from is hereby AFFIRMED. Costs

against the appellants.

SO ORDERED.

Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur.

G.R. No. 119247 February 17, 1997 did not pay to the undersigned
Notary Public of Kalookan City the
CESAR SULIT, petitioner, said sum of SEVEN MILLION
vs. PESOS (P7,000,000.00), Philippine
COURT OF APPEALS and ILUMINADA CAYCO, respondents. Currency, the sale price of the
above-described real estate
property together with all
improvements existing thereon,
which amount was properly credited
REGALADO, J.: to the PARTIAL satisfaction of the
mortgage debt mentioned in the
The primary issue posed before the Court, in this appeal by certiorari from a said real estate mortgage, plus
1
decision of the Court of Appeals, is whether or not the mortgagee or interests, attorney's fees and all
purchaser in an extrajudicial foreclosure sale is entitled to the issuance of a other incidental expenses of
writ of possession over the mortgaged property despite his failure to pay the foreclosure and sale (par. 2, Annex
surplus proceeds of the sale to the mortgagor or the person entitled thereto. B, petition).
Secondarily, it calls for a resolution of the further consequences of such non-
payment of the full amount for which the property was sold to him pursuant to On 13 December 1993 private respondent petitioned
his bid. the Regional Trial Court of Kalookan City for the
issuance of a writ of possession in his favor. The
The material facts, as found by respondent court, are not disputed: petition was docketed as LRC Case No. C-3462 and
assigned to Branch 131, presided over by public
It appears from the record that on 9 June 1992 respondent.
petitioner (herein private respondent) Iluminada
Cayco executed a Real Estate Mortgage (REM) over On 17 January 1994 respondent Judge issued a
Lot 2630 which is located in Caloocan City and decision (should have been denominated as order),
covered by TCT No. (23211) 11591 in favor of the dispositive part of which reads:
private respondent (herein petitioner) Cesar Sulit, to
secure a loan of P4 Million. Upon petitioner's failure WHEREFORE, finding the subject
to pay said loan within the stipulated period, private petition to be meritorious, the same
respondent resorted to extrajudicial foreclosure of is hereby GRANTED. As prayed for,
the mortgage as authorized in the contract. Hence, let a Writ of Possession be issued in
in a public auction conducted by Notary Public favor of herein petitioner, Cesar
Felizardo M. Mercado on 28 September 1993 the lot Sulit, upon his posting of an
was sold to the mortgagee, herein private indemnity bond in the amount of
respondent, who submitted a winning bid of P7 One Hundred Twenty Thousand
Million. As stated in the Certificate of Sale executed (P120,000.00) Pesos (Annex C,
by the notary public (Annex B, petition), the petition).
mortgaged property was sold at public auction to
satisfy the mortgage indebtedness of P4 Million. The
Certificate further states as follows: On 28 March 1994 petitioner filed a Motion to have
the auction sale of the mortgaged property set aside
and to defer the issuance of the writ of possession.
IT IS FURTHER CERTIFIED, that She invited the attention of the court a quo to some
the aforementioned highest procedural infirmities in the said proceeding and
bidder/buyer, CESAR SULIT, being further questioned the sufficiency of the amount of
the petitioner/mortgagee thereupon bond. In the same Motion petitioner prayed as an
 alternative relief that private respondent be directed private respondent may foreclose the mortgage
to pay the sum of P3 Million which represents the anew either in a judicial or extrajudicial proceeding
balance of his winning bid of P7 Million less the as stipulated in the mortgage contract.
mortgage indebtedness of P4 Million (Annex D,
petition). This Motion was opposed by private Corollary to the principal issue earlier stated, petitioner asserts that
respondent who contended that the issuance of a respondent Court of Appeals gravely erred when it failed to appreciate and
writ of possession upon his filing of a bond was a consider the supposed legal significance of the bouncing checks which
ministerial duty on the part of respondent Judge private respondent issued and delivered to petitioner as payment for the
(Annex E), to which Opposition petitioner submitted agreed or stipulated interest on the mortgage obligation. He likewise avers
a Reply (Annex F, petition). that a motion for reconsideration or an appeal, and not certiorari, is the
proper remedy available to herein private respondent from an order denying
On 11 May 1994 respondent Judge denied her motion to defer issuance of the writ of possession. Moreover, it is claimed
petitioner's Motion and directed the issuance of a that any question regarding the propriety of the sale and the issuance of the
writ of possession and its immediate enforcement by writ of possession must be threshed out in a summary proceeding provided
2
deputy sheriff Danilo Norberte (Annex G, petition)." for in Section 8 of Act 3135.
(Emphasis words supplied for clarity).
There is no merit in petitioner's contention that the dishonored checks
From the aforesaid orders of the court a quo, herein private respondent amounting to a total of P1,250,000.00, allegedly representing interest of 5%
Iluminada Cayco filed on May 26, 1994 a petition for certiorari with per month from June 9, 1992 to December 9, 1992, were correctly
preliminary injunction and/or temporary restraining order before respondent considered by the trial court as the written agreement between the parties.
Court of Appeals, which immediately issued a status quo order restraining Instead, we find the explanation of respondent court in rejecting such
3
the respondent judge therein from implementing his order of January 17, postulate, on the basis of Article 1956 of the Civil Code, to be more logical
1994 and the writ of possession issued pursuant thereto. Subsequently, and plausible, to wit:
respondent court rendered judgment on November 11, 1994, as follows:
It is noteworthy that the Deed of Real Estate
IN JUDGMENT, We grant the writ of certiorari and Mortgage executed by the parties on 9 June 1992
the disputed order of 17 January 1994 which (Annex A, Petition) does not contain any stipulation
precipitately directed the issuance of a writ of for payment of interest. Private respondent who
possession in favor of private respondent and the maintains that he had an agreement with petitioner
subsequent order of 11 May 1994 which denied for the payment of 5% monthly interest did not
petitioner's Motion for Reconsideration are hereby produce any other writing or instrument embodying
SET ASIDE. such a stipulation on interest. It appears then that if
any such agreement was reached by the parties, it
Accordingly, private respondent is ordered to pay was merely a verbal one which does not conform to
unto petitioner, through the notary public, the the aforequoted statutory provision. Certainly, the
balance or excess of his bid of P7 Million after dishonored checks claimed to have been issued by
deducting therefrom the sum of P4,365,280 which petitioner in payment of interest could not have been
represents the mortgage debt and interest up to the the written stipulation contemplated in Article 1956
date of the auction sale (September 23, 1993), as of the Code. Consequently, in the absence of a
well as expenses of foreclosure based on receipts written stipulation for the imposition of interest on the
which must be presented to the notary public. loan obtained by petitioner, private respondent's
4
assessment thereof has no legal basis.
In the event that private respondent fails or refuses
to pay such excess or balance, then the auction sale It is elementary that in the absence of a stipulation as to interest, the loan
5
of 28 September 1993 is deemed CANCELLED and due will now earn interest at the legal rate of 12% per annum which,
according to respondent court, is equivalent to P365,280.000.00 computed
from December 10, 1992, after private respondent's obligation became due, which the property is situated, who shall execute
until September 23, 1993, the date of the auction sale. It is this amount which said order immediately.
should further be deducted from the purchase price of P7,000,000.00,
together with any other expenses incurred in connection with the sale, such Sec. 8. The debtor may, in the proceedings in which
as the posting and publication of notices, notarial and documentary fees, and possession was requested, but not later than thirty
assessments or taxes due on the disputed property. days after the purchaser was given possession,
petition that the sale be set aside and the writ of
It baffles this Court, therefore, why petitioner has continually failed up to the possession cancelled, specifying the damages
present to submit documentary evidence of the alleged expenses of the suffered by him, because the mortgage was not
foreclosure sale, and this in spite of the express requirement therefor in the violated or the sale was not made in accordance
6
certificate of sale issued by the notary public for the purpose of computing with the provisions hereof, and the Court shall take
the actual amount payable by the mortgagor or redemptioner in the event of cognizance of this petition in accordance with the
redemption. It may thus be safely presumed that such evidence having been summary procedure provided for in section one
7
willfully suppressed, it would be adverse if produced. hundred and twelve of Act Number Four hundred
and ninety-six; and if it finds the complaint of the
Coming now to the main issue in this case, petitioner argues that it is debtor justified, it shall dispose in his favor of all or
ministerial upon the court to issue a writ of possession after the foreclosure part of the bond furnished by the person who
sale and during the period of redemption, invoking in support thereof obtained possession. Either of the parties may
Sections 7 and 8 of Act 3135 which conjointly provide: appeal from the order of the judge in accordance
with section fourteen of Act Numbered Four hundred
and ninety-six; but the order of possession shall
Sec. 7. In any sale made under the provisions of this
continue in effect during the pendency of the appeal.
Act, the purchaser may petition the Court of First
Instance of the province or place where the property
or any part thereof is situated, to give him The governing law thus explicitly authorizes the purchaser in a foreclosure
possession thereof during the redemption period, sale to apply for a writ of possession during the redemption period by filing
furnishing bond in an amount equivalent to the use an ex parte motion under oath for that purpose in the corresponding
of the property for a period of twelve months, to registration or cadastral proceeding in the case of property with Torrens title.
indemnify the debtor in case it be shown that the Upon the filing of such motion and the approval of the corresponding bond,
sale was made without violating the mortgage or the law also in express terms directs the court to issue the order for a writ of
without complying with the requirements of this Act. possession.
Such petition shall be made under oath and filed in
form of an ex parte motion in the registration or No discretion appears to be left to the court. Any question regarding the
cadastral proceedings if the property is registered, or regularity and validity of the sale, as well as the consequent cancellation of
in special proceedings in the case of property the writ, is to be determined in a subsequent proceeding as outlined in
registered under the Mortgage Law or under section Section 8, and it cannot be raised as a justification for opposing the issuance
one hundred and ninety-four of the Administrative of the writ of possession since, under the Act, the proceeding for this is ex
8
Code, or of any other real property encumbered with parte. Such recourse is available to a mortgagee, who effects the
a mortgage duly registered in the office of any extrajudicial foreclosure of the mortgage, even before the expiration of the
9
register of deeds in accordance with any existing period of redemption provided by law and the Rules of Court.
law, and in each case the clerk of the court shall,
upon the filing of such petition, collect the fees The rule is, however, not without exception. Under Section 35, Rule 39 of the
specified in paragraph eleven of section one Rules of Court, which is made applicable to the extrajudicial foreclosure of
hundred and fourteen of Act Numbered Twenty-eight real estate mortgages by Section 6 of Act 3135, the possession of the
hundred and sixty-six, and the court shall, upon mortgaged property may be awarded to a purchaser in the extrajudicial
approval of the bond, order that a writ of possession foreclosure "unless a third party is actually holding the property adversely to
issue, addressed to the sheriff of the province in 10
the judgment debtor."
Thus, in the case of Barican, et al. vs. Intermediate Appellate Court, such mortgage or other incumbrances, the same
11
et al., this Court took into account the circumstances that long before the shall be paid to the junior incumbrancers in the order
mortgagee bank had sold the disputed property to the respondent therein, it of their priority, to be ascertained by the court, or if
was no longer the judgment debtor who was in possession but the petitioner there be no such incumbrancers or there be a
spouses who had assumed the mortgage, and that there was a pending civil balance or residue after payment of such
case involving the rights of third parties. Hence, it was ruled therein that incumbrancers, then to the mortgagor or his agent,
under the circumstances, the obligation of a court to issue a writ of or to the person entitled to it.
possession in favor of the purchaser in a foreclosure of mortgage case
ceases to be ministerial. The application of the proceeds from the sale of the mortgaged property to
the mortgagor's obligation is an act of payment, not payment by dation;
Now, in forced sales low prices are generally offered and the mere hence, it is the mortgagee's duty to return any surplus in the selling price to
inadequacy of the price obtained at the sheriff's sale, unless shocking to the the
14
conscience, has been held insufficient to set aside a sale. This is because no mortgagor. Perforce, a mortgagee who exercises the power of sale
disadvantage is caused to the mortgagor. On the contrary, a mortgagor contained in a mortgage is considered a custodian of the fund, and, being
stands to gain with a reduced price because he possesses the right of bound to apply it properly, is liable to the persons entitled thereto if he fails to
redemption. When there is the right to redeem, inadequacy of price becomes do so. And even though the mortgagee is not strictly considered a trustee in
immaterial since the judgment debtor may reacquire the property or sell his a purely equitable sense, but as far as concerns the unconsumed balance,
right to redeem, and thus recover the loss he claims to have suffered by the mortgagee is deemed a trustee for the mortgagor or owner of the equity
12 15
reason of the price obtained at the auction sale. of redemption.

However, also by way of an exception, in Cometa, et al. vs. Intermediate Commenting on the theory that a mortgagee, when he sells under a power,
13
Appellate Court, et al. where the properties in question were found to have cannot be considered otherwise than as a trustee, the vice-chancellor in
been sold at an unusually lower price than their true value, that is, properties Robertson vs. Norris (1 Giff . 421) observed: "That expression is to be
worth at least P500,000.00 were sold for only P57,396.85, this Court, taking understood in this sense: that with the power being given to enable him to
into consideration the factual milieu obtaining therein as well as the peculiar recover the mortgage money, the court requires that he shall exercise the
circumstances attendant thereto, decided to withhold the issuance of the writ power of sale in a provident way, with a due regard to the rights and interests
16
of possession on the ground that it could work injustice because the of the mortgagor in the surplus money to be produced by the sale."
petitioner might not be entitled to the same.
The general rule that mere inadequacy of price is not sufficient to set aside a
The case at bar is quite the reverse, in the sense that instead of an foreclosure sale is based on the theory that the lesser the price the easier it
17
inadequacy in price, there is due in favor of private respondent, as will be for the owner to effect the redemption. The same thing cannot be
mortgagor, a surplus from the proceeds of the sale equivalent to said where the amount of the bid is in excess of the total mortgage debt. The
approximately 40% of the total mortgage debt, which excess is indisputably a reason is that in case the mortgagor decides to exercise his right of
substantial amount. Nevertheless, it is our considered opinion, and we so redemption, Section 30 of Rule 39 provides that the redemption price should
hold, that equitable considerations demand that a writ of possession should be equivalent to the amount of the purchase price, plus one per cent monthly
18
also not issue in this case. interest up to the time of the redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after
19
Rule 68 of the Rules of Court provides: purchase, and interest on such last-named amount at the same rate.

Sec. 4. Disposition of proceeds of sale. — The Applying this provision to the present case would be highly iniquitous if the
money realized from the sale of mortgaged property amount required for redemption is based on P7,000.000.00, because that
under the regulations hereinbefore prescribed shall, would mean exacting payment at a price unjustifiably higher than the real
after deducting the costs of the sale, be paid to the amount of the mortgage obligation. We need not elucidate on the obvious.
person foreclosing the mortgage, and when there Simply put, such a construction will undeniably be prejudicial to the
shall be any balance or residue, after paying off substantive rights of private respondent and it could even effectively prevent
her from exercising the right of redemption.
Where the redemptioner chooses to exercise his right of redemption, it is the Upon the strength of the foregoing considerations, we cannot countenance
policy of the law to aid rather than to defeat his right. It stands to reason, the apparent paltriness that petitioner persistently accords the right of private
therefore, that redemption should be looked upon with favor and where no respondent over the surplus proceeds. It must be emphasized that petitioner
injury will follow, a liberal construction will be given to our redemption laws, failed to present the receipts or any other proof of the alleged costs or
specifically on the exercise of the right to redeem. Conformably hereto, and expenses incurred by him in the foreclosure sale. Even the trial court failed or
taking into consideration the facts obtaining in this case, it is more in keeping refused to resolve this issue, notwithstanding the fact that this was one of the
with the spirit of the rules, particularly Section 30 of Rule 39, that we adopt grounds raised in the motion filed by private respondent before it to set aside
such interpretation as may be favorable to the private respondent. the sale. Since it has never been denied that the bid price greatly exceeded
the mortgage debt, petitioner cannot be allowed to unjustly enrich himself at
Admittedly, no payment was made by herein petitioner, as the highest bidder, the expense of private respondent.
to the notary public who conducted the extrajudicial foreclosure sale. We are
not unmindful of the rule that it is not necessary for the mortgagee to pay As regards the issue concerning the alleged defect in the publication of the
cash to the sheriff or, in this case, the notary public who conducted the sale. notice of the sale, suffice it to state for purposes of this discussion that a
It would obviously serve no purpose for the sheriff or the notary public to go question of non-compliance with the notice and publication requirements of
through the idle ceremony of receiving the money and paying it back to the an extrajudicial foreclosure sale is a factual issue and the resolution thereof
26
creditor, under the truism that the lawmaking body did not contemplate such by the lower courts is binding and conclusive upon this Court, absent any
a pointless application of the law in requiring that the creditor must bid under showing of grave abuse of discretion. In the case at bar, both the trial court
20
the same conditions as any other bidder. It bears stressing that the rule and respondent Court of Appeals have found that the sale was conducted in
holds true only where the amount of the bid represents the total amount of accordance with law. No compelling reason exists in this case to justify a
the mortgage debt. rejection of their findings or a reversal of their conclusions.

In case of a surplus in the purchase price, however, there is jurisprudence to There is likewise no merit in the argument that if private respondent had
the effect that while the mortgagee ordinarily is liable only for such surplus as wanted to question the validity of the sale, she should have filed a petition to
actually comes into his hands, but he sells on credit instead of for cash, he set the same aside and to cancel the writ of possession. These, it is argued,
must still account for the proceeds as if the price were paid in cash, and in an should have been disposed of in accordance with the summary procedure
action against the mortgagee to recover the surplus, the latter cannot raise laid down in Section 112 of the Land Registration Act, provided the petition is
21
the defense that no actual cash was received. filed not later than thirty days after the purchaser was given possession of
the land. Considering, however, that private respondent has filed a motion to
We cannot simply ignore the importance of surplus proceeds because by set aside the sale and to defer the issuance of a writ of possession before
their very nature, surplus money arising from a sale of land under a decree of the court where the ex parte petition for issuance of such writ was then
foreclosure stands in the place of the land itself with respect to liens thereon pending, we deem the same to be substantial compliance with the statutory
or vested rights therein. They are constructively, at least, real property and prescription.
22
belong to the mortgagor or his assigns. Inevitably, the right of a mortgagor
to the surplus proceeds is a substantial right which must prevail over rules of We, however, take exception to and reject the last paragraph in the
technicality. dispositive portion of the questioned decision of respondent court, which we
repeat:
Surplus money, in case of a foreclosure sale, gains much significance where
there are junior encumbrancers on the mortgaged property. Jurisprudence In the event that private respondent fails or refuses
has it that when there are several liens upon the premises, the surplus to pay such excess or balance, then the auction sale
23
money must be applied to their discharge in the order of their priority. A of 28 September 1993 is deemed CANCELLED and
junior mortgagee may have his rights protected by an appropriate decree as private respondent (petitioner herein) may foreclose
to the application of the surplus, if there be any, after satisfying the prior the mortgage anew either in a judicial or extrajudicial
24
mortgage. His lien on the land is transferred to the surplus fund. And a proceeding as stipulated in the mortgage contract.
senior mortgagee, realizing more than the amount of his debt on a
foreclosure sale, is regarded as a trustee for the benefit of junior
25
encumbrancers.
 for lack of statutory and jurisprudential bases. The quoted
phrase "as stipulated in the mortgage contract" does not, of
course, envision such contingency or warrant the suggested
alternative procedure.

Section 4 of Rule 64, hereinbefore quoted, merely provides that where there
is a balance or residue after payment of the mortgage, the same shall be
paid to the mortgagor. While the expedient course desired by respondent
court is commendable, there is nothing in the cited provision from which it
can be inferred that a violation thereof will have the effect of nullifying the
sale. The better rule is that if the mortgagee is retaining more of the proceeds
of the sale than he is entitled to, this fact alone will not affect the validity of
the sale but simply gives the mortgagor a cause of action to recover such
27
surplus. This is likewise in harmony with the decisional rule that in suing for
the return of the surplus proceeds, the mortgagor is deemed to have affirmed
28
the validity of the sale since nothing is due if no valid sale has been made.

29
In the early case of Caparas vs. Yatco, etc., et al., it was also held that
where the mortgagee has been ordered by the court to return the surplus to
the mortgagor or the person entitled thereto, and the former fails to do so and
flagrantly disobeys the order, the court can cite the mortgagee for contempt
and mete out the corresponding penalty under Section 3(b) of the former
Rule 64 (now Rule 71) of the Rules of Court.

WHEREFORE, the questioned decision of the Court of Appeals is

MODIFIED by deleting the last paragraph of its fallo, but its disposition of this
case in all other respects is hereby AFFIRMED.

SO ORDERED.
G.R. No. 134068 June 25, 2001 attachment or any other encumbrance of a family home without the written
5
consent of majority of the beneficiaries thereof of legal age. On the other
UNION BANK OF THE PHILIPPINES, petitioner, hand, petitioner maintained that the mortgaged property of the respondents
vs. could not be legally constituted as a family home because its actual value
COURT OF APPEALS, APOLONIA DE JESUS GREGORIO, GONZALO exceeded Three Hundred Thousand Pesos (P300,000.00), the maximum
VINCOY, married to TRINIDAD GREGORIO VINCOY, respondents. value for a family home in urban areas as stipulated in Article 157 of the
6
Family Code.
DE LEON, JR., J.:
The lower court rendered judgment declaring the constitution of the family
home void and the mortgage executed in favor of the petitioner valid. It held,
This is a motion for reconsideration of the resolution of this Court dated July
among others, that Article 158 of the Family Code was not applicable to
12, 1999 dismissing the petition for review on certiorari filed by petitioner
respondents' family home as the value of the latter at the time of its alleged
Union Bank of the Philippines which assailed the decision of the Court of 7
Appeals (a) upholding the validity of the real estate mortgage executed by constitution exceeded Three Hundred Thousand Pesos (P300,000.00). It
respondents Gonzalo and Trinidad Vincoy in favor of petitioner as security for also respondent Gonzalo Vincoy and/or Delco Industries (Phils.), Inc. to pay
petitioner his and/or its outstanding obligation as of February 15,1993 in the
a loan in the principal amount of Two Million Pesos (P2,000,000,00.), and (b)
amount of Four Million Eight Hundred Sixteen Thousand One Hundred
fixing the redemption price of the property mortgaged at Three Million Two
Ninety-Four Pesos and Forty Four Centavos (p4,816,194.44) including such
Hundred Ninety Thousand Pesos (P3,290,000.00) representing the purchase 8
sums that may accrue by way of interests and penalties.
price of the said property at the foreclosure sale plus one percent (1%)
monthly interest from April 19, 1991, the date of the foreclosure sale, until its
redemption pursuant to Section 30, Rule 39 of the Rules of Court. Aggrieved, respondents appealed to the Court of Appeals contending that
the lower court erred in finding that their family home was not duly
constituted, and that the mortgage in favor of petitioner is valid. Respondents
The following are the factual antecedents.
also claimed that the correct amount sufficient for the redemption of their
property as of February 15,1993 is Two Million Seven Hundred Seventy
On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy Three Thousand Seven Hundred Twelve Pesos and Eighty Seven Centavos
mortgaged their residence in favor of petitioner to secure the payment of a 9
(P2,773,712.87) and not Four Million Eight Hundred Sixteen Thousand One
1
loan to Delco Industries (Phils.), Incorporated in the amount of Two Million Hundred Ninety-Four Pesos and Forty-Four Centavos (P4,816,194.44) as
Pesos (P2,000,000.00). For failure of the respondents to pay the loan at its found by the lower court.
date of maturity, petitioner extrajudicially foreclosed the mortgage and
scheduled the foreclosure sale on April 10, 1991.
In a decision promulgated on June 4, 1997, the Court of Appeals sustained
the finding of the lower court that the alleged family home of the respondents
The petitioner submitted the highest bid for Three Million Two Hundred did not fall within the purview of Article 157 of the Family Code as its value at
Ninety Thousand Pesos (P3,290,000.OO) at the foreclosure sale. the time of its constitution was more than the maximum value of Three
Accordingly, a certificate of sale was issued to petitioner and duly annotated Hundred Thousand Pesos (P300,000.00). Hence, the Court of Appeals
at the back of the Transfer Certificate of Title covering the property on May upheld the validity of the mortgage executed over the said property in favor
2
8,1991. 10
of the petitioner. However, it found that the amount sufficient for the
redemption of the foreclosed property is Three Million Two Hundred Ninety
Prior to the expiration of the redemption period on May 8,1992, the Thousand Pesos (P3,290,000.00) equivalent to the purchase price at tile
respondents filed a complaint for annulment of mortgage with the lower court. foreclosure sale plus one percent (1%) monthly interest from April 19, 1991
11
In their complaint, respondents alleged that the subject property mortgaged up to the date of redemption pursuant to Section 30, Rule 39 of the Rules
12
to petitioner had in fact been constituted as a family home as early as of Court.
October 27, 1989. Among the beneficiaries of the said family home are the
sisters of respondent Trinidad Vincoy, namely Apolonia and Luciana De Dissatisfied with the ruling of the Court of Appeals, the petitioner filed a
3
Jesus Gregorio whose consent to the mortgage was not obtained. petition for review on certiorari with Court submitting the following resolution:
Respondents thus assailed the validity of the mortgage on the ground that
4
Article 158 of the Family Code prohibits the execution, forced sale,
 I. The Court of Appeals resolves an issue of redemption This Court dismissed the petition in a Resolution promulgated on July
which was not even directly raised by the parties and 12,1999 on the ground that the Court of Appeals did not commit any
contrary to the evidence on record. reversible error and that the petition raises mere questions of fact already
17
amply passed upon by the appellate court. Hence, the instant motion for
2. Assuming without admitting that respondents are entitled reconsideration.
to redemption, the price set by the Court of Appeals is not
13
based on laws. We are persuaded to reconsider.

Petitioner contends, first of all, that in allowing the respondents to redeem the First of all, it is important to note that this case was decided by the lower
subject foreclosed property, the Court of Appeals completely ignored that fact court on the basis only the pleadings submitted by the parties. No trial was
that neither respondents' complaint before the lower court nor their brief filed conducted, thus, no evidence other than submitted with the pleadings could
before the Court of Appeals prayed for the redemption of the said property. be considered.
On the contrary, respondents had consistently insisted on the nullity of the
mortgage. Thus, to allow them to redeem the property would contradict that A careful scrutiny of the pleadings filed by the respondents before the lower
14
very theory of their case. court reveals that at no time did the respondents pray that they be allowed to
18
redeem the subject foreclosed property. On the other hand, respondents
Petitioner also contends that the respondents had already lost their right to never wavered from the belief that the mortgage over the said property is, in
redeem the foreclosed property when they failed to exercise their right of the first place, void for having been executed over a duly constituted family
redemption by paying the redemption price within the period provided by home without the consent of the beneficiaries thereof. After upholding the
15
law. In the event, however, that the Courts upholds the right of the validity of mortgage, the lower court ordered respondent Gonzalo Vincoy
respondents to redeem the said property, the petitioner claims that it is not and/or Delco Industries, Inc. to pay petitioner the amount of Four Million
Section 30, Rule 39 of the Rules of the Court that applies in determining the Eight Hundred Sixteen Thousand One Hundred Ninety-Four Pesos and
amount sufficient for redemption but Section 78 of the General Banking Act Forty-Four Centavos (P4,816,194.44) plus interest and penalties
16
as amended by the Presidential Decree No. 1828 which provides: representing Vincoy's and/or Delco's outstanding obligation to petitioner as of
19
February 15,1993. There is no mention whatsoever of respondents right to
"xxx. In the event of foreclosure, whether judicially or extra redeem the property.
judicially, of any mortgage on real estate which is security for
any loan granted before the passage of this Act or under the Respondents raised the issue of redemption for the first time only on appeal
provisions of this Act, the mortgagor or debtor whose real in contesting the amount ordered by the lower court to be paid by
property has been sold at public auction, judicially or respondents to the petitioner. Thus, the actuation of the Court of Appeals in
extrajudicially, for the full or partial payment of an obligation allowing the respondents to redeem the subject foreclosed property is not
to any bank, banking or credit institution, within the purview legally permissible. In petitions for review or appeal under Rule 45 of the
of this Act shall have the right, within one year after the sale Rules of Court, the appellate tribunal is limited to the determination of
20
of the real estate as a result of the foreclosure of the whether tile lower court committed reversible error.
respective mortgage, to redeem the property by paying the
amount fixed by the court in the order of execution, or the It is settled jurisprudence that an issue which was neither averred in the
amount due under the mortgage deed, as the case may be, complain nor raised during the trial in the court below cannot be raised for
with interest thereon at the rate specified in the mortgage, the first time on appeal as it would be offensive to the basic rules of fair play,
and all the costs, and judicial and other expenses incurred 21
justice and due process. On this ground alone, the Court of Appeals should
by the bank or institution concerned by reason of the have completely ignored the issue of respondents' right to redeem the
execution and sale and as a result of the custody of the said subject foreclosed property. In addition, a reason just as glaringly obvious
property less the income received from the property." [Italics exists for declaring the respondents' right of redemption already non-existent
supplied]. one year after May 8,1991, the date of the registration of the sale at public
auction.
Pursuant to Section 78 of the General Banking Act, a mortgagor whose real To rule otherwise, and allow the institution of an action questioning the
property has been sold at a public auction, judicially or extrajudicially, for the validity of a mortgage to suspend the running of the one year period of
full or partial payment of an obligation to any bank, shall have the right, within redemption would constitute a dangerous precedent. A likely off shoot of
one year after the sale of the real estate to redeem the property. The one- such a ruling is\ the institution of frivolous suits for annulment of mortgage
year period is actually to be reckoned from the date of registration of the intended merely to give the mortgagor more time to redeem the mortgaged
22
sale. Clearly therefore, respondents had only until May 8, 1992 to redeem property.1âwphi1.nêt
the subject foreclosed property. Their failure to exercise the right of
redemption by paying the redemption price within the period prescribed by As a final word, although the issue pertaining to the correct amount for the
the law effectively divested them of said right. It bears reiterating that during redemption of the subject foreclosed property has been rendered moot by
the one year redemption period, respondents never attempted to redeem the the foregoing, a point of clarification should perhaps be made as to
subject property but instead persisted in their theory that the mortgage is null applicable legal provision. Petitioner's contention that Section 78 of the
and void. To allow them now to redeem the same property would, as General Banking Act governs the determination of the redemption price of
petitioner aptly puts it, be letting them have their cake and eat it too. the subject property is meritorious. In Ponce de Leon v. Rehabilitation
27
Finance Corporation, this Court had occasion to rule that Section 78 of the
28
It cannot also be argued that the action for annulment of the mortgage filed General Banking Act had the effect of amending Section 6 of Act 3135
by the respondents tolled the running of the one year period of redemption. insofar as the redemption price is concerned when the mortgagee bank, as in
23 29
In the case of Sumerariz v. Development Bank of the Philippines, this case, or a banking or credit institution. The apparent conflict between
petitioners therein contented that the one-year period to redeem the property the provisions of Act No. 3135 and the General Banking Act was, therefore,
foreclosed by respondent was suspended by the institution of an action to resolved in favor of the latter, being a special and subsequent legislation.
30
annul the foreclosure sale filed three (3) days before the expiration of the This pronouncement was reiterated in the case of.Sy v..Court of Appeals
period. To this we ruled that: where we held that the amount at which the foreclosed property is
redeemable is the amount due under the mortgage deed, or the outstanding
"We have not found, however, any statute or decision in obligation of the mortgagor plus interest and expense in accordance with
31
support of this pretense. Moreover. up to now plaintiffs have Section 78 of the General Banking Act. It was therefore manifest error on
not exercised the right of redemption. Indeed. although they the part of the Court of Appeals to apply in the case at bar the provisions of
have intimated their wish to redeem the property in question, Section 30 Rule 39 of the Rules of Court in fixing the redemption price of the
they have not deposited the amount necessary therefor. It subject foreclosed property.
may be not a miss to note that, unlike Section 30 of Rule 39
of the Rules of Court, which permits the extension of the WHEREFORE, the motion for reconsideration is hereby GRANTED. This
period of redemption of mortgaged properties. Section 3 of Court's Resolution dated July 12, 1999 is MODIFlED insofar as respondents
Commonwealth Act No. 459, in relation to Section 9 of are found to have lost their right to redeem the subject foreclosed property.
Republic Act No. 85, which governs the redemption of
property of mortgaged to the Bank does no contain a similar SO ORDERED.
provision. Again this question has been definitely settled by
the previous case declaring the plaintiffs' right of redemption Bellosillo, Mendoza, Quizumbing, and Buena, JJ. , concur.
has already been extinguished in view of their failure to
24
exercise it within the statutory period."

25
Also, in the more recent case of, Vaca v. Court of Appeals, we declared
that the pendency of an action questioning the validity of a mortgage cannot
bar the issuance of the writ of possession after title to the property has been
26
consolidated in the mortgagee. The implication is clear: the period of
redemption is not interrupted by the filling of an action assailing the validity of
the mortgage, so that at the expiration thereof, the mortgagee who acquires
the property at the foreclosure sale can proceed to have the title consolidated
in his name and a writ of possession issued in his favor.
G.R. No. 134330 March 1, 2001 Meanwhile, Eduarda Belo sold her right of redemption to petitioners spouses
Enrique and Florencia Belo under a deed of absolute sale of proprietary and
SPOUSES ENRIQUE M. BELO and FLORENCIA G. BELO, petitioners, redemption rights.
vs.
PHILIPPINE NATIONAL BANK and SPOUSES MARCOS and ARSENIA Before the expiration of the redemption period, petitioners spouses Belo
ESLABON, respondents. tendered payment for the redemption of the agricultural land in the amount of
Four Hundred Eighty Four Thousand Four Hundred Eighty Two Pesos and
DE LEON, JR., J.: Ninety Six Centavos (P484,482.96), which includes the bid price of
respondent PNB, plus interest and expenses as provided under Act No.
1 3135.
Before us is a petition for review on certiorari of the Decision and
2 3
Resolution in CA-G.R. No. 53865 of the Court of Appeals dated May 21,
4 However, respondent PNB rejected the tender of payment of petitioners
1998 and June 29, 1998, respectively, which modified the Decision dated
5 spouses Belo. It contended that the redemption price should be the total
April 30, 1996 of the Regional Trial Court of Roxas City, Branch 19 in a suit
for Declaration of Nullity of the Contract of Mortgage. claim of the bank on the date of the auction sale and custody of property plus
charges accrued and interests amounting to Two Million Seven Hundred
Seventy Nine Thousand Nine Hundred Seventy Eight and Seventy Two
The facts are as follows: 6
Centavos (P2,779,978.72). Petitioners spouses disagreed and refused to
pay the said total claim of respondent PNB.
Eduarda Belo owned an agricultural land with an area of six hundred sixty
one thousand two hundred eighty eight (661,288) square meters located in
On June 18, 1992, petitioners spouses Belo initiated in the Regional Trial
Timpas, Panitan, Capiz, covered and described in Transfer Certificate of Title
Court of Roxas City, Civil Case No. V-6182 which is an action for declaration
(TCT for brevity) No. T-7493. She leased a portion of the said tract of land to
of nullity of mortgage, with an alternative cause of action, in the event that
respondents spouses Marcos and Arsenia Eslabon in connection with the
said spouses' sugar plantation business. The lease contract was effective for the accommodation mortgage be held to be valid, to compel respondent PNB
a period of seven (7) years at the rental rate of Seven Thousand Pesos to accept the redemption price tendered by petitioners spouses Belo which is
based on the winning bid price of respondent PNB in the extrajudicial
(P7,000.00) per year.
foreclosure in the amount of Four Hundred Forty Seven Thousand Six
Hundred Thirty Two Pesos (P447,632.00) plus interest and expenses.
To finance their business venture, respondents spouses Eslabon obtained a
loan from respondent Philippine National Bank (PNB for brevity) secured by
In its Answer, respondent PNB raised, among others, the following defenses,
a real estate mortgage on their own four (4) residential houses located in
to wit:
Roxas City, as well as on the agricultural land owned by Eduarda Belo. The
assent of Eduarda Belo to the mortgage was acquired through a special
power of attorney which she executed in favor of respondent Marcos Eslabon xxx xxx xxx
on June 15, 1982.
77. In all loan contracts granted and mortgage contracts
Inasmuch as the respondents spouses Eslabon failed to pay their loan executed under the 1975 Revised Charter (PD 694, as
obligation, extrajudicial foreclosure proceedings against the mortgaged amended), the proper rate of interest to be charged during
properties were instituted by respondent PNB. At the auction sale on June the redemption period is the rate specified in the mortgage
7
10, 1991, respondent PNB was the highest bidder of the foreclosed contract based on Sec. 25 of PD 694 and the mortgage
properties at Four Hundred Forty Seven Thousand Six Hundred Thirty Two contract which incorporates by reference the provisions of
Pesos (P447,632.00). the PNB Charters. Additionally, under Sec. 78 of the General
Banking Act (RA No. 337, as amended) made applicable to
PNB pursuant to Sec. 38 of PD No. 694, the rate of interest
In a letter dated August 28, 1991, respondent PNB appraised Eduarda Belo
of the sale at public auction of her agricultural land on June 10, 1991 as well collectible during the redemption period is the rate specified
as the registration of the Certificate of Sheriff's Sale in its favor on July 1, in the mortgage contract.
1991, and the one-year period to redeem the land.
 78. Since plaintiffs failed to tender and pay the required validity of the real estate mortgage on Eduarda Belo's property, the
amount for redemption of the property under the provisions extrajudicial foreclosure and the public auction sale, modified the trial court's
of the General Banking Act, no redemption was validly finding on the appropriate redemption price by ruling that the petitioners
8
effected; spouses Belo should pay the entire amount due to PNB under the mortgage
10
deed at the time of the foreclosure sale plus interest, costs and expenses.
xxx xxx xxx
11
Petitioners spouses Belo sought reconsideration of the said Decision but
After trial on the merits, the trial court rendered its Decision dated April 30, the same was denied by the appellate court in its Resolution promulgated on
1996 granting the alternative cause of action of spouses Belo, the decretal June 29, 1998, ratiocinating, thus:
portion of which reads:
Once more, the Court shies away from declaring the nullity
WHEREFORE, in view of all the foregoing, judgment is of the mortgage contract obligating Eduarda Belo as co-
hereby rendered in favor of plaintiffs Spouses Enrique M. mortgagor, considering that it has not been sufficiently
Belo and Florencia G. Belo and against defendants established that Eduarda Belo's assent to the special power
Philippine National Bank and Spouses Marcos and Arsenia of attorney and to the mortgage contract was tainted by any
Eslabon: vitiating cause. Moreover, in tendering an offer to redeem
the property (Exhibit "20", p. 602 Record) after its
1. Making the injunction issued by the court extrajudicial foreclosure, she has thereby admitted the
permanent, insofar as the property of Eduarda Belo validity of the mortgage, as well as the transactions leading
to its inception. Eduarda Belo, and the appellees as mere
covered by Transfer Certificate of Title No. T-7493 is
assignees of Eduarda's right to redeem the property, are
concerned;
therefore estopped from questioning the efficacy of the
12
mortgage and its subsequent foreclosure.
2. Ordering defendant Philippine National Bank to
allow plaintiff Enrique M. Belo to redeem only
The appellate court further declared that petitioners spouses Belo are
Eduarda Belo's property situated in Brgy. Timpas,
obligated to pay the total bank's claim representing the redemption price for
Panitan, Capiz, and covered by Transfer Certificate
the foreclosed properties, as provided by Section 25 of P.D No. 694, holding
of Title No. T-7493 by paying only its bid price of
P447,632.00, plus interest and other charges that:
provided for in Section 30, Rule 39 of the Rules of
Court, less the loan value, as originally appraised by On the other hand, the court's ruling that the appellees,
said defendant Bank, of the foreclosed four (4) being the assignee of the right of repurchase of Eduarda
residential lots of defendants Spouses Marcos and Belo, were bound by the redemption price as provided by
Arsenia Eslabon; and Section 25 of P.D. 694, stands. The attack on the
constitutionality of Section 25 of P.D. 694 cannot be allowed,
as the High Court, in previous instances, (Dulay v. Carriaga,
3. Dismissing for lack of merit the respective
123 SCRA 794 [1983]; Philippine National Bank v. Remigio,
counterclaims of defendants Philippine National
231 SCRA 362 [1994]) has regarded the said provision of
Bank and spouses Marcos and Arsenia Eslabon.
law with respect, using the same in determining the proper
redemption price in foreclosure of mortgages involving the
With costs against defendants. PNB as mortgagee.
9
SO ORDERED. The terms of the said provision are quite clear and leave no
room for qualification, as the appellees would have us rule.
Dissatisfied with the foregoing judgment of the trial court, respondent PNB The said rule, as amended, makes no specific distinction as
appealed to the Court of Appeals. In its Decision rendered on May 21, 1998, to assignees or transferees of the mortgagor of his
the appellate court, while upholding the decision of the trial court on the
 redemptive right. In the absence of such distinction by the IV. THE COURT OF APPEALS ERRED IN NOT HOLDING
law, the Court cannot make a distinction. As admitted THAT RESPONDENT PNB WAS NEGLIGENT IN THE
assignees of Eduarda Belo's right of redemption, the PERFORMANCE OF ITS DUTY AS COMMERCIAL MONEY
appellees succeed to the precise right of Eduarda including LENDER.
all conditions attendant to such right.
V. THE COURT OF APPEALS ERRED IN HOLDING THAT
Moreover, the indivisible character of a contract of mortgage EDUARDA BELO, PETITIONERS' PREDECESSOR, HAD
(Article 2089, Civil Code) will extend to apply in the WAIVED THE RIGHT TO QUESTION THE LEGALITY OF
redemption stage of the mortgage. THE ACCOMMODATION MORTGAGE.

As we have previously remarked, Section 25 of P.D. 694 is a VI. THE COURT OF APPEALS ERRED IN REVERSING
sanctioned deviation from the rule embodied in Rule 39, THE TRIAL COURT BY HOLDING THAT ON
Section 30 of the Rules of Court, and is a special protection REDEMPTION, PETITIONERS SHOULD PAY THE ENTIRE
given to government lending institutions, particularly, the CLAIM OF PNB AGAINST RESPONDENTS-DEBTORS
13
Philippine National Bank. (Dulay v. Carriaga, supra) ESLABONS.

Hence, the instant petition. VII. THE COURT OF APPEALS ERRED IN NOT
ORDERING THAT SHOULD PETITIONERS DECIDE TO
During the oral argument, petitioners, through counsel, Atty. Enrique M. Belo, PAY THE ENTIRE CLAIM OF RESPONDENT PNB
agreed to limit the assignment of errors to the following: AGAINST THE RESPONDENTS-DEBTORS ESLABONS,
PETITIONERS SHALL SUCCEED TO ALL THE RIGHTS
OF RESPONDENT PNB WITH THE RIGHT TO
xxx xxx xxx
REIMBURSEMENT BY RESPONDENTS-DEBTORS
ESLABONS.
II. THE COURT OF APPEALS ERRED IN NOT
REVERSING THE TRIAL COURT ON THE BASIS OF THE
VIII. THE COURT OF APPEALS ERRED IN NOT HOLDING
ASSIGNMENT OF ERRORS ALLEGED BY PETITIONERS
THAT SHOULD PETITIONERS DECIDE NOT TO
IN THEIR BRIEF:
EXERCISE THEIR RIGHT OF REDEMPTION,
PETITIONERS SHALL BE ENTITLED TO THE VALUE OF
(1) THAT THE SPECIAL POWER OF ATTORNEY THEIR IMPROVEMENTS MADE IN GOOD FAITH AND
EXECUTED BY EDUARDA BELO IN FAVOR OF FOR THE REAL ESTATE TAX DUE PRIOR TO THE
RESPONDENT ESLABON WAS NULL AND VOID: FORECLOSURE SALE.
14

(2) THAT THE REAL ESTATE MORTGAGE Petitioners challenge the appreciation of the facts of the appellate court,
EXECUTED BY RESPONDENT MARCOS pointing out the following facts which the appellate court allegedly failed to
ESLABON UNDER SAID INVALID SPECIAL fully interpret and appreciate:
POWER OF ATTORNEY IS ALSO NULL AND
VOID;
1. That respondent PNB in its Answer admitted that Eduarda
Belo was merely an accommodation mortgagor and that she
III. THE COURT OF APPEALS ERRED IN NOT HOLDING has no personal liability to respondent PNB.
THAT RESPONDENT PNB ACTED IN BAD FAITH AND
CONNIVED WITH RESPONDENTS-DEBTORS ESLABONS
TO OBTAIN THE CONSENT OF EDUARDA BELO, xxx xxx xxx
PETITIONERS' PREDECESSOR, THROUGH FRAUD.
2. That the PNB Special Power of Attorney (SPA) Form No.
74 (Exh. "D") used to bind Eduarda Belo as accommodation
mortgagor authorized the agent Eslabons to borrow and Petitioners present basically two (2) issues before this Court. First, whether
mortgage her agricultural land for her (Eduarda Belo) use or not the Special Power of Attorney (SPA for brevity), the real estate
and benefit. Instead, said PNB SPA Form No. 74 was used mortgage contract, the foreclosure proceedings and the subsequent auction
by debtors Eslabons and PNB to bind Eduarda Belo as sale involving Eduarda Belo's property are valid. Second, assuming they are
accommodation mortgagor for the crop loan extended by valid, whether or not the petitioners are required to pay, as redemption price,
PNB to the Eslabons. the entire claim of respondent PNB in the amount of P2,779,978.72 as of the
date of the public auction sale on June 10, 1991.
3. That the said PNB SPA Form No. 74 was signed by
Eduarda Belo in blank, without specifying the amount of the On the first issue, the petitioners contend that the SPA is void for the reason
loan to be granted by respondent PNB to the respondents- that the amount for which the spouses Eslabon are authorized to borrow from
debtors Eslabons upon assurance by the PNB manager that respondent bank was unlimited; and that, while the SPA states that the
the SPA was merely a formality and that the bank will not amount loaned is for the benefit of Eduarda Belo, it was in fact used for the
lend beyond the value of the four (4) [Roxas City] residential benefit of the respondents spouses Eslabon. For the said reasons petitioners
lots located in Roxas City mortgaged by respondents- contend that the mortgage contract lacks valid consent, object and
debtors Eslabons (see Exhibit "D"; Eduarda Belo's consideration; that it violates a concept in the law of agency which provides
deposition, Exhibit "V", pp. 7 to 24). that the contract entered into by the agent must always be for the benefit of
the principal; and, that it does not express the true intent of the parties.
4. That PNB did not advise Eduarda Belo of the amount of
the loan granted to the Eslabons, did not make demands The subject SPA, the real estate mortgage contract, the foreclosure
upon her for payment, did not advise her of Eslabons' proceedings and the subsequent auction sale of Eduarda Belo's property are
default. The pre-auction sale notice intended for Eduarda valid and legal.
Belo was addressed and delivered to the address of the
debtors Eslabons residence at Baybay Roxas City, not to the First, the validity of the SPA and the mortgage contract cannot anymore be
Belo Family House which is the residence of Eduarda Belo assailed due to petitioners' failure to appeal the same after the trial court
located in the heart of Roxas City. The trial court stated in its rendered its decision affirming their validity. After the trial court rendered its
Decision that the PNB witness Miss Ignacio "admitted that decision granting petitioners their alternative cause of action, i.e., that they
through oversight, no demand letters were sent to Eduarda can redeem the subject property on the basis of the winning bid price of
Belo, the accommodation mortgagor" (see p. 7, RTC respondent PNB, petitioners did not anymore bother to appeal that decision
Decision). on their first cause of action. If they felt aggrieved by the trial court's decision
upholding the validity of the said two (2) documents, then they should have
xxx xxx xxx also partially appealed therefrom but they did not. It is an abuse of legal
remedies for petitioners to belatedly pursue a claim that was settled with
5. As an agreed fact stated in the Pre-Trial Order of the finality due to their own shortcoming. As held in Caliguia v. National Labor
16
Regional Trial Court, the loan which was unpaid at the time Relations Commission, where a party did not appeal from the Labor
of the extrajudicial foreclosure sale was only P789,897.00. Arbiter's decision denying claims for actual, moral and exemplary damages
and instead moved for immediate execution, the decision then became final
as to him and by asking for its execution, he was estopped from relitigating
xxx xxx xxx
his claims for damages.
6. That herein petitioners Spouses Belo in making the tender
to redeem Eduarda Belo's agricultural land expressly Second, well-entrenched is the rule that the findings of trial courts which are
factual in nature, especially when affirmed by the Court of Appeals, deserve
reserved the right to question the legality of the
to be respected and affirmed by the Supreme Court, provided it is supported
accommodation mortgage in the event that said tender to 17
15 by substantial evidence. The finding of facts of the trial court to the effect
redeem was rejected by PNB (Exh. "I").
that Eduarda Belo was not induced by the manager of respondent PNB but
instead that she freely consented to the execution of the SPA is given the
highest respect as it was affirmed by the appellate court. In the case at bar,
the burden of proof was on the petitioners to prove or show that there was as additional collateral of the Eslabon spouses' loan from respondent PNB.
alleged inducement and misrepresentation by the manager of respondent Thus, the petitioners' contention that the SPA is void is untenable. Besides,
PNB and the spouses Eslabon. Their allegation that Eduarda Belo only Eduarda Belo benefited, in signing the SPA, in the sense that she was able
21
agreed to sign the SPA after she was assured that the spouses Eslabon to collect the rentals on her leased property from the Eslabons.
would not borrow more than the value of their own four (4) residential lots in
18
Roxas City was properly objected to by respondent PNB. Also their An accommodation mortgage is not necessarily void simply because the
contention that Eduarda Belo signed the SPA in blank was properly objected accommodation mortgagor did not benefit from the same. The validity of an
to by respondent PNB on the ground that the best evidence was the SPA. accommodation mortgage is allowed under Article 2085 of the New Civil
There is also no proof to sustain petitioners' allegation that respondent PNB Code which provides that "(t)hird persons who are not parties to the principal
acted in bad faith and connived with the debtors, respondents spouses obligation may secure the latter by pledging or mortgaging their own
Eslabon, to obtain Eduarda Belo's consent to the mortgage through fraud. property." An accommodation mortgagor, ordinarily, is not himself a recipient
Eduarda Belo very well knew that the respondents spouses Eslabon would of the loan, otherwise that would be contrary to his designation as such. It is
use her property as additional mortgage collateral for loans inasmuch as the not always necessary that the accommodation mortgagor be appraised
mortgage contract states that "the consideration of this mortgage is hereby beforehand of the entire amount of the loan nor should it first be determined
19
initially fixed at P229,000.00." The mortgage contract sufficiently apprises before the execution of the SPA for it has been held that:
Eduarda Belo that the respondents spouses Eslabon can apply for more
loans with her property as continuing additional security. If she found the said
"(real) mortgages given to secure future advancements are
provision questionable, she should have complained immediately. Instead,
valid and legal contracts; that the amounts named as
almost ten (10) years had passed before she and the petitioners sought the
consideration in said contract do not limit the amount for
annulment of the said contracts. which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and
Third, after having gone through the records, this Court finds that the courts a other indebtedness can be gathered. A mortgage given to
quo did not err in holding that the SPA executed by Eduarda Belo in favor of secure advancements is a continuing security and is not
the respondents spouses Eslabon and the Real Estate Mortgage executed discharged by repayment of the amount named in the
by the respondents spouses in favor of respondent PNB are valid. It is mortgage, until the full amount of the advancements are
stipulated in paragraph three (3) of the SPA that Eduarda Belo appointed the 22
paid."
Eslabon spouses "to make, sign, execute and deliver any contract of
mortgage or any other documents of whatever nature or kind . . . which may Fourth, the courts a quo correctly held that the letter of Eduarda Belo
be necessary or proper in connection with the loan herein mentioned, or with
addressed to respondent PNB manifesting her intent to redeem the property
any loan which my attorney-in-fact may contract personally in his own name . is a waiver of her right to question the validity of the SPA and the mortgage
20
. . This portion of the SPA is quite relevant to the case at bar. This was the contract as well as the foreclosure and the sale of her subject property.
main reason why the SPA was executed in the first place inasmuch as
Petitioners claim that her letter was not an offer to redeem as it was merely a
Eduarda Belo consented to have her land mortgaged for the benefit of the
declaration of her intention to redeem. Respondent PNB's answer to her
respondents spouses Eslabon. The SPA was not meant to make her a co-
letter would have carried certain legal effects. Had respondent PNB accepted
obligor to the principal contract of loan between respondent PNB, as lender,
her letter-offer, it would have surely bound the bank into accepting the
and the spouses Eslabon, as borrowers. The accommodation real estate redemption price offered by Eduarda Belo. If it was her opinion that her SPA
mortgage over her property, which was executed in favor of respondent PNB and the mortgage contract were null and void, she would not have
by the respondents spouses Eslabon, in their capacity as her attorneys-in-
manifested her intent to redeem but instead questioned their validity before a
fact by virtue of her SPA, is merely an accessory contract.
court of justice. Her offer was a recognition on her part that the said contracts
are valid and produced legal effects. Inasmuch as Eduarda Belo is estopped
Eduarda Belo consented to be an accommodation mortgagor in the sense from questioning the validity of the contracts, her assignees who are the
that she signed the SPA to authorize respondents spouses Eslabons to petitioners in the instant case, are likewise estopped from disputing the
execute a mortgage on her land. Petitioners themselves even acknowledged validity of her SPA, the accommodation real estate mortgage contract, the
that the relation created by the SPA and the mortgage contract was merely foreclosure proceedings, the auction sale and the Sheriff's Certificate of Sale.
that of mortgagor-mortgagee relationship. The SPA form of the PNB was
utilized to authorize the spouses Eslabon to mortgage Eduarda Belo's land
The second issue pertains to the applicable law on redemption to the case at under which the property is sold, may redeem the same at
bar. Respondent PNB maintains that Section 25 of Presidential Decree No. any time within the term of one year from and after the date
694 should apply, thus: of the sale; and such redemption shall be governed by the
provisions of sections four hundred and sixty-four to four
SECTION 25. Right of redemption of foreclosed property — hundred and sixty six, inclusive, of the Code of Civil
25
Right of possession during redemption period. — Within one Procedure , in so far as these are not inconsistent with the
year from the registration of the foreclosure sale of real provisions of this Act.
estate, the mortgagor shall have the right to redeem the
property by paying all claims of the Bank against him on the Section 28 of Rule 39 of the 1997 Revised Rules of Civil Procedure states
date of the sale including all the costs and other expenses that:
incurred by reason of the foreclosure sale and custody of the
23
property as well as charges and accrued interests. SECTION 28. Time and manner of, and amounts payable
on, successive redemptions; notice to be given and filed. —
Additionally, respondent bank seeks the application to the case at bar of The judgment obligor, or redemptioner, may redeem the
Section 78 of the General Banking Act, as amended by P.D. No. 1828, which property from the purchaser, at any time within one (1) year
states that — from the date of the registration of the certificate of sale, by
paying the purchaser the amount of his purchase, within one
. . . In the event of foreclosure, whether judicially or per centum per month interest thereon in addition, up to the
extrajudicially, of any mortgage on real estate which is time of redemption, together with the amount of any
security for any loan granted before the passage of this Act assessments or taxes which the purchaser may have paid
or under the provisions of this Act, the mortgagor or debtor thereon after purchase, and interest on such last named
whose real property has been sold at public auction, amount at the same rate; and if the purchaser be also a
judicially or extrajudicially, for the full or partial payment of an creditor having a prior lien to that of the redemptioner, other
obligation to any bank, banking or credit institution, within the than the judgment under which such purchase was made,
purview of this Act shall have the right, within one year after the amount of such other lien, with interest. (Italic supplied)
the sale of the real estate as a result of the foreclosure of the
respective mortgage, to redeem the property by paying the xxx xxx xxx
amount fixed by the court in the order of execution, or the
amount due under the mortgage deed, as the case may be, This Court finds the petitioners' position on that issue to be meritorious.
with interest thereon at the rate specified in the mortgage,
and all the costs, and judicial and other expenses incurred
There is no doubt that Eduarda Belo, assignor of the petitioners, is an
by the bank or institution concerned by reason of the
accommodation mortgagor. The Pre-trial Order and respondent PNB's brief
execution and sale and as a result of the custody of said
24 contain a declaration of this fact. The dispute between the parties is whether
property less the income received from the property.
Section 25 of P.D. No. 694 applies to an accommodation mortgagor, or her
assignees. The said legal provision does not make a distinction between a
On the other hand, petitioners assert that only the amount of the winning debtor-mortgagor and an accommodation mortgagor as it uses the broad
bidder's purchase together with the interest thereon and on all other related term "mortgagor". The appellate court thus ruled that the provision applies
expenses should be paid as redemption price in accordance with Section 6 even to an accommodation mortgagor inasmuch as the law does not make
of Act No. 3135 which provides that: any distinction. We disagree. Where a word used in a statute has both a
restricted and a general meaning, the general must prevail over the restricted
SECTION 6. In all cases in which an extrajudicial sale is unless the nature of the subject matter or the context in which it is employed
26
made under the special power hereinbefore referred to, the clearly indicates that the limited sense is intended. It is presumed that the
debtor, his successor in interest or any judicial creditor or legislature intended exceptions to its language which would avoid absurd
27
judgment creditor of said debtor, or any person having a lien consequences of this character. In the case at bar, the qualification to the
on the property subsequent to the mortgage or deed of trust general rule applies. The same provision of Section 25 of P.D. No. 694
provides that "the mortgagor shall have the right to redeem the property by PNB should have at least advised them that redemption
paying all claims of the Bank against him". From said provision can be would be governed by its Revised Charter or PD 69, and not
deduced that the mortgagor referred to by that law is one from whom the by Act 3135 and the Rules of Court, as commonly practiced .
bank has a claim in the form of outstanding or unpaid loan; he is also called a . . This practice of defendant Bank is manifestly unfair and
borrower or debtor-mortgagor. On the other hand, respondent PNB has no unjust to these redemptioners who are caught by surprise
claim against accommodation mortgagor Eduarda Belo inasmuch as she and usually taken aback by the enormous claims of the Bank
only mortgaged her property to accommodate the Eslabon spouses who are not shown in the Notice of Extrajudicial Sale or the
31
the loan borrowers of the PNB. The principal contract is the contract of loan Certificate of Sheriff's Sale as in this case.
between the Eslabon spouses, as borrowers/debtors, and the PNB as lender.
The accommodation real estate mortgage (which secures the loan) is only an Moreover, the mortgage contract explicitly provides that ". . . the mortgagee
accessory contract. It is our view and we hold that the term "mortgagor" in may immediately foreclose this mortgage judicially in accordance with the
Section 25 of P.D. No. 694 pertains only to a debtor-mortgagor and not to an Rules of Court or extrajudicially in accordance with Act No. 3135, as
accommodation mortgagor. 32
amended and Presidential Decree No. 385 . . . Since the mortgage contract
in this case is in the nature of a contract of adhesion as it was prepared
It is well settled that courts are not to give a statute a meaning that would solely by respondent, it has to be interpreted in favor of petitioners. The
lead to absurdities. If the words of a statute are susceptible of more than one respondent bank however tries to renege on this contractual commitment by
33
meaning, the absurdity of the result of one construction is a strong argument seeking refuge in the 1989 case of Sy v. Court of Appeals wherein this
28
against its adoption, and in favor of such sensible interpretation. We test a Court ruled that the redemption price is equal to the total amount of
law by its result. A law should not be interpreted so as not to cause an indebtedness to the bank's claim inasmuch as Section 78 of the General
injustice. There are laws which are generally valid but may seem arbitrary Banking Act is an amendment to Section 6 of Act No. 3135, despite the fact
when applied in a particular case because of its peculiar circumstances. We that the extrajudicial foreclosure procedure followed by the PNB was
29
are not bound to apply them in slavish obedience to their language. explicitly under or in accordance with Act No. 3135.

34
The interpretation accorded by respondent PNB to Section 25 of P.D. No. In the 1996 case of China Banking Corporation v. Court of Appeals, where
694 is unfair and unjust to accommodation mortgagors and their assignees. the parties also stipulated that Act No. 3135 is the controlling law in case of
Forcing an accommodation mortgagor like Eduarda Belo to pay for what the foreclosure, this Court ruled that;
principal debtors (Eslabon spouses) owe to respondent bank is to punish her
for the accommodation and generosity she accorded to the Eslabon spouses By invoking the said Act, there is no doubt that it must
who were then hard pressed for additional collateral needed to secure their "govern the manner in which the sale and redemption shall
bank loan. Respondents PNB and spouses Eslabons very well knew that she be effected." Clearly, the fundamental principle that contracts
merely consented to be a mere accommodation mortgagor. are respected as the law between the contracting parties
finds application in the present case, specially where they
The circumstances of the case at bar also provide for ample reason why are not contrary to law, morals, good customs and public
35
petitioners cannot be made to pay the entire liability of the principal debtors, policy.
Eslabon spouses, to respondent PNB.
More importantly, the ruling pronounced in Sy v. Court of Appeals and other
36
The trial court found that respondent PNB's application for extrajudicial cases, that the General Banking Act and P.D. No. 694 shall prevail over Act
30
foreclosure and public auction sale of Eduarda Belo's mortgaged property No. 3135 with respect to the redemption price, does not apply here inasmuch
was filed under Act No. 3135, as amended by P.D. No. 385. The notice of as in the said cases the redemptioners were the debtors themselves or their
extrajudicial sale, the Certificate of Sheriff's Sale, and the letter it sent to assignees, and not an accommodation mortgagor or the latter's assignees
Eduarda Belo did not mention P. D. No. 694 as the basis for redemption. As such as in the case at bar. In the said cases, the debtor-mortgagors were
aptly ruled by the trial court — required to pay as redemption price their entire liability to the bank inasmuch
as they were obligated to pay their loan which is a principal obligation in the
In fairness to these mortgagors, their successors-in-interest, first place. On the other hand, accommodation mortgagors as such are not in
or innocent purchasers for value of their redemption rights, anyway liable for the payment of the loan or principal obligation of the
debtor/borrower The liability of the accommodation mortgagors extends only
up to the loan value of their mortgaged property and not to the entire loan The debtor, in this case, shall have a right to the
itself. Hence, it is only just that they be allowed to redeem their mortgaged extinguishment of the pledge or mortgage as the portion of
property by paying only the winning bid price thereof (plus interest thereon) the debt for which each thing is specially answerable is
at the public auction sale. satisfied.

One wonders why respondent PNB invokes Act No. 3135 in its contracts There is no dispute that the mortgage on the four (4) parcels of land by the
without qualification and yet in the end appears to disregard the same when Eslabon spouses and the other mortgage on the property of Eduarda Belo
it finds its provisions unfavorable to it. This is unfair to the other contracting both secure the loan obligation of respondents spouses Eslabon to
party who in good faith believes that respondent PNB would comply with the respondent PNB. However, we are not persuaded by the contention of the
contractual agreement. respondent PNB that the indivisibility concept applies to the right of
redemption of an accommodation mortgagor and her assignees. The
37
It is therefore our view and we hold that Section 78 of the General Banking jurisprudence in Philippine National Bank v. Agudelo is enlightening to the
Act, as amended by P.D. No. 1828, is inapplicable to accommodation case at bar, to wit:
mortgagors in the redemption of their mortgaged properties.
xxx xxx xxx
While the petitioners, as assignees of Eduarda Belo, are not required to pay
the entire claim of respondent PNB against the principal debtors, spouses However, Paz Agudelo y Gonzaga (the principal) . . . gave
Eslabon, they can only exercise their right of redemption with respect to the her consent to the lien on lot No. 878 . . . . This
parcel of land belonging to Eduarda Belo, the accommodation mortgagor. acknowledgment, however, does not extend to lots Nos. 207
Thus, they have to pay the bid price less the corresponding loan value of the and 61 . . . inasmuch as, although it is true that a mortgage
foreclosed four (4) residential lots of the spouses Eslabon. is indivisible as to the contracting parties and as to their
successors in interest (Article 1860, Civil code), it is not so
The respondent PNB contends that to allow petitioners to redeem only the with respect to a third person who did not take part in the
property belonging to their assignor, Eduarda Belo, would violate the constitution thereof either personally or through an agent x x
principle of indivisibility of mortgage contracts. We disagree. x. Therefore, the only liability of the defendant-appellant Paz
Agudelo y Gonzaga is that which arises from the aforesaid
acknowledgment but only with respect to the lien and not to
Article 2089 of the Civil Code of the Philippines, provides that:
the principal obligation secured by the mortgage
acknowledged by her to have been constituted on said lot
A pledge or mortgage is indivisible, even though the debt No. 878 . . . . Such liability is not direct but a subsidiary
may be divided among the successors in interest of the one.
38
debtor or of the creditor.
xxx xxx xxx
Therefore, the debtor's heir who has paid a part of the debt
cannot ask for the proportionate extinguishment of the
Wherefore, it is hereby held that the liability contracted by
pledge or mortgage as the debt is not completely satisfied.
the aforesaid defendant-appellant Paz Agudelo y Gonzaga is
merely subsidiary to that of Mauro A. Garrucho (the agent),
Neither can the creditor's heir who received his share of the limited to lot No. 87.
debt return the pledge or cancel the mortgage, to the
prejudice of the other heirs who have not been paid.
xxx xxx xxx
From these provisions is excepted the case in which, there
being several things given in mortgage or pledge, each one From the wording of the law, indivisibility arises only when there is a debt,
of them guarantees only a determinate portion of the credit. that is, there is a debtor-creditor relationship. But, this relationship is wanting
in the case at bar in the sense that petitioners are assignees of an
accommodation mortgagor and not of a debtor-mortgagor. Hence, it is fair
and logical to allow the petitioners to redeem only the property belonging to
their assignor, Eduarda Belo.

With respect to the four (4) parcels of residential land belonging to the
Eslabon spouses, petitioners — being total strangers to said lots — lack legal
personality to redeem the same. Fair play and justice demand that the
respondent PNB's interest of recovering its entire bank claim should not be at
the expense of petitioners, as assignees of Eduarda Belo, who is not
39
indebted to it. Besides, the letter sent by respondent PNB to Eduarda Belo
states that "your (Belo) mortgaged property/ies with PNB covered by TCT #
T-7493 was/were sold at public auction . . . .". It further states that "You
(Belo) have, therefore, one year from July 1, 1991 within which to redeem
your mortgaged property/ies, should you desire to redeem it." Respondent
PNB never mentioned that she was bound to redeem the entire mortgaged
properties including the four (4) residential properties of the spouses
Eslabon. The letter was explicit in mentioning Eduarda Belo's property only.
From the said statement, there is then an admission on the part of
respondent PNB that redemption only extends to the subject property of
Eduarda Belo for the reason that the notice of the sale limited the redemption
to said property.

WHEREFORE, the petition is partially granted in that the petitioners are

hereby allowed to redeem only the property, covered and described in
Transfer Certificate of Title No. T-7493-Capiz registered in the name of
Eduarda Belo, by paying only the bid price less the corresponding loan value
of the foreclosed four (4) residential lots of the respondents spouses Marcos
and Arsenia Eslabon, consistent with the Decision of the Regional Trial Court
of Roxas City in Civil Case No. V-6182.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.

G.R. No. 83139 April 12, 1989 In the meantime, petitioner acquired by virtue of a deed of assignment Carlos
Coquinco's right of redemption for and in consideration of P500,000.00.
ARNEL SY, petitioner, Before the expiration of the one-year redemption period, petitioner offered to
vs. redeem the foreclosed property from SIHI by tendering to the latter two (2)
HONORABLE COURT OF APPEALS, STATE INVESTMENT HOUSE, INC. manager's checks issued by SOLIDBANK, one for P760,000.00 representing
and THE REGISTER OF DEEDS OF RIZAL, respondents. the purchase price, and another for P91,200.00 representing interest at the
rate of 1% per month for 12 months, totalling P851,200.00. SIHI rejected this
Manuel T. Ubarra for petitioner. offer.

Vicente D. Minora co-counsel for petitioner. Thus, on February 20, 1984, petitioner filed an action for consignation of the
aforesaid amount with the RTC, docketed as Civil Case No. 84-22839, to
compel SIHI to accept the P851,200.00 as payment of the redemption price
Angara, Abello, Concepcion, Regala & Cruz for respondent State Investment for the foreclosed property, to order SIHI to surrender the title over the
House, Inc. property and to issue a certificate of redemption in favor of petitioner.

On February 27, 1984, a day before the expiration of the redemption period,
petitioner decided to redeem the foreclosed property directly from the Ex-
CORTES, J.: Officio Regional Sheriff of Rizal, who accepted from him the amount of
P851,200.00 as redemption price and P4,269.00 as percentage fee of
For a resolution of the issues raised in the instant petition involving the collection, and issued to him the corresponding certificate of redemption.
amount required to redeem the subject foreclosed property, the Court must
first determine what law to apply. Is it Section 30, Rule 39 of the Revised On March 30,1984, SIHI filed a motion to dismiss Civil Case No. 84-22839
Rules of Court in relation to Act No. 3135 as amended, or Section 78 of Rep. on the ground of lack of cause of action, alleging that the amount sought to
Act No. 337 (General Banking Act) as amended by P.D. No. 1828? be consigned was insufficient for purposes of redemption pursuant to Section
78 of Rep. Act No. 337, otherwise known as the General Banking Act.
The facts of the case are as follows:
In an order dated April 24, 1984, the RTC dismissed petitioner's action on the
On March 2, 1979, Carlos Coquinco executed in favor of private respondent ground, among others, that there being no valid tender of payment, there
State Investment House, Inc. (hereinafter referred to as SIHI) a real estate was no valid consignation. No appeal was interposed by petitioner from this
mortgage over a 952 square-meter parcel of land in San Juan, Metro-Manila, order.
together with all the improvements thereon, covered by TCT No. 2782 issued
in his name, as security for the payment of a loan in the amount of After the dismissal of the aforementioned action, SIHI consolidated its
P1,000,000.00. For failure of Carlos Coquinco to pay his outstanding balance ownership over the foreclosed property, and caused the cancellation of TCT
of P1,126,220.56 computed as of October 19, 1982 [Record, p. 217-E] the No. 2782 and the issuance of TCT No. 44775 covering the same property in
mortgaged property was extrajudicially foreclosed by SIHI and was sold at its name.
public auction on February 10, 1983 for P760,000.00 to SIHI as the only
bidder. The certificate of sale in favor of SIHI was registered with the Registry After learning of this development, petitioner instituted another action in the
of Deeds of Pasig on February 28, 1983. Regional Trial Court on June 11, 1984, this time a complaint for annulment
and cancellation of title, with damages, against SIHI and the Register of
On May 22, 1983, SIHI filed before the Regional Trial Court (RTC) of Manila Deeds for the Province of Rizal, docketed as Civil Case No. 51169.
an action against Carlos Coquinco for the collection of the sum of
P612,031.84, representing the deficiency of his indebtedness as of February During the pendency of the action, SIHI sold the subject property to spouses
10, 1983. Domingo Lim and Lim Siu Keng. Defendant Register of Deeds, thereafter,
cancelled TCT No. 44775 and issued TCT No. 46409 in the name of the
spouses.
On July 7, 1986, the court a quo dismissed petitioner's complaint holding that cancelling TCT No. 2782 and issuing TCT No.
it stated no cause of action because petitioner failed to effect a valid 44775 in favor of SIHI; and,
redemption as required under Section 78 of the General Banking Act, as
amended by P.D. No. 1828. The court accordingly ordered petitioner to pay IV. Whether or not the award of attorney's fees and
SIHI the following sums of money: P10,000.00 as temperate damages; expenses of litigation assessed against petitioner is
P20,000.00 as exemplary damages on the finding that petitioner had proper.
instituted the case in violation of the res judicata rule; and P20,000.00 as
attorney's fees [CA Decision, p. 4; Rollo, p. 32]. Petitioner's motion for As regards the first issue, petitioner insists that the present case is governed
reconsideration was subsequently denied. by Act No. 3135, as amended, in relation to Section 30, Rule 39 of the
Revised Rules of Court which provides in part:
Petitioner then appealed to respondent appellate court, raising as errors: (1)
the application of Section 78 of the General Banking Act, as amended, SEC. 30. Time and manner of, and amounts payable
instead of Act No. 3135, in relation to Section 30, Rule 39 of the Revised on, successive redemptions. Notice to be given and
Rules of Court; (2) the holding that the dismissal of Civil Case No. 84-22839 filed. — The judgment debtor, or redemptioner,, may
(consignation case) from which petitioner failed to appeal and wherein the
redeem the property from the purchaser, at any time
court made a finding that petitioner made no valid tender of payment of the within twelve months after the sale on paying the
redemption price, had the effect of res judicata on the case at hand; (3) the
purchaser the amount of his purchase, with one
finding that SIHI committed no actionable wrong in conveying the subject percentum per month interest thereon in addition, up
property to spouses Domingo Lim and Lim Siu Keng; and, (4) the award of to the time of redemption, together with the amount
damages assessed against petitioner [CA Decision, p. 5; Rollo, p. 33]. of any assessments or taxes which the purchaser
may have paid thereon after purchase, and interest
In its decision promulgated on April 28, 1988, respondent appellate court on such last-named amount at the same rate...
affirmed the trial court's judgment with the modification that the award for [Emphasis supplied.]
temperate and exemplary damages assessed against petitioner was set
aside for lack of legal basis [CA Decision, p. 11; Rollo, p. 39].
Thus, petitioner contends that a valid redemption was made by him as
assignee of the mortgagor's right of redemption when he tendered and paid
Not satisfied with the above decision, petitioner filed the instant petition for to the Sheriff of Rizal the amount of P851,000.00 representing the purchase
review on certiorari, raising basically the same errors he had raised in the price plus interest computed at the rate of 1% per month for a period of
appellate court. twelve months. This was the same amount allegedly tendered to, and
refused acceptance by, SIHI. In support of his contention, petitioner invokes
The issues raised in this petition may be reduced into four, to wit: the case of Philippine National Bank v. The Honorable Court of Appeals and
Divina Alim [G.R. No. 60208, December 5, 1985,140 SCRA 360].
I. Whether Act No. 3135, as amended, in relation to
Section 30, Rule 39 of the Revised Rules of Court, On the other hand, respondent appellate court, citing the case of Ponce de
or Section 78 of Rep. Act No. 337 (General Banking Leon v. Rehabilitation Finance Corporation [G.R. No. L-24571, December 18,
Act), as amended by P.D. No. 1828, is the 1970, 36 SCRA 289], applied Section 78 of the General Banking Act, as
applicable law in determining the redemption price; amended by P. D. No. 1828, and consequently held that no valid redemption
was effected by petitioner because the amount tendered to SIHI and
II. Whether or not the dismissal of Civil Case No. 84- thereafter paid to the sheriff was insufficient, it being less than the amount
22839 (consignation case) had the effect of res due under the real estate mortgage contract of Carlos Coquinco or the
judicata with respect to Civil Case No. 51169; latter's outstanding balance, with interest as specified in the mortgage
contract plus expenses incurred by SIHI by reason of the foreclosure and
sale of the subject property.
III. Whether or not the Register of Deeds for the
province of Rizal may be held liable for damages for
The Court finds that respondent appellate court committed no reversible and all costs ... and other expenses incurred . . . by reason of the execution
error, having acted in accordance with the law and jurisprudence. (or foreclosure] and sale and as a result of the custody of said property less
the income received from the property . . ." pursuant to Section 78 of the
Section 78 of the General Banking Act, as amended by P.D. No. 1828, states General Banking Act in order to effect a valid redemption. Since petitioner
that: merely stepped into the shoes of Carlos Coquinco his assignor, petitioner
should have tendered and paid the same amount in order to redeem the
property.
... In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate which
is security for any loan granted before the passage Contrary to petitioner's claim, the Court's decision in Ponce de Leon v.
of this Act or under the provisions of this Act, the Rehabilitation Finance Corporation, supra, is applicable. In that case, the
mortgagor or debtor whose real property has been Court had occasion to state that the General Banking Act partakes of the
sold at public auction, judicially or extra-judicially, for nature of an amendment to Act No. 3135 insofar as the redemption price is
the full or partial payment of an obligation to any concerned, when the mortgagee is a bank or banking or credit institution,
bank, banking or credit institution, within the purview Section 6 of Act No. 3135 being, in this respect, inconsistent with Section 78
of this Act shall have the right, within one year after of the General Banking Act. Although the foreclosure and sale of the subject
the sale of the real estate as a result of the property was done by SIHI pursuant to Act No. 3135, as amended (whereby
foreclosure of the respective mortgage, to redeem entities like SIHI are authorized to extrajudicially foreclose and sell
the property by paying the amount fixed by the court mortgaged properties only under a special power inserted in or annexed to
in the order of execution, or the amount due under the real estate mortgage contract, and interested parties, like petitioner
the mortgage deed, as the case may be, with herein, are given one year from the date of sale within which to redeem the
interest thereon at the rate specified in the mortgage foreclosed properties), Section 78 of the General Banking Act, as amended,
and all the costs, and judicial and other expenses provides the amount at which the subject property is redeemable from SIHI,
incurred by the bank or institution concerned by which is, in this case, the amount due under the mortgage deed, or the
reason of the execution and sale and as a result of outstanding obligation of Carlos Coquinco plus interest and expenses.
the custody of said property less the income
received from the property. [Emphasis supplied]. The decision in the 1985 case of Philippine National Bank v. The Honorable
Court of Appeals, supra, invoked by petitioner is not determinative of the
It must be emphasized that the above section is applicable not only to "banks issues in the instant petition because that case is applicable only to
and banking institutions," but also to "credit institutions." And, as certified by extrajudicial foreclosures by the PNB effected pursuant to a mortgage
the Central Bank,* SIHI is a credit institution, i.e. financial intermediary contract entered into prior to the enactment in 1975 of the Revised Charter of
engaged in quasi-banking functions within the purview of Section 78, it being the PNB, P.D. No. 694 (which contained provisions on redemption), and
an entity authorized to engage in the lending of funds or purchasing of deals specifically with the amount of interest to be included in the
receivables or other obligations with funds obtained from the public as computation of the redemption price.
provided in the General Banking Act under Section 2-A (a); ** and, to lend,
invest or place funds deposited with them, acquired by them or otherwise Thus, inasmuch as petitioner failed to tender and pay the required amount for
coursed through them, either for their own account or for the account of the redemption of the subject property pursuant to Section 78 of the General
others under Section 2-D(c) *** [Record, p. 246]. Banking Act, as amended, no valid redemption was effected by him.
Consequently, there was no legal obstacle to the consolidation of title by
Moreover, petitioner by virtue of the deed of assignment of Carlos SIHI.
Coquinco's right of redemption must be deemed subrogated to the rights and
obligations of his assignor, and bound by exactly the same conditions, Considering that the Court has made the foregoing categorical finding that
relative to the redemption of the subject property that bound the latter as petitioner failed to effect a valid redemption of the subject property, it is
debtor and mortgagor [Gorospe v. Santos, G.R. No. L-30079, January 30, deemed unnecessary to pass upon the merits of the second issue presented
1976, 69 SCRA 191]. Had Carlos Coquinco attempted to redeem the subject in the instant petition.
foreclosed property, he would have had to pay "the amount due under the
mortgage deed ... with interest thereon at the rate specified in the mortgage
As regards the third issue, suffice it to say that the respondent Register of presume that [he] acted in good faith [CA Decision,
Deeds incurred no liability when he cancelled TCT No. 2782 and issued in p. 10; Rollo, P. 38.]
lieu thereof TCT No. 44775 in the name of SIHI, the former having acted in
fulfillment of his official functions and in accordance with law. WHEREFORE, the decision of respondent Court of Appeals in CA-G.R. CV
No. 13387 promulgated on April 28, 1988, is hereby AFFIRMED with the
With regard to the fourth issue, petitioner contends that since respondent modification that the award of attorney's fees and expenses of litigation is set
appellate court had set aside the award of temperate and exemplary aside.
damages on the finding that petitioner had acted in good faith in filing the
present action, it should have also deleted the award of attorney's fees and SO ORDERED.
expenses of litigation assessed against him for lack of legal basis.
Fernan, C.J., Gutierrez, Jr., and Bidin, JJ., concur.
This contention is meritorious.
Feliciano, J., is on leave.
A perusal of Article 2208 of the New Civil Code will reveal that the award of
attorney's fees as a form of damages is the exception rather than the general
rule for it is predicated upon the existence of exceptional circumstances,
such as a "clearly unfounded civil action or proceeding" or evident bad faith
on the plaintiffs part in instituting his action [Tan Ti v. Alvear, 26 Phil. 566
(1914); Buan v. Camaganacan, G.R. No. L-21569, February 28, 1966,16
SCRA 321; Philippine National Bank v. Court of Appeals, G.R. No. L-45770,
March 20, 1988, 159 SCRA 433].

It cannot be said that the present action instituted by petitioner was clearly
unfounded. Although the theory upon which petitioner's complaint was based
is untenable, he had raised legitimate issues on the application of Section 78
of the General Banking Act to credit institutions like SIHI, and the import of
the decisions in the cases of Ponce de Leon v. Rehabilitation Finance
Corporation and Philippine National Bank v. The honorable Court of Appeals.
Neither was it established that petitioner had acted in bad faith in the filing of
his action against SIHI notwithstanding the dismissal of his complaint in Civil
Case No. 84-22839 (consignation case). The Court agrees with the holding
of the respondent appellate court that the filing of the present action by
petitioner was merely

... a misapprehension of a legal remedy as would

normally be taken within the ambit of permissible
legal procedure. This, is a scene happening daily in
our courts where the opposing parties would avail of
every conceivable rule in the statute books to
ventilate their claim or defenses. [Petitioner's]
persistence to pay the redemption petition price is
an act which the court does not consider
condemnable as to make [him] liable for temperate
and exemplary damages. We are inclined to