Notice of Lis Pendens G.R. No. 115402 July 15, 1998 LEONCIO LEE TEK SHENG, petitioner, vs. COURT OF APPEALS, HON. ANTONIO J. FINEZA, and LEE TEKSHENG, respondents. MARTINEZ, J.: After his mother's death, petitioner 1 filed a complaint against his father, herein private respondent, to partition the conjugal properties of his parents. 2 In his answer with counterclaim, private respondent alleged that four (4) parcels of land registered solely in petitioner's name under Transfer Certificate of Title (TCT) 8278 are conjugal properties. Private respondent contends that the lots are owned by the conjugal regime but was registered in petitioner's name only as a trustee considering that at that time, the latter was then the only Filipino citizen in the family. Accordingly, private respondent prayed for the dismissal of the partition case and for the reconveyance of the lots to its rightful owner — the conjugal regime. Meantime, to protect the interest of the conjugal regime during the pendency of the case, private respondent caused the annotation of a notice of lis pendens on TCT 8278. Petitioner moved for the cancellation of said annotation which was denied by the trial court ruling that (a) the notice was not for the purpose of molesting or harassing petitioner and (b) also to keep the property within the power of the court pending litigation. 3 Petitioner assailed the denial of his motion to cancel the notice of lis pendens via petition for certiorari and prohibition to the Court of Appeals (CA), but to no avail. 4 Resorting to this Court, petitioner primarily contends that in the resolution of an incidental motion for cancellation of the notice of lis pendens (a) it was improper to thresh out the issue of ownership of the disputed lots since ownership cannot be passed upon in a partition case, otherwise, (b) it would amount to a collateral attack of his title obtained more than 28 years ago. He argues that his sole ownership as shown in the TCT would be improperly assailed in a partition case and should be done through a separate suit. On the contrary, private respondent posits that evidence of ownership is admissible in a partition case as this is not a probate or land registration proceedings where the court's jurisdiction is limited. Though the postulates respectively proffered by both parties are not at point, luckily for private respondent, petitioner's claim is not legally tenable. There is no dispute that a Torrens certificate of title cannot be collaterally attacked 5 but that rule is not material to this case. The annotation of a notice of lis pendens does not in any case amount nor can it be considered as equivalent to a collateral attack of the certificate of title for a parcel of land. The concept of no collateral attack of title is based on Section 48 of P.D. 1529 which states that:
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Notice of Lis Pendens
G.R. No. 115402 July 15, 1998
LEONCIO LEE TEK SHENG, petitioner,
vs.
COURT OF APPEALS, HON. ANTONIO J. FINEZA, and LEE TEKSHENG, respondents.
MARTINEZ, J.:
After his mother's death, petitioner 1 filed a complaint against his father, herein private respondent, to partition the conjugal properties of his parents. 2 In his answer with counterclaim, private respondent alleged that four (4) parcels of land registered solely in petitioner's name under Transfer Certificate of Title (TCT) 8278 are conjugal properties. Private respondent contends that the lots are owned by the conjugal regime but was registered in petitioner's name only as a trustee considering that at that time, the latter was then the only Filipino citizen in the family. Accordingly, private respondent prayed for the dismissal of the partition case and for the reconveyance of the lots to its rightful owner — the conjugal regime.
Meantime, to protect the interest of the conjugal regime during the pendency of the case, private respondent caused the annotation of a notice of lis pendens on TCT 8278. Petitioner moved for the cancellation of said annotation which was denied by the trial court ruling that (a) the notice was not for the purpose of molesting or harassing petitioner and (b) also to keep the property within the power of the court pending litigation. 3 Petitioner assailed the denial of his motion to cancel the notice of lis pendens via petition for certiorari and prohibition to the Court of Appeals (CA), but to no avail. 4
Resorting to this Court, petitioner primarily contends that in the resolution of an incidental motion for cancellation of the notice of lis pendens (a) it was improper to thresh out the issue of ownership of the disputed lots since ownership cannot be passed upon in a partition case, otherwise, (b) it would amount to a collateral attack of his title obtained more than 28 years ago. He argues that his sole ownership as shown in the TCT would be improperly assailed in a partition case and should be done through a separate suit. On the contrary, private respondent posits that evidence of ownership is admissible in a partition case as this is not a probate or land registration proceedings where the court's jurisdiction is limited.
Though the postulates respectively proffered by both parties are not at point, luckily for private respondent, petitioner's claim is not legally tenable. There is no dispute that a Torrens certificate of title cannot be collaterally attacked 5 but that rule is not material to this case. The annotation of a notice of lis pendens does not in any case amount nor can it be considered as equivalent to a collateral attack of the certificate of title for a parcel of land. The concept of no collateral attack of title is based on Section 48 of P.D. 1529 which states that:
Certificate not Subject to Collateral attack. — A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. 6 (Emphasis Supplied).
What cannot be collaterally attacked is the certificate of title and not the title. The certificate referred to is that document issued by the Register of Deeds known as the Transfer Certificate of Title (TCT). By title, the law refers to ownership which is represented by that document. Petitioner apparently confuses certificate with title. Placing a parcel of land under the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed. Ownership is different from a certificate of title. The TCT is only the best proof of ownership of a piece of land. 7 Besides, the certificate cannot always be considered as conclusive evidence of ownership. 8 Mere issuance of the certificate of title in the name of any person does not foreclose the possibility that the real property may be under co-ownership with persons not named in the certificate or that the registrant may only be a trustee or that other parties may have acquired interest subsequent to the issuance of the certificate of title. To repeat, registration is not the
equivalent of title, but is only the best evidence thereof. Title as a concept of ownership should not be confused with the certificate of title as evidence of such ownership although both are interchangeably used. In this case, contrary to petitioner's fears, his certificate of title is not being assailed by private respondent. 9 What the latter disputes is the former's claim of sole ownership. Thus, although petitioner's certificate of title may have become incontrovertible one year after issuance, 10 yet contrary to his argument, it does not bar private respondent from questioning his ownership. 11
It should be noted that what is being challenged in this case is the denial of the motion to cancel the notice of lis pendens. But whether as a matter of procedure 12 or substance, 13 a notice of lis pendens may be cancelled only on two grounds, which are: (1) if the annotation was for the purpose of molesting the title of the adverse party, or, (2) when the annotation is not necessary to protect the title of the party who caused it to be recorded. Neither ground for cancellation of the notice was convincingly shown to concur in this case. It would not even be fair to justify the cancellation of the notice on the legally untenable grounds that such annotation amounts to a collateral attack of petitioner's certificate of title or that ownership cannot be adjudicated in a partition case. It must be emphasized that the annotation of a notice of lis pendens is only for the purpose of announcing "to the whole world that a particular real property is in litigation, serving as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over said property." 14 Here, the parties are still locked in a legal battle to settle their respective claims of ownership. The lower court allowed the annotation pending litigation only for the purpose of giving information to the public that parcel of land is involved in a suit and that those who deal with the property is forewarned of such fact.
On the contention that ownership cannot be passed upon in a partition case, suffice it to say that until and unless ownership is definitely resolved, it would be premature to effect partition of the property. 15 For purposes of annotating a notice of lis pendens, there is nothing in the rules which requires the party seeking annotation to prove that the land belongs to him. 16 Besides, an action for partition is one case where the annotation of a notice of lis pendens is proper. 17
Further, contrary to petitioner's argument, one of the issues agreed upon by the parties at pre-trial is to determine what are the properties acquired by the spouses during their marriage. 18 In addition, private respondent in his answer with counterclaim prayed for the reconveyance of the disputed lots. Accordingly, the issue of ownership has been put in issue and each claimant must present their respective evidence to substantiate their respective allegations. 19 Considering that this is a partition case, the court is required to inquire into the "nature and extent of title" of the supposed claimant. 20 The title referred to by the rule is the purported ownership of the claimants and not the certificate of title mentioned in Section 48 of P.D. 1529, although the latter may be considered in the determination of the former.
WHEREFORE, by virtue of the foregoing, the petition is DENIED and the assailed decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Regalado, Melo, Puno and Mendoza, JJ., concur.
# Footnotes
1 Petitioner is one of the legitimate children of private respondent. The latter has illegitimate children with another woman.
2 The listed properties are lumber business, rents, four buildings and a warehouse. (Complaint, ANNEX "D" of Petition, pp. 2-3; Rollo, p. 47-48).
3 Order of RTC dated November 24, 1992; Rollo, p. 72.
4 Court of Appeals Decision promulgated February 8, 1994; Rollo, pp. 35-41.
5 Halili v. NLRC, 257 SCRA 174.
6 Property Registration Decree.
7 Halili v. NLRC, 257 SCRA 174 (1996).
8 Heirs of Gonzaga v. CA, 261 SCRA 327; Republic v. CA, 258 SCRA 712; In ejectment cases, a certificate of title is conclusive evidence of ownership and it does not matter if the title is questionable (Dizon v. CA, 264 SCRA 391).
9 Private Respondent's Memorandum, p. 6; Rollo, p. 196.
10 Sec. 32, P.D. 1529.
11 Petition, p. 10; Rollo, p. 16.
12 1997 Rules of Civil Procedure, Rule 13, Section 14 (formerly Section 24).
Notice of lis pendens. — xxx xxx xxx
The notice of lis pendens hereinabove mentioned may be cancelled only upon order or the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be recorded. (Emphasis supplied).
13 Sec. 77 of P.D. 1529 provides. "Cancellation of lis pendens. — Before final judgment, a notice oflis pendens may be cancelled, upon order of the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be registered. It may also be cancelled by the Register of Deeds upon the verified petition of the party who caused the registration thereof. (Emphasis supplied).
14 Sajonas v. CA, 258 SCRA 79; Garbin v. CA, 253 SCRA 187; Tanchoco v. Aquino, 154 SCRA 1; J.P. Pellicer & Co., Inc. v. Philippine Realty Corp., 87 Phil. 302.
15 Catapusan v. CA, 264 SCRA 534.
16 Villanueva v. CA, G.R. No. 117108, November 5, 1997.
17 The other instances where the notice of lis pendens is proper are: a) an action to recover possession of real estate, b) an action to quiet title thereto, c) an action remove clouds thereon, d) any other proceedings of any kind in Court directly affecting the title to the land or the use or occupation thereof or the buildings thereon. See Magdalena Homeowners Association, Inc. v. CA, 184 SCRA 325 (1990) cited in Villanueva v. CA, G.R. No. 117108, November 5, 1997; See also Section 14, Rule 13 (formerly Section 24, Rule 14), 1997 Rules or Civil Procedure and Section 76 of P. D. 1529.
18 Annex "H" of the Petition; Rollo, p. 61.
19 Sec. 1, Rule 131.
20 1997 Rules of Civil Procedure, Section 1, Rule 69. "Complaint in action for partition of real estate. — A person having the right to compel the partition of real estate may do so as provided in this Rule, setting forth in his complaint the nature and extent of his title and an adequate description of the real estate of which partition is demanded and joining as defendants all other persons interested in the property. (Emphasis supplied).
Notice of Lis Pendens
G.R. No. 153263 August 28, 2008
EMMA VER-REYES, petitioner, vs.HONORABLE COURT OF APPEALS, THE LAND REGISTRATION AUTHORITY, THE REGISTER OF DEEDS OF CAVITE, and IRENE MONTEMAYOR, respondents.
D E C I S I O N
NACHURA, J.:
For resolution is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision1dated January 18, 2002 and the Resolution2 dated April 25, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 63820.
Petitioner Emma Ver-Reyes claims to have acquired a 41,837-square-meter lot (Lot No. 6961 Psd-20246, Imus Estate, G.L.S.O. Record No. 8843) located in Dasmariñas, Cavite and covered by Transfer Certificate of Title (TCT) No. 58459 in the name of the spouses Marciano and Virginia Cuevas by virtue of a Deed of Absolute Sale3 dated October 8, 1976 executed by the latter in her favor. While she religiously paid the real estate taxes on the property, petitioner failed to register her title over the same.
Later, it appeared that the Cuevas spouses executed another Deed of Absolute Sale4 on November 10, 1992 over the same property in favor of respondent Irene Montemayor. This time, the sale was registered, eventually leading to the cancellation of TCT No. 58459 and the issuance of TCT No. 369793 in the name of respondent.
When this came to her knowledge, petitioner filed on February 18, 1994 a petition for reconveyance, docketed as Civil Case No. 878-94, with the Regional Trial Court (RTC), Branch 21 of the Province of Cavite against respondent, accusing her of forgery and fraudulently causing the issuance of a new certificate of title in her name.
After trial, the RTC, Branch 21, Cavite, rendered its Decision5 dated October 7, 1996 dismissing the complaint for reconveyance and finding respondent as the true and lawful owner of the property described in TCT 369793.
Petitioner appealed the RTC Decision to the CA on July 11, 1997. Pending appeal, or in August 1998, petitioner learned of the cancellation of respondent’s TCT over the property in favor of a certain Engracia Isip (Engracia), after which a mortgage was constituted thereon by Engracia’s heirs.
Acting on this information, petitioner conducted an investigation, and her inquiry revealed the following:
1. Respondent Irene Montemayor executed on January 15, 1998 a Waiver and Quitclaim,6recognizing the genuineness of TCT No. 769357 in the name of Engracia Isip which had been transferred to her heirs (Apolonia I. R. Alcaraz, Eliza I. Reyes-Gloria, Victor Isip Reyes and Epitacio Isip Reyes) covered by TCT No. T-784707, declaring that all documents relative to the issuance of subsequent TCTs, including TCT No. 369793 in her name were simulated and fictitious, and renouncing all her claims to the property in favor of Engracia and her heirs, executors, administrators, and assigns.
2. The Register of Deeds of Cavite, notwithstanding being impleaded as a party to the pending appeal before the CA, cancelled TCT No. T-3697937 in the name of respondent by virtue of the Waiver and Quitclaim. It also caused the annotation of the Waiver and Quitclaim on both TCT Nos. T-369793 and T-7847078 in the name of Engracia’s heirs.
3. The technical descriptions under TCT Nos. T-7693579 and T-784707 showed that the property described therein is the same property subject of the pending appeal before the CA.
4. The basis of Engracia’s title under TCT No. 769357 is Bureau of Lands Sales Contract/Certificate No. V-13910 dated January 9, 1954 and Department of Agriculture and Natural Resources/Bureau of Lands Deed of Conveyance No. V-903911 dated March 30, 1965. It appeared that TCT No. 769357 was issued or entered only on October 24, 1997.
5. The subject parcel of land was originally part of Original Certificate of Title No. 1002 (RT-17577)12 under the name of the Republic of the Philippines.
6. By virtue of the above Certificate No. V-139 and Deed of Conveyance No. V-9039, both in favor of Engracia, TCT No. 1310513 dated April 23, 1965 was issued in her name.
7. There were a series of conveyances made and several titles were issued thereon – TCT No. 13105 was cancelled and TCT No. 1311314 dated April 26, 1965 was issued to Rosalinda Puspos; TCT No. 13113 was cancelled and TCT No. T-4557415 dated July 20, 1970 was issued in favor of Belen R. Carungcong (pursuant to a Deed of Absolute Sale dated July 21, 1970 executed by Rosalinda Puspos); TCT No. T-45574 was cancelled and TCT No. T-5784516 dated February 28, 1972 was issued in the name of Aurelia de la Cruz; and TCT No. T-57845 was cancelled and TCT No. T-5845917 dated April 3, 1972 was issued in the name of the spouses Marciano and Virginia M. Cuevas by virtue of a Deed of Absolute Sale dated March 27, 1972 executed by Aurelia de la Cruz.
8. Notwithstanding the foregoing transfers of title, TCT No. T-769357 dated October 24, 1997 was issued in the name of Engracia Isip based on the same Certificate No. V-139 and Conveyance No. V-9039.
9. TCT No. T-784707 in the name of Engracia’s heirs was issued by virtue of a Deed of Extra-Judicial Settlement of the Estate of Deceased Engracia Isip18 dated September 24, 1997. Engracia Isip died way back on January 12, 1981.
10. TCT No. T-784707 dated December 15, 1997 in the name of Engracia’s heirs had been mortgaged to a certain Potentiano Ponce for P6,500,000.00 on January 13, 1998. The mortgage was annotated on the TCT on January 14, 1998.
On October 20, 1998, petitioner filed an Urgent Manifestation19 before the CA to advise it of the above information she had discovered. On November 6, 1998, she served a Notice of Lis Pendens20 affecting the property under TCT No. T-784707 in the name of Engracia’s heirs upon the Register of Deeds of Cavite.
In a letter dated November 17, 1998, the Register of Deeds of Cavite through Deputy Registrar of Deeds Perfecto G. Dumay-as denied the annotation of petitioner’s Notice of Lis Pendens on the following grounds –
1. The cancelled title of IRENE VILLAMAYOR [sic] (TCT No. T-369993) does not bear an inscription as to the pendency of Civil Case No. 878-94 involving the said property;
2. Further, the title of the Heirs of Engracia Isip (TCT No. T-784707) did not originate from the cancelled title of Irene Montemayor (TCT No. T-369793);
3. That the Waiver/Quitclaim was done in recognition of a better and stronger title and to avoid unnecessary, time consuming [sic] and costly legal confrontation [sic] between the parties;
4. That the title of the Isips (TCT No. T-784707) is a derivative title from TCT No. T-769357 (Engracia Isip) which originated from a Deed of Conveyance duly issued by the Land Management Bureau, an immediate transfer from OCT No. 1002 (Republic of the Philippines);
5. That the late Engracia Isip nor her heirs were not a party to the ongoing court litigation between Emma Ver Reyes, et al. vs. Irene Montemayor, et al., hence, the said notice of Lis Pendens does not meet the necessary requirement of its registrability.21
Petitioner elevated the matter to the Land Registration Authority (LRA) via Consulta No. 3039 dated December 7, 1998.22 In its Resolution dated August 21, 2000, the LRA denied the registration of the Notice of Lis Pendens, sustaining the ground that "the late ENGRACIA ISIP nor her heirs were not impleaded as parties to the pending suit or proceedings."
Petitioner moved to reconsider the Resolution dated August 21, 2000. In an Order23 dated January 8, 2001, the LRA denied the motion for lack of merit.
In a petition for review under Rule 43 of the Rules of Court, petitioner questioned before the CA the Resolution dated August 21, 2000 and the Order dated January 8, 2001 of the LRA.
In the Decision24 promulgated on January 18, 2002, the CA denied the petition on the ground that the stance taken by the LRA was the most
logical under the circumstances; and while the remedy of a notice of lis pendens is for the protection of third parties, it should not prejudice the right of the party in whose favor the property is titled without him being impleaded in the pending case.
Petitioner filed her motion for reconsideration of the CA Decision but said motion was denied, for lack of merit, in the Resolution25 dated April 25, 2002. The CA held –
This Court is of the opinion and so holds that if it is desired to have a Notice of Lis Pendens anotated, it must appear that the present registered owners are impleaded in the pending case. We do not argue with the petitioner’s contention that "it is not necessary for the applicant to prove his ownership or interest over the property sought to be effected by lis pendens" (citing Villanueva vs. Court of Appeals, 281 SCRA 298). But what We are saying is that the notice of Lis Pendens should not prejudice the right of the party in whose favor the property is duly titled without giving them their day in court.
Thus, this petition, raising the sole issue of whether the Register of Deeds was justified, under the attendant circumstances, in denying the annotation of the Notice of Lis Pendens on TCT No. T-784707.
Petitioner maintains that it is required neither under Section 1426 of Rule 13 of the Rules of Court nor under Section 7627 of Presidential Decree No. 1529 (Property Registration Decree) that a registered owner of real property should first be impleaded in the pending case for a notice of lis pendens to be annotated in a TCT. She posits that these provisions do not state the grounds to justify the refusal by the Register of Deeds and/or the LRA to effect the said annotation. Petitioner also cites Voluntad v. Spouses Dizon28 wherein the annotation of a notice of lis pendens was allowed on the TCT of Carmen and Maria Voluntad despite the registered owners not being parties to the pending case.
Petitioner further claims that the duty to record the notice of lis pendens filed by a party to a pending case is ministerial on the part of the Register of Deeds of the province where the property is located as long as the requisites for the recording thereof – the names of the parties, the object of the action or defense, and a description of the property in that province affected thereby – are indicated in the notice.
Citing our rulings that a notation of lis pendens does not create a right or a lien upon the subject property,29 and that the applying party is not required to prove his right or interest over the property on which the notice is sought to be annotated,30 petitioner argues that the annotation of the notice of lis pendens under the circumstances would only serve as a warning to third parties that the real property is subject to a pending litigation such that persons dealing with it would do so at their own risk, and it would not, in any way, prejudice the rights of Engracia’s heirs who are named as owners of the subject real estate.
While we do not contradict petitioner as to the nature, purpose, and effects of a notice of lis pendens as held in the jurisprudence cited in her petition and memorandum, we do not agree that these cases are squarely applicable in this case to favor her cause.
It should be remembered that the Office of the Register of Deeds of Cavite, as affirmed by both the LRA and the CA, denied the annotation of the notice of lis pendens not only on the ground that Engracia’s heirs, the persons named in TCT No. T-784707, were not impleaded in the case between petitioner and respondent pending appeal before the CA. It also relied on other attendant circumstances, namely: (1) the cancelled title of respondent did not bear an inscription on the pendency of Civil Case No. 878-94 then before the RTC, Branch 21, Cavite involving the said property; (2) the title of Engracia’s heirs over the property did not originate nor was it transferred from the title of respondent; (3) respondent, by virtue of her Waiver and Quitclaim, renounced all her claims over the property by stating that her title, including those of her supposed predecessors-in-interest, was fictitious and simulated; and (4) TCT No. T-784707 in the name of Engracia’s heirs was derived by succession from TCT No. T-769357 in the name of Engracia Isip, which, in turn, was derived from a conveyance in her favor by the Republic of the Philippines under OCT No. 1002.
It is for these other reasons that our ruling in Voluntad cannot apply to the present controversy. InVoluntad, the annotation of the notice of lis pendens was allowed on the TCT of Carmen and Maria Voluntad even if they were not parties to the pending litigation because they were the predecessors-in-interest of the Voluntads who applied for the annotation (applicant Voluntads) and that the real property subject thereof was still in the names of Carmen and Maria despite already having passed on to their heirs (applicant Voluntads).
In contrast, herein petitioner’s claim to the property is not derived from the titles of Engracia and her heirs. While the property described in TCT No. T-784707 in the name of Engracia’s heirs refers to the same property described in TCT No. 58459 in the name of Marciano and Virginia Cuevas from whom petitioner claimed to have derived her title, it is apparent that the title of Engracia’s heirs over the property is totally alien to the controversy between petitioner and respondent. Had petitioner been truly prudent as she now poses to be, she should have caused the annotation of the Notice of Lis Pendens on TCT No. 58459 in the name of respondent way back when she filed the petition for reconveyance (Civil Case No. 878-94), as this would have resulted in the carrying over of the notice onto TCT Nos. T-769357 (Engracia Isip) and T-784707 (Engracia’s heirs) after respondent waived her claim over the property in Isips’ favor.
Indeed, petitioner’s belated act of applying for a notice of lis pendens, if allowed by the Office of the Register of Deeds of Cavite, would infringe on the right to due process of Engracia’s heirs, who were never parties to the reconveyance suit between petitioner and respondent now pending appeal before the CA.31 While the notice of lis pendens would not create a right or lien over the property, it will definitely be an inconvenience or a burden, however slight, on the title of Engracia’s heirs, especially when dealing with the same property in the concept of owners. Justice and fair play require that Engracia’s heirs be rightfully informed of petitioner’s claim over the same property by impleading them in the pending suit before the application for annotation of lis pendens be favorably acted upon.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
Ynares-Santiago, Chairperson, Austria-Martinez, Chico-Nazario, Reyes, JJ., concur.
Footnotes
1 Penned by Associate Justice Eliezer R. De Los Santos, with Associate Justices Buenaventura J. Guerrero and Rodrigo V. Cosico, concurring; rollo, pp. 35-40.
2 Id. at 42.
3 Id. at 43-44.
4 Id. at 45.
5 Id. at 132-135.
6 Id. at 46.
7 Id. at 47-48.
8 Id. at 49-50.
9 Id. at 51-52.
10 Id. at 53-55.
11 Id. at 56.
12 Id. at 57.
13 Id. at 58-59.
14 Id. at 60-61.
15 Id. at 62-63.
16 Id. at 64-65.
17 Id. at 66-67.
18 Id. at 68-69.
19 Id. at 75-78.
20 Id. at 71-73.
21 Id. at 81.
22 Id. at 82-90.
23 Id. at 112.
24 Supra note 1.
25 Supra note 2.
26 Sec. 14. Notice of Lis Pendens. – In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing of such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names.
The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be recorded.
27 Sec. 76. Notice of lis pendens. – No action to recover possession of real estate, or to quiet title thereto, or to remove clouds upon the title thereof, or for partition, or other proceedings of any kind in court directly affecting the title to land or the use or occupation thereof or the buildings thereon, and no judgment, and no proceeding to vacate or reverse any judgment, shall have any effect upon registered land as against persons other than the parties thereto, unless a memorandum or notice stating the institution of such action or proceeding and the court wherein the same is pending, as well as the date of the institution thereof, together with a reference to the number of the certificate of title, and an adequate description of the land affected and the registered owner thereof, shall have been filed and registered.
28 372 Phil. 82 (1999).
29 Viewmaster Construction Corporation v. Maulit, 383 Phil. 729, 742 (2000).
30 Villanueva v. Court of Appeals, 346 Phil. 289, 306 (1997).
31 Felix Gochan & Sons Realty Corporation v. Cañada, G.R. No. L-49686, August 31, 1988, 165 SCRA 207, 216.
Notice of adverse claim
FIRST DIVISION
SPS. JESUS CHING AND LEE POE TIN,
Petitioners,
- versus - SPS. ADOLFO & ARSENIA ENRILE,
Respondents.
G.R. No. 156076 Present: PUNO, C.J., Chairperson,CORONA,CARPIO MORALES*,AZCUNA, andLEONARDO-DE CASTRO, JJ. Promulgated: September 17, 2008
x------------------------------------------------------------------------------------------x
D E C I S I O N
LEONARDO-DE CASTRO, J.:cralaw
Assailed in the instant petition for review on certiorari are the Decision [1] of the Court of Appeals (CA) dated August 29, 2002 in CA-G R. CV No. 42985 and the Resolution[2] dated November 21, 2002 denying petitioners motion for reconsideration.
The assailed CA decision reversed the decision of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 90-064, an action for quieting of title thereat commenced by petitioner spouses Jesus Ching and Lee Poe Tin against respondent spouses Adolfo and Arsenia Enrile.
The antecedent facts follow.
On September 5, 1985, petitioners purchased from a certain Raymunda La Fuente a 370-square meter lot located at Barrio Tungtong, Las Pias and covered by TCT No. 83618. La Fuente delivered to petitioners a duly notarized Deed of Absolute Sale[3] with the Owners Duplicate Certificate of Title and thereafter, petitioners took physical possession of the subject property. For reasons known only to petitioners, the conveyance was not registered in the Register of Deeds as prescribed by Section 51 of PD 1529[4]. Instead, on November 20, 1986, petitioners executed an Affidavit of Adverse Claim which was recorded and annotated at the back of TCT No. 83618 reflected in the Memorandum of Encumbrances under Entry No. 86-62262.[5]
In the meantime, petitioners peacefully and continuously possessed the subject property.
On August 19, 1988 ─ three years after they purchased the disputed property, petitioners received a Notice of Levy on Attachment and Writ of Execution issued by the Regional Trial Court (RTC) of Pasig in favor of respondents, in Civil Case No. 54617 entitled Sps. Adolfo Enrile and Arsenia Enrile v. Raymunda La Fuente.
The Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 under Entry No. 3433-2 while the Writ of Execution was inscribed under Entry No. 3434-2. Also inscribed in the TCT is the Certificate of Sale dated January 26, 1989 covering the disputed property in favor of respondents.
On January 8, 1990, petitioners filed a Petition to Remove Cloud on or Quiet Title to Real Property asserting ownership of the disputed property.
On May 11, 1993, the RTC rendered judgment in favor of petitioners upholding the latter’s superior right over the disputed property in view of the registration of the Affidavit of Adverse Claim prior to the Certificate of Sale annotated in favor of respondents. Dispositively the decision reads:
WHEREFORE, premises, the above-entitled petition is granted for being preponderantly meritorious. Judgment is hereby rendered ordering:
1) The Register of Deeds of Las Pias, Metro Manila to cancel all the annotations of encumbrances in favor of defendants [respondents] in Transfer Certificate of Title No. 83618 issued by the Register of Deeds of Pasay City, Metro Manila, District IV;
2) Defendants [respondents] to pay plaintiffs [petitioners] in the sum of P10,000.00 as compensatory damages by way of litigation expenses;
3) To pay to plaintiffs [petitioners] the sum of P 10,000.00 as attorneys fees; and,
4) To pay the cost of the proceedings. SO ORDERED.
In time, respondents appealed to the CA, principally arguing that the RTC committed reversible error in ruling that petitioners had a better right over the disputed property. Respondents theorized that the prior conveyance of the disputed property made by La Fuente to petitioners being a voluntary dealing with a registered land, mere registration of their adverse claim was insufficient. To respondents, in order to have petitioners interest protected, they should have registered the Deed of Absolute Sale with the Register of Deeds pursuant to Section 51 of PD 1529 and not merely register an adverse claim under Section 70 of the same law. Citing the second paragraph of Section 70 which provides that an adverse claim shall be effective for a period of thirty days from the date of registration, respondents insisted that the annotated Adverse Claim of petitioners had already expired, hence, it offered no protection when respondents acquired the disputed property through execution sale.
On August 29, 2002, the CA rendered the herein challenged decision reversing that of the RTC. Even as the CA viewed the prior sale of the disputed lot in favor of petitioners as perfected and consummated, it nonetheless upheld respondents preferential right over the disputed property. Finding merit in respondents arguments, the CA ruled:
This Court, also believes that there is truth in defendants-appellants assertion that while the sale is perfected and consummated, plaintiffs-appellees failed to diligently protect their interests by failing to register the conveyance or transaction in the office of Register of Deeds. An owner of a registered land is vested by law with rights and obligations and thus exercises all attributes of ownership. These attributes include among others the right to dispose the real property itself. The owner of the land may convey, mortgage, lease or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instrument as are sufficient in law. However, as clearly provided by Section 51 of Presidential Decree 1529, no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, until the same has been registered in the office of the Register of Deeds. It shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to effect registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the Office of the Register of Deeds of the province or city
where the land lies.Unless and until the subject transaction has been filed or registered in the office of the Register of Deeds, the transaction shall only be binding on the parties to the contract but not on the third person. The instrument is not thereby rendered void by failure to register. Section 51 of PD 1529 states:
Section 51. Conveyance and other dealings by registered owner: An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.
Laying the blame on petitioners, the CA added:
The law provides protection to third person, who believing in good faith and relying on the sweet representations of some evil minded persons, may be unjustifiably inveigled to enter into a contract or transaction not knowing that the subject real property has been encumbered or sold. It is the duty of the buyer or vendee to register the transaction before the Register of Deeds of the province or city where the property lies. The registration is intended to inform any minded individual that the property has been subjected to a prior transaction and that entering into any further contract involving the same property shall be at his own risk. In the event that any third person was bona fide tricked to enter into any transaction involving the same property because the transferee or vendee failed to register the same as required by law, the latters interests should be subordinated to that of the third party. Axiomatic is the rule in this jurisdiction that when loss or damage was caused to two individuals who both acted in good faith but one is negligent, the loss or damage shall fall upon the one who acted negligently.
Citing a myriad of jurisprudence[6], the CA declared that respondents, as attaching creditors who registered the order of attachment and the sale of the property to them as the highest bidders, acquired a valid title to the disputed property as
against petitioners who had previously bought the same property from the registered owner but failed to register their deed of sale.
cralawThe CA further declared respondents as purchasers in good faith. On the premise that petitioners filing of the Affidavit of Adverse Claim was procedurally flawed and that the annotated adverse claim had already prescribed on December 20, 1986 after the lapse of 30 days from its registration which was November 20, 1986, the CA ruled that it cannot be considered sufficient notice to third person like the respondents who were not aware of the sale of the disputed lot to petitioners prior to the levy on attachment.
As stated at the threshold hereof, the CA, in its decision[7] of August 29, 2002, reversed and set aside that of the RTC, thus:
WHEREFORE, in view of the foregoing, the Decision dated May 11, 1993 of the Regional Trial Court, National Capital Judicial Region, Branch 135, Makati City in Civil Case No. 90-064 is hereby REVERSED.
The Register of Deeds of Las Pias, Metro Manila is hereby mandated not to cancel any annotations of encumbrances in favor of defendants-appellants in Transfer Certificate of Title No. 83618 issued by the Register of Deeds of Pasay City, Metro Manila, Dist. IV.
Who among the parties has a preferential right over the disputed property.
Cralawc SO ORDERED.
Their motion for reconsideration having been denied by the CA in its challenged Resolution of November 21, 2002, petitioners are now before this Court, faulting the CA as follows:
cralawWITH DUE RESPECT, THE COURT A QUO GRAVELY ERRED AND ABUSED ITS DISCRETION WHEN IT RENDERED SUBJECT DECISION AND RESOLUTION IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR RULES WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT; Specifically, the Court a quo erred;
a. When it held that the levy on attachment LATER annotated shall prevail over the Adverse Claim EARLIER annotated at the back of the title by the mere lapse of 30 days and even without any petition in court for its cancellation;
b. When it did not dismiss the appeal considering that the question raised were questions of law and NO question of fact.[8]
The petition is impressed with merit.
At the outset, the Court finds that the CA committed reversible error when it ruled that the annotated adverse claim had already prescribed by the mere lapse of 30 days from its registration.The issue is no longer of first impression. In the 1996 case of Sajonas v. Court of Appeals,[9] we explained that a notice of adverse claim remains valid even after the lapse of the 30-day period provided by Section 70 of PD 1529. Section 70 provides:
Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing, setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed.The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest. Provided, however that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant.
In the same case, we held that for as long as there is yet no petition for its cancellation, the notice of adverse claim remains subsisting: Thus:
At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be treated separately, but should be read in relation to the sentence following, which reads:
After the lapse of said period, the annotation of the adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest.
If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act.[10]
In a petition for cancellation of adverse claim, a hearing must first be conducted. The hearing will afford the parties an opportunity to prove the propriety or impropriety of the adverse claim.[11]
Now, as we see it, the recourse will either rise or fall on the decisive question of whether or not respondents were purchasers in good faith when they acquired the disputed lot despite the annotated adverse claim on their title.
We rule and so hold that they were not.The Court has invariably ruled that in case of conflict between a vendee and an attaching creditor, an attaching creditor who registers the order of attachment and the sale of the property to him as the highest bidder acquires a valid title to the property as against a vendee who had previously bought the same property from the same owner but who failed to register his deed of sale. This is because registration is the operative act that binds or affects the land insofar as third persons are concerned. It is upon registration that there is notice to the whole world. But where a party has knowledge of a prior existing interest, as here, which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him. [12] Knowledge of an unregistered sale is equivalent to registration.[13]
The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. In that case, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title.[14]
Article 1544 of the Civil Code governs in cases of double sale. It provides:
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
An innocent purchaser for value or any equivalent phrase shall be deemed to include, under the Torrens System, the innocent lessee, mortgagee, and other encumbrancer for value.[15]
In Bautista v. Court of Appeals,[16] we held that where the thing sold twice is an immovable, the one who acquires it and first registers it in the Registry of Property, in good faith, shall be the owner.
Who then can be considered a purchaser in good faith?
In the early case of Leung Yee v. F.L. Strong Machinery Co. and Williamson,[17] the Court explained good faith in this wise:
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.[18]
Good faith, or the want of it, is capable of being ascertained only from the acts of one claiming its presence, for it is a condition of the mind which can only be judged by actual or fancied token or signs.[19]
It is beyond dispute that the property in question had already been sold by La Fuente to petitioners on September 5, 1985. Petitioners immediately took possession thereof. When the Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 and when the Writ of Execution and Certificate of Sale were inscribed under Entry No. 3434-2 in favor of respondents, on January 26, 1989, petitioners have been, since September 5, 1985, in actual, physical, continuous and uninterrupted possession.The law does not require a person dealing with the owner of registered land to go beyond the certificate of title as he may rely on the notices of the encumbrances on the property annotated on the certificate of title or absence of any annotation. Here, petitioners adverse claim is annotated at the back of the title coupled with the fact that they are in possession of the disputed property. To us, these circumstances should have put respondents on guard and required them to ascertain the property being offered to them has already been sold to another to prevent injury to prior innocent buyers. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. 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 good faith under the belief that there was no defect in the title of the vendor.[20]
As aptly observed by the RTC, regardless of the non-registration of the Deed of Absolute Sale to petitioners, nor the 30-day effectivity of the adverse claim under Section 70 of PD 1529, respondents were constructively notified of petitioners prior purchase of the disputed property. We quote with approval the RTCs observation on this matter, thus:
cralawxxx In derogation to defendants claim that they have a better right over the questioned property superior over that of the plaintiffs, the Court has only to carefully examine the face of TCT No. 83618 and its dorsal part on Memorandum of Encumbrances for entries and inscriptions in their chronological order of dates of annotation of documents in the Office of the Register of Deeds. On the title itself it is readily perceived and palpable that Entry No. 86-62262/T-83618
in reference to the Adverse Claim executed by plaintiff Jesus Ching was registered way ahead on November 20, 1986 compared to Entries Nos. 3433-2, 3434-2 and 736-3, respectively the Notice of Levy, Writ of Execution and Certificate of Sale in favor of spouses defendants Enrile which were duly registered on August 19, 1988 (for the first two documents) and on March 21, 1989 (for the last document). Perforce, before the registrations of the three documents purporting to be the rights and interests of defendants in the property in question, the defendants more particularly and the whole world in general were given constructive notice that Raymunda La Fuente, the judgment debtor in Civil Case No. 54617 of the Regional Trial Court of Pasig, has no more interest and rights to the property subject of litigation. Defendants should have at the first instance been duly warned and notified that the property involved in litigation subject to attachment and levy, execution and sale from actual registration of the defendants documents referred herein. The annotation of inscription to Entry No. 86-622/T-83618 is obviously and indeed very clear indicating that the plaintiffs registered adverse claim in reference to the sale of the same property sought by defendants to be levied on attachment, final execution and sale came ahead.[21]
Hence, the particular circumstances of this case constrain us to rule that respondents were not purchasers in good faith and, as such, could not acquire good title to the property as against the former transferee.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals promulgated on August 29, 2002, in CA-G R. CV No. 42985, and the Resolution dated November 21, 2002 arehereby REVERSED and SET ASIDE. In lieu thereof, the decision of the Regional Trial Court, of Makati City Branch 135, dated May 11, 1993, in Civil Case No. 90-064 is REVIVED and AFFIRMED in toto.
No costs.
Blanket clause Rem
G.R. No. 171201 June 18, 2010
SPOUSES BENEDICT and MARICEL DY TECKLO, Petitioners, vs.RURAL BANK OF PAMPLONA, INC. represented by its President/Manager, JUAN LAS, Respondent.
D E C I S I O N
CARPIO, J.:
The Case
This is a petition for review1 of the 17 May 2005 Decision2 and the 14 December 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No. 59769. In its 17 May 2005 Decision, the Court of Appeals affirmed with modification the 22 May 1998 Decision4 of the Regional Trial Court (Branch 61) of Naga City in Civil Case No. RTC 96-3521. In its 14 December 2005 Resolution, the Court of Appeals denied petitioners’ motion for reconsideration.
The Antecedent Facts
On 20 January 1994, spouses Roberto and Maria Antonette Co obtained from respondent Rural Bank of Pamplona, Inc. a P100,000.00 loan5 due in three months or on 20 April 1994. The loan was secured by a real estate mortgage6 on a 262-square meter residential lot owned by spouses Co located in San Felipe, Naga City and covered by Transfer Certificate of Title (TCT) No. 24196.
The mortgage was registered in the Register of Deeds of Naga City on 21 January 1994 and duly annotated on the TCT of the mortgaged property as Entry No. 58182.7
One of the stipulations in the mortgage contract was that the mortgaged property would also answer for the future loans of the mortgagor. Pursuant to this provision, spouses Co obtained on 4 March 1994 a second loan8 from respondent bank in the amount of P150,000.00 due in three months or on 2 June 1994. 1avvphi1
Petitioners, spouses Benedict and Maricel Dy Tecklo, meanwhile instituted an action for collection of sum of money against spouses Co. The case, docketed as Civil Case No. 94-3161, was assigned to the Regional Trial Court (Branch 25) of Naga City. In the said case, petitioners obtained a writ of attachment on the mortgaged property of spouses Co. The notice of attachment was annotated on the TCT of the mortgaged property as Entry No. 58941.9
When the two loans remained unpaid after becoming due and demandable, respondent bank instituted extrajudicial foreclosure proceedings. In its 5 September 1994 petition for extrajudicial foreclosure, respondent bank sought the satisfaction solely of the first loan although the second loan had also become due.10 At the public auction scheduled on 19 December 1994, respondent bank offered the winning bid of P142,000.00, which did not include the second loan.11 The provisional certificate of sale to respondent bank was annotated on the TCT of the mortgaged property as Entry No. 60794.12
Petitioners then exercised the right of redemption as successors-in-interest of the judgment debtor. Stepping into the shoes of spouses Co, petitioners tendered on 9 August 1995 the amount of P155,769.50, based on the computation made by the Office of the Provincial Sheriff, as follows:
Bid price …..................................................... P142,000.00
Interest on the bid price fromDecember 19, 1994 to August 9, 1995
at 1% per month …........................................ 10,934.00
Expenses incurred in connection withthe registration of the Provisional Certificate of Sale ….................................... 2,647.00
Interest on the expenses …........................... 188.50
P155,769.50
Respondent bank objected to the non-inclusion of the second loan. It also claimed that the applicable interest rate should be the rate fixed in the mortgage, which was 24% per annum plus 3% service charge per annum and 18% penalty per annum. However, the Provincial Sheriff insisted that the interest rate should only be 12% per annum. Respondent bank then sought annulment of the redemption, injunction, and damages in the Regional Trial Court (Branch 61) of Naga City docketed as Civil Case No. RTC 96-3521.
The Ruling of the Trial Court
The trial court ruled, among others, that the second loan, not having been annotated on the TCT of the mortgaged property, could not bind third persons such as petitioners. Applying the 24% per annum interest rate fixed in the mortgage, the trial court computed the redemption price as follows:
Bid price …............................................................... P142,000.00
Interest rate on the bid price for 233 days ….......... 22,057.33
Expenses of registration of the Prov. Sale…........... 2,647.00
Interest on the expenses for 211 days..................... 372.24
P 167,076.5713
In its 22 May 1998 Decision, the trial court dismissed respondent bank’s complaint for annulment of redemption and ordered petitioners to pay respondent bank the deficiency of P11,307.07 on the redemption amount, to wit:
WHEREFORE, premises considered, this Civil Case No. RTC-96-3521 is hereby dismissed and defendants Dy Tecklos are hereby ordered to pay herein plaintiff the insufficiency of the redemption price in the amount ofP11,307.07, and thereafter, upon receipt of said amount, the Rural Bank of Pamplona is also ordered to surrender to said defendants Dy Tecklos TCT No. 24196. No pronouncement as to costs.14
Respondent bank elevated the case to the Court of Appeals insisting that the foreclosed mortgage also secured the second loan of P150,000.00.
The Ruling of the Court of Appeals
The appellate court ruled that the redemption amount should have included the second loan even though it was not annotated on the TCT of the mortgaged property. In its 17 May 2005 Decision, the Court of Appeals affirmed the trial court’s decision with the modification that petitioners pay respondent bank the deficiency amountingP204,407.18, with interest at the rate of 24% per annum from 22 May 1998 until fully paid, thus:
WHEREFORE, premises considered, in continued exercise of liberality in redemption, the dismissal of Civil Case No. RTC-96-3521 is AFFIRMED and defendants Dy Tecklo are hereby ordered to pay plaintiff the deficiency of the redemption price in the amount of P204,407.18 with interest at the rate of 24% per annum from May 22, 1998 until fully paid. Upon receipt of the full amount inclusive of interest the Rural Bank of Pamplona, Inc. is ordered to surrender to defendants-spouses Dy Tecklo the owner’s duplicate of TCT No. 24196.15
Aggrieved, petitioners filed a motion for reconsideration, which the Court of Appeals denied. Hence, the present petition for review.
The Issue
The sole issue is whether the redemption amount includes the second loan in the amount of P150,000.00 even if it was not included in respondent bank’s application for extrajudicial foreclosure.
The Court’s Ruling
The Court finds the petition meritorious.
Petitioners pointed out that the second loan was not annotated as an additional loan on the TCT of the mortgaged property. Petitioners argued that the second loan was just a private contract between respondent bank and spouses Co, which could not bind third parties unless duly registered. Petitioners stressed that respondent bank’s application for extrajudicial foreclosure referred solely to the first loan.
Respondent bank insisted that the mortgage secured not only the first loan but also future loans spouses Co might obtain from respondent bank. According to respondent bank, this was specifically provided in the mortgage contract. Respondent bank contended that petitioners, as redemptioner by virtue of the preliminary attachment they obtained against spouses Co, should assume all the debts secured by the mortgaged property.
The mortgage contract in this case contains the following blanket mortgage clause:
1. That as security for the payment of the loan or advance in the principal sum of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) PESOS, Philippine Currency, and such other loans or advances already obtained and/or still to be obtained by the MORTGAGOR/S, either as MAKER/S, CO-MAKER/S, SURETY/IES OR GUARANTOR/S from the MORTGAGEE payable on the date/s stated in the corresponding promissory note/s and subject to the payment of interest, other bank charges, and to other conditions mentioned thereon, x x x.16(Emphasis supplied)
A blanket mortgage clause, which makes available future loans without need of executing another set of security documents, has long been recognized in our jurisprudence. It is meant to save time, loan closing charges, additional legal services, recording fees, and other costs. A blanket mortgage clause is designed to lower the cost of loans to borrowers, at the same time making the business of lending more profitable to banks. Settled is the rule that mortgages securing future loans are valid and legal contracts.17
Presidential Decree No. 1529, otherwise known as the Property Registration Decree, mandates:
SEC. 51. Conveyance and other dealings by registered owner. – x x x x
The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.
SEC. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument, or entry affecting registered land shall, if registered, filed, or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering.
It is the act of registration which creates a constructive notice to the whole world and binds third persons. By definition, registration is the ministerial act by which a deed, contract, or instrument is inscribed in the records of the office of the Register of Deeds and annotated on the back of the TCT covering the land subject of the deed, contract, or instrument.18
A person dealing with registered land is not required to go beyond the TCT to determine the liabilities attaching to the property. He is only charged with notice of such burdens on the property as are duly annotated on the TCT. To require him to do more is to defeat one of the primary objects of the Torrens system.19
As to whether the second loan should have been annotated on the TCT of the mortgaged property in order to bind third parties, the case of Tad-Y v. Philippine National Bank20 is in point. The case involved a mortgage contract containing a provision that future loans would also be secured by the mortgage. This Court ruled that since the mortgage contract containing the blanket mortgage clause was already annotated on the TCT of the mortgaged property, subsequent loans need not be separately annotated on the said TCT in order to bind third parties. We quote the pertinent portion of this Court’s discussion in Tad-Y v. Philippine National Bank:21
Petitioner-appellant advances the argument that the latter loans should have also been noted on TCT 2417. But We believe there was no necessity for such a notation because it already appears in the said title that aside from the amount of P840 first borrowed by the mortgagors, other obligations would also be secured by the mortgage. As already stated, it was incumbent upon any subsequent mortgagee or encumbrancer of the property in question to have examined the books or records of the PNB, as first mortgagee, the credit standing of the debtors.22
Records of the present case show that the mortgage contract, containing the provision that future loans would also be secured by the mortgage, is duly annotated on the TCT of the mortgaged property. This constitutes sufficient notice to the world that the mortgage secures not only the first loan but also future loans the mortgagor may obtain from
respondent bank. Applying the doctrine laid down in Tad-Y v. Philippine National Bank,23 the second loan need not be separately annotated on the said TCT in order to bind third parties such as petitioners.
However, we note the curious fact that respondent bank’s petition for extrajudicial foreclosure was solely for the satisfaction of the first loan although the second loan had also become due and demandable.24 In its Appellant’s Brief filed in the Court of Appeals, respondent bank even admitted that the second loan was not included in its bid at the public auction sale. To quote from page 5 of the Appellant’s Brief filed by respondent bank:
For failure to pay the first loan, the mortgage was foreclosed and the property covered by TCT No. 24196 was sold at public auction on December 19, 1994, for P142,000, which was the bid of the mortgagee bank. The bank did not include in its bid the second loan of P150,000.25 (Emphasis supplied)
For its failure to include the second loan in its application for extrajudicial foreclosure as well as in its bid at the public auction sale, respondent bank is deemed to have waived its lien on the mortgaged property with respect to the second loan. Of course, respondent bank may still collect the unpaid second loan, and the interest thereon, in an ordinary collection suit before the right to collect prescribes.
After the foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser at auction sale acquires the property free from such mortgage.26 Any deficiency amount after foreclosure cannot constitute a continuing lien on the foreclosed property, but must be collected by the mortgagee-creditor in an ordinary action for collection. In this case, the second loan from the same mortgage deed is in the nature of a deficiency amount after foreclosure.
In order to effect redemption, the judgment debtor or his successor -in-interest need only pay the purchaser at the public auction sale the redemption amount composed of (1) the price which the purchaser at the public auction sale paid for the property and (2) the amount of any assessment or taxes which the purchaser may have paid on the property after the purchase, plus the applicable interest.27 Respondent bank’s demand that the second loan be added to the actual amount paid for the property at the public auction sale finds no basis in law or jurisprudence.
Coming now to the computation of the redemption amount, Section 78 of Republic Act No. 337, otherwise known as the General Banking Act, governs in cases where the mortgagee is a bank.28 It provides:
Sec. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. x x x x (Emphasis supplied)
Applying Section 78 of the General Banking Act, the 24% per annum interest rate specified in the mortgage should apply. Thus, the redemption amount should be computed as follows:
P 142,000.00 = winning bid at auction sale
P 2,647.00 = registration expenses forprovisional certificate of sale
19 Dec. 1994 - 9 Aug. 1995 = 233 days from date of auction todate of tender
12 Jan. 1995 - 9 Aug. 1995 = 211 days from date of registration of provisionalsale to date of tender
P142,000.00 x 24% x 233/360 = P 22,057.33
2,647.00 x 24% x 211/360 = 372.35
P 22,429.68
Plus winning bid 142,000.00
Plus registration expenses 2,647.00
Total P 167,076.68
After deducting petitioners’ tender of P155,769.50, there is a deficiency of P11,307.18 on the redemption amount, as computed above. Petitioners should thus pay respondent bank the deficiency amounting to P11,307.18, with interest at the rate of 24% per annum from 22 May 1998 until fully paid.
WHEREFORE, we GRANT the petition. We SET ASIDE the 17 May 2005 Decision and the 14 December 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 59769. Petitioners Benedict and Maricel Dy Tecklo are ordered to pay respondent Rural Bank of Pamplona, Inc. the deficiency of P11,307.18 on the redemption amount, with interest at the rate of 24% per annum from 22 May 1998 until fully paid. Upon receipt of the full amount inclusive of interest, respondent Rural Bank of Pamplona, Inc. is ordered to surrender to petitioners Benedict and Maricel Dy Tecklo the owner’s duplicate of TCT No. 24196.
No pronouncement as to costs.
Nature of mortgage
G.R. No. 149569 May 28, 2004
PHILIPPINE NATIONAL BANK, petitioner, vs.RBL ENTERPRISES, INC.; RAMON B. LACSON SR.; and Spouses EDWARDO and HERMINIA LEDESMA, respondents.
DECISION
PANGANIBAN, J.:
Having released fifty percent of the loan proceeds on the basis of the signed loan and mortgage contracts, petitioner can no longer require the borrowers to secure the lessor’s conformity to the Mortgage Contract as a condition precedent to the release of the loan balance. The conformity of the lessor was not necessary to protect the bank’s interest, because respondents were unquestionably the absolute owners of the mortgaged property. Furthermore, the registration of the mortgage created a real right to the properties which, in subsequent transfers by the mortgagor, the transferees are legally bound to respect.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August 22, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 49749. The dispositive portion of the Decision reads as follows:
"WHEREFORE, premises considered[,] the judgment appealed from is hereby AFFIRMED, with x x x MODIFICATION as follows:
"1. The amount of actual damages and losses is reduced from P985,722.15 to merely P380,713.55 with legal interest from the date of the filing of the complaint. The interest payable on the loan is ordered reduced by using the agreed interest rate of 18% per annum in the computation[;]
"2. The amount of moral damages is reduced from P100,000.00 to P50,000.00;
"3. The amount of exemplary damages is reduced from P50,000.00 to P30,000.00; and
"4. The award of attorney’s fees is reduced from P200,000.00 to P50,000.00."3
The Facts
The facts of the case are narrated in the assailed Decision of the CA, as follows:
"
[respondents] failed to comply with the bank’s requirement that Nelly Bedrejo should execute an undertaking or a ‘lessors’ conformity’ provided in Real Estate and Chattel Mortgage contract dated August 3, 1989, which states, ‘par. 9.07. It is a condition of this mortgage that while the obligations remained unpaid, the acquisition by the lessor of the permanent improvements covered by this Real Estate Mortgage as provided for in the covering Lease Contract, shall be subject to this mortgage. For this purpose, the mortgagor hereby undertakes to secure the lessor’s conformity hereto’.
"(e) For said alleged failure of [respondents] to comply with the additional requirement and the demand of PNB to pay the released amount of P1,0001. On April 28, 1993, [respondents] instituted an action against [Petitioner] PNB and the Provincial Sheriff of Negros Occidental alleging among others, the following:
"(a) Sometime in 1987, [respondents] opened a prawn hatchery in San Enrique, Negros Occidental, and for this purpose, leased from Nelly Bedrejo a parcel of land where the operations were conducted;
"(b) In order to increase productions and improve the hatchery facilities, [respondents] applied for and was approved a loan ofP2,000,000.00, by [Petitioner] PNB. To secure its payment, [respondents] executed in favor of PNB, a real estate mortgage over two (2) parcels of land, located at Bago City, Negros Occidental, covered by Transfer Certificate of Title Nos. T-13005 and T-12642 in the names of [respondents], and another real [estate] and chattel mortgage over the buildings, culture tanks and other hatchery facilities located in the leased property of Nelly Bedrejo;
"(c) PNB partially released to [respondents] on several dates, the total sum of P1,000,000.00 less the advance interests, which amount [respondents] used for introducing improvements on the leased property where the hatchery business was located.
"(d) During the mid-part of the construction of the improvements, PNB refused to release the balance of P1,000,000.00 allegedly because,000.00, PNB foreclosed the mortgaged properties, to the detriment of [respondents].
"(f) Due to the non-release of the remaining balance of the loan applied for and approved, the productions-operations of the business were disrupted causing losses to [respondents], and thereafter, to the closure of the business.
"2. On June 29, 1990, [Petitioner] PNB filed its Answer with Counterclaim alleging that the lessors’ conformity was not an additional requirement but was already part of the terms and conditions contained in the Real Estate and Chattel Mortgage dated August 3, 1989, executed between [respondents] and
[petitioner]; and that the release of the balance of the loan was conditioned on the compliance and submission by the [respondents] of the required lessors’ conformity.
"3. On November 8, 1993, a writ of preliminary injunction was issued by the court a quo prohibiting PNB and the Provincial Sheriff of Negros Occidental from implementing the foreclosure proceedings including the auction sale of the properties of the [respondents] subject matter of the real [estate] and chattel mortgages."4
The Regional Trial Court (RTC) ruled that Philippine National Bank (PNB) had breached its obligation under the Contract of Loan and should therefore be held liable for the consequential damages suffered by respondents. The trial court held that PNB’s refusal to release the balance of the loan was unjustified for the following reasons: 1) the bank’s partial release of the loan of respondents had estopped it from requiring them to secure the lessor’s signature on the Real Estate and Chattel Mortgage Contract; 2) Nelly Bedrejo, the lessor, had no interest in the property and was not in any manner connected with respondents’ business; thus, the fulfillment of the condition was legally impossible; and 3) the interests of PNB were amply protected, as the loan had overly been secured by collaterals with a total appraised value of P3,088,000.
The RTC further observed that while the loan would mature in three years, the lease contract between Bedrejo and respondents would expire in ten years. According to a provision in the Contract, upon its expiration, all improvements found on the leased premises would belong to the lessor. Thus, in the event of nonpayment of the loan at its maturity, PNB could still foreclose on those improvements, the subject of the chattel mortgage.
Ruling of the Court of Appeals
Affirming the lower court, the CA held that Nelly Bedrejo, who was not a party to the Mortgage Contract, could not be compelled to affix her signature thereto. The appellate court further ruled that the registration of the mortgage not only revealed PNB’s intention to give full force and effect to the instrument but, more important, gave the mortgagee ample security against subsequent owners of the chattels.
The CA, however, reduced the amount of actual damages for lack of competent proof of the lost income and the unrealized profits of RBL, as well as for the additional expenses and liabilities incurred by respondents as a result of petitioner’s refusal to release the balance of the loan. Moral and exemplary damages as well as attorney’s fees were likewise lessened.
Hence, this Petition.5
Issues
Petitioner raises the following alleged errors for our consideration:
"A.
Whether or not the Court of Appeals committed serious error when it held that Petitioner PNB has no legal basis to require respondents to secure the conformity of the lessor and owner of the property where their hatchery business is being conducted notwithstanding that respondents obligated themselves in no uncertain terms to secure such conformity pursuant to par. 9.07 of the Real Estate and Chattel Mortgage and considering further that respondents’ authority to mortgage the lessor’s property and leasehold rights are annotated [on] the titles of the mortgage[d] properties.
"B.
Whether or not the Court of Appeals erred in holding Petitioner PNB liable for actual, moral and exemplary damages as well as attorney’s fees for the non-release of the balance of the loan applied by respondents even though there is no evidence that such non-release was attended by malice or bad faith."6
Simply put, the issues are as follows: 1) whether the non-release of the balance of the loan by PNB is justified; and 2) whether it is liable for actual, moral and exemplary damages as well as attorney’s fees.
The Court’s Ruling
The Petition is partly meritorious.
First Issue:
Was PNB’s Non-Release of the Loan Justified?
Petitioner maintains that the lessor’s signature in the conforme portion of the Real Estate and Chattel Mortgage Contract was a condition precedent to the release of the balance of the loan to respondents. Petitioner invokes paragraph 9.07 of the Contract as legal basis for insisting upon respondents’ fulfillment of the aforesaid clause.
We are not persuaded. If the parties truly intended to suspend the release of the P1,000,000 balance of the loan until the lessor’s conformity to the Mortgage Contract would have been obtained, such condition should have been plainly stipulated either in that Contract or in the Credit Agreement. The tenor of the language used in paragraph. 9.07, as well as its position relative to the whole Contract, negated the supposed intention to make the release of the loan subject to the fulfillment of the clause. From a mere reading thereof, respondents could not reasonably be expected to know that it was petitioner’s unilateral intention to suspend the release of the P1,000,000 balance until the lessor’s conformity to the Mortgage Contract would have been obtained.
Respondents had complied with all the requirements set forth in the recommendation and approval sheet forwarded by petitioner’s main office to the Bacolod branch for implementation; and the Credit Agreement had been executed thereafter. Naturally, respondents were led to believe and to expect the full release of their approved loan accommodation. This belief was bolstered by the initial release of the firstP1,000,000 portion of the loan.
We agree with the RTC in its ruling on this point:
"x x x. In the instant case, there is a clear and categorical showing that when the parties have finally executed the contract of loan and the Real Estate and Chattel Mortgage Contract, the applicant complied with the terms and conditions imposed by defendant bank on the recommendation and approval sheet, hence, defendant bank waived its right to further require the plaintiffs other conditions not specified in the previous agreement. Should there [appear] any obscurity after such execution, the same should not favor the party who caused such obscurity. Therefore, such obscurity must be construed against the party who drew up the contract. Art. 1377 of the Civil Code applies x x x [even] with greater force [to] this type of contract where the contract is already prepared by a big concern and [the] other party merely adheres to it."7 (Citations omitted)
Conditions Precedent
Conditions precedent are not favored. Unless impelled by plain and unambiguous language or by necessary implication, courts will not construe a stipulation as laden with such burden, particularly when that stipulation would result in a forfeiture or in inequitable consequences.8
Nowhere did PNB explicitly state that the release of the second half of the loan accommodation was subject to the mortgagor’s procurement of the lessor’s conformity to the Mortgage Contract. Absent such a condition, the efficacy of the Credit Agreement stood, and petitioner was obligated to release the balance of the loan. Its refusal to do so constituted a breach of its reciprocal obligation under the Loan Agreement.
Flimsy was the insistence of petitioner that the lessor should be compelled to sign the Mortgage Contract, since she was allegedly a beneficiary thereof. The chattel mortgage was a mere accessory to the contract of loan executed between PNB and RBL. The latter was undisputably the absolute owner of the properties covered by the chattel mortgage. Clearly, the lessor was never a party to either the loan or the Mortgage Contract.
The Real Nature of a Mortgage
The records show that all the real estate and chattel mortgages were registered with the Register of Deeds of Bago City, Negros Occidental, and annotated at the back of the mortgaged titles. Thus, petitioner had ample security to
protect its interest. As correctly held by the appellate court, the lessor’s nonconformity to the Mortgage Contract would not cause petitioner any undue prejudice or disadvantage, because the registration and the annotation were considered sufficient notice to third parties that the property was subject to an encumbrance.9
Article 2126 of the Civil Code describes the real nature of a mortgage: it is a real right following the property, such that in subsequent transfers by the mortgagor, the transferee must respect the mortgage. A registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem.10 The mortgage creates a real right or a lien which, after being recorded, follows the chattel wherever it goes. Under Article 2129 of the same Code, the mortgage on the property may still be foreclosed despite the transfer.
Indeed, even if the mortgaged property is in the possession of the debtor, the creditor is still protected. To protect the latter from the former’s possible disposal of the property, the chattel mortgage is made effective against third persons by the process of registration.
PNB violated the Loan Agreement when it refused to release the P1,000,000 balance. As regards the partial release of that amount, over which respondents executed three Promissory Notes, the bank is deemed to have complied with its reciprocal obligation. The Promissory Notes compelled them to pay that initial amount when it fell due. Their failure to pay any overdue amortizations under those Promissory Notes rendered them liable thereunder.
Effect of Failure of Consideration
Since PNB failed to release the P1,000,000 balance of the loan, the Real Estate and Chattel Mortgage Contract became unenforceable to that extent. Relevantly, we quote this Court’s ruling in Central Bank of the Philippines v. Court of Appeals:11
"The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract. For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt.
x x x x x x x x x
"[W]hen there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due."12
Second Issue:
Propriety of Award for Damages and Attorney’s Fees
In reducing the award for actual damages from P985,722.15 to P380,713.55, the CA explained:
"The alleged projected cash flow and net income for the 5-year period of operations were not substantiated by any other evidence to sufficiently establish the attainability of the projection. No evidence was also introduced to show the accounts payable of and other expenses incurred by [respondents]. The court a quo therefore, erred when it ruled that [respondents] incurred actual damages and losses amounting to P985,722.15 from 1990 to 1992, when no evidence was presented to establish the same.
"Compensatory or actual damages cannot be presumed. They cannot be allowed if there are no specific facts, which should be a basis for measuring the amount. The trial court cannot rely on speculation as to the fact and amount of damages, but must depend on actual proof that damage had been suffered. The amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence to support his claim for actual damages.
"At most, the court a quo may declare as lost income and unrealized profits, the amount of P380,713.55 for the 3-year period of business operations from 1990 when PNB refused to release the loans until closure of business in 1992, based on the highest quarterly taxable income earned in 1989 in the amount
of P28,754.80, with a conservative and reasonable increase of 10% per year on the net income. The amount of actual damages is therefore, reduced from P985,722.15 to P380,713.55 x x x."13
We see no reason to overturn these findings. True, indemnification for damages comprises not only the loss that was actually suffered, but also the profits -- referred to as compensatory damages -- that the obligee failed to obtain. To justify a grant of actual or compensatory damages, however, it would be necessary to prove the amount of loss with a reasonable degree of certainty, based upon competent proof and the best evidence obtainable by the injured party.14 The quarterly income tax report of Respondent RBL Enterprises, Inc., which was presented by petitioner and used by the appellate court as basis for computing the average profits earned by respondents in their business, provided a reasonable means for ascertaining their claims for lost profits. Thus, we believe that the assessment by the Court of Appeals was fair and just.
On the other hand, the award for moral and exemplary damages should be deleted, because respondents failed to prove malice or bad faith on the part of petitioner.
Moral damages are explicitly authorized in breaches of contract when the defendant has acted fraudulently or in bad faith.15 Concededly, the bank was remiss in its obligation to release the balance of the loan extended to respondents. Nothing in the findings of the trial and the appellate courts, however, sufficiently indicate a deliberate intent on the part of PNB to cause harm to respondents.
Exemplary damages, in turn, are intended to serve as an example or a correction for the public good. Courts may award them if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.16 Given the above premises and the circumstances here obtaining, the exemplary damages granted by the courts a quo cannot be sustained.
Finally, the award of attorney’s fees as part of the damages is just and equitable under the circumstances.17 Such fees may be awarded when parties are compelled to litigate or to incur expenses to protect their interest by reason of an unjustified act of the opposing party.18 In the present case, petitioner’s refusal to release the balance of the loan has compelled respondents to institute an action for injunction and damages in order to protect their clear rights and interests.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is hereby AFFIRMED, with the MODIFICATION that the award of actual and exemplary damages is deleted. No costs.
SO ORDERED.
Davide, Jr.*, Ynares-Santiago**, Carpio, and Azcuna, JJ., concur.
Footnotes
* On official leave.
** Working Chairman.
1 Rollo, pp. 8-22.
2 Id., pp. 24-34. Eleventh Division. Penned by Justice Juan Q. Enriquez Jr. and concurred in by Justices Ruben T. Reyes (Division chairman) and Presbitero J. Velasco Jr. (member).
3 CA Decision, pp. 9-10; rollo, pp. 32-33.
4 Id., pp. 2-3 & 25-26. Italics in the original.
5 This case was deemed submitted for decision on July 9, 2002, upon this Court’s actual receipt of respondent’s Memorandum, which was signed by Atty. William N. Mirano. Petitioners’ Memorandum, signed by Attys. Eligio P. Petilla and Jose Troy A. Almario, was received by the Court on June 28, 2002.
6 Petitioners’ Memorandum, p. 7; rollo, p. 112. Original in upper case.
7 RTC Decision, pp. 11–12; records, pp. 372–373.
8 17A Am. Jur. 2d, S 471, p. 491.
9 Isaguirre v. De Lara, 332 SCRA 803, May 31, 2000; Asuncion v. Evangelista, 316 SCRA 848, October 13, 1999; Northern Motors, Inc. v. Coquia, 68 SCRA 374, December 15, 1975; Ong Liong Tiak v. Luneta Motor Company, 66 Phil. 459, November 7, 1938.
10 Ganzon v. Inserto, 208 Phil. 630, July 25, 1983.
11 139 SCRA 46, October 3, 1985.
12 Id., p. 56, per Makasiar, CJ.
13 CA Decision, p. 8; rollo, p. 31. Citations omitted.
14 Integrated Packaging Corporation v. Court of Appeals, 333 SCRA 170, June 8, 2000.
15 Mirasol v. Court of Appeals, 351 SCRA 44, February 1, 2001.
16 Article 2232 of the Civil Code; Far East Bank and Trust Company v. Court of Appeals, supra.
17 Article 2208 of the Civil Code.
Rem on building
EN BANC
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff, vs. ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff, vs. ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY. INC., defendants.
FELIX, J.: chanrobles virtual law library
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan, Rizal, which they purchased on installment basis from the Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed an alleged chattel mortgage on the aforementioned house in favor of the surety company, which encumbrance was duly registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time said undertaking took place, the parcel of land on which the house is erected was still registered in the name of the Philippine Realty Corporation. Having completed payment on the purchase price of the lot, the Valinos were able to secure on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot and the house in favor of Isabel Iya, which was duly registered and annotated at the back of the certificate of title. chanroblesvirtualawlibrary chanrobles virtual law library
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety company demanded reimbursement from the spouses Valino, and as the latter likewise failed to do so, the company foreclosed the chattel mortgage over the house. As a result thereof, a public sale was conducted by the Provincial Sheriff of Rizal onDecember 26, 1952, wherein the property was awarded to the surety company for P8,000.00, the highest bid received therefor. The surety company then caused the said house to be declared in its name for tax purposes (Tax Declaration No. 25128). chanroblesvirtualawlibrary chanrobles virtual law library
Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage over the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said surety company instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of the residential house from the real estate mortgage in favor of defendant Iya and the declaration and recognition of plaintiff's right to ownership over the same in virtue of the award given by the Provincial Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the Court to sentence the spouses Valino to pay said surety moral and exemplary damages, attorney's fees and costs. Defendant Isabel Iya filed her answer to the complaint alleging among other things, that in virtue of the real estate mortgage executed by her co-defendants, she acquired a real right over the lot and the house constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house was null and void for non-compliance with the form required by law. She, therefore, prayed for the dismissal of the complaint and anullment of the sale made by the Provincial Sheriff. She also demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs. chanroblesvirtualawlibrary chanrobles virtual law library
Defendants spouses in their answer admitted some of the averments of the complaint and denied the others. They, however, prayed for the dismissal of the action for lack of cause of action, it being alleged that plaintiff was already the owner of the house in question, and as said defendants admitted this fact, the claim of the former was already satisfied.chanroblesvirtualawlibrary chanrobles virtual law library
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the contract of mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in 4 years, extendible for only one year; that to secure payment thereof, said defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party defendant because it claimed to have an interest on the residential house also covered by said mortgage; that it was stipulated in the aforesaid real estate mortgage that default in the payment of the interest agreed upon would entitle the mortgagee to foreclose the same even before the lapse of the 4-year period; and as defendant spouses had allegedly failed to pay the interest for more than 6 months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with interest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the total obligation as damages, and for costs. As an alternative in case such demand may not be met and satisfied plaintiff prayed for a decree of foreclosure of the land, building and other improvements thereon to be sold at public auction and the proceeds thereof applied to satisfy the demands of plaintiff; that the Valinos, the surety company and any other person claiming interest on the mortgaged properties be barred and foreclosed of all rights, claims or equity of redemption in said properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged property would be insufficient to satisfy the claim of plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
Defendant surety company, in answer to this complaint insisted on its right over the building, arguing that as the lot on which the house was constructed did not belong to the spouses at the time the chattel mortgage was executed, the house might be considered only as a personal property and that the encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that said building be excluded from the real estate mortgage and its right over the same be declared superior to that of plaintiff, for damages, attorney's fees and costs. chanroblesvirtualawlibrary chanrobles virtual law library
Taking side with the surety company, defendant spouses admitted the due execution of the mortgage upon the land but assailed the allegation that the building was included thereon, it being contended that it was already encumbered in favor of the surety company before the real estate mortgage was executed, a fact made known to plaintiff during the preparation of said contract and to which the latter offered no objection. As a special defense, it was asserted that the action was premature because the contract was for a period of 4 years, which had not yet elapsed. chanroblesvirtualawlibrary chanrobles virtual law library
The two cases were jointly heard upon agreement of the parties, who submitted the same on a stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled that as the Valinos were not yet the registered owner of the land on which the building in question was constructed at the time the first encumbrance was made, the building then was still a personality and a chattel mortgage over the same was proper. However, as the mortgagors were already the owner of the land at the time the contract with Isabel Iya was entered into, the building was transformed into a real property and the real estate mortgage created thereon was likewise adjudged as proper. It is to be noted in this connection that there is no evidence on record to sustain the allegation of the spouses Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or knew that part of the mortgaged property, i.e., the house, had previously been mortgaged to the surety company.chanroblesvirtualawlibrary chanrobles virtual law library
The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel Iya, although the latter could exercise the right of a junior encumbrance. So the spouses Valino were ordered to pay the amount demanded by said mortgagee or in their default to have the parcel of land subject of the mortgage sold at public auction for the satisfaction of Iya's claim.chanroblesvirtualawlibrary chanrobles virtual law library
There is no question as to appellant's right over the land covered by the real estate mortgage; however, as the building constructed thereon has been the subject of 2 mortgages; controversy arise as to which of these encumbrances should receive preference over the other. The decisive factor in resolving the issue presented by this appeal is the determination of the nature of the structure litigated upon, for where it be considered a personality, the foreclosure of the chattel mortgage and the subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Law would be valid and the right acquired by the surety company therefrom would certainly deserve prior recognition; otherwise, appellant's claim for preference must be granted. The lower Court, deciding in favor of the surety company, based its ruling on the premise that as the mortgagors were not the owners of the land on which the building is erected at the time the first encumbrance was made, said structure partook of the nature of a personal property and could properly be the subject of a chattel mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties (Art. 415, new Civil Code) could only mean one thing - that a building is by itself an immovable property . . . Moreover, and in view of the absence of any specific provision to the contrary, a building is an immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed belongs to another. To hold it the other way, the possibility is not remote that it would result in confusion, for to cloak the building with an uncertain status made dependent on the ownership of the land, would create a situation where a permanent fixture changes its nature or character as the ownership of the land changes hands. In the case at bar, as personal properties could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in question is not one, the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it is true that said document was correspondingly registered in the Chattel Mortgage Register of Rizal, this act produced no effect whatsoever for where the interest conveyed is in the nature of a real property, the registration of the document in the registry of chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of strong materials produce no effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we give any consideration to the contention of the surety that it has acquired ownership over the property in question by reason of the sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been declared null and void with respect to said real properties, acquires no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the rights of the surety company, over the building superior to that of Isabel Iya and excluding the building from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to foreclose not only the land but also the building erected thereon is hereby recognized, and the proceeds of the sale thereof at public auction (if the land has not yet been sold), shall be applied to the unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice to any right that the Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino on account of the mortgage of said building they executed in favor of said surety company. Without pronouncement as to costs. It is so ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia, JJ.,concur.
Foreclosure of a deceased’s estate
G.R. No. 121597 June 29, 2001
PHILIPPINE NATIONAL BANK, petitioner, vs.HON. COURT OF APPEALS, ALLAN M. CHUA as Special Administrator of the Intestate Estate of the late ANTONIO M. CHUA and Mrs. ASUNCION M. CHUA, respondents.
QUISUMBING, J.:
This petition assails the decision1 of the Court of Appeals dated July 25, 1995 in CA-G.R. CV No. 36546, affirming the decision dated September 4, 1991 of the Regional Trial Court of Balayan, Batangas, Branch 10 in Civil Case No. 1988.
The facts, as found by the trial court and by the Court of Appeals, are not disputed.
The spouses Antonio M. Chua and Asuncion M. Chua were the owners of a parcel of land covered by Transfer Certificate of Title No. P-142 and registered in their names. Upon Antonio’s death, the probate court appointed his son, private respondent Allan M. Chua, special administrator of Antonio’s intestate estate. The court also authorized Allan to obtain a loan accommodation of five hundred fifty thousand (P550,000.00) pesos from petitioner Philippine National Bank to be secured by a real estate mortgage over the above-mentioned parcel of land.
On June 29, 1989, Allan obtained a loan of P450,000.00 from petitioner PNB evidenced by a promissory note, payable on June 29, 1990, with interest at 18.8 percent per annum. To secure the loan, Allan executed a deed of real estate mortgage on the aforesaid parcel of land.
On December 27, 1990, for failure to pay the loan in full, the bank extrajudicially foreclosed the real estate mortgage, through the Ex-Officio Sheriff, who conducted a public auction of the mortgaged property pursuant to the authority
provided for in the deed of real estate mortgage. During the auction, PNB was the highest bidder with a bid price P306,360.00. Since PNB’s total claim as of the date of the auction sale was P679,185.63, the loan had a payable balance of P372,825.63. To claim this deficiency, PNB instituted an action with the RTC, Balayan, Batangas, Branch 10, docketed as Civil Case No. 1988, against both Mrs. Asuncion M. Chua and Allan Chua in his capacity as special administrator of his father’s intestate estate.
Despite summons duly served, private respondents did not answer the complaint. The trial court declared them in default and received evidence ex parte.
On September 4, 1991, the RTC rendered its decision, ordering the dismissal of PNB’s complaint.2
On appeal, the Court of Appeals affirmed the RTC decision by dismissing PNB’s appeal for lack of merit.3
Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner cites two grounds:
I
THE CA ERRED IN HOLDING THAT PNB CAN NO LONGER PURSUE ITS DEFICIENCY CLAIM AGAINST THE ESTATE OF DECEASED ANTONIO M. CHUA, HAVING ELECTED ONE OF ITS ALTERNATIVE RIGHT PURSUANT TO SECTION 7 RULE 86 OF THE RULES OF COURT DESPITE A SPECIAL ENACTMENT (ACT. NO. 3135) COVERING EXTRAJUDICIAL FORECLOSURE SALE ALLOWING RECOURSE FOR A DEFICIENCY CLAIM AS SUPPORTED BY CONTEMPORARY JURISPRUDENCE.
II
THE CA ERRED IN HOLDING THAT ALLAN M. CHUA, AS SPECIAL ADMINISTRATOR OF THE INTESTATE ESTATE OF HIS DECEASED FATHER ANTONIO M. CHUA ON ONE HAND, AND HIM AND HIS MOTHER ASUNCION CHUA AS HEIRS ON THE OTHER HAND ARE NO LONGER LIABLE FOR THE DEBTS OF THE ESTATE.4
The primary issue posed before us is whether or not it was error for the Court of Appeals to rule that petitioner may no longer pursue by civil action the recovery of the balance of indebtedness after having foreclosed the property securing the same. A resolution of this issue will also resolve the secondary issue concerning any further liability of respondents and of the decedent’s estate.
Petitioner contends that under prevailing jurisprudence, when the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor.5 It also contends that Act 3135, otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages," is the law applicable to this case of foreclosure sale and not Section 7 of Rule 86 of the Revised Rules of Court6 as held by the Court of Appeals.7
Private respondents argue that having chosen the remedy of extrajudicial foreclosure of the mortgaged property of the deceased, petitioner is precluded from pursuing its deficiency claim against the estate of Antonio M. Chua. This they say is pursuant to Section 7, Rule 86 of the Rules of Court, which states that:
Sec. 7. Rule 86. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by mortgage or other collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or other security alone and foreclose the same at any time within the period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of the estate; but nothing herein contained shall prohibit the executor or administrator from redeeming the property mortgaged or pledged by paying the debt for which it is hold as security, under the
direction of the court if the court shall adjudge it to be for the interest of the estate that such redemption shall be made.
Pertinent to the issue at bar, according to petitioner, are our decisions he cited.8 Prudential Bank v. Martinez, 189 SCRA 612, 615 (1990), is particularly cited by petitioner as precedent for holding that in extrajudicial foreclosure of mortgage, when the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the mortgagor.
However, it must be pointed out that petitioner’s cited cases involve ordinary debts secured by a mortgage. The case at bar, we must stress, involves a foreclosure of mortgage arising out of a settlement of estate, wherein the administrator mortgaged a property belonging to the estate of the decedent, pursuant to an authority given by the probate court. As the Court of Appeals correctly stated, the Rules of Court on Special Proceedings comes into play decisively.
To begin with, it is clear from the text of Section 7, Rule 89, that once the deed of real estate mortgage is recorded in the proper Registry of Deeds, together with the corresponding court order authorizing the administrator to mortgage the property, said deed shall be valid as if it has been executed by the deceased himself. Section 7 provides in part:
Sec. 7. Rule 89. Regulations for granting authority to sell, mortgage, or otherwise encumber estate – The court having jurisdiction of the estate of the deceased may authorize the executor or administrator to sell personal estate, or to sell, mortgage, or otherwise encumber real estate, in cases provided by these rules when it appears necessary or beneficial under the following regulations:
x x x
(f) There shall be recorded in the registry of deeds of the province in which the real estate thus sold, mortgaged, or otherwise encumbered is situated, a certified copy of the order of the court, together with the deed of the executor or administrator for such real estate, which shall be valid as if the deed had been executed by the deceased in his lifetime.
In the present case, it is undisputed that the conditions under the aforecited rule have been complied with. It follows that we must consider Sec. 7 of Rule 86, appropriately applicable to the controversy at hand.
Case law now holds that this rule grants to the mortgagee three distinct, independent and mutually exclusive remedies that can be alternatively pursued by the mortgage creditor for the satisfaction of his credit in case the mortgagor dies, among them:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription without right to file a claim for any deficiency.9
In Perez v. Philippine National Bank,10 reversing Pasno vs. Ravina,11 we held:
The ruling in Pasno vs. Ravina not having been reiterated in any other case, we have carefully reexamined the same, and after mature deliberation have reached the conclusion that the dissenting opinion is more in conformity with reason and law. Of the three alternative courses that section 7, Rule 87 (now Rule 86), offers the mortgage creditor, to wit, (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency, the majority opinion in Pasno vs. Ravina, in requiring a judicial foreclosure, virtually wipes out the third alternative con ceded by the Rules to the mortgage creditor, and which would precisely include extra-judicial foreclosures by contrast with the second alternative.
The plain result of adopting the last mode of foreclosure is that the creditor waives his right to recover any deficiency from the estate.12 Following the Perez ruling that the third mode includes extrajudicial foreclosure sales, the result of extrajudicial foreclosure is that the creditor waives any further deficiency claim. The dissent in Pasno,as adopted in Perez, supports this conclusion, thus:
When account is further taken of the fact that a creditor who elects to foreclose by extrajudicial sale waives all right to recover against the estate of the deceased debtor for any deficiency remaining unpaid after the sale it will be readily seen that the decision in this case (referring to the majority opinion) will impose a burden upon the estates of deceased persons who have mortgaged real property for the security of debts, without any compensatory advantage.
Clearly, in our view, petitioner herein has chosen the mortgage-creditor’s option of extrajudicially foreclosing the mortgaged property of the Chuas. This choice now bars any subsequent deficiency claim against the estate of the deceased, Antonio M. Chua. Petitioner may no longer avail of the complaint for the recovery of the balance of indebtedness against said estate, after petitioner foreclosed the property securing the mortgage in its favor. It follows that in this case no further liability remains on the part of respondents and the late Antonio M. Chua’s estate.
WHEREFORE, finding no reversible error committed by respondent Court of Appeals, the instant petition is hereby DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 36546 is AFFIRMED. Costs against petitioner.1âwphi1.nêt
SO ORDERED.
Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.
Footnote
1 Rollo, pp. 28-36.
2 Id. at 28.
3 Id. at 36.
4 Id. at 17.
5 Id. at 18.
6 Id.
7 Supra, note 5.
8 DBP vs. Tomeldan, 101 SCRA 171, 174 (1980); DBP vs. Zaragoza, 84 SCRA 668 (1978); DBP vs. Mirang, 66 SCRA 141 (1975); DBP vs. Vda. De Moll, 43 SCRA 82 (1972); Philippine Bank of Commerce vs. De Vera, 6 SCRA 1026 (1962).
9 Maglaque vs. PDB, 307 SCRA 156, 161-162 (1999); Vda. De Jacob vs. Court of Appeals, 184 SCRA 294, 301 (1990); Bicol Savings and Loan Association vs. CA, et al., 171 SCRA 630 (1989).
10 124 Phil. 260 (1966).
11 54 Phil. 378 (1930).
12 Pasno v. Ravina, supra.
Redemption of mortgage
G.R. No. 178242 January 20, 2009
HEIRS OF NORBERTO J. QUISUMBING, Petitioners, vs.PHILIPPINE NATIONAL BANK and SANTIAGO LAND DEVELOPMENT CORPORATION, Respondents.
D E C I S I O N
CARPIO MORALES, J.:
From the Court of Appeals Decision1 of February 14, 2007 denying petitioners’ appeal from the Decision2 of the Regional Trial Court, Branch 62, Makati City in Civil Case No. 10513, they come to this Court on petition for review on certiorari.
Culled from the eight-volume records of the case are the following facts:
In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses Silverio) and Ricardo C. Silverio as Chairman of the Board of the following companies, namely Delta Motors Corporation (Delta Motors), Komatsu Industries (Komatsu), R.C. Silverio Management Corporation (RCSMC), through Deeds of Assignment3 dated April 11 and 12, 1985, assigned to Atty. Norberto J. Quisumbing (Quisumbing) their rights of redemption with respect to various real properties which herein respondent Philippine National Bank (PNB) had foreclosed and acquired as the highest bidder. The properties included lots in Quezon City, Manila, Pampanga and Bulacan in the name of Ricardo C. Silverio, married to Beatriz Sison; a lot in Tagaytay in the name of Ricardo C. Silverio; lots in Nueva Ecija in the name of RCSMC; lots in Baguio and Benguet in the name of Delta Motors; a lot in Zambales in the name of RCSMC; and a lot in Rizal (actually Pasong Tamo, Makati) including improvements in the name of Komatsu (hereafter referred to as Pasong Tamo property).
By letter4 dated April 8, 1985, Quisumbing made a formal tender of redemption to PNB for the abovementioned properties, with the request that he be informed within 10 days of the total amount of the redemption prices so "he would know how much to pay." Quisumbing furnished the sheriffs who conducted the sales, as well as the registers of deeds in the various localities where the properties are situated, with a copy of said tender letter.
Acting on Quisumbing’s tender of redemption, the PNB, by letter of April 15, 1985, requested copies of the Deeds of Assignment so that it may "have a basis to reply to" his request.5 Quisumbing furnished PNB with copies of the Deeds, requesting a reply to his tender letter and requested for the computation of the total amount of redemption price for which he gave PNB until April 30, 1985 to do so. Before PNB could reply, however, or on April 23, 1985, Quisumbing executed an Affidavit of Redemption,6 furnishing PNB, the sheriffs and the registers of deeds a copy thereof.
Before the one-year redemption period expired, PNB, by letter dated May 3, 1985,7 denied Quisumbing’s offer of redemption on the ground that the Deeds of Assignment were invalid for not having been registered and for being against Art. 1491 (5) of the Civil Code; that the tender was not proper because it was not accompanied by actual money payment; and that the amount Quisumbing offered was way below that required under Sec. 25 of P.D. No. 694.
Quisumbing thus filed a Complaint8 before the Regional Trial Court (RTC) of Makati9 against PNB to compel it to allow him to exercise his right of redemption over the foreclosed properties and to inform him of the total amount of redemption price. At the same time, he caused the annotation of a notice of lis pendens on the certificates of title of the properties.
In its Answer,10 PNB contended that Quisumbing had no cause of action as his tender offer was "pro-forma," as the same was unaccompanied by cash payment; that the offer was not in accordance with Section 25 of P.D. No. 694, as amended; that the assignment of rights made in Quisumbing’s favor was ineffectual because the same was not registered and annotated on the certificates of title of the properties; that the Deeds of Assignment executed by RSCMC, Komatsu and Delta Motors were defectively acknowledged as public instruments; and that the assignments were barred by Article 1491 (5) of the Civil Code.11 During the pendency of the case, Quisumbing died, hence, he was substituted by his heirs-herein petitioners on September 14, 1990.
On December 8, 1989, with the approval by Branch 149 of the Makati RTC, the herein other respondent Santiago Land Development Corporation (SLDC) intervened, it having purchased pendente lite from PNB the Pasong Tamo property, and adopted in its Answer-in-Intervention PNB’s defenses as set forth in its Answer, and raised additional defenses.
Petitioners thus filed before the appellate court a Petition for Certiorari, docketed as CA-G.R. SP No. 25826, questioning, inter alia, the trial court’s grant of SLDC’s move to intervene, arguing that SLDC should have joined as an additional defendant for it to be bound by all prior proceedings.
By Decision dated July 6, 1992, the appellate court granted the petition of petitioners and nullified the trial court’s Order granting SLDC’s intervention. SLDC appealed to this Court via certiorari, docketed as G.R. No. 106194.
By Decision12 of January 28, 1997, the Court dismissed SLDC’s petition and affirmed the appellate court’s decision, ruling that SLDC is a transferee pendente lite and, as such, could no longer intervene as the law already considers it joined or substituted in the pending action, hence, bound by all prior proceedings and barred from presenting a new or different claim.
SLDC thereupon filed a Motion for Partial Substitution in Civil Case No. 10513, which was granted on April 14, 1998.
By Decision13 of October 24, 2000, the trial court dismissed petitioner’s Amended Complaint as against PNB, as well as that against SLDC, ruling that Quisumbing did not make a valid tender of redemption as it was not accompanied by cash payment; that Sec. 25 of P.D. No. 694 is not unconstitutional and was applicable not only to direct debtors/mortgagors but constructively also to accommodation mortgagors following Nepomuceno v. RFC.14Aggrieved, petitioners appealed to the Court of Appeals.
By the assailed Decision of February 14, 2007, the appellate court affirmed the trial court’s decision, holding that there was no valid offer to redeem the properties owing to Quisumbing’s failure to validly tender payment; and that even if his filing of the complaint was considered as judicial redemption, it was still ineffectual due to non-tender of the redemption price. On account of such ruling, the appellate court no longer ruled on the issue of the constitutionality of Sec. 25 of P.D. 694 and on the validity of the Deeds of Assignment. Petitioners’ motion for reconsideration having been denied by Resolution dated June 5, 2007, this present petition was filed.
Petitioners insist that Quisumbing made a valid tender of redemption because he did not have to tender the redemption prices due to, so they claim, PNB’s outright refusal to accept or allow any redemption, and that he perfected a ‘judicial redemption’ following Tioseco v. CA.15 They assail the ruling of the trial court that spouses Silverio were accommodation mortgagors or direct debtors/mortgagors and that Sec. 25 of P.D. No. 694 applies to accommodation mortgagors, as well as the trial and appellate court’s ruling that Sec. 25 is not unconstitutional despite its being violative, so petitioners contend, of the due process and equal protection clauses of the Constitution.
Petitioners maintain that Sec. 25 applies only to debtors-mortgagors, hence, the case at bar should have been governed by the general law on redemption ─ Sec. 6 of Republic Act No. 3135 vis a vis Rule 39, Sec. 30. In support of their position, they draw attention to the fact that all the certificates of sale state that the proceedings/sale were pursuant to an "extra-judicial foreclosure of real estate mortgage under RA 3135 as amended," without any mention whatsoever of P.D. No. 694. Petitioners thus conclude that Sec. 25 of P.D. No. 694 should be struck down for being void for vagueness; and that it is arbitrary and unreasonable because it grants a preferred position to PNB which may abuse to unjustly enrich itself at the expense of mortgagors, hence, violative of the right to due process.
At all events, they argue that assuming that Sec. 25 applies to accommodation mortgagors such as the spouses Silverio still, the redemption price would be based on the value of the properties foreclosed, not on the obligations of the debtor, as what PNB insists on doing.
In its Comment,16 PNB, averring that what petitioners are raising are questions of fact, maintains that the Deeds of Assignment are void for being against public policy because at the time they were executed, Quisumbing was already the lawyer not only of the spouses Silverio but also of Komatsu and the other companies, the properties of which were being foreclosed.
In its separate Comment,17 SLDC argues that the present petition, insofar as the Pasong Tamo property is concerned, is barred by res judicata, the Court in Komatsu Industries (Phils.) Inc. v. Philippine National Bank and Santiago Land Development Corporation and Maximo Contreras, (Komatsu case)18 having declared PNB’s extrajudicial foreclosure of the said property and eventual sale to SLDC valid. It adds that, since in G.R. No. 106194 or the "Intervention Case," it was held that a purchaser pendente lite ─ SLDC is bound by the outcome of the case instituted by the transferor ─ PNB, then Quisumbing, as transferee pendente lite of Komatsu’s right to redeem the Pasong Tamo property, "must also necessarily be bound by the outcome of the Komatsu case" ─ and that, perforce, "if he cannot intervene, then neither can he be allowed to file or maintain a separate case."
Maintaining that Quisumbing’s "judicial redemption" should not be allowed, SLDC contends that since redemption is inconsistent with the claim of invalidity of a foreclosure sale, then Komatsu’s act of assigning its right of redemption to Quisumbing was incompatible with its earlier remedy of contesting the validity of PNB’s foreclosure and is, therefore, prohibited.
SLDC further avers that Sec. 25 of PD No. 694 does not violate the due process clause, its provision requiring the mortgagors to pay the redemption price being in line with the purpose of the law, viz "to protect the investment of the government in the institution."
Aside from reiterating their previous arguments, petitioners, in their Consolidated Reply,19 refute SLDC’s and PNB’s arguments. They contend that the action is not barred by res judicata because in the Komatsu case, the Court "contemplated" that the issue of validity of the exercise of redemption would not be resolved in that case but in Civil Case No. 10513, and the reason why Quisumbing was not required to intervene in Komatsu was because he was not a party thereto, and the case involved annulment of the foreclosure sale, not the exercise of the right of redemption.
Petitioners further maintain that the issue of whether the assignment of rights made in Quisumbing’s favor was barred for being against public policy (under Art. 1491[5] of the Civil Code) can no longer be raised as an issue, respondents having failed to raise it in the proceedings below; and assuming arguendo that it had been raised, said provision would not apply, as what were assigned were merely the rights of redemption, not the properties themselves, and Quisumbing did not represent Komatsu or the other companies in the annulment of foreclosure proceedings.
In a Supplemental Petition20 filed on August 28, 2007, petitioners submit that the sale of the Philippine Government’s remaining minority shares (12.28%) in the PNB on August 1, 2007 reinforces their argument that if Sec. 25 of P.D. No. 694 is made applicable to accommodation mortgagors, the same should be struck down for being unconstitutional, as it would then be violative of the equal protection clause. And they assert that if, indeed, the purpose of said provision is to protect the government’s investment in PNB, then it has ceased to exist due to the privatization of said institution and, as such, Sec. 25 should be struck down.
The pivotal issue that needs to be resolved is whether the original plaintiff, Atty. Norberto J. Quisumbing, made a valid tender of redemption.
The Court rules in the negative.
Sec. 25 of P.D. No. 694 otherwise known as the Revised Charter of the Philippine National Bank enacted on May 8, 1975 provides:
Section 25. Right of redemption of foreclosed property Right of possession during redemption period. Within one year from the registration of the foreclosure sale of real estate, the mortgagor shall have the right to redeem the property by paying all claims of the Bank against him on the date of the sale including all the costs and other expenses incurred by reason of the foreclosure sale and custody of the property, as well as charges and accrued interests.
The Bank may take possession of the foreclosed property during the redemption period. When the Bank takes possession during such period, it shall be entitled to the fruits of the property with no obligation to account for them, the same being considered compensation for the interest that would otherwise accrue on the account. Neither shall the Bank be obliged to post a bond for the purpose of such possession. (Emphasis supplied)
On the other hand, under Act No. 3135, An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages (which took effect on March 6, 1924), as amended by Act. No. 4118, redemption of extra-judicially foreclosed properties is undertaken as follows:
SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. (Emphasis supplied)
And the pertinent provision of the Code of Civil Procedure, now Section 28 of Rule 39 of the Revised Rules of Civil Procedure, reads:
SEC. 28. Time and manner of, and amounts payable on, successive redemptions; notice to be given and filed. – The judgment obligor, or redemptioner, may redeem the property from the purchaser, at any time within one (1) year from the date of the registration of the certificate of sale, by paying the purchaser the amount of his purchase, with one per centum per month interest thereon in addition, up to the time of redemption, together with the amount of any assessments or taxes which the purchaser may have paid thereon after purchase, and interest on such last named amount of the same rate; and if the purchaser be also a creditor having a prior lien to that of the redemptioner, other than the judgment under which such purchase was made, the amount of such other lien, with interest. (Emphasis supplied)
As to the requisites for a valid tender of redemption in case of extra-judicially foreclosed properties by banks, Banco Filipino Savings and Mortgage Bank, Inc., v. Court of Appeals,21 instructs:
Section 6 of Act 3135 provides for the requisites for a valid redemption, thus:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent with the provisions of this Act.
However, considering that petitioner is a banking institution, the determination of the redemption price is governed by Section 78 of the General Banking Act which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be,
with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said \property less the income received from the property.
Clearly, the right of redemption should be exercised within the specified time limit, which is one year from the date of registration of the certificate of sale. The redemptioner should make an actual tender in good faith of the full amount of the purchase price as provided above, i.e., the amount fixed by the court in the order of execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property.
x x x x
In BPI Family Savings Bank, Inc. vs. Veloso, we held:
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment. This constitutes the exercise of the right to repurchase.
x x x x
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant. Redemption within the period allowed by law is not a matter of intent but a question of payment or valid tender of the full redemption price within said period. (Emphasis supplied)
Evidently, whether the redemption is being made under Act No. 3135 or the General Banking Act, as amended by Presidential Decree No. 1828, or under P.D. No. 694, the mortgagor or his assignee is required to tender payment to make said redemption valid – something which petitioners’ predecessor failed to do. The only instance when this rule may be construed liberally, i.e., allow the non-simultaneous tender of payment, is if a judicial action is instituted by the redemptioner. 22
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals and Lee Chuy Realty Corporation v. Court of Appeals that in case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action which must be filed within the one-year period of redemption. The filing of a court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the expiration of the one-year period. Bona fidetender of the redemption price, within the prescribed period is only essential to preserve the right of redemption for future enforcement beyond such period of redemption and within the period prescribed for the action by the statute of limitations. Where the right to redeem is exercised through judicial action within the reglementary period, the offer to redeem, accompanied by a bona fide tender of the redemption price, while proper, may be unessential. (Emphasis supplied)
For this exception to apply, however, certain conditions must be met, viz:
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals, we held that the action for judicial redemption should be filed on time and in good faith, the redemption price is finally determined and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have been for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the redemption price is determined within a reasonable time, the redemptioner must make prompt payment in full. (Emphasis supplied)
While Quisumbing filed the Complaint on May 7, 1985, days or even weeks before the expiration of the one-year redemption period reckoned from the dates of registration of the different certificates of sale, it cannot be said that he was motivated by good faith when he filed the Complaint, as contemplated in the above ruling. For the Complaint was
filed not for the sole purpose of determining the redemption price, but, as Quisumbing himself admitted on direct examination, it was to seek the annulment of Sec. 25 of P.D. No. 694, thus:
Q: And what is the purpose of your present suit?
A: To compel the redemption, because the redemption were (sic) disallowed unless the entire obligation rather than just leaving the purchase price of the foreclosure sale is paid. The purpose of suit therefore, is to seek the annulment of that provision of Section 25 of the Revised Chapter (sic) of the Philippine National Bank, which provides that redemption can be effected only by paying the entire claim of the Philippine National Bank, against in this case, Delta Motors Corporation. As the Complaint alleges the sale . . . contrary to law, moral, customs, public security, since the law favors in the long line of decisions of the right of redemption. Second, with such a provision no one can get a fair price at a foreclosure sale of an individual property.23 (Emphasis and underscoring supplied)
And on cross-examination, when questioned why he wrote to PNB on April 8, 1985 offering to redeem the property when the Deeds of Assignment in his favor were not yet executed, Quisumbing replied:
x x x x
Q: The Deeds of Assignment were executed either on April 12 or 11 in the case of Komatsu, 1985. Why did you write PNB a tender of letter as early as April 8 when the Deeds of Assignment were not yet executed – have not yet been executed?
A: Well, there might have been a delay in the execution of the Deeds of Assignment; but since I was certain that PNB will reject a redemption, not in accordance with Sec. 25 of its charter. In other words, just offering the purchase price derive from… we began the process of redemption early. Besides, the Philippine National Bank, in some cases, in other creditors of . . . 24
x x x x (Emphasis and underscoring supplied)
Clearly, from the admissions reflected in the testimony, Quisumbing’s filing of the Complaint was not solely due to a mere disagreement in the redemption price; rather, it was because he was not willing to pay whatever amount PNB would compute on the basis of Sec. 25 of P.D. No. 694. By questioning the constitutionality of said provision, Quisumbing, wittingly delayed the redemption, since he must have known that raising the issue of constitutionality of a statute in any suit would result in a litigious process which could stretch for an indefinite period as, in fact, the history of the present case shows. More importantly, his act of executing his Affidavit of Redemption on April 23, 1985 and alleging therein his oft-repeated excuse of "PNB’s refusal to allow him to redeem the subject properties" even before PNB could provide him the computations by April 30, 1985, as he himself requested in his April 23, 1985 letter, and before PNB’s actual refusal as stated in its May 3, 1985 letter, reflected that from the very beginning, his mindset was that if any redemption would be had, the same should be made according to his terms and conditions and under Act No. 3135, not P.D. No. 694. Indubitably, such actuations belie good faith and, therefore, the exception as enunciated in Tolentino case would not apply.
Had Quisumbing believed in good faith that Act No. 3135 was applicable, he could have tendered the amount as computed thereunder, if only to show that he was able and willing to redeem the properties.
Respecting the issues raised by petitioners that Sec. 25 of P.D. No. 694 is unconstitutional, the same has been rendered moot and academic by the full privatization of PNB pursuant to E.O. 8025 which repealed said P.D., as well as the subsequent sale of the remaining shares of the government on August, 2007 which converted it from a government financial institution to a private banking institution.
The foregoing discussions render it unnecessary to address the other points pleaded by petitioners, such as the validity of the Deeds of Assignment, whether the Silverio spouses are accommodation mortgagors or direct debtors/mortgagors, or whether the suit is barred by the principle of res judicata.
WHEREFORE, the petition is DENIED. The February 14, 2007 Decision of the Court of Appeals and the June 5, 2007 Resolution in CA-G.R. CV No. 69337 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALESAssociate Justice
WE CONCUR:
DANTE O. TINGAAssociate Justice
MINITA V. CHICO-NAZARIO*
Associate Justice
PRESBITERO J. VELASCO, JR.Associate Justice
ARTURO D. BRIONAssociate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES*
Associate JusticeActing Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s Attestation, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNOChief Justice
Footnotes
* Acting Chairperson in lieu of Justice Leonardo A. Quisumbing who took no part.
** Additional member per Raffle dated September 3, 2007 and pursuant to Administrative Circular No. 42-2007 in A.M. No. 07-6-13-SC.
1 "Heirs of Norberto Quisumbing v. Philippine National Bank and Santiago Land Development Corporation," Annex "A" of Petition, rollo, pp. 130-145. Penned by Associate Justice Jose C. Reyes, Jr., and concurred in by Associate Justices Jose L. Sabio, Jr., and Myrna Dimaranan Vidal.
2 Annex "EE," id at. 747-757. Penned by Judge Roberto C. Diokno.
3 Exhibit "BB," id at 316-324.
4 Annex "N," id at 188-192.
5 Vide letter, Annex "O," id at 357 and 359.
6 Annex "Q," id at 193-196.
7 Vide letter, records, Vol. I, pp. 142-143.
8 Annex "C," id at 147-155.
9 N.B.: initially filed with Branch 149 but assailed Decision rendered by Branch 62.
10 Annex "D," id. at 209-213.
11 Art. 1491(5) justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;
12 Santiago Land Development Corporation v. Court of Appeals, G.R. No. 106194, January 28, 1997, 267 SCRA 79.
13 Vide note 2.
14 110 Phil 42 (1960).
15 G.R. No. L-66597, August 29, 1986, 143 SCRA 705.
16 Rollo, pp. 1663-1715.
17 Id. at 1485-1589.
18 G.R. No. 127682, April 24, 1998, 289 SCRA 604.
19 Rollo, pp. 1728-1809.
20 Id. at 1469-1479.
21 G.R. No. 143896, July 8, 2005, 463 SCRA 64, 73-76.
22 Tolentino v. Court of Appeals and Citytrust Banking Corporation, G.R. No. 171354, March 7, 2007, 517 SCRA 732, 744-745.
23 TSN, hearing of Civil Case No. 10513 on March 3, 1987, records, Vol. III, pp. 190-191.
24 Id. at 199.
25 EXECUTIVE ORDER NO. 80
PROVIDING FOR THE 1986 REVISED CHARTER OF THE PHILIPPINE NATIONAL BANK (December 3, 1986)
x x x x
Sec. 38. Repealing Clauses. Subject to Section 31 of this Charter, Presidential Decree No. 694, as amended, is hereby repealed. All other laws, decrees, acts, executive orders, administrative orders, proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this Charter are hereby repealed or modified accordingly. (emphasis supplied)
x x x x
Sec. 31. Banking Operations under the 1986 Revised Charters; Governing Laws. The Banking operations of the Bank shall be governed by the provisions of this Charter beginning on January 1, 1987, or on such subsequent date as may be determine by the President of the Philippine upon the recommendation of the Minister of Finance. (Emphasis supplied)
G.R. No. 171354 March 7, 2007
MARYLOU B. TOLENTINO, M.D., Petitioner, vs.COURT OF APPEALS and CITYTRUST BANKING CORPORATION, Respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 assails the October 28, 2005 Decision2 of the Court of Appeals in CA-G.R. CV. No. 83794, which reversed the April 22, 2004 Decision3 of the Regional Trial Court of Mandaluyong City, Branch 213 in Civil Case No. MC-00-1063, as well as the January 31, 2006 Resolution4 denying petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
In May 1996, petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private respondent Citytrust Banking Corporation ("Citytrust," now Bank of the Philippine Islands) a Business Credit Line Facility for P2,450,0005 secured by a First Real Estate Mortgage6 over her property covered by Transfer Certificate of Title (TCT) No. 1933.7
On July 16, 1998, Citytrust informed Tolentino that her credit line has expired thereby making her P2,611,440.23 outstanding balance immediately due and demandable.8 Tolentino failed to settle her obligations thus her property was extrajudicially foreclosed and sold in a public auction, with Citytrust as the highest bidder. On April 13, 1999, the Certificate of Sale was registered and duly annotated on TCT No. 1933.
As of March 17, 2000, the "Statement of Account To Redeem" 9 sent by Citytrust showed petitioner's outstanding obligation at P5,386,993.91. Petitioner asked for a re-computation and the deletion of certain charges, such as the late payment charges, foreclosure expenses, attorney's fees, liquidated damages, and interests, but was denied by Citytrust. As of April 10, 2000, petitioner's outstanding balance amounted to P5,431,337.41.
On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against Citytrust and the Register of Deeds of Mandaluyong City.10 Petitioner alleged that the bank unilaterally increased the interest charges in her credit line from 17.75% to 23.04%; that she was forced to convert her existing Home Owners Credit Line into an Amortized
Term Loan with interest of 19.50%;11 that the bank cancelled her credit line when she refused the said conversion; that her mortgaged property was foreclosed and sold at public auction but the bank did not remit the balance of the proceeds of the foreclosure sale; and that the bank unjustifiably refused her request for accounting and re-computation of the redemption amount.
In its Answer with Counterclaim,12 Citytrust asserted that petitioner's credit line has a term of one year and that upon the expiration of the said period, it may be cancelled and closed; that the inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests in the redemption price was in accordance with the terms and conditions of their loan and mortgage contracts; that the bid price was applied to the outstanding obligations of petitioner; and that the Complaint of petitioner was merely dilatory and frivolous considering that she has admitted having defaulted in the payment of her obligations.
Meanwhile, TCT No. 1933 was cancelled and a new title13 was issued in favor of Citytrust. However, petitioner was able to secure a writ of preliminary injunction,14 which enjoined Citytrust from taking possession, selling, and/or otherwise disposing of the foreclosed property.
After trial on the merits, the Regional Trial Court of Mandaluyong City, Branch 213, rendered judgment upholding petitioner's right of redemption, but at the price computed by private respondent. The dispositive portion of the Decision reads:
WHEREFORE, judgment is hereby rendered upholding the right of the herein plaintiff MARILOU TOLENTINO to redeem the foreclosed property covered by Transfer Certificate of Title No. 1933 in accordance however with the computation stated in the account to redeem as of April 10, 2000 issued by the defendant CITYTRUST BANKING CORPORATION (now FAMILY BANK) particularly marked as Exhibit 10 for the Defendant.
SO ORDERED.15
The trial court held that the filing of an action for judicial redemption by petitioner is equivalent to a formal offer to redeem. Having exercised her right of legal redemption, petitioner should not be barred from redeeming the property, but at the redemption price as computed by Citytrust pursuant to the provisions of their loan agreement. The trial court held that petitioner cannot belatedly claim that the loan agreement and mortgage contract are contracts of adhesion considering that she freely and voluntarily executed the same, nor was she ignorant of the nature and provisions of the agreements.
Both the petitioner and the bank appealed to the Court of Appeals, which rendered the assailed Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the appeal of plaintiff is DISMISSED for lack of merit, while the appeal of defendant Bank of the Philippine Islands is hereby GRANTED. The appealed Decision dated April 22, 2004 of the Regional Trial Court of Mandaluyong City, Branch 213 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the complaint in Civil Case No. MC-00-1063.
With costs against the plaintiff-appellant.
SO ORDERED.16
The Court of Appeals held that petitioner's act of filing an action for judicial redemption without simultaneous consignation of redemption money was not valid. Having failed to exercise her right of redemption within the one-year period provided by law, petitioner thus lost all her rights over the foreclosed property. The appellate court noted that as early as March 17, 2000, Citytrust computed the redemption price at P5,386,993.91; however, petitioner only offered to pay P3 million pesos, without attempting to tender a single centavo to private respondent. Further, records show that when asked during trial if she was prepared to tender the amount, petitioner replied in the negative.
Petitioner's motion for reconsideration was denied; hence, this petition.
Petitioner insists that the mortgage agreement is a contract of adhesion since it was solely prepared by the bank and her only participation thereto was to affix her signature; that the 25% attorney's fees, penalty, late payment charges, and liquidated damages are excessive and unconscionable; that the capital gains tax should not have been added to
the computation of the redemption price; that the filing of the complaint for judicial redemption effectively tolled the running one-year prescriptive period; that the consignation of the redemption price is only necessary if the redemption suit was filed after the expiration of the redemption period; and that without admitting the loss of right to redeem, the surplus of the proceeds of the foreclosure sale should have been returned to her.
The petition lacks merit.
A contract of adhesion is an agreement where one of the parties imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.17
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. However, there are instances when this Court has struck down such contract as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, a contract of adhesion is not invalid per se; it is not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.18
Should there be any ambiguity in a contract of adhesion, such ambiguity is to be construed against the party who prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling.19
In the instant case, it has not been shown that petitioner signed the contracts through mistake, violence, intimidation, undue influence, or fraud. Petitioner even admitted during trial that she was not compelled to sign the contracts, nor was she totally ignorant of their nature, having been engaged in business since 1984.20 Petitioner only raised in issue the following stipulations before the redemption period expired, to wit:
2. Loan Line - CityTrust shall make the Loan Line available to Client for a period of one (1) year from the date of this Agreement subject to Section 19; xxx
19. Cancellation - (a) The Loan Line may be cancelled by either party upon thirty-day written notice to the other party.
(b) CityTrust may shorten the period of availability of the Loan Line upon thirty-day written notice to Client.
(c) Upon cancellation of the Loan Line or expiration of the period of availability of the Loan Line, the Loan Account and CityTrust Business Credit Line Current Account shall be automatically cancelled/closed and Client shall immediately pay the entire Outstanding Balance. Client shall immediately surrender to CityTrust any and all unused CityTrust Business Credit Line Check(s) as well as the ATM card issued to access the CityTrust Business Credit Line Current Account.
7. Interest on Outstanding Balance - The Outstanding Balance shall earn simple interest, computed daily, at such per annum rate for such interest period (of not less than 30 days) as shall be determined in advance by CityTrust and advised initially through the Letter of Approval and thereafter through the Statement of Loan Account. Interest shall be calculated on the basis of actual number of days elapsed and a year of 360 days. Interest accrued shall be automatically debited by the CityTrust against the Loan Account.
9. Penalty Charges - Failure to make the full remittance required to cover the Excess Availment within fifteen (15) days from the date that the same is incurred shall subject the Excess Availment to penalty charge. Failure to make the full remittance required to cover an Excess Availment within fifty-nine (59) days from the date that the same is incurred shall subject the entire Outstanding Balance to the aforesaid penalty charge. Penalty charges shall be imposed by CityTrust without prejudice to Sections 7 (Interest on Outstanding Balance) and 15 [Events of Default].
The penalty charge shall be such per annum rate as shall be determined by CityTrust and advised through the Statement of Loan Account and Demand Statement. Sail penalty charge shall be fixed for thirty (30) days or such other period as may be determined by CityTrust and shall be automatically debited against the Loan Account.
20. Collection/Attorney's Fees - in the event CityTrust is compelled to litigate or engage the services of a lawyer or collection agent for collection or implementation of the terms of the Agreements, Client shall pay attorney's fees in the sum equivalent to twenty-five (25%) percent of the amount due but which attorney's fees shall in any case be not less than FIVE THOUSAND PESOS (P5,000.00) plus costs of suit and other litigation expenses and, in addition, liquidated damages in the sum equivalent to ten (10%) percent of the amount due but which liquidated damages shall in any case be not less than ONE THOUSAND PESOS (P1,000.00).21
We find the above-quoted provisions explicit and leave no room for construction. It is easily understood, especially by a businesswoman like the petitioner. Thus, we agree with the conclusion of the trial and appellate courts that no compelling reasons were presented to declare the subject contractual documents as void contracts of adhesion.22
Anent the legality of petitioner's judicial redemption and the bank's computation of the redemption price, Section 6 of Act No. 3135,23 as amended,24 provides for the requisites for a valid redemption, to wit:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent with the provisions of this Act.
However, considering that private respondent is a banking institution, the determination of the redemption price is governed by Section 78 of the General Banking Act,25 as amended by Presidential Decree No. 1828, which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property.
Section 78 of the General Banking Act amended Section 6 of Act No. 3135 insofar as the redemption price is concerned when the mortgagee is a bank or a banking or credit institution.26 Thus, the amount at which the foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General Banking Act.27
In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,28 we ruled that the redemptioner should make an actual tender in good faith of the full amount of the purchase price, i.e., the amount fixed by the court in the order of execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property.29
As correctly pointed out by the appellate court, the general rule in redemption is that it is not sufficient that a person offering to redeem simply manifests his/her desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment. This constitutes the exercise of the right to repurchase. Bona fide redemption necessarily implies a reasonable and valid tender of the entire purchase price, otherwise the rule on the redemption period fixed by law can easily be circumvented.30
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals 31 and Lee Chuy Realty Corporation v. Court of Appeals32 that in case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action which must be filed within the one-year period of redemption. The filing of a court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the expiration of the one-year period.33 Bona fide tender of the redemption price, within the prescribed period is only essential to preserve the right of redemption for future enforcement beyond such period of redemption and within the period prescribed for the action by the
statute of limitations. Where the right to redeem is exercised through judicial action within the reglementary period, the offer to redeem, accompanied by a bona fide tender of the redemption price, while proper, may be unessential.34
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,35 we held that the action for judicial redemption should be filed on time and in good faith, the redemption price is finally determined and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have been for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the redemption price is determined within a reasonable time, the redemptioner must make prompt payment in full.36
The records show that the correct redemption price had been determined prior to the filing of the complaint for judicial redemption. Petitioner had been furnished updated Statements of Account specifying the redemption price even prior to the consolidation of the title of the foreclosed property in the bank's name. The inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests therein was pursuant to the Loan Agreement. Considering that the Loan Agreement was read and freely adhered to by petitioner, the stipulations therein are binding on her.37
Moreover, petitioner admitted during trial that she was not questioning the computation of the redemption price, but she was requesting for a condonation of certain fees and charges.
Q. Now Madam Witness, during the last hearing, you were questioning the statement of account, the computation, is that correct?
A. Yes, sir.
Q. In particular, you were questioning the attorney's fees of twenty five percent (25%), is that correct?
A. Yes, sir.
Q. Did you not read the mortgage loan agreement, Madam Witness?
A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a condonation.
Q. So, you are [sic] not questioning it?
A. Yes, sir.
Q. In your complaint there is an allegation that the computation has no basis, do you confirm that, do you still maintain that?
A. Yes.
Q. Why do you say so?
A. I was just hoping that some of the items could be condone[d] because they were rather high, although, normally, in the mortgage contract it is really stated that they charge twenty five percent for attorney's fees, so I agreed with it.
Q. So, it is not your statement in your complaint that the computation has no basis, is not correct?
A. Yes, sir.
Q. So, the twenty five percent computation here has a basis, which is the mortgage loan agreement, correct?
A. Yes, in your agreement.
Q. And in that agreement you have your signature therein?
A. Yes.
Q. And you have read that before signing it?
A. Yes, sir.
Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the mortgage loan agreement?
A. I'm not sure.
Q. I will show you again the mortgage loan agreement xxx.
x x x x
Q. Now, Ms. Witness, can you now say that this statement of account is with basis, accurate and with basis [sic]?
A. It has a basis, based on your conditions as prepared by the bank.
Q. Which you have conform[ed] to?
A. Yes, I have to because I executed a loan.
Q. But the bank did not compel you to apply for a loan?
A. No, they did not compel me.
Q. And you are only asking this court to reduce?
A. Yes, if possible.38(Emphasis supplied)
The records also reveal that petitioner offered to redeem the foreclosed property for P3 million but failed to tender or consign the same, to wit:
Q. Ms. Witness, you stated that based on your computation[,] the redemption price should be three million pesos (P3,000,000.00) more or less?
A. More or less.
Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do you have this amount right now?
A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.
x x x x
Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?
A. No, because that is not the amount that they were asking for.
Q. Did you at least offer to pay this amount of three million pesos (P3M) more or less?
A. During the discussion with the manager, Ms. Lolita Carrido, I ask [sic] her if the deletion of the said [sic] is possible but she said it's not possible.
x x x x
Q. Did you also consign with this amount of three million pesos (P3M) more or less?
A. No, sir.39
Based on the foregoing, it is clear that petitioner did not file the instant case for judicial redemption in good faith. It was not filed for the purpose of determining the correct redemption price but to stretch
the redemption period indefinitely, which is not allowed by law.
WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV. No. 83794 dismissing the complaint for judicial redemption for lack of merit
and the Resolution denying petitioner's motion for reconsideration are AFFIRMED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
(on leave)ROMEO J. CALLEJO, SR.
Associate JusticeMINITA V. CHICO-NAZARIO
Asscociate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 8-32.
2 Id. at 33-48; penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices Edgardo F. Sundiam and Japar B. Dimaampao.
3 Id. at 33-34.
4 Id. at 49.
5 Records, pp. 51-54, 99-101, also known as Homeowners' Credit Line.
6 Rollo, pp. 50-53.
7 Records, pp. 20-23.
8 Id. at 24.
9 Id. at 32.
10 Id. at 7-14.
11 Id. at 102.
12 Id. at 44-49.
13 TCT No. 15625, id. at 72.
14 Id. at 167-168.
15 CA Rollo, pp. 44-56.
16 Id. at 48.
17 South Pachem Development, Inc. v. Court of Appeals, G.R. No. 126260, December 16, 2004, 447 SCRA 85, 95.
18 Rizal Commercial Banking Corporation v. Court of Appeals, 364 Phil. 947, 953-954 (2002).
19 South Pachem Development, Inc. v. Court of Appeals, supra note 17 at 95-96.
20 TSN, October 7, 2002, pp. 14-15.
21 Records, pp. 51-53.
22 Rollo, p. 40.
23 An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages (1924).
24 Act No. 4118 (1933).
25 Republic Act No. 337 (1948).
26 Sy v. Court of Appeals, G.R. No. 83139, April 12, 1989, 172 SCRA 125, 133-134.
27 Union Bank of the Philippines v. Court of Appeals, 412 Phil. 64, 76 (2001).
28 G.R. No. 143896, July 8, 2005, 463 SCRA 64.
29 Id. at 75.
30 BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, August 9, 2004, 436 SCRA 1, 6.
31 Supra note 28.
32 321 Phil. 185 (1995).
33 Banco Filipino Savings and Mortgage Bank v. Court of Appeals, supra note 28 at 75.
34 Lee Chuy Realty Corporation v. Court of Appeals, supra note 32 at 190-191.
35 437 Phil. 483 (2002).
36 Id. at 493.
37 Consing v. Court of Appeals, G.R. No. 143584, March 10, 2004, 425 SCRA 192, 203.
38 TSN, October 7, 2002, pp. 16-19.
39 TSN, September 22, 2000, pp. 33-35.
ChanRobles™ Virtual Law Librarychanrobles.com™
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Republic of the Philippines SUPREME COURT
Manila
THIRD DIVISION
LAMBERT S. RAMOS,G.R. No. 184905
Petitioner,cralawPresent:
Ynares-Santiago, J. (Chairperson),- versus - cralawChico-Nazario,
Velasco, Jr.,
Nachura, and
Peralta, JJ.
C.O.L. REALTY CORPORATION,
Respondent.Promulgated:
August 28, 2009
x - - - - -
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---------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
The issue for resolution is whether petitioner can be held solidarily liable with his driver, Rodel Ilustrisimo, to pay respondent C.O.L. Realty the amount of P51,994.80 as actual damages suffered in a vehicular collision. chanroblesvirtualawlibrary
The facts, as found by the appellate court, are as follows:
On or about 10:40 oclock in the morning of 8 March 2004, along Katipunan (Avenue), corner Rajah Matanda (Street), Quezon City, a vehicular accident took place between a Toyota Altis Sedan bearing Plate Number XDN 210, owned by petitioner C.O.L. Realty Corporation, and driven by Aquilino Larin (Aquilino), and a Ford Expedition, owned by x x x Lambert Ramos (Ramos) and driven by Rodel Ilustrisimo (Rodel), with Plate Number LSR 917. A passenger of the sedan, one Estela Maliwat (Estela) sustained injuries. She was immediately rushed to the hospital for treatment.
chanroblesvirtuallawlibrary
(C.O.L. Realty) averred that its
driver, Aquilino, was slowly driving the Toyota Altis car at a speed of five to ten kilometers per hour along Rajah Matanda Street and has just crossed the center lane of Katipunan Avenue when (Ramos) Ford Espedition violently rammed against the cars right rear door and fender. With the force of the impact, the sedan turned 180 degrees towards the direction where it came from.
chanroblesvirtuallawlibrary
Upon investigation, the Office of the City Prosecutor of Quezon City found probable cause to indict Rodel, the driver of the Ford Expedition, for Reckless Imprudence Resulting in Damage to Property. In the meantime, petitioner demanded from respondent reimbursement for the expenses incurred in the repair of its car and the hospitalization of Estela in the aggregate amount of P103,989.60. The demand fell on deaf ears prompting (C.O.L. Realty) to file a Complaint for Damages based on quasi-delict before the Metropolitan Trial Court of Metro Manila (MeTC), Quezon City, docketed as Civil Case No. 33277, and subsequently raffled to Branch 42.
chanroblesvirtuallawlibrary
As could well be expected, (Ramos) denied liability for damages insisting that it was the negligence of Aquilino, (C.O.L. Realtys) driver, which was the proximate cause of the accident. (Ramos) maintained that the sedan car crossed Katipunan Avenue from Rajah Matanda Street despite the concrete barriers placed thereon prohibiting vehicles to pass through the intersection.
chanroblesvirtuallawlibrary
(Ramos) further claimed that he was not in the vehicle when the mishap occurred. He asserted that he exercised the diligence of a good father of a family in the selection and supervision of his driver, Rodel.
chanroblesvirtuallawlibrary
Weighing the respective evidence of the parties, the MeTC rendered the Decision dated 1 March 2006 exculpating (Ramos) from liability, thus:
WHEREFORE, the instant case is DISMISSED for lack of merit. The Counterclaims of the defendant are likewise DISMISSED for lack of sufficient factual and legal basis.
chanroblesvirtuallawlibrary
SO ORDERED.chanroblesvirtuallawlibrary
The aforesaid judgment did not sit well with (C.O.L. Realty) so that he (sic) appealed the same before the RTC of Quezon City, raffled to Branch 215, which rendered the assailed Decision dated 5 September 2006, affirming the MeTCs Decision. (C.O.L. Realtys) Motion for Reconsideration met the same fate as it was denied by the RTC in its Order dated 5 June 2007.[1]
cralaw
C.O.L. Realty appealed to the Court of Appeals which affirmed the view that Aquilino was negligent in crossing Katipunan Avenue from Rajah Matanda Street since, as per Certification of the Metropolitan Manila Development Authority (MMDA) dated November 30, 2004, such act is specifically prohibited. Thus:
This is to certify that as per records found and available in this office the crossing of vehicles at Katipunan Avenue from Rajah Matanda Street to Blue Ridge Subdivision, Quezon City has (sic) not allowed since January 2004 up to the present in view of the ongoing road construction at the area.[2]
cralaw (Emphasis supplied)
Barricades were precisely placed along the intersection of Katipunan Avenue and Rajah Matanda Street in order to prevent motorists from crossing Katipunan Avenue. Nonetheless, Aquilino crossed Katipunan Avenue through certain portions of the barricade which were broken, thus violating the MMDA rule.[3]
cralaw
However, the Court of Appeals likewise noted that at the time of the collision, Ramos vehicle was moving at high speed in a busy area that was then the subject of an ongoing construction (the Katipunan Avenue-Boni Serrano Avenue underpass), then smashed into the rear door and fender of the passengers side of Aquilinos car, sending it spinning in a 180-degree turn.[4]
cralaw It therefore found the driver Rodel guilty of contributory negligence for driving the Ford Expedition at high speed along a busy
intersection. chanroblesvirtualawlibrary
Thus, on May 28, 2008, the appellate court rendered the assailed Decision,[5]
cralaw the dispositive portion of which reads, as follows:
WHEREFORE, the Decision dated 5 September 2006 of the Regional Trial Court of Quezon City, Branch 215 is hereby MODIFIED in that respondent Lambert Ramos is held solidarily liable with Rodel Ilustrisimo to pay petitioner C.O.L. Realty Corporation the amount of P51,994.80 as actual damages. Petitioner C.O.L. Realty Corporations claim for exemplary damages, attorneys fees and cost of suit are DISMISSED for lack of merit.
chanroblesvirtuallawlibrary
SO ORDERED.chanroblesvirtuallawlibrary
Petitioner filed a Motion for Reconsideration but it was denied. Hence, the instant petition, which raises the following sole issue:
THE COURT OF APPEALS DECISION IS CONTRARY TO LAW AND JURISPRUDENCE, AND THE EVIDENCE TO SUPPORT AND JUSTIFY THE SAME IS INSUFFICIENT. chanroblesvirtualawlibrary
We resolve to GRANT the petition. chanroblesvirtualawlibrary
There is no doubt in the appellate courts mind that Aquilinos violation of the MMDA prohibition against crossing Katipunan Avenue from Rajah Matanda Street was the proximate cause of the accident. Respondent does not dispute this; in its Comment to the instant petition, it even conceded that petitioner was guilty of mere contributory negligence.[6]
cralaw
Thus, the Court of Appeals acknowledged that:
The Certification dated 30 November 2004 of the Metropolitan Manila Development Authority (MMDA) evidently disproved (C.O.L. Realtys) barefaced assertion that its driver, Aquilino, was not to be blamed for the accident
TO WHOM IT MAY CONCERN:
This is to certify that as per records found and available in this office the crossing of vehicles at Katipunan Avenue from Rajah Matanda Street to Blue Ridge Subdivision, Quezon City has (sic) not allowed since January 2004 up to the present in view of the ongoing road construction at the area.
chanroblesvirtuallawlibrary
This certification is
issued upon request of the interested parties for whatever legal purpose it may serve.
chanroblesvirtuallawlibrary
(C.O.L. Realty) admitted that there were barricades along the intersection ofKatipunan Avenue and Rajah Matanda Street. The barricades were placed thereon to caution drivers not to pass through the intersecting roads. This prohibition stands even if, as (C.O.L. Realty) claimed, the barriers were broken at that point creating a small gap through which any vehicle could pass. What is clear to Us is that Aquilino recklessly ignored these barricades and drove through it. Without doubt, his negligence is established by the fact that he violated a traffic regulation. This finds support in Article 2185 of the Civil Code
Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.
chanroblesvirtuallawlibrary
Accordingly, there ought to be no question on (C.O.L. Realtys) negligence which resulted in the vehicular mishap.[7]
cralaw
However, it also declared Ramos liable vicariously for Rodels contributory negligence in
driving the Ford Expedition at high speed along a busy intersection. On this score, the appellate court made the following pronouncement:
As a professional driver, Rodel should have known that driving his vehicle at a high speed in a major thoroughfare which was then subject of an on-going construction was a perilous act. He had no regard to (sic) the safety of other vehicles on the road. Because of the impact of the collision, (Aquilinos) sedan made a 180-degree turn as (Ramos) Ford Expedition careened and smashed into its rear door and fender. We cannot exculpate Rodel from liability.
chanroblesvirtuallawlibrary
Having thus settled the contributory negligence of Rodel, this created a presumption of negligence on the part of his employer, (Ramos). For the employer to avoid the solidary liability for a tort committed by his employee, an employer must rebut the presumption by presenting adequate and convincing proof that in the selection and supervision of his employee, he or she exercises the care and diligence of a good father of a family. Employers must submit concrete proof, including documentary evidence, that they complied with everything that was incumbent on them.
chanroblesvirtuallawlibrary
(Ramos) feebly attempts to escape vicarious liability by averring that Rodel was highly recommended when he applied for the position of family driver
by the Social Service Committee of his parish. A certain Ramon Gomez, a member of the churchs livelihood program, testified that a background investigation would have to be made before an applicant is recommended to the parishioners for employment. (Ramos) supposedly tested Rodels driving skills before accepting him for the job. Rodel has been his driver since 2001, and except for the mishap in 2004, he has not been involved in any road accident.
chanroblesvirtuallawlibrary
Regrettably, (Ramos) evidence which consisted mainly of testimonial evidence remained unsubstantiated and are thus, barren of significant weight. There is nothing on the records which would support (Ramos) bare allegation of Rodels 10-year unblemished driving record. He failed to present convincing proof that he went to the extent of verifying Rodels qualifications, safety record, and driving history.
chanroblesvirtuallawlibrary
So too, (Ramos) did not bother to refute (C.O.L. Realtys) stance that his driver was texting with his cellphone while running at a high speed and that the latter did not slow down albeit he knew that Katipunan Avenue was then undergoing repairs and that the road was barricaded with barriers. The presumption juris tantum that there was negligence in the selection of driver remains unrebutted. As the employer of Rodel, (Ramos) is solidarily liable for the quasi-delict committed by the former.
chanroblesvirtuallawlibrary
Certainly, in the selection of prospective employees, employers are required to examine them as to their qualifications, experience and service records. In the supervision of employees, the employer must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for the breach thereof. These, (Ramos) failed to do.[8]
cralaw
Petitioner disagrees, arguing that since Aquilinos willful disregard of the MMDA prohibition was the sole proximate cause of the accident, then respondent alone should suffer the consequences of the accident and the damages it incurred. He argues:
20.It becomes apparent therefore that the only time a plaintiff, the respondent herein, can recover damages is if its negligence was only contributory, and such contributory negligence was the proximate cause of the accident. It has been clearly established in this case, however, that respondents negligence was not merely contributory, but the sole proximate cause of the accident.
chanroblesvirtuallawlibrary
x x x x
22.As culled from the foregoing, respondent was the sole proximate cause of the accident. Respondents vehicle should not have been in that position
since crossing the said intersection was prohibited. Were it not for the obvious negligence of respondents driver in crossing the intersection that was prohibited, the accident would not have happened. The crossing of respondents vehicle in a prohibited intersection unquestionably produced the injury, and without which the accident would not have occurred. On the other hand, petitioners driver had the right to be where he was at the time of the mishap. As correctly concluded by the RTC, the petitioners driver could not be expected to slacken his speed while travelling along said intersection since nobody, in his right mind, would do the same. Assuming, however, that petitioners driver was indeed guilty of any contributory negligence, such was not the proximate cause of the accident considering that again, if respondents driver did not cross the prohibited intersection, no accident would have happened. No imputation of any lack of care on Ilustrisimos could thus be concluded. It is obvious then that petitioners driver was not guilty of any negligence that would make petitioner vicariously liable for damages.
chanroblesvirtuallawlibrary
23.As the sole proximate cause of the accident was respondents own driver, respondent cannot claim damages from petitioner.[9]
cralaw
On the other hand, respondent in its Comment merely reiterated the appellate courts findings and pronouncements, conceding that petitioner is guilty of
mere contributory negligence, and insisted on his vicarious liability as Rodels employer under Article 2184 of the Civil Code. chanroblesvirtualawlibrary
Articles 2179 and 2185 of the Civil Code on quasi-delicts apply in this case, viz:
Article 2179.When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
chanroblesvirtuallawlibrary
Article 2185.Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.
chanroblesvirtuallawlibrary
If the master is injured by the negligence of a third person and by the concurring contributory negligence of his own servant or agent, the latters negligence is imputed to his superior and will defeat the superiors action against the third person, assuming of course that the contributory negligence was the proximate cause of the injury of which complaint is made.[10]
cralaw
Applying the foregoing principles of law to the instant case, Aquilinos act of crossingKatipunan Avenue via Rajah Matanda constitutes negligence
because it was prohibited by law.Moreover, it was the proximate cause of the accident, and thus precludes any recovery for any damages suffered by respondent from the accident. chanroblesvirtualawlibrary
Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. And more comprehensively, the proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.[11]
cralaw
If Aquilino heeded the MMDA prohibition against crossing Katipunan Avenue from Rajah Matanda, the accident would not have happened. This specific untoward event is exactly what the MMDA prohibition was intended for. Thus, a prudent and intelligent person who resides within the vicinity where the accident occurred, Aquilino had reasonable ground to expect that the accident would be a natural and probable result if he crossed Katipunan Avenue since such crossing is considered dangerous on account of the busy nature of the thoroughfare and the ongoing construction of the Katipunan-Boni Avenue underpass.It was manifest error for the Court of Appeals to have overlooked the principle embodied in Article 2179 of the Civil Code, that when the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover damages. chanroblesvirtualawlibrary
Hence, we find it unnecessary to delve into the issue of Rodels contributory negligence, since it cannot overcome or defeat Aquilinos recklessness which is the immediate and proximate cause of the accident. Rodels contributory negligence has relevance only in the event that Ramos seeks to recover from respondent whatever damages or injuries he may have suffered as a result; it will have the effect of mitigating the award of damages in his favor. In other words, an assertion of contributory negligence in this case would benefit only the petitioner; it could not eliminate respondents liability for Aquilinos negligence which is the proximate result of the accident. chanroblesvirtualawlibrary
WHEREFORE, the petition is GRANTED.The Decision of the Court of Appeals dated May 28, 2008 in CA-G.R. SP No. 99614 and its Resolution of October 13, 2008 are hereby REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Quezon City, Branch 215 dated September 5, 2006 dismissing for lack of merit respondents complaint for damages is herebyREINSTATED. chanroblesvirtualawlibrary
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MINITA V. CHICO-NAZARIO
Associate Justice
PRESBITERO J. VELASCO, JR.ANTONIO EDUARDO B. NACHURA
Associate JusticeAssociate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division. chanroblesvirtualawlibrary
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. chanroblesvirtualawlibrary
REYNATO S. PUNO
Chief Justice
Endnotes:
[1] cralaw Rollo, pp. 31-32.
[2] cralaw Id. at 34.
[3] cralaw Id.
[4] cralaw Id. at 35.
[5] cralaw Id. at 30-37; penned by Associate Justice Japar B.
Dimaampao and concurred in by Associate Justices Mario L. Guaria III and Romeo F. Barza.[6]
cralaw Id. at 161.
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