Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-43191 November 13, 1935

PAULINO GULLAS, plaintiff-appellant,

vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Gullas, Lopez, Tuaño and Leuterio for plaintiff-appellant.

Jose Delgado for defendant-appellant.

MALCOLM, J.:

Both parties to this case appealed from a judgment of the Court of First Instance of Cebu, which
sentenced the defendant to return to the account of the plaintiff the sum of P5098, with legal
interest and costs, the plaintiff to secure damages in the amount of P10,000 more or less, and
the defendant to be absolved totally from the amended complaint. As it is conceded that the
plaintiff has already received the sum represented by the United States treasury, warrant, which
is in question, the appeal will thus determine the amount, if any, which should be paid to the
plaintiff by the defendant.

The parties to the case are Paulino Gullas and the Philippine National Bank. The first named is a
member of the Philippine Bar, resident in the City of Cebu. The second named is a banking
corporation with a branch in the same city. Attorney Gullas has had a current account with the
bank.

It appears from the record that on August 2, 1933, the Treasurer of the United States for the
United States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of
Francisco Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as endorsers of this check.
Thereupon it was cashed by the Philippine National Bank. Subsequently the treasury warrant
was dishonored by the Insular Treasurer.

At that time the outstanding balance of Attorney Gullas on the books of the bank was P509.
Against this balance he had issued certain cheeks which could not be paid when the money was
sequestered by the On August 20, 1933, Attorney Gullas left his residence for Manila.

The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas
which could not be delivered to him at that time because he was in Manila. In the bank's letter of
August 21, 1933, addressed to Messrs. Paulino Gulla and Pedro Lopez, they were informed that
the United States Treasury warrant No. 20175 in the name of Francisco Sabectoria Bacos for
$361 or P722, the payment for which had been received has been returned by our Manila office
with the notation that the payment of his check has been stopped by the Insular Treasurer. "In
view of this therefore we have applied the outstanding balances of your current accounts with us
to the part payment of the foregoing check", namely, Mr. Paulino Gullas P509. On the return of
Attorney Gullas to Cebu on August 31, 1933, notice of dishonor was received and the unpaid
balance of the United States Treasury warrant was immediately paid by him.
As a consequence of these happenings, two occurrences transpired which inconvenienced
Attorney Gullas. In the first place, as above indicated, checks including one for his insurance
were not paid because of the lack of funds standing to his credit in the bank. In the second place,
periodicals in the vicinity gave prominence to the news to the great mortification of Gullas. lawphil.net

A variety of incidental questions have been suggested on the record which it can be taken for
granted as having been adversely disposed of in this opinion. The main issues are two, namely,
(1) as to the right of Philippine National Bank, and to apply a deposit to the debt of depositor to
the bank and (2) as to the amount damages, if any, which should be awarded Gullas.

The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles
1195 et seq., 1758 et seq. The portions of Philippine law provide that compensation shall take
place when two persons are reciprocally creditor and debtor of each other (Civil Code, article
1195). In his connection, it has been held that the relation existing between a depositor and a
bank is that of creditor and debtor. (Fulton Iron Works Co. vs. China Banking Corporation [1933],
59 Phil., 59.)

The Negotiable Instruments Law contains provisions establishing the liability of a general
indorser and giving the procedure for a notice of dishonor. The general indorser of negotiable
instrument engages that if he be dishonored and the, necessary proceedings of dishonor be duly
taken, he will pay the amount thereof to the holder. (Negotiable Instruments Law, sec. 66.) In this
connection, it has been held a long line of authorities that notice of dishonor is in order to charge
all indorser and that the right of action against him does not accrue until the notice is given. (Asia
Banking Corporation vs. Javier [1923] 44 Phil., 777; 5 Uniform Laws Annotated.)

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. In Louisiana, however, a civil law jurisdiction, the
rule is denied, and it is held that a bank has no right, without an order from or special assent of
the depositor to retain out of his deposit an amount sufficient to meet his indebtedness. The
basis of the Louisiana doctrine is the theory of confidential contracts arising from irregular
deposits, e. g., the deposit of money with a banker. With freedom of selection and after full
preference to the minority rule as more in harmony with modern banking practice. (1 Morse on
Banks and Banking, 5th ed., sec. 324; Garrison vs. Union Trust Company [1905], 111 A.S.R.,
407; Louisiana Civil Code Annotated, arts. 2207 et seq.; Gordon & Gomila vs. Muchler [1882], 34
L. Ann., 604; 8 Manresa, Comentarios al Codigo Civil Español, 4th ed., 359 et seq., 11 Manresa
pp. 694 et seq.)

Starting, therefore, from the premise that the Philippine National Bank had with respect to the
deposit of Gullas a right of set off, we next consider if that remedy was enforced properly. The
fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting
for any action by Gullas, the bank made use of the money standing in his account to make good
for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued in
good faith.

As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a
third party, it has been held that he has a right of action against the bank for its refusal to pay
such a check in the absence of notice to him that the bank has applied the funds so deposited in
extinguishment of past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2
Ann. Cas., 203.) The decision cited represents the minority doctrine, for on principle it would
seem that notice is not necessary to a maker because the right is based on the doctrine that the
relationship is that of creditor and debtor. However this may be, as to an indorser the situation is
different, and notice should actually have been given him in order that he might protect his
interests.

We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to
follow up that statement with others proving exact damages is not so easy. For instance, for
alleged libelous articles the bank would not be primarily liable. The same remark could be made
relative to the loss of business which Gullas claims but which could not be traced definitely to this
occurrence. Also Gullas having eventually been reimbursed lost little through the actual levy by
the bank on his funds. On the other hand, it was not agreeable for one to draw checks in all good
faith, then, leave for Manila, and on return find that those checks had not been cashed because
of the action taken by the bank. That caused a disturbance in Gullas' finances, especially with
reference to his insurance, which was injurious to him. All facts and circumstances considered,
we are of the opinion that Gullas should be awarded nominal damages because of the premature
action of the bank against which Gullas had no means of protection, and have finally determined
that the amount should be P250.

Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with
the result that the judgment of the trial court will be modified by sentencing the defendant to pay
the plaintiff the sum of P250, and the costs of both instances.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur

 [G.R. No. L-8437. November 28, 1956.]
ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant-Appellant.

DECISION
REYES, J. B. L., J.:
Appeal by Luzon Surety Co., Inc., from an order of the Court of First Instance of Rizal, presided by
Judge Hermogenes Caluag, dismissing its claim against the Estate of K. H. Hemady (Special Proceeding
No. Q-293) for failure to state a cause of action.
The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity
agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K. H.
Hemady, a surety solidary guarantor) in all of them, in consideration of the Luzon Surety Co.’s of having
guaranteed, the various principals in favor of different creditors. The twenty counterbonds, or
indemnity agreements, all contained the following stipulations: chanroblesvirtuallawlibrary

“Premiums. — As consideration for this suretyship, the undersigned jointly and severally, agree to pay
the COMPANY the sum of ________________ (P______) pesos, Philippines Currency, in advance as
premium there of for every __________ months or fractions thereof, this ________ or any renewal or
substitution thereof is in effect.
Indemnity. — The undersigned, jointly and severally, agree at all times to indemnify the COMPANY
and keep it indemnified and hold and save it harmless from and against any and all damages, losses,
costs, stamps, taxes, penalties, charges, and expenses of whatsoever kind and nature which the
COMPANY shall or may, at any time sustain or incur in consequence of having become surety upon
this bond or any extension, renewal, substitution or alteration thereof made at the instance of the
undersigned or any of them or any order executed on behalf of the undersigned or any of them; and chan roblesvirtualawlibrary

to pay, reimburse and make good to the COMPANY, its successors and assigns, all sums and amount
of money which it or its representatives shall pay or cause to be paid, or become liable to pay, on
account of the undersigned or any of them, of whatsoever kind and nature, including 15% of the
amount involved in the litigation or other matters growing out of or connected therewith for counsel
or attorney’s fees, but in no case less than P25. It is hereby further agreed that in case of extension or
renewal of this ________ we equally bind ourselves for the payment thereof under the same terms
and conditions as above mentioned without the necessity of executing another indemnity agreement
for the purpose and that we hereby equally waive our right to be notified of any renewal or extension
of this ________ which may be granted under this indemnity agreement.
Interest on amount paid by the Company. — Any and all sums of money so paid by the company shall
bear interest at the rate of 12% per annum which interest, if not paid, will be accummulated and
added to the capital quarterly order to earn the same interests as the capital and the total sum thereof,
the capital and interest, shall be paid to the COMPANY as soon as the COMPANY shall have become
liable therefore, whether it shall have paid out such sums of money or any part thereof or not.
xxx xxx xxx
Waiver. — It is hereby agreed upon by and between the undersigned that any question which may
arise between them by reason of this document and which has to be submitted for decision to Courts
of Justice shall be brought before the Court of competent jurisdiction in the City of Manila, waiving for
this purpose any other venue. Our right to be notified of the acceptance and approval of this indemnity
agreement is hereby likewise waived.
xxx xxx xxx
Our Liability Hereunder. — It shall not be necessary for the COMPANY to bring suit against the principal
upon his default, or to exhaust the property of the principal, but the liability hereunder of the
undersigned indemnitor shall be jointly and severally, a primary one, the same as that of the principal,
and shall be exigible immediately upon the occurrence of such default.” (Rec. App. pp. 98- 102.)
The Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the twenty bonds it
had executed in consideration of the counterbonds, and further asked for judgment for the unpaid
premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon.
Before answer was filed, and upon motion of the administratrix of Hemady’s estate, the lower court,
by order of September 23, 1953, dismissed the claims of Luzon Surety Co., on two grounds: (1) that chanroblesvirtuallawlibrary

the premiums due and cost of documentary stamps were not contemplated under the indemnity
agreements to be a part of the undertaking of the guarantor (Hemady), since they were not liabilities
incurred after the execution of the counterbonds; and (2) that “whatever losses may occur after
chan roblesvirtualawlibrary

Hemady’s death, are not chargeable to his estate, because upon his death he ceased to be guarantor.”
Taking up the latter point first, since it is the one more far reaching in effects, the reasoning of the
court below ran as follows:chanroblesvirtuallawlibrary

“The administratrix further contends that upon the death of Hemady, his liability as a guarantor
terminated, and therefore, in the absence of a showing that a loss or damage was suffered, the claim
cannot be considered contingent. This Court believes that there is merit in this contention and finds
support in Article 2046 of the new Civil Code. It should be noted that a new requirement has been
added for a person to qualify as a guarantor, that is: integrity. As correctly pointed out by the
chanroble svirtuallawlibrary

Administratrix, integrity is something purely personal and is not transmissible. Upon the death of
Hemady, his integrity was not transmitted to his estate or successors. Whatever loss therefore, may
occur after Hemady’s death, are not chargeable to his estate because upon his death he ceased to be
a guarantor.
Another clear and strong indication that the surety company has exclusively relied on the personality,
character, honesty and integrity of the now deceased K. H. Hemady, was the fact that in the printed
form of the indemnity agreement there is a paragraph entitled ‘Security by way of first mortgage,
which was expressly waived and renounced by the security company. The security company has not
demanded from K. H. Hemady to comply with this requirement of giving security by way of first
mortgage. In the supporting papers of the claim presented by Luzon Surety Company, no real property
was mentioned in the list of properties mortgaged which appears at the back of the indemnity
agreement.” (Rec. App., pp. 407-408).
We find this reasoning untenable. Under the present Civil Code (Article 1311), as well as under the
Civil Code of 1889 (Article 1257), the rule is that —
“Contracts take effect only as between the parties, their assigns and heirs, except in the case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.”
While in our successional system the responsibility of the heirs for the debts of their decedent cannot
exceed the value of the inheritance they receive from him, the principle remains intact that these heirs
succeed not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the
New Civil Code (and Articles 659 and 661 of the preceding one) expressly so provide, thereby
confirming Article 1311 already quoted.
“ART. 774. — Succession is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to another
or others either by his will or by operation of law.”
“ART. 776. — The inheritance includes all the property, rights and obligations of a person which are
not extinguished by his death.”
In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court ruled: chanroblesvirtuallawlibrary
“Under the Civil Code the heirs, by virtue of the rights of succession are subrogated to all the rights
and obligations of the deceased (Article 661) and cannot be regarded as third parties with respect to
a contract to which the deceased was a party, touching the estate of the deceased (Barrios vs. Dolor,
2 Phil. 44).
xxx xxx xxx
“The principle on which these decisions rest is not affected by the provisions of the new Code of Civil
Procedure, and, in accordance with that principle, the heirs of a deceased person cannot be held to
be “third persons” in relation to any contracts touching the real estate of their decedent which comes
in to their hands by right of inheritance; they take such property subject to all the obligations resting
chan roblesvirtualawlibrary

thereon in the hands of him from whom they derive their rights.”
(See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. 2874 and de Guzman vs. Salak, 91 Phil., 265).
The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in
our Rules of Court that money debts of a deceased must be liquidated and paid from his estate before
the residue is distributed among said heirs (Rule 89). The reason is that whatever payment is thus
made from the estate is ultimately a payment by the heirs and distributees, since the amount of the
paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive.
Under our law, therefore, the general rule is that a party’s contractual rights and obligations are
transmissible to the successors. The rule is a consequence of the progressive “depersonalization” of
patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of
these institutions. From the Roman concept of a relation from person to person, the obligation has
evolved into a relation from patrimony to patrimony, with the persons occupying only a representative
position, barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The transition is
marked by the disappearance of the imprisonment for debt.
Of the three exceptions fixed by Article 1311, the nature of the obligation of the surety or guarantor
does not warrant the conclusion that his peculiar individual qualities are contemplated as a principal
inducement for the contract. What did the creditor Luzon Surety Co. expect of K. H. Hemady when it
accepted the latter as surety in the counterbonds? Nothing but the reimbursement of the moneys
that the Luzon Surety Co. might have to disburse on account of the obligations of the principal debtors.
This reimbursement is a payment of a sum of money, resulting from an obligation to give; and to chan roblesvirtualawlibrary

the Luzon Surety Co., it was indifferent that the reimbursement should be made by Hemady himself
or by some one else in his behalf, so long as the money was paid to it.
The second exception of Article 1311, p. 1, is intransmissibility by stipulation of the parties. Being
exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but
must be expressly established, or at the very least, clearly inferable from the provisions of the contract
itself, and the text of the agreements sued upon nowhere indicate that they are non-transferable.
“(b) Intransmisibilidad por pacto. — Lo general es la transmisibilidad de darechos y obligaciones; le chan roblesvirtualawlibrary

excepcion, la intransmisibilidad. Mientras nada se diga en contrario impera el principio de la

transmision, como elemento natural a toda relacion juridica, salvo las personalisimas. Asi, para la no
transmision, es menester el pacto expreso, porque si no, lo convenido entre partes trasciende a sus
herederos.
Siendo estos los continuadores de la personalidad del causante, sobre ellos recaen los efectos de los
vinculos juridicos creados por sus antecesores, y para evitarlo, si asi se quiere, es indespensable
convension terminante en tal sentido.
Por su esencia, el derecho y la obligacion tienden a ir más allá de las personas que les dieron vida, y a
ejercer presion sobre los sucesores de esa persona; cuando no se quiera esto, se impone una
chan roblesvirtualawlibrary

estipulacion limitativa expresamente de la transmisibilidad o de cuyos tirminos claramente se deduzca

la concresion del concreto a las mismas personas que lo otorgon.” (Scaevola, Codigo Civil, Tomo XX,
p. 541-542) (Emphasis supplied.)
Because under the law (Article 1311), a person who enters into a contract is deemed to have
contracted for himself and his heirs and assigns, it is unnecessary for him to expressly stipulate to that
effect; hence, his failure to do so is no sign that he intended his bargain to terminate upon his death.
chan roblesvirtualawlibrary

Similarly, that the Luzon Surety Co., did not require bondsman Hemady to execute a mortgage
indicates nothing more than the company’s faith and confidence in the financial stability of the surety,
but not that his obligation was strictly personal.
The third exception to the transmissibility of obligations under Article 1311 exists when they are “not
transmissible by operation of law”. The provision makes reference to those cases where the law
expresses that the rights or obligations are extinguished by death, as is the case in legal support
(Article 300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work
(Article 1726), partnership (Article 1830 and agency (Article 1919). By contract, the articles of the Civil
Code that regulate guaranty or suretyship (Articles 2047 to 2084) contain no provision that the
guaranty is extinguished upon the death of the guarantor or the surety.
The lower court sought to infer such a limitation from Art. 2056, to the effect that “one who is obliged
to furnish a guarantor must present a person who possesses integrity, capacity to bind himself, and
sufficient property to answer for the obligation which he guarantees”. It will be noted, however, that
the law requires these qualities to be present only at the time of the perfection of the contract of
guaranty. It is self-evident that once the contract has become perfected and binding, the supervening
incapacity of the guarantor would not operate to exonerate him of the eventual liability he has
contracted; and if that be true of his capacity to bind himself, it should also be true of his integrity,
chan roble svirtualawlibrary

which is a quality mentioned in the article alongside the capacity.

The foregoing concept is confirmed by the next Article 2057, that runs as follows: chanroblesv irtuallawlibrary

“ART. 2057. — If the guarantor should be convicted in first instance of a crime involving dishonesty or
should become insolvent, the creditor may demand another who has all the qualifications required in
the preceding article. The case is excepted where the creditor has required and stipulated that a
specified person should be guarantor.”
From this article it should be immediately apparent that the supervening dishonesty of the guarantor
(that is to say, the disappearance of his integrity after he has become bound) does not terminate the
contract but merely entitles the creditor to demand a replacement of the guarantor. But the step
remains optional in the creditor: it is his right, not his duty; he may waive it if he chooses, and
chanroble svirtuallawlibrary chan robl esvirtualawlibrary

hold the guarantor to his bargain. Hence Article 2057 of the present Civil Code is incompatible with
the trial court’s stand that the requirement of integrity in the guarantor or surety makes the latter’s
undertaking strictly personal, so linked to his individuality that the guaranty automatically terminates
upon his death.
The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being
rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts
themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death
to his heirs. The contracts, therefore, give rise to contingent claims provable against his estate under
section 5, Rule 87 (2 Moran, 1952 ed., p. 437; Gaskell & Co. vs. Tan Sit, 43 Phil. 810, 814). chan roblesvirtualawlibrary

“The most common example of the contigent claim is that which arises when a person is bound as
surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship
the surety has no claim whatever against his principal until he himself pays something by way of
satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of
the surety the right to compel the principal to exonerate the surety. But until the surety has
contributed something to the payment of the debt, or has performed the secured obligation in whole
or in part, he has no right of action against anybody — no claim that could be reduced to judgment.
(May vs. Vann, 15 Pla., 553; Gibson vs. Mithell, 16 Pla., 519; Maxey vs. Carter, 10 Yarg. [Tenn.],
chan robl esvirtualawlibrary chan roblesvirtualawlibrary

521 Reeves vs. Pulliam, 7 Baxt. [Tenn.], 119; Ernst vs. Nou, 63 Wis., 134.)”
chan roble svirtualawlibrary

For Defendant administratrix it is averred that the above doctrine refers to a case where the surety
files claims against the estate of the principal debtor; and it is urged that the rule does not apply to
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the case before us, where the late Hemady was a surety, not a principal debtor. The argument evinces
a superficial view of the relations between parties. If under the Gaskell ruling, the Luzon Surety Co.,
as guarantor, could file a contingent claim against the estate of the principal debtors if the latter
should die, there is absolutely no reason why it could not file such a claim against the estate of
Hemady, since Hemady is a solidary co-debtor of his principals. What the Luzon Surety Co. may claim
from the estate of a principal debtor it may equally claim from the estate of Hemady, since, in view of
the existing solidarity, the latter does not even enjoy the benefit of exhaustion of the assets of the
principal debtor.
The foregoing ruling is of course without prejudice to the remedies of the administratrix against the
principal debtors under Articles 2071 and 2067 of the New Civil Code.
Our conclusion is that the solidary guarantor’s liability is not extinguished by his death, and that in
such event, the Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. It becomes unnecessary now to discuss the estate’s liability for premiums and stamp
taxes, because irrespective of the solution to this question, the Luzon Surety’s claim did state a cause
of action, and its dismissal was erroneous.
Wherefore, the order appealed from is reversed, and the records are ordered remanded to the court
of origin, with instructions to proceed in accordance with law. Costs against the
Administratrix- Appellee. SO ORDERED
G.R. No. L-28658 October 18, 1979

VICENTE C. REYES, applicant-appellee,

vs.
FRANCISCO SIERRA, EMILIO SIERRA, ALEJANDRA SIERRA, FELIMON SIERRA,
AURELIO SIERRA, CONSTANCIO SIERRA, CIRILO SIERRA and ANTONIA
SANTOS, oppositors-appellants.

DE CASTRO, J.:

Appeal from the decision dated December 29, 1966 of the Court of First Instance of Rizal Branch
1, Pasig, which declared applicant Vicente Reyes the true and rightful owner of the land covered
by Plan Psu-189753 and ordered the registration of his title thereto.

On January 3, 1961, Vicente Reyes filed an application for registration of his title to a parcel of
land situated in Antipolo, Rizal and covered by Plan Psu-189753 of the Bureau of Lands. In his
application, he declared that he acquired the land by inheritance from his father who died
sometime in 1944. Applicant is one of the heirs of the deceased Vicente Reyes Sr. but the other
heirs executed a deed of quit claim in favor of the applicant.

The notice of initial hearing was published in the Official Gazette, and a copy thereof was posted
in a conspicuous place in the land in question and in the municipal building of Antipolo, Rizal. An
opposition was filed by the Director of Lands, Francisco Sierra and Emilio Sierra. An Order of
General Default was issued on June 28, 1962. A motion to set aside an interlocutory default
order was filed by Alejandra, Felimon, Aurelio, Apolonio, Constancio, Cirilo, all surnamed Sierra
and Antonia Santos, thru counsel, and the trial court issued an Order on February 4, 1966
amending the general order of default so as to include the aforementioned movants as
oppositors.

The case was set for hearing, and after trial the court rendered a decision, the dispositive portion
of which reads as follows:

IN VIEW OF THE ABOVE CONSIDERATIONS this Court declares Vicente Reyes

the true and rightful owner of the land covered by Plan, Psu-189753 and orders
the registration of his title thereto, provided that the title to be issued shall be
subject to a public easement of right of-way over a 2.00 meter-wide strip of the
land along Lucay Street for the latter's widening and improvement.

As soon as this decision is final let, the corresponding degree be issued in favor
of VICENTE REYES, widower, Pilipino, of legal age and resident of 1851 P.
Guevarra Street, Santa Cruz, Manila. (P. 25, Record on Appeal).

Oppositors appealed from the aforesaid decision, with the following assignment of errors:

THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT ARTICLES

1134 AND 1137 OF THE NEW CIVIL CODE ARE APPLICABLE TO THIS
INSTANT CASE ALTHOUGH THERE WAS NO FORECLOSURE OR SALE OF
THE PROPERTY TO THE HIGHEST BIDDER.

II
 THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT
APPLICANT-APPELLEE AND HIS PREDECESSOR-IN-INTEREST HAD BEEN
IN CONSTRUCTIVE POSSESSION OF THE LAND FROM APRIL 19, 1926 UP
TO THE PRESENT AS SHOWING BY THE FACT THAT THEY HAD PAID THE
REALTY TAXES.

III

THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT BECAUSE

OPPOSITORS-APPELLANTS AND THEIR PREDECESSORS-IN-INTEREST
HAD NOT TAKEN ANY ACTIVE INTEREST TO PAY REALTY TAXES SINCE
1926 AND IT WAS APPLICANT- APPELLEE AND HIS PREDECESSOR-IN-
INTEREST THAT PAID THE REALTY 'TAXES FROM THE SAME PERIOD,
THIS CONSTITUTES STRONG CORROBORATING EVIDENCE OF
APPLICANT'S ADVERSE POSSESSION.

IV

THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT

DOCUMENT EXH. "D" EXECUTED BY BASILIA BELTRAN IN 1926 WAS
ALREADY A CONVEYANCE OF THE LAND I N QUESTION TO VICENTE
REYES AND THE FAILURE OF BASILIA BELTRAN AND HER CHILDREN TO
REDEEM THE SAME, COULD BE CONSIDERED AS IF THE LAND HAD
ALREADY BEEN SOLD TO HIM. (p. 2 1, Rollo.)

The land applied for was originally owned by Basilia Beltran's parents, and upon their death in
1894, Basilia inherited the property. On April 19, 1926, Basilia Beltran, a widow, borrowed from
applicant's father, Vicente Reyes, Sr. the amount of P100.00 and secured the loan with the piece
of land in question, AS evidenced by exhibit "D" quoted hereunder:

SA KAALAMAN NANG LAHAT NA BUMASA AT

NAKAKITA NITONG KASULATAN:

Kaming mag-kakapatid may sapat na gulang na nakalagda Sa kasulatan ito,

bilang katibayan nang pag papahintulot sa aming Ina na si Bacilia Beltran na
ipananagutan kay G. Vicente Reyes sa inutang ha halagang isang daan
piso (P100.00) na walang anopamang pakinabang; ang isang lagay na lupa sa
kallehon Sukay, Antipolo, Rizal, naliligiran nang mga lupang may titulo Torrents,
expendientes Nos. 770, 1831, lote 1, 645 at 1839 lote 2, may kabu-uan humigit
kumulang sa apat na raan metro; ito'y aring naiwan ng ama naming namatay na
si Melecio Sierra.

Ang katotohanan kahit isangla o ipag-bile man ng tuluyan ang nasabing pag-
aaral' o lupa wala kaming kinalaman, sapagkat ipinauubaya nang lubusan sa
arming Ina ang kapamahalaan.

Sa katunayan nagsilagda kaming mga anak, at apo kay Esteban, sa harap nang
saksing magpapatotoo.

Ngayon ika 19 nang Abril nang 1926. Antipolo, Rizal. K.P.

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Since the execution of this document, Vicente Reyes, Sr. began paying the realty taxes up to the
time of his death in 1944, after which, his children continued paying the taxes. Basilia Beltran
died in 1938 before Reyes could recover from the loan.

Applicant, in seeking the registration of the land, relied on his belief that the property belongs to
his father who bought the same from Basilia Beltran, as borne out by his testimony during the
trial on direct examination.

Q. Mr. Reyes, do you claim to be the owner of this property

included or described in your application?

A Yes, sir.

Q How did you acquire this property'?

 A. Since 1926 we were the ones paying the land taxes.

Q. From whom did you acquire this property?

A. Basilia Beltran.

Q. Do you mean to say that you yourself bought this property.

A. My father was the one who bought the property.

Q. What is the name of your father?

A. Vicente C. Reyes.

Q. Where is he now?

A. He is already dead.

Q. Can you inform this Honorable Court, if you know, how your
father acquired this property?

A. Since 1926 my father bought that land.

Q. Was that transaction evidenced by a document?

A. Yes, there is a document.

Q. From whom did your father allegedly purchase the property?

A. Basilia Beltran.

From the above-quoted testimony of applicant, it is evident that he considered the document
marked Exhibit "D as contract of Sale and not as a mortgage. Oppositors contended that the
words "isinangla," "na ipananagutan sa inutang na halagang isang daang piso," "Kahit isangla o
ipagbili," etc., manifest that the document should be treated as a mortgage, antichresis, or
pactum commission and not as an absolute sale or pacto de retro sale. (p. 28, Brief, Oppositors-
Appellants).

The Court is of the opinion that Exhibit "D" is a mortgage contract. The intention of the parties at
the time of the execution of the contract must prevail, that is, the borrowing and lending of money
with security. The use of the word Debt (utang) in an agreement helps to point out that the
transaction was intended to be a loan with mortgage, because the term "utang" implies the
existence of a creditor-debtor relationship. The ' Court has invariably upheld the validity of an
agreement or understanding whereby the lender of money has taken a deed to the land as
security for repayment of the loan. Thus:

The fact that the real transaction between the parties was a borrowing and
lending, will, whenever, or however, it may appear, show that a deed, absolute on
its face was intended as a security for money; and whenever it can be
ascertained to be a security for money, it is only a mortgage, however artfully it
may be disguised. (Villa vs. Santiago, 38 Phil. 163).

The whole case really turns on the question of whether the written instrument in
controversy was a mortgage or a conditional sale. ... The real intention of the
 parties at the time the written instrument was made must concern in the
interpretation given to it by the courts. ... The correct test, where it can be
applied, is the continued existence of a debt or liability between the parties. If
such exists, the conveyance may be held to be merely a security for the debt or
an indemnity against the liability. (Cuyugan vs. Santos, 34 Phil. 112).

The Cuyugan Case quoted some provisions in Jones' Commentaries on Evidence, vol. 3,
paragraphs 446-447 which are likewise applicable to the facts of the case at bar:

446. To show that instruments apparently absolute are only securities. ... It is an
established doctrine that a court of equity will treat a deed, absolute in form, as a
mortgage, when it is executed as security for loan of money, The court looks
beyond the terms of the instrument to the real transaction; and when that is
shown to be one of security and not of sale, it will give effect to the actual
contract of the parties.

447. Same-Real intention of the parties to be ascertained ... As we have shown in

the preceding section, the intention of the parties must govern and it matters not
what peculiar form the transaction may have taken. The inquiry always is, Was a
security for the loan of money or other property intended? ... A debt owing to the
mortgagee, or a liability incurred for the grantor, either pre-existing or created at
the time the deed is made, is essential to give the deed the character of a
mortgage. The relation of debtor and creditor must appear. The existence of the
debt is one on the tests. ... In construing the deed to be a mortgage, its character
as such must have existed from its very inception, - created at the time the
conveyance was made.

The same principle was laid down in a later case, that of Macapinlac vs. Gutierrez Rapide, 43
Phil. 781, quoting 3 Pomeroy's Equity Jurisdiction, Section .1195, wherein it was stated:

... The doctrine has been firmly established from an early day that when the
character of a mortgage has attached at the commencement of the transaction,
so that the instrument, whatever be its form, is regarded in equity as a mortgage,
that character of mortgage must and will always continue. If the instrument is in
its essence a mortgage, the parties cannot by any stipulations, however express
and positive, render it anything but a mortgage or deprive it of the essential
attributes belonging to a mortgage in equity.

Concerning the legal effects of such contract, Pomeroy observes:

... Whenever a deed absolute on its face is thus treated as a mortgage, the
parties are clothed with all the rights, are subject to all liabilities, and are entitled
to all the remedies of ordinary mortgagors and mortgagees. The grantee may
maintain an action for the foreclosure of the grantor equity of redemption; the
grantor may maintain an action to redeem and to compel a reconvayance upon
his payment of the debt secured. If the grantee goes into possession, and as
such is liable to account for the rents and profits.

Obviously, from the nature of the transaction, applicant's predecessor-in-interest is a mere

mortgagee, and ownership of the thing mortgaged is retained by Basilia Beltran, the mortgagor.
The mortgagee, however, may recover the loan, although the mortgage document evidencing the
loan was non-registrable being a purely private instrument. Failure of mortgagor to redeem the
property does not automatically vest ownership of the property to the mortgagee, which would
grant the latter the right to appropriate the thing mortgaged or dispose of it. This violates the
provision of Article 2088 of the New Civil Code, which reads:
 The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose by them. Any stipulation to the contrary is null and void.

The act of applicant in registering the property in his own name upon mortgagor's failure to
redeem the property would amount to a pactum commissorium which is against good morals and
public policy.

In declaring applicant as the "true and rightful owner of the land in question," the trial court held
that applicant and his predecessor-in- interest acquired ownership over the property by means of
prescription having been in constructive possession of the land applied for since 1926, applying
Arts, 1134 and 1137 of the New Civil Code:

Art. 1134. - Ownership and other real rights over immovable property are
acquired by ordinary prescription through possession of ten years.

Art. 1137. - Ownership and other real rights over immovables also prescribe
through uninterrupted adverse possession thereof for thirty years, without need of
title or good faith.

Applicant in his testimony on cross-examination, admitted that he and his father did not take
possession of the property but only made use of the same for the purpose of spending vacation
there, which practice they discontinued for the last 23 years. Possession of the property must. be
in the concept of an owner. This is a fundamental principle of the law of prescription in this
jurisdiction. In the case at bar, the possession of applicant was not adverse, nor continuous.

An applicant for registration of title must prove his title and should not rely on the absence or
weakness of the evidence of the oppositors. For purposes of prescription, there is just title when
adverse claimant came into possession of the property through one of the modes recognized by
law for the acquisition of ownership (Art. 1129, New Civil Code). Just title must be proved and is
never presumed (Art. 1131, New Civil Code). Mortgage does not constitute just title on the part of
the mortgagee. since ownership is retained by the mortgagor. When possession is asserted to
convert itself into ownership, a new right is sought to be created, and the law becomes more
exacting and requires positive proof of title. Applicant failed to present sufficient evidence to
prove that he is entitled to register the property. The trial court's finding that since applicant and
his father had been continuously paying the realty taxes, that fact "constitutes strong
corroborating evidence of applicant's adverse possession," does not carry much weight. Mere
failure of the owner to pay the taxes does not warrant a conclusion that there was abandonment
of a right to the property. The payment of taxes on property does not alone constitute sufficient
evidence of title. (Elumbaring vs. Elumbaring, 12 Phil. 389)

The belief of applicant that he owns the property in question which he inherited from his father
cannot overthrow the fact that the transaction is a mortgage. The doctrine "once a mortgage
always a mortgage" has been firmly established whatever be its form. (Macapinlac vs. Gutierrez
Rapide, supra) The parties cannot by any stipulation, however express and positive, render it
anything but a mortgage. No right passes to applicant except that of a mortgage since one
cannot acquire a right from another who was not in possession thereof A derivative right cannot
rise higher than its source.

Applicant having failed to show by sufficient evidence a registrable title to the land in question,
the application for registration should be dismissed.

WHEREFORE, the decision appealed from is hereby set aside, and let another one be entered
ordering the registration of the title of the land in question in the name of the oppositors-
appellants. The said oppositors-appellants are hereby directed to pay the applicant- appellee
within ninety (90) days from the finality of this decision, the debt in the amount of P100.00 plus
interest at the rate of six per cent (6%) per annum from April 19, 1926 until paid. No
pronouncement as to costs.

SO ORDERED.
ROSANA EREA, G.R. No. 165853
Petitioner,
Present:

- versus - PANGANIBAN, C.J., Chairperson,

YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR. and
VIDA DANA CHICO-NAZARIO, JJ.
QUERRER-KAUFFMAN,
Respondent. Promulgated:

June 22, 2006

--------------------------------------------------------------------------------------------

DECISION
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the

Court of Appeals (CA) in CA-G.R. CV No. 67899. The assailed decision reversed
the decision of the Regional Trial Court (RTC) of Las Pias City in Civil Case No.
LP-98-0056.[2]

Vida Dana Querrer-Kauffman is the owner of a residential lot with a house

constructed thereon located at Block 3, Lot 13, Marcillo corner Planza Streets,
BF Resort Village, Talon, Las Pias City. The property is covered by Transfer
Certificate of Title (TCT) No. T-48521. The owners duplicate copy of the title as
well as the tax declaration[3] covering the property, were kept in a safety deposit
box in the house.
Sometime in February 1997, as she was going to the United States,
Kauffman entrusted her minor daughter, Vida Rose, to her live-in partner,
Eduardo Victor. She also entrusted the key to her house to Victor. She went back
to the Philippines to get her daughter on May 13, 1997, and again left for
the U.S. on the same day. Later on, Victor also left for the U.S. and entrusted the
house and the key thereto to his sister, Mira Bernal.[4]

On October 25, 1997, Kauffman asked her sister, Evelyn Pares, to get the
house from Bernal so that the property could be sold. Pares did as she was
told.[5] Kauffman then sent the key to the safety deposit box to Pares, but Pares
did not receive it. Kauffman then asked Pares to hire a professional locksmith
who could open the safe.[6] When the safe was broken open, however, Pares
discovered that the owners duplicate title and the tax declarations, including
pieces of jewelry were missing.[7]

Kauffman learned about this on October 29, 1997 and returned to

the Philippines on November 9, 1997. She and Pares went to the Register of
Deeds of Las Pias City and found out that the lot had been mortgaged to Rosana
Erea on August 1, 1997.[8] It appeared that a Vida Dana F. Querrer had signed the
Real Estate Mortgage as owner-mortgagor,[9] together with Jennifer V. Ramirez,
Victors daughter, as attorney-in-fact.[10]

Kauffman and Pares were able to locate Bernal who, when asked,
confirmed that Ramirez had taken the contents of the safety deposit box. When
Kauffman told Bernal that she would file a case against them, Bernal cried and
asked for forgiveness. Bernal admitted that Jennifer Ramirez had been in a tight
financial fix and pleaded for time to return the title and the jewelry.[11]

On March 12, 1998, Kauffman filed a complaint against Erea, Bernal and
Jennifer Ramirez for Nullification of Deed of Real Estate Mortgage and Damages
with prayer for a Temporary Restraining Order and Preliminary Mandatory
Injunction[12] in the RTC of Las Pias City. The complaint contained the following
allegations:

2. The plaintiff is the owner of a property consisting of a lot with an area of One
Hundred Ten (110) square meters located at Blk. 3, Lot 13, Marcillo cor. Pianza
Sts., BF Resort Village, Talon, Las Pias City, covered by Transfer Certificate
of Title No. T-48521 of the Register of Deeds of Las Pias City, together with a
residential house thereon, with a combined assessed value of P40,500.00, and
copies of said TCT, and tax declarations of the lot and house x x x;

3. Sometime in February 1997, when the plaintiff left for the United States, she
entrusted the key of her said house to one Eduardo Victor who, in turn, when he
himself went to the United States, entrusted said key to his sister, the defendant
Mira V. Bernal;

4. Sometime between May and July 1997, said defendant Mira V. Bernal, in
conspiracy with her niece, the defendant Jennifer V. Ramirez, who is the
daughter of Eduardo Victor, using the key in their possession, opened the locked
and the unoccupied house of the plaintiff, forced open the vault of the plaintiff
and stole the owners copy of TCT No. T-48521 and other articles contained
therein valued at more than P60,000.00, all belonging to the plaintiff;

5. Having in their possession the stolen TCT No. T-48521, defendants Mira V.
Bernal and Jennifer V. Ramirez, with the latter falsely representing herself to
be the attorney-in-fact of the plaintiff, mortgaged the property in question to the
defendant Rosana L. Erea for the amount of P250,000.00, in Pasay City, for
forging the signature of the plaintiff on the corresponding Real Estate Mortgage,
which appears to have been notarized by Notary Public Alfredo M. Mendoza
and registered as Doc. No. 43, Page No. 1, Book No. VII, Series of 1997, x x x;
6. After the execution of the falsified Real Estate Mortgage, the
defendants registered the same with the Registry of Deeds of Las Pias City and
had it annotated on the TCT No. T-48521 as Entry No. 7185-15;

7. When the defendant Rosana L. Erea as mortgagee accepted the property in

mortgage, she knew fully well that the plaintiff-owner was in the United
States at that time and the defendants Mira V. Bernal and Jennifer V. Ramirez
were not authorized to mortgage the property as they claimed themselves to be,
and this notwithstanding, the defendants who were in bad faith conspired and
confederated between and among themselves and fraudulently executed the said
document of mortgage for purposes of personal gain;

8. The plaintiff has been a victim of fraud as above narrated and the defendant
Rosana L. Erea now being in unlawful possession of her torrens title, the
plaintiff is not only in constant apprehension as to what other fraudulent
transactions the defendant might enter into involving her title, but is also
prevented from pursuing her intention to sell her property, and by reason of
which the plaintiff is entitled to recover possession of said title and the
cancellation of Entry No. 7185-15 thereon;

9. In view thereof, plaintiff is entitled to actual damages in the amount

of P200,000.00;

10. Likewise, plaintiff suffered moral damages in the form of mental anguish,
wounded feelings, serious anxiety and similar injuries in the amount
of P200,000.00;

11. The plaintiff is also entitled to exemplary damages in the amount

of P100,000.00 which plaintiff seeks to impose upon the defendants as a
correction or example for the public good, as a deterrent to people from
committing fraudulent acts against their fellowmen;

12. On account of defendants unwarranted acts aforecited, the plaintiff

is furthermore entitled to attorneys fees in the amount of P50,000.00 as
acceptance fee, plus P1,500.00 appearance fee every hearing, for which the
defendants should be liable;[13]
 The complaint also contained the following prayer:

(a) That upon the filing of this complaint and compliance with the pertinent rule,
a temporary mandatory order be issued requiring the defendant Rosana L. Erea
to turn over to the plaintiff the possession of TCT No. T-48521;

(b) That after due hearing, a writ of preliminary mandatory injunction be issued
making permanent the temporary mandatory order;

(c) In case a temporary mandatory order or preliminary injunction be not issued,

that the defendant Rosana L. Erea or whoever be in possession of TCT No. T-
48521, be ordered, after due hearing, to turn the same over to the plaintiff, that
the Real Estate Mortgage (Annex D) of this complaint be declared null and void,
and Entry No. 7185-15 on said title be cancelled;

(d) That after hearing, the defendants be ordered to pay the plaintiff, jointly and
severally, the following amounts:

1. P200,000.00 as moral damages;

2. P200,000.00 as actual damages;
3. P100,000.00 as exemplary damages;
4. P50,000.00 as acceptance fee, plus P1,500.00 appearance fee every hearing,
as attorneys fees, aside from costs.

Plaintiff further prays for such other relief that this Honorable Court may deem
just and equitable in the premises.[14]

Erea interposed the defense of being a mortgagee in good faith. She

likewise interposed a cross-claim against Bernal and Jennifer Ramirez for the
refund of the P250,000.00 she loaned to Vida Dana Querrer.[15]

Jennifer Ramirez and Bernal interposed the common defense that, on November
13, 1998, the City Prosecutor approved a Resolution absolving them of the
robbery and estafa cases through falsification of a public document.[16]

During pre-trial, defendants Ramirez and Bernal failed to appear. On

motion of the plaintiff, they were thus declared in default.[17]

During trial, Socorro Ramos, Ereas aunt, testified that, Richmond Ramirez,
Jennifers husband, and Angel Jose, her grandson and Ereas nephew, had been
classmates and were compadres.[18]The Ramirez spouses used to go to her house.
In one occasion, the Ramirez spouses arrived in her house with one Vida Dana
Querrer whom Richmond introduced as his half-sister.[19] He also told Ramos that
Querrer wanted to mortgage her house and lot as she was going to the
U.S.[20] Richmond showed her a copy of TCT No. T-48521, Querrers
identification (I.D.) card, and pictures of the house and lot.[21] Ramos then
informed her niece, Rosana Erea, and asked if she would agree to mortgage the
property. Ramos later brought the spouses

Ramirez and Vida Dana Querrer to Erea who showed a copy of the title, tax
declaration, a tax clearance, all in the name of Vida Dana Querrer. The spouses
also showed an I.D. card of Vida Dana Querrer as a worker in Japan, a police
clearance, and the location plan of the property.[22] Jennifer Ramirez informed
Erea that Vida Dana was applying for a passport as she was going to Japan and
the U.S.[23] Vida Dana Querrer likewise introduced herself as Richmonds
sister.[24]

Erea was able to verify from the Office of the Register of Deeds that the
property was in the name of Vida Dana Querrer and that it was free of any lien or
encumbrance. Erea and her husband, Ramos, Richmond Ramirez, Angel Jose,
and Vida Dana Querrer later inspected the house and lot two times.[25] Erea finally
agreed to a P250,000.00 mortgage loan, with the house and lot as security
therefor.

On August 1, 1997, Jennifer Ramirez, Rosana Erea and a woman who

identified herself as Vida Dana Querrer arrived in the office Notary Public
Alfredo M. Mendoza and asked him to prepare a Special Power of Attorney to be
executed by Vida Dana Querrer, as principal, in favor of Jennifer Ramirez, as
attorney-in-fact; and a Real Estate Mortgage contract over the lot covered by TCT
No. 48521 to be executed by Vida Dana Querrer and Jennifer Ramirez as
mortgagors. Erea and Vida Dana Querrer showed to him their respective
residence certificates. Mendoza prepared the documents after which the parties
affixed their respective signatures above their respective names [26] and their
submarkings on the deeds. The Real Estate Mortgage was filed with the Office of
the Register of Deeds and annotated at the dorsal portion of TCT No. 48521
on November 7, 1997.[27]

On April 4, 2000, the RTC rendered judgment in favor of the defendants

and ordered the dismissal of the complaint. The court ruled that, although the
plaintiff adduced proof that she owned the property and that her signatures on the
Special Power of Attorney and in the Real Estate Mortgage were forged,
nevertheless, defendant Erea adduced evidence that she was a mortgagee in good
faith. The court declared that the woman who pretended to be the plaintiff and
lawful owner of the property had in her possession the original copy of the owners
duplicate of title. The defendant thus relied in good faith on the title after
ascertaining with the Register of Deeds the identity of Vida Dana Querrer as the
registered owner of the property, who turned out to be an impostor. In fact, the
defendant still had possession of the owners duplicate of the title when she
received the complaint and summons.

The court cited the ruling of this Court in Cebu International Finance
Corporation v. Court of Appeals[28] and Duran v. Intermediate Appellate
Court.[29] The fallo of the decision reads:

WHEREFORE, premises considered, the complaint filed by plaintiff

VIDA DANA QUERRER-KAUFFMAN is hereby DISMISSED for lack of
merit and the questioned Deed of Real Estate Mortgage dated 1 August 1997 is
hereby declared VALID.

No pronouncement as to costs.

SO ORDERED.[30]

Kauffman filed a motion for reconsideration of the decision, alleging that

the Cebu International Finance Corporation case is not applicable as the facts
therein are different. She insisted that Solivel v. Francisco[31] is the case in point.

The RTC denied the motion, prompting Kauffman to file an appeal with
the CA where she made the following allegations:

I
CONSIDERING THAT THE MORTGAGE CONTRACT IN QUESTION
WAS EXECUTED AND MADE POSSIBLE THROUGH THE
FRAUDULENT MANIPULATION OF AN IMPOSTOR, THE LOWER
COURT ERRED IN FINDING THAT DEFENDANT-APPELLANT
ROSANA EREA WHO ACCEPTED THE MORTGAGE OFFERED BY SAID
IMPOSTOR IS A MORTGAGEE IN GOOD FAITH;

II

THE COURT A QUO ERRED IN CONCLUDING THAT THE DEED OF

MORTGAGE IN QUESTION IS VALID DESPITE ITS OWN
FINDING THAT THE SUBJECT PROPERTY IS OWNED BY THE
PLAINTIFF-APPELLANT WHOSE SIGNATURE ON THE DEED WAS
FORGED;

III
THE LOWER COURT ERRED IN APPRECIATING THE JURISPRUDENCE
CITED IN ITS APPEALED DECISION AND IN APPLYING THE SAME
TO THE CASE AT BAR;

IV

THE LOWER COURT ERRED IN UPHOLDING THE RIGHT OF DEFENDANT-

APPELLANT ROSANA EREA DERIVED FROM A FORGED MORTGAGE
CONTRACT AS AGAINST THE RIGHT OF THE PLAINTIFF, THE
PROVEN TRUE OWNER OF THE SUBJECT PROPERTY, WHO DID NOT
IN ANY WAY CONTRIBUTE TO THE COMMISSION OF THE FRAUD.[32]

On June 10, 2004, the CA rendered judgment in favor of Kauffman. It held

that in ruling as it did, the RTC disregarded the clear provisions of the Civil Code,
particularly Articles 2085 (2)[33]and 1409 (2)[34] The appellate court relied on the
Courts ruling in Insurance Services & Commercial Traders, Inc. v. Court of
Appeals[35] and ratiocinated, thus:

Thus, it has been uniformly held that (I)n a real estate mortgage contract, it is
essential that the mortgagor be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is void. (Robles vs. Court of Appeals, G.R.
No. 12309, Mar. 14, 2000). This was simply in line with the basic requirement
in our laws that the mortgagor be the absolute owner of the property sought to
be mortgaged (Lorbes vs. Court of Appeals, G.R No. 139884, Feb. 15, 2001).
This is in anticipation of a possible foreclosure sale should the mortgagor
default in the payment of the loan, and a foreclosure sale, though essentially a
forced sale, is still a sale in accordance with Art. 1458 of the Civil Code. Being
a sale, the rule that the seller must be the owner of the thing sold also applies
in a foreclosure sale (Cavite Development Bank vs. Cyrus Lim, G.R. No.
131679, Feb. 1, 2000).[36]

Erea thus filed the instant petition contending that the following legal
issues should be resolved:

THE COURT OF APPEALS HAS SERIOUSLY ERRED IN HOLDING

THAT RESPONDENT QUERRER-KAUFFMAN IS THE OWNER OF THE
PROPERTY MORTGAGED TO PETITIONER DESPITE THE ABSENCE
OF SUBSTANTIAL EVIDENCE TO SUPPORT SUCH A CONCLUSION OF
FACT.

II
 THE COURT OF APPEALS HAS SERIOUSLY ERRED IN HOLDING
THAT THE CONTRACT OF REAL ESTATE MORTGAGE EXECUTED
ON 01 AUGUST 1997 BETWEEN ROSANA EREA AND VIDA DANA
QUERRER IS A FORGED DEED OF MORTGAGE WITHOUT
SUBSTANTIAL EVIDENCE TO ESTABLISH SUCH FACT.

III

THE COURT OF APPEALS HAS SERIOUSLY ERRED IN HOLDING THAT THE

DOCTRINE OF A MORTGAGE IN GOOD FAITH DOES NOT APPLY TO
PETITIONER DESPITE SUBSTANTIAL AND UNDISPUTED EVIDENCE
PROVING HER A MORTGAGEE IN GOOD FAITH.[37]

Petitioner avers that respondent failed to prove that she is the owner of the
property, and points out that the documentary evidence shows that the negotiator
over the property is Vida Dana Querrer and not Vida Dana Querrer-Kaufffman.
There is thus no factual basis for the CAs finding that the Real Estate Mortgage
was a forged deed. Considering that respondent, as the plaintiff below, failed to
adduce clear and convincing evidence that the signature on the Real Estate
Mortgage is a forgery, the signature over the printed name in the said document
must be the genuine signature of Vida Dana Querrer, the registered owner of the
property. Even assuming that respondent was the lawful owner of the property
and the signature in the Real Estate Mortgage is a forgery, petitioner insists that
she is a mortgagee in good faith as shown by the following facts and
circumstances:

1. Before the offer of mortgage was accepted by petitioner Rosana Erea, she
required the production of the owners copy of TCT No. T-48521. The
mortgagee took such step to enable her to know the rights of the mortgagor over
the property to be mortgaged. The presentation of the desired certificate was
complied with.

2. The identity of the mortgagor was ascertained from the personal interview of
the relatives of the mortgagor who were the spouses Jennifer and Richmond
Ramirez, a known compadre of Angel Jose, the grandson of Socorro Ramos,
the aunt of the petitioner. Richmond Ramirez with his wife introduced the
mortgagor Vida Dana Querrer as his half-sister who wanted to mortgage the
property described in the certificate of title which was registered in her name.
The spouses of the mortgagor were accompanied to the house of Rosana Erena
by Socorro Ramos, her aunt who acknowledged to know Richmond and
Jennifer Ramirez for a period of five years, more or less. Aside from the
confirmation of her filial relation to the Ramirez couple by Richmond Ramirez,
her personal Identification Card showed the mortgagors name and proved her
identity to be Vida Dana Querrer. The Tax Declarations, tax clearance, the
owners copy of TCT No. T-48521, police clearance, survey plan attested to the
fact that the owner of the property subject of the mortgage was the mortgagor.
 3. Further examination of the certificate of title in the Office of the Register of
Deeds of Las Pias City proved the authenticity of the owners copy of the
certificate.

4. The actual physical inspection of the house and lot covered by the certificate
in the given address for two (2) times, at least by the mortgagor and mortgagee
together with Soccoro Ramos, and the Ramirez couple strengthened
her reasonable belief in good faith that the mortgagor is the owner of the
property covered by the certificate of title.

5. The aforesaid interviews/examination of records, and inspection of the

premises showed that earnest and diligent efforts were exerted by the petitioner
to ascertain the identity of the mortgagor and her ownership of the subject
property. The aforestated steps taken by her are visible proofs of the due
diligence exercised by Rosana Erena to ascertain the identity of the mortgagor
and respondents capacity to convey the property to her in a contract of mortgage
with her.

6. Without admitting on the allegation of a forged signature, the established

facts showing the exercise of due diligence and reasonable caution observed by
petitioner preparatory to the acceptance and execution of the mortgage contract
BELIE the accusation of bad faith to her. In truth, petitioner had been reasonably
diligent to meet the justification of a mortgagee in good faith.[38]

For her part, respondent avers that, contrary to petitioners claim, the issues raised
in the instant petition are factual in nature. Moreover, based on the evidence on
record, both the trial and appellate courts are one in declaring that she is the lawful
registered owner of the property, and that such findings are conclusive on this
Court. Besides, the petitioner is proscribed from assailing the findings of the trial
and appellate courts since under Rule 45 of the Rules of Court, only questions of
law may be raised in this Court. She insists that petitioner failed to establish
special and important reasons for the Court to exercise its discretion to review the
appellate courts decision.

The petition has no merit.

Indeed, the trial and appellate courts found that respondent, as plaintiff
below, adduced clear and convincing evidence that she is the owner of the
property and that the signature on the Special Power of Attorney and Real Estate
Mortgage are not her genuine signatures. She purchased the property from
Edgardo C. Espiritu on June 21, 1997 via a Deed of Absolute Sale,[39] on the basis
of which TCT No. 48521 under her name was issued by the Register of Deeds
on June 25, 1997.[40] Indeed, when respondent and her sister, Evelyn Pares,
confronted Mira Bernal (Jennifer Ramirezs aunt), Bernal pleaded for mercy, on
bended knees, after admitting that she and Jennifer Ramirez stole the owners
duplicate copy of the title and the tax declarations covering the property, the air-
conditioning unit, television, and the pieces of jewelry owned by respondent, and,
thus, impliedly admitted that they forged the respondents signature on the Real
Estate Mortgage:

Q Were you able to see Mira in Pasay, in her house?

A Yes, Sir. We saw her in Pasay, but in Bian, she suddenly disappeared when
we arrived.

Q What time did you see Mira in her house in Pasay?

A Between 11:00 to 12:00 P.M., Sir.

Q But you said you arrived there at 6:00 p.m.?

A Yes, Sir.

Q You mean you waited?

A We waited for her. Dana said, Mabuti pang ilabas ninyo and mother niyo.

ATTY. CABARON:

The witness is narrating, Your Honor.

ATTY. MASANGKAY:

Q So, finally, you were able to talk to Mira in that house?

A Yes, Sir.

Q How about Jennifer?

A No, Sir.

Q Alright, what did you ask Mira?

A My sister asked Mira who destroyed my vault?

Q What was the answer of Mira?

A Mira answered, Why did you not inform that you will be coming?

ATTY. MASANGKAY:
Q And then?
A Dana said, what I am asking, you better answer.

Q What was the answer?

A According to her, it was Jennifer.

Q It was Jennifer who, what?

A She just said Jennifer.

Q What about the title?

 A My sister was asking who destroyed the vault, then Mira answered, it was
Jennifer. We did not ask anymore because she continued on talking and
she said Jennifer was short of funds.

She said, Nagipit kasi ang bata, naawa ako kaya binigay ko ang titulo.

Q And, who is Jennifer? Is this Jennifer the same Jennifer Ramirez who is one
of the defendants here?
A Yes, Sir.

Q Who is she?
A According to my sister, she is the daughter of Eduardo Victor.
Q What else did she say?

WITNESS:
A When she said that Jennifer took it, Dana looked for jewelries. Then the
daughter of Beth said, Tita Dana, sabi ni Tita Ellen, papalitan niya ang
mga alahas na iyon.

ATTY. MASANGKAY:
Q And finally, what was the statement of Mira with respect to the transaction?
A When Dana learned about that, she said, we will file a case against them.

Q And so?
A Mira knelt down and began to cry and was begging.

Q What did she say?

A She said, Parang awa mo na sa akin, Dana. Luluhod ako sa harapan niyo,
patawarin mo lang kami. She was crying and saying, Gipit na gipit lang
talaga kami. Bigyan mo kami ng konting panahon at ibabalik naming
iyon. [41]

The trial courts findings of fact as affirmed by the CA are conclusive on

this Court absent evidence that the trial court ignored, misapplied or misconstrued
facts and circumstances of substance which, if considered, would alter the
outcome of the case.

Indeed, under Rule 45 of the Rules of Court, only questions of law may be
raised. This is so because this Court is not a trier of facts and is not to re-examine
and re-evaluate the testimonial and documentary evidence on record. While the
findings and conclusion of the trial court and the appellate court may be reversed
in exceptional circumstances, the Court cannot do so in the absence of any such
justification or exceptional circumstance, such as in this case.

The ruling of the CA, that the Real Estate Mortgage executed in petitioners
favor is null and void, is correct. The registration thereof with the Register of
Deeds and its annotation at the dorsal portion of TCT No. 48521 is also null and
void, as provided in the last paragraph of Section 53, P.D. 1529 which reads:
Sec. 53. Presentation of owners duplicate upon entry of new certificate.

xxxx

In all cases of registration procured by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud without
prejudice, however, to the rights of any innocent holder of the decree of
registration on the original petition or application; any subsequent registration
procured by the presentation of a forged duplicate certificate of title, or a
forged deed or other instrument, shall be null and void (emphasis supplied).

One of the essential requisites of a mortgage contract is that the mortgagor must
be the absolute owner of the thing mortgaged.[42] A mortgage is, thus, invalid if
the mortgagor is not the property owner.[43] In this case, the trial court and the CA
are one in finding that based on the evidence on record the owner of the property
is respondent who was not the one who mortgaged the same to the petitioner.

The evidence shows that Mira Bernal and Jennifer Ramirez were able to
open respondents vault and steal the owners duplicate of TCT No. T-48521 and
the tax declarations covering the property; with the connivance of a woman who
pretended to be the respondent, they were able consummate the execution of the
Real Estate Mortgage by forging the respondents signature on said deed. We,
thus, quote with approval the CA when it held:
As to the claim of Querrer-Kauffman that her purported signatures on the
mortgage are forgeries, the trial court believed her and held that there
is convincing proof to the contention of the plaintiff that the signature of Vida
Dana Querrer as appearing on the question[ed] contract was a forgery because
the real Vida Dana Querrer who is the plaintiff in this case was actually in the
United States at the time of the questioned contract on 1 August 1997 (Decision,
p. 226, record). And rightly so because of the immigration entries on her
passport, her juxtaposed sample signatures which are clearly different from
those in the deed, and the comic incongruity of Querrer-Kauffman as principal
and Ramirez as her attorney-in-fact both signing the mortgage deed, all prove
and declare beyond reasonable doubt that the subject real estate mortgage is a
forgery.[44]

The evidence on record further shows that Jennifer Ramirez and her
husband, Richmond Ramirez, used a woman who introduced herself as Vida
Dana Querrer to the petitioner and claim as owner of the property. That woman,
an impostor, signed the Real Estate Mortgage as mortgagor and the Special
Power of Attorney, as principal, and showed to petitioner the owners duplicate
copy of the title that was taken from the respondents vault, and succeeded in
having the Real Estate Mortgage annotated at the dorsal portion of the title. As
correctly ruled by the appellate court:
 TCT No. T-48521 (Exh. A) over the litigated lot was issued on June 26,
1995 in the name of the owner of the covered lot: Vida Dana Querrer,
single. That the appellant now goes by the name and status of Vida Dana
Querrer-Kauffman, married, has been well explained, and quibble on this raised
by Erea about the identity and interest of the appellant in the suit has been
dismissed by the trial court as of no moment as this discrepancy is negligible if
no[t] bearing at all to the issue of nullity of the questioned contract and has no
legal anchorage to cling on. The decision went on to state in no uncertain terms
that the appellant Querrer-Kauffman was able to prove preponderantly that she
is the real owner of the subject property.[45]

Indeed, case law is that a Torrens title is generally conclusive evidence of

ownership of the land referred to therein.[46] While it serves as evidence of an
indefeasible title to the property in favor of the person whose name appears
therein[47] (and TCT No. T-48521 shows, on its face, that the owner is the
respondent), when the instrument presented for registration is forged, even if
accompanied by the owners duplicate certificate of title, the registered owner
does not thereby lose his title, and neither does the assignee or the mortgagee, for
that matter, acquire any right or title to the property. [48] In such a case, the
transferee or the mortgagee, based on a forged instrument, is not even a purchaser
or a mortgagee for value protected by law. Thus, in Joaquin v. Madrid,[49] the
Court had the occasion to state:

In the first assignment of error, it is argued that since par. 2 of Sec. 55

of the Land Registration Act expressly provides that in all cases of registration
of fraud, the owner may pursue all his legal and equitable remedies against the
parties to the fraud, without prejudice to the rights of any innocent holder for
value of a certificate of title, the second proviso in the same section that a
registration procured by the presentation of a forged deed shall be null and void
should be overlooked. There is no merit in this argument, which would have the
effect of deleting the last proviso. This last proviso is a limitation of the first
part of par. 2 in the sense that in order that the holder of a certificate for value
issued by virtue of the registration of a voluntary instrument may be considered
a holder in good faith for value, the instrument registered should not be
forged. When the instrument presented is forged, even if accompanied by the
owners duplicate certificate of title, the registered owner does not thereby lose
his title, and neither does the assignee in the forged deed acquire any right or
title to the property.

In the second assignment of error, it is further argued that as the

petitioner is an innocent purchaser for value, he should be protected as against
the registered owner because the latter can secure reparation from the assurance
fund. The fact is, however, that petitioner herein is not the innocent purchaser
for value protected by law. The innocent purchaser for value protected by law
is one who purchases a titled land by virtue of a deed executed by the registered
owner himself, not by a forged deed, as the law expressly states. Such is not the
situation of the petitioner, who has been the victim of impostors pretending to
be the registered owners but who are not said owners.[50]
 The Court cited this ruling in the Joaquin case in Solivel v.
Francisco,[51] to wit:

Even more in point and decisive of the issue here raised, however, is the
much later case of Joaquin v. Madrid, where the spouses Abundio Madrid and
Rosalinda Yu, owners of a residential lot in Makati, seeking a building
construction loan from the then Rehabilitation Finance Corporation, entrusted
their certificate of title for surrender to the RFC to Rosalindas godmother, a
certain Carmencita de Jesus, who had offered to expedite the approval of the
loan. Later having obtained a loan from another source, the spouses decided to
withdraw the application they had filed with the RFC and asked Carmencita to
retrieve their title and return it to them Carmencita failed to do so, giving the
excuse that the employee, in- charge of keeping the title was on leave. It turned
out, however, that through the machinations of Carmencita, the property had
been mortgaged to Constancio Joaquin in a deed signed by two persons posing
as the owners and that after said deed had been registered, the amount for which
the mortgage was constituted had been given to the person who had passed
herself off as Rosalinda Yu. Constancio Joaquin admitted that the
spouses Madrid and Yu were, in fact, not the persons who had signed the deed
of mortgage.[52]
This ruling was later reiterated in Insurance Services & Commercial
Traders, Inc. v. Court of Appeals,[53] where the Court stressed that in order that
the holder of a certificate of value issued by virtue of the registration of a
voluntary instrument may be considered a holder in good faith and for value, the
instrument registered should not be forged.

In Cavite Development Bank v. Lim,[54] the Court explained the doctrine of

mortgagee in good faith, thus:
There is, however, a situation where, despite the fact that the mortgagor
is not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given effect by
reason of public policy. This is the doctrine of mortgagee in good faith based on
the rule that all persons dealing with the property covered by a Torrens
Certificate of Title, as buyers or mortgagees, are not required to go beyond what
appears on the face of the title. The public interest in upholding the
indefeasibility of a certificate of title, as evidence of lawful ownership of the
land or of any encumbrance thereon, protects a buyer or mortgagee who, in good
faith, relied upon what appears on the face of the certificate of title.[55]

Indeed, a mortgagee has a right to rely in good faith on the certificate of title of
the mortgagor of the property given as security and in the absence of any sign
that might arouse suspicion, has no obligation to undertake further investigation.
Hence, even if the mortgagor is not the rightful owner of, or does not have a valid
title to, the mortgaged property, the mortgagee in good faith is nonetheless
entitled to protection.[56] This doctrine presupposes, however, that the mortgagor,
who is not the rightful owner of the property, has already succeeded in obtaining
a Torrens title over the property in his name and that, after obtaining the said title,
he succeeds in mortgaging the property to another who relies on what appears on
the said title. The innocent purchaser (mortgagee in this case) for value protected
by law is one who purchases a titled land by virtue of a deed executed by the
registered owner himself, not by a forged deed, as the law expressly states. Such
is not the situation of petitioner, who has been the victim of impostors pretending
to be the registered owners but who are not said owners. [57] The doctrine of
mortgagee in good faith does not apply to a situation where the title is still in the
name of the rightful owner and the mortgagor is a different person pretending to
be the owner. In such a case, the mortgagee is not an innocent mortgagee for
value and the registered owner will generally not lose his title. We thus agree
with the following discussion of the CA:

The trial court wrongly applied in this case the doctrine of mortgagee in good
faith which has been allowed in many instances but in a milieu dissimilar from
this case. This doctrine is based on the rule that persons dealing with properties
covered by a Torrens certificate of title are not required to go beyond what
appears on the face of the title. But this is only in a situation where the
mortgagor has a fraudulent or otherwise defective title, but not when the
mortgagor is an impostor and a forger.

In a forged mortgage, as in this case, the doctrine of mortgagee in good

faith cannot be applied and will not benefit a mortgagee no matter how large is
his or her reservoir of good faith and diligence. Such mortgage is void and
cannot prejudice the registered owner whose signature to the deed is
falsified. When the instrument presented is forged, even if accompanied by the
owners duplicate certificate of title, the registered owner does not lose his title,
and neither does the assignee in the forged deed acquire any right or title to the
property. An innocent purchaser for value is one who purchases a titled land by
virtue of a deed executed by the registered owner himself not a forged deed.[58]

As aforesaid, respondents signature on the Real Estate Mortgage was forged by

an impostor.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
Decision of the Court of Appeals dated June 10, 2004 and Resolution
dated October 28, 2004 are AFFIRMED. Costs against the petitioner.
SO ORDERED.
 [G.R. No. 9358. September 24, 1915. ]

BANK OF THE PHILIPPINE ISLANDS, Plaintiff-Appellee, v. GREGORIO YULO, Defendant-

Appellant.

Rohde & Wright for Appellant.

William A. Kincaid and Thomas L. Hartigan for Appellee.

SYLLABUS

1. MORTGAGES; SALE OF ARTICLES PLEDGED; UPSET PRICE. — A sale of pledged articles should be had
in accordance with the provisions of the present Code of Civil Procedure and not in accordance with
those of the code in force at the time the contract was made. Even though a clause be inserted in a
mortgage, fixing an upset price to become operative in the event of foreclosure, nevertheless the sale
must take place and the property must be awarded to the highest bidder. Parties cannot, by agreement,
contravene the statutes and interfere with the lawful procedure of the courts. Parties cannot insist upon
an upset price in the sale of mortgaged property in accordance with the provisions of the old code, when
they especially agreed that the sale should be made in accordance with the provisions of the new.

DECISION

JOHNSON, J. :

On the 7th of October, 1912, the plaintiff filed its complaint in the Court of First Instance of the Province
of Iloilo, for the purpose of recovering of the defendant the sum of P43,212.95, together with interest at
8 per cent, and P2,000 as costs. The plaintiff also alleged that, to secure the payment of said sum, the
defendant, on the 26th of June, 1907, had executed and delivered a mortgage upon certain property
particularly described therein, and prayed for a judgment for the amount above stated. To the petition of
the plaintiff the defendant filed a general denial.

Upon the issue thus presented, the cause was brought on for trial. After hearing the evidence, the
Honorable James S. Powell, judge, rendered a judgment in favor of the plaintiff and against the
defendant for the sum of P41,275.18 with interest, from the 21st of January, 1913, at 8 per cent until
paid and for the further sum of P2,000 as attorney’s fees, as provided in said mortgage, and costs.

The lower court further ordered "that the said sums be paid into this court by the defendant on or before
the first day of the next term of this court immediately succeeding this January term, 1913, said
principal and interest and costs, and, in default of such payment, the land and other improvements
named in said mortgage will be sold to realize the amount due on said mortgage, with the costs." cralaw virt ua1aw li bra ry

From that judgment the defendant appealed to this court and made the following assignments of error:"
(1.) The court erred in not ordering the sale of the various properties for the aliquot parts of the debt as
provided for in the mortgage. (2.) The court erred in rendering judgment against the defendant for the
fees of counsel for the plaintiff."
cralaw virtua1aw li bra ry

In support of the first assignment of error, the appellant cites article 1860 of the Civil Code. In reply to
that argument, the appellee calls our attention to sections 256 and 257 of the Code of Procedure in Civil
Actions, as well as the decisions of this court in the cases of Banco Español Filipino v. Donaldson Sim &
Co. (5 Phil. Rep., 418) and Yangco v. Cruz Herrera (11 Phil. Rep., 402). In the case of Banco Español-
Filipino v. Donaldson Sim & Co. this court said, speaking through its Chief Justice, "the sale of the
pledged articles should be had in accordance with the provisions of the present Code of Civil Procedure,
and not in accordance with those of the code in force at the time the contract was made." cralaw virtua 1aw lib rary

The present case is even stronger than that, for the reason that the contract in the present case was
made after the adoption of the new Code of Procedure in Civil Actions. The doctrine announced in the
case of Banco Español-Filipino v. Donaldson Sim & Co. is further confirmed by the case of Yangco v.
Cruz Herrera supra. In that case this court said, speaking through Justice Tracey, "Even though a clause
be inserted in a mortgage fixing a tipo or upset price to become operative in the event of foreclosure,
nevertheless, the sale must take place and the property must be awarded to the highest bidder. Parties
cannot, by agreement, contravene the statutes and interfere with the lawful procedure of the courts."
See also Warner, Barnes & Co. v. Jaucian, 13 Phil. Rep., 4.
It would seem unnecessary to cite the foregoing decisions against the contention of the appellant, for
the reason that paragraph 7 of the mortgage expressly provides that, even though the mortgage
contains an "upset price," the defendant expressly gave his consent to have the property sold in
accordance with the provisions of the Code of Procedure in Civil Actions.

We find no reason for reversing or modifying the decision of the lower court, based upon the first
assignment of error.

With reference to the second assignment of error, that the lower court should not have imposed a
judgment upon the defendant for P2,000 as attorney’s fees, it may be said, that the mortgage contains
a provision for the payment of P2,000, in case the plaintiff is compelled to resort to the courts to recover
the amount due on said mortgage, por gastos y costas." In view of that provision, we are of the opinion
that it was only intended that the plaintiff should recover of the defendant, in case an action was
brought for the foreclosure of said mortgage, his costs and expenses necessarily incurred in the
foreclosure of the mortgage. We do not believe that it was an absolute promise to pay P2,000 as
attorney’s fees. The mortgage does not contain a stipulation to that effect. We are of the opinion, and so
hold, that the purpose of said clause in the mortgage was simply to permit the plaintiff to recover his
expenses and costs, in case an action was brought. There is no proof in the record to show what were
the expenses incurred by virtue of the present action by the plaintiff. In our opinion, therefore, that part
of the judgment of the lower court should be modified, and the plaintiff should be permitted to recover,
in addition to the sum for which judgment was rendered by the lower court, his costs only.

With that modification, the judgment of the lower court is hereby affirmed. So ordered.
 [G.R. No. 144029. September 19, 2002]

SPOUSES GUILLERMO AGBADA and MAXIMA

AGBADA, petitioners, vs. INTER-URBAN DEVELOPERS, INC.,
and REGIONAL TRIAL COURT-BR. 105, QUEZON
CITY, respondents.

DECISION
BELLOSILLO, J.:

This is a Petition for Review on Certiorari of the Decision of the Court of

Appeals in CA-G.R. SP No. 54273, "Spouses Guillermo and Maxima Agbada
v. Regional Trial Court, Quezon City, Branch 105, and Inter-Urban
Developers, Inc.," which dismissed the Petition for Annulment of Judgment
with Preliminary Injunction filed by petitioner-spouses, specifically to nullify
and to set aside the Summary Judgmentrendered by respondent Regional
Trial Court in its Civil Case No. Q-93-18592, "Inter-Urban Developers,
Inc. (represented by Philip Tiam Lee) v. Spouses Guillermo and Maxima
Agbada," for Foreclosure of Real Estate Mortgage, as well as
the Resolution of the appellate court denying reconsideration of the assailed
CA Decision.
On 21 February 1991 petitioner-spouses Guillermo Agbada and Maxima
Agbada borrowed P1,500,000.00 from respondent Inter-Urban Developers,
Inc. through its president, Simeon L. Ong Tiam. To secure the loan, the
[1]

parties concurrently executed a Deed of Real Estate Mortgage over a parcel

of land and the improvements thereon situated in Tandang Sora, Quezon
City owned by the spouses. The loan was payable within six (6) months
[2]

from 21 February 1991 at three percent (3%) interest per month, otherwise,
failure to discharge the loan within the stipulated period would entitle Inter-
Urban Developers, Inc. to foreclose the mortgage judicially or extra-
judicially. The spouses failed to pay the loan within the six-month period
[3]

despite several out-of-court demands made by respondent Inter-Urban

Developers, Inc. [4]

On 10 December 1993 Inter-Urban Developers, Inc. filed with the

Regional Trial Court of Quezon City, Branch 105, a complaint for foreclosure
of real estate mortgage. On 2 March 1994, without assistance of counsel,
[5]

the spouses filed their unverified answer admitting that they had borrowed
the amount of P1,500,000.00 from respondent and had executed the real
estate mortgage to secure the loan but denying that it was payable within six
(6) months and at three percent (3%) interest per month. As affirmative
[6]

defense they alleged in their answer that -

[petitioner-spouses] and Simeon L. Ong Tiam, then acting for and in behalf of
[Inter-Urban Developers], were compadre and comadre, for this reason, after the
execution of the Real Estate Mortgage Contract x x x [Spouses Guillermo and
Maxima Agbada] were only charged with interest at legal rate and the period for
the said contract is five (5) years from execution thereof x x x x That the said
contract is merely simulated and for formality sake onlyx x x x That the claim or
demand set forth in the plaintiffs complaint is not yet due and demandable, thus,
the complaint states no cause of action against the defendants x x x x[7]

The parties filed their respective pre-trial briefs with petitioner-spouses

again filing their own and without the assistance of counsel. When the pre-
trial was set on 21 April 1994 it had to be postponed on account of petitioner-
spouses' absence. It was reset to 13 May 1994 but it was again postponed
upon request of petitioner Guillermo Agbada who had no lawyer yet to assist
him. But he submitted a one-page hand written letter addressed to the trial
judge asking for continuance of the pre-trial and further admitting liability for
the due and demandable loan: "hindi ko po nais makipaglaban dito sa
kasong ito dahilan po itong perang ito dapat ko pong bayaran." On 8 June [8]

1994, pre-empting the pre-trial conference, Inter-Urban Developers,

Inc. moved for summary judgment alleging that -

1. In [the spouses] answer which is dated 1 March 1994, they admit the amount of
indebtedness as alleged in the Complaint; 2. They likewise admit in their Special
and Affirmative Defenses that they have executed the Real Estate Mortgage
Contract subject of this Complaint; 3. What [the spouses] are questioning in this
Complaint is only the period and their compadre, Simeon Ong Tiam, then
President of [Inter-Urban Developers], to be payable after five years and at the
legal rate of interest; 4. Their Compadre, Simeon Ong Tiam, and the [Inter-Urban
Developers] are not one and the same entity so that their alleged arrangement with
their compadre does not in anyway bind [Inter-Urban Developers] who has relied
on the subject Deed of Real Estate Mortgage; the said mortgage contract which
execution, [the spouses] admit, clearly shows that they contracted with the [Inter-
Urban Developers], the amount of P1,500,000.00 payable within six months from
execution at the interest rate of three percent per month x x x x 5. The [petitioner]
Mr. Guillermo Agbada, in one scheduled setting, has written this Honorable Court,
as borne by the records of this case, that he is admitting the total amount of
indebtedness and is only bidding for time because he has already arranged with a
bank to pay the total amount of indebtedness so as to terminate the case once and
for all x x x x
[9]

The motion for summary judgment was supported by an affidavit of the

treasurer-cashier of Inter-Urban Developers, Inc. to the effect that she
witnessed the execution of the mortgage contract and that she personally
gave the check of P1,500,000.00 for the loan. The spouses opposed the
[10]

motion although they failed to submit supporting counter- affidavits. [11]

 On 7 July 1994, this time with the assitance of counsel, petitioner-
spouses Agbada moved to amend their answer to allege that the mortgage
contract was not reflective of the true intention of the parties since in reality
the loan was interest-free and would mature only after five (5) years from
execution thereof and that consequently they were denying under oath the
due execution and authenticity of the mortgage document, although the
proposed answer was still not verified by them. Interestingly, the amended
[12]

answer departed from the allegation in the original answer that the loan
would earn interest at the legal rate. The trial court denied the amendment
of the answer holding that the change would substantially alter the gist of the
defense. [13]

On 13 January 1995 the trial court promulgated its Summary

Judgment in favor of respondent Inter-Urban Developers, Inc. It held that
Simeon Ong Tiam, compadre of petitioner-spouses and then president
of Inter-Urban Developers, Inc. could not have obligated his principal by
contemporaneous agreement amending the maturity of
the loan from six (6) months to five (5) years and the interest rate from three
percent (3%) per month to the default or statutory rate, much less interest-
free, since the undertaking was contrary to the express provisions of the duly
executed loan and mortgage contract. The trial court awarded Inter-Urban
[14]

Developers, Inc. the amounts of "P1.5 million with monthly interest of 3%

from February 21, 1991 until fully paid plus attorneys fees of P10,000.00
including the real estate taxes and registration expenses. In case of failure
of defendants to do so within ninety (90) days from finality, the decree of
foreclosure shall issue." [15]

Petitioner-spouses did not appeal the Summary Judgment nor did they
pay the judgment debt. On 31 May 1995 Inter-Urban Developers, Inc. moved
for a decree of foreclosure which the spouses did not oppose nor did they
attend the hearing on the motion. On 14 July 1995 the trial court granted
[16]

the motion and issued a decree of foreclosure. On 19 August 1996

[17]

respondent moved for an order authorizing the sale of the mortgaged real
estate for failure of the spouses to pay the judgment debt. Once again the
[18]

petitioner-spouses did not oppose the motion nor did they attend the hearing
thereon. On 26 August 1996 the trial court ordered the foreclosure sale of
[19]

the mortgaged property. On 10 September 1996 Inter-Urban Developers,

[20]

Inc. moved ex parte for the appointment of a special sheriff to attend to the
foreclosure sale since no sheriff was assigned in RTC-Br. 105. On 11 [21]

September 1996, acting on the ex parte motion, the trial court ordered
the Ex-Oficio Sheriff to designate a special sheriff to carry out the foreclosure
sale. On 6 November 1996 the mortgaged real estate was sold at public
[22]

auction to respondent Inter-Urban Developers, Inc. as highest bidder

for P4,637,092.74 which was supposed to be in full satisfaction of the
judgment debt. [23]
 On 3 April 1997, upon motion of Inter-Urban Developers, Inc. and
despite petitioner-spouses' opposition thereto on the ground that the
purchase price of the mortgaged property was below its appraised value
according to an appraisal report, the trial court confirmed the sale in favor
of Inter-Urban Developers, Inc. The trial court ruled that it could not have
[24]

given weight to the appraisal report since this report was not authenticated
nor was the appraiser presented as witness during the hearing of the motion
to allow Inter-Urban Developers, Inc. an opportunity to cross-examine on the
appraised value of the property. [25]

The spouses moved for reconsideration of the confirmation order

insisting on the inadequacy of the purchase price but on 25 September 1997
the trial court denied the motion. On 27 October 1997, for the second time,
the spouses moved for reconsideration of the order denying their first motion
for reconsideration, calling the attention of the court to their affidavit to the
effect that the appraiser deliberately absented himself from the hearing of
the motion. On 6 March 1998 the trial court denied the motion. Petitioner-
[26] [27]

spouses did not appeal the order of confirmation of the sale nor any of the
subsequent orders.
On 13 April 1998 petitioner-spouses filed with the Court of Appeals a
motion for extension of time to file a petition for review of a subject matter
they did not identify. In a Resolution of 16 April 1998 the appellate court
[28]

granted the motion and docketed the purported petition as CA-G.R. SP

No. 47325 under Rule 43 of the 1997 Rules of Civil Procedure as
amended. On 24 April 1998 the spouses moved for a second extension of
[29]

the period to file their petition for review which on 22 May 1998 the Court
[30]

of Appeals denied with finality and recorded entry of judgment of the

denial. On 29 January 1998 Inter-Urban Developers, Inc. moved for the
[31]

issuance of a writ of possesion over the foreclosed real estate.

On 26 February 1999 the petitioner-spouses filed a Motion to Tender the
Full Obligation of the Defendant Spouses alleging that they had paid their
obligation worth P6,307,532.66 in the form of cashier's check which they
[32]

left with the maid of the counsel of record for Inter-Urban Developers,
Inc. On 21 July 1999 the trial court denied the motion. On 23 March 1999
[33] [34]

for the first time since Summary Judgment had been rendered against them,
petitioner-spouses filed with the trial court a Motion to Cancel Certificate of
Sale for being Signed by an Unauthorized Officer/Person and to
Recall Summary Judgment for Lack of Jurisdiction which was denied on 20
[35]

July 1999. On 21 July 1999 the trial court issued a writ of possesion in favor
[36]

of respondent Inter-Urban Developers, Inc. over the subject real property. [37]

On 10 August 1999 petitioner-spouses Guillermo Agbada and Maxima

Agbada filed with the Court of Appeals a petition for annulment of judgment
with prayer for preliminary injunction. The petition sought the annulment of
the Summary Judgment for alleged violation of their right to due process
arising from the absence of a full-blown trial on a genuine issue of fact that
the loan and mortgage would mature only on the fifth year following its
execution on 21 February 1991. The petition did not question compliance
[38]

with legal requirements of the foreclosure proceedings or any part thereof.

On 21 January 2000 the Court of Appeals dismissed the petition and held
that the subject matter thereof was barred by res judicata, referring to CA
G.R. SP No. 47325 wherein the appellate court denied with finality petitioner-
spouses' second motion for extension of time to file Petition for Review. The [39]

Court of Appeals also ruled that petitioner-spouses were in no position to ask

for annulment of the Summary Judgment since their negligence denied them
the right to avail of other remedies otherwise open to them, such as appeal,
and that the spouses were estopped from assailing the jurisdiction of the trial
court after filing several motions to re-evaluate the assessed value of the
mortgaged property. On 11 July 2000 the appellate court denied
[40]

reconsideration of its Decision, hence, the instant petition for review on

[41]

certiorari.
Petitioner-spouses argue that they were deprived of due process when
their defense, i.e., that the real estate mortgage carries a default interest rate
and matures only on the fifth year following its execution on 21 February
1991, was considered sham and refused full blown trial, contrary to our ruling
in Paz v. Court of Appeals. They further allege in their statement of facts
[42]

that

On February 2, 1991, plaintiff Guillermo Agbada, being then an official of a

security agency which is a sister company of respondent Inter-Urban Developer
and because of financial problem faced by the couple, arranged with Simeon Lee
Ong Tiam (his close compadre, being the sponsor and god father in the wedding of
his daughter and said Ong Tiam being the President of Inter-Urban Development)
obtained a loan from respondent corporation under the agreement, in view of their
relationship, that the loan would only carry legal interest, and would be payable
within a period of 5 years. It is to be noted at this point that Inter-Urban
Developers is not a money lending or financial institution but is engaged in real
estate development and the granting of loans was not part of its principal
business. It was clearly understood by petitioners as well as by the responsible
officers of Inter-Urban, particularly, Simeon Lee Ong and the other officers, who,
in fact, have close family ties and relationship with petitioners, that the loan was
only an accommodation, hence, the charging only of nominal interest and its
repayment within a period of 4 (sic) years. Petitioners were convinced to sign what
they were then informed was only a formality, a sham deed of mortgage which on
its face purported to show that a rate of interest different from that initially agreed
upon appeared and the period of maturity of the loan was changed from 5 years to
6 months. [43]
 On the other hand, respondent Inter-Urban Developers, Inc. claims that
petitioner-spouses did not deny under oath the authenticity and due
execution of the real estate mortgage document, hence, were barred from
setting up the defense that the interest rate and maturity provisions of the
loan and mortgage contract were different from those stipulated in the written
agreement. Respondent further argues that the alleged promise made by
[44]

Simeon Ong Tiam even if true cannot be enforced against Inter-Urban

Developers, Inc. since there is nothing to show that he was authorized to
enter into the alleged contemporaneous agreement. Finally, respondent
asserts that there were other remedies available to petitioners which they
failed to exhaust by their own negligence, thus rendering the petition for
annulment of judgment clearly unavailing and that they voluntarily submitted
to the jurisdiction of the trial court by seeking affirmative relief from the effects
of the assailed Summary Judgment. [45]

The petition has no merit. As explained quite frequently, a party may be

barred from raising questions of jurisdiction where estoppel by laches has
set in. In a general sense, estoppel by laches is failure or neglect for an
[46]

unreasonable and unexplained length of time to do what, by exercising due

diligence, ought to have been done earlier, warranting a presumption that
the party entitled to assert it has either abandoned to defend it or has
acquiesced to the correctness and fairness of its resolution. The doctrine is
based on grounds of public policy which for peace of society requires the
discouragement of stale claims and, unlike the statute of limitations, is not a
mere question of time but is principally an issue of inequity or unfairness of
permitting a right or claim to be enforced or espoused. Verily, after voluntarily
submitting a cause, it is too late for the loser to question the jurisdiction or
power of the court just so he could escape an adverse decision on the merits.
In the instant case, the allegation of deprivation of due process took more
than four (4) years of hibernation, so to speak, from 13 January 1995 when
the trial court promulgated its Summary Judgment only to resurrect after
failed attempts to thwart the transfer of title over the foreclosed real estate in
favor of respondent Inter-Urban Developers, Inc. Evidently, petitioner-
spouses are barred by laches from assailing the regularity of the Summary
Judgment as shown not only by their silence when they should have
defended their alleged right to establish their understanding of the interest
rate and maturity of the loan and mortgage contract, but also by their full and
knowing participation in the proceedings, with the assistance of counsel,
leading to the confirmation of the foreclosure sale in favor of
respondent Inter-Urban Developers, Inc.
During the period of their obtrusive reticence, instead of pushing for a
full-blown trial where they could have ventilated their affirmative defense,
petitioner-spouses merely disagreed with the finding of the trial court
regarding the appraised value of the foreclosed property, thus strongly
implying their acquiescence to the due and demandable loan, and in fact
attempted to write off the loan completely and recover the foreclosed lot and
improvements thereon by filing a Motion to Tender the Full Obligation of the
Defendant Spouses in the form of a cashiers check worth P6,307,532.66
which the trial court denied in due time for obvious lack of merit.
The foregoing circumstances also show that the due process routine
vigorously pursued only now by petitioner-spouses is a clear-cut afterthought
meant to delay the settlement of an otherwise uncomplicated property
dispute. Aside from clogging court dockets, the strategy is deplorably a
common curse resorted to by losing litigants in the hope of evading manifest
obligations

A natural question is why anyone should want to plead groundlessly when he

should know that he will not be able to make his pleading good when proof is
called for. Unfortunately, there are reasons. A defendant from whom payment is
sought x x x often wants delay. Indeed, that may well be the very reason why suit
had to be brought. And defendant can have delay by the simple device of denying
the debt, and perhaps gilding the lily by adding pleas of payment and breach of
warranty a trilogy known in the trade as the last refuge of the deadbeat.
[47]

It bears stressing that the proper remedy to seek reversal of judgment in

an action for foreclosure of real estate mortgage is not a petition for
annulment of judgment but an appeal from the judgment itself or from the
order confirming the sale of the foreclosed real estate. Since petitioner-
spouses failed to avail of appeal without sufficient justification, they cannot
conveniently resort to the action for annulment for otherwise they would
benefit from their own inaction and negligence. [48]

Granting arguendo that the assailed Summary Judgment is properly

brought before this Court, we nonetheless find nothing irregular in its
promulgation to justify its nullification or reversal. Summary judgment or
accelerated judgment is a procedural technique to promptly dispose of cases
where the facts appear undisputed and certain from the pleadings,
depositions, admissions and affidavits on record, or for weeding out sham
claims or defenses at an early stage of the litigation to avoid the expense
and loss of time involved in a trial. Its object is to separate what is formal or
[49]

pretended in denial or averment from what is genuine and substantial so that

only the latter may subject a party in interest to the burden of trial. In the
instant case, it is our conclusion that there is no basis for protesting
the Summary Judgmentsince the trial court faithfully adhered to the proper
function of accelerated judgment by adjudicating only the character of the
issues raised in the pleadings as genuine, sham or fictitious, and only upon
clear determination thereof did the court a quo proceed to render verdict.
 Since the civil action before the trial court was for foreclosure of real
estate mortgage, the material issues were the existence of the debt and its
demandability. Petitioner-spouses admitted the existence of the debt in favor
of respondent Inter-Urban Developers, Inc. as well as the authenticity and
due execution of the deed of real estate mortgage. The mortgage deed,
which the spouses duly signed and acknowledged before a notary public,
pegged the loans maturity date at six (6) months from 21 February 1991 at
three percent (3%) interest per month. In effect, by the admission of the due
execution of the loan and mortgage deed, petitioner-spouses confessed that
they voluntarily signed it, and by the admission of the genuineness of the
document, they also acknowledged that at the time it was signed it was in
the words and figures exactly as set out in the pleading of respondent Inter-
Urban Developers, Inc.
Petitioner-spouses would however claim that a contemporaneous
agreement was entered into between them and Simeon Ong Tiam who was
then the president of Inter-Urban Developers, Inc. that the loan was in reality
for a period of five (5) years from 21 February 1991 and, as alleged in their
amended answer, interest-free or contrarily, as stated in their other
pleadings, at statutory rate of interest. The defense would thus not only self-
contradict but also appear to override and discard the simultaneous written
formal agreement between the parties.
In the instant case, while petitioner-spouses appear to tender a material
issue of fact, i.e., demandability and interest rate of the loan, summary
judgment would nonetheless be proper where it is shown that issues
tendered are sham, fictitious, contrived, set up in bad faith, or patently
unsubstantial. To forestall summary judgment, it is essential for the non-
[50]

moving party to confirm the existence of genuine issues where he has

substantial, plausible and fairly arguable defense, i.e., issues of fact calling
for the presentation of evidence upon which a reasonable findings of fact
could return a verdict for the non-moving party although mere scintilla of
evidence in support of the party opposing summary judgment will be
insufficient to preclude entry thereof. The proper inquiry would therefore be
[51]

whether the affirmative defense offered by petitioner-spouses constitutes

genuine issue of fact requiring a full-blown trial.
We rule that the affirmative defense sets up a sham issue which justifies
summary judgment. For one, petitioner-spouses have not explained how
their affirmative defense, since it attempts to vary a written agreement, could
be proved by admissible evidence. It would be useless to avail of a complete
trial where the issue proposed by petitioner-spouses could not be resolved
in any manner other than by referring to the explicit terms of the loan and
mortgage agreement. To be sure, where the parties have reduced their
agreement in writing, it is presumed that they have made the writing the only
repository and memorial of the truth and whatever is not found in the writing
must be understood to have been waived and abandoned. Specifically,
under Sec. 9, Rule 130, Revised Rules of Evidence, the trial court is barred
from admitting evidence which proves or tends to prove the alleged
concurrent agreement with Simeon Ong Tiam which alters or varies the
terms of the deed between the parties -

Sec. 9 Evidence of written agreements. - When the terms of an agreement have

been reduced to writing, it is considered as containing all the terms agreed upon
and there can be, between the parties and their successors in interest, no evidence
of such terms other than the contents of the written agreement. However, a party
may present evidence to modify, explain or add to the terms of the written
agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or
imperfection in the written agreement; (b) The failure of the written agreement to
express the true intent and agreement of the parties thereto; (c) The validity of the
written agreement; or (d) The existence of other terms agreed to by the parties or
their successors in interest after the execution of the written agreement x x x x

While it is true that contracting parties may establish stipulations,

clauses, terms and conditions as they may deem convenient provided they
are not contrary to law, morals, good customs, public order, or public policy,
the parol evidence rule forbids any addition to or contradiction of the terms
of an agreement reduced into writing by testimony purporting to show that,
at or before the signing of the document, other or different terms were orally
agreed upon by the parties. As applied herein, the alleged terms of the
contemporaneous agreement between petitioner-spouses and Simeon Ong
Tiam cannot be proved for they are not embodied in the mortgage deed but
exist only in their faint recollection. Only the terms of the loan and mortgage
agreement providing for six (6) months maturity from date of execution
thereof and the interest rate of three percent (3%) per month are worth
considering and implementing.
The instant case is not unprecedented. In Tarnate v. Court of
Appeals involving a case of foreclosure of real estate mortgage that was
[52]

resolved by means of summary judgment where neither the existence of the

loans and the mortgage deeds nor the fact of default on the due repayments
was disputed, we rejected as genuine issue the contention of petitioners
therein that they were misled by respondent bank to believe that the loans
were long-term accommodations since the loan documents admittedly
executed by the parties clearly contradicted petitioners asseverations and
the parties must have realized that when the terms of the agreement were
unequivocally reduced in writing, they could hardly be controverted by oral
evidence to the contrary. Similarly, in Heirs of Amparo del Rosario v.
Santos, where we rejected the alteration of the conditions imposed in the
[53]

deed of sale, this Court ruled that appellants therein could not be allowed to
introduce evidence of conditions allegedly agreed upon by them other than
those stipulated in the deed of sale because when they reduced their
agreement in writing, it is presumed that they have made the writing the only
repository and memorial of truth, and whatever is not found in the writing
must be understood to have been waived and abandoned.
Petitioner-spouses cannot invoke any of the exceptions to the parol
evidence rule, more particularly, the alleged failure of the writing to express
the true intent and agreement of the parties. The exception obtains only
where the written contract is so ambiguous or obscure in terms that the
contractual intention of the parties cannot be understood from a mere
reading of the instrument, thus necessitating the reception of relevant
extrinsic evidence of the contractual provision in dispute to enable the court
to make a proper interpretation of the instrument. However, in the case at
[54]

bar, the loan and mortgage deed is clear and without ambiguity, mistake or
imperfection in specifying the maturity of the loan exactly after six (6) months
from date of execution thereof at interest rate of three percent (3%) per
month, and certainly these unmistakable terms forbid petitioner-spouses
from introducing evidence aliunde of the alleged contemporaneous
agreement in violation of the parol evidence rule.
Indeed the literal meaning of the stipulations is bolstered by the intention
of the parties as inferred from their contemporaneous and subsequent
acts. It is a matter of record that, without hesitation, petitioner Guillermo
[55]

Agbada asked for the postponement of the pre-trial conference through a

one-page handwritten letter addressed to the trial judge admitting liability for
the due and demandable loan: Hindi ko po nais makipaglaban dito sa kasong
ito dahilan po itong perang ito ay dapat ko pong bayaran Furthermore,
[56]

when proceedings had been ongoing in the trial court for more than four (4)
years, petitioner-spouses plainly assailed the finding of the trial court vis--vis
the appraised value of the foreclosed property, without more, thus strongly
implying their acquiescence to the due and demandable loan, and in fact
attempted to pay the loan completely and recover the foreclosed lot and
improvements thereon by tendering a cashiers check worth P6,307,532.66
through a house help.
Furthermore, for purposes of defeating respondents motion for summary
judgment, petitioner-spouses did not avail of any means to prove prima
facie that Simeon Ong Tiam had authority to change the terms of the real
estate mortgage by a contemporaneous agreement or, at the very least, to
corroborate their allegations by means of the verified statements of Simeon
Ong Tiam himself. Verily the spouses were not able to adduce even a single
explanation why respondent Inter-Urban Developers, Inc. would suddenly
and conveniently abandon the formalities which it had gone through in
drafting and executing the real estate mortgage in place of an alleged
coincidental and plain verbal novation of the original stipulations on interest
rate and duration of the loan. In the absence of even prima facie basis for
inferring authority on the part of Simeon Ong Tiam or inferring his
corroboration of petitioner-spouses affirmative defense, we cannot bind
over Inter-Urban Developers, Inc. to the test of trial to meet the affirmative
defense. In Narra Integrated Corporation v. Court of Appeals we rejected
[57]

as genuine issue for lengthy trial the claim that the contractual undertaking
of one person was also binding upon another without first showing a
plausible and fairly arguable and substantial circumstance indicating privity
and consent to the contract by the other person upon whom compliance was
also sought.
Other circumstances confirm the sham character of petitioner-spouses
defense. To be sure, they failed to offer any counter-affidavit which would
have debunked the allegations in the motion for summary judgment as well
as its supporting documents and explained their failure to act swiftly and
precisely on the issue. In Heirs of Amparo Del Rosario v. Santos, and Tiu
[58]

v. Court of Appeals, we noted that the failure to adduce counter-evidence

[59]

strongly indicated the absence of serious factual issue to prevent summary

judgment. It has also been said that while parties are not required to offer
affidavits in support of, or in opposition to, summary judgment motions,
however, once a properly supported motion for summary judgment has been
filed, an adverse party cannot rest upon the mere allegations or denials of
his pleadings. As colorfully stated in American jurisprudence, [the rule on
summary judgment] x x x say[s] in effect Meet these affidavit facts or
judicially die. The party opposing summary judgment thus must offer either
discovery responses or affidavits that set forth specific facts showing that
there is a genuine issue for trial.
[60]

The maneuvering of petitioner-spouses before the trial court reinforces

our belief that their claim is unfounded. They contradicted themselves when
they claimed that the loan was interest-free and then in another vein
contended that it bore the statutory rate of interest, only to change their
recollection subsequently to a nominal rate of interest. Petitioner-spouses
would also vacillate with respect to the alleged reason for respondent Inter-
Urban Developers, Inc. to agree to different maturity and interest-rate
provisions since the answer filed before the trial court would assign as cause
therefor the personal relationship between them and Simeon Ong Tiam
although their memorandum before this Court would assert that the
preferential treatment was due to petitioner Guillermo Agbadas employment
as consultant of a sister company of Inter-Urban Developers, Inc. It is fatal
to petitioner-spouses case, not to mention a misuse of precious court
resources, for them not to recall and convey in precise manner the
stipulations of the purported concurrent agreement with Simeon Ong Tiam
when the alleged side contract is the very defense sought to be heard in a
full-blown trial.
 Moreover, instead of filing opposing affidavits to support their affirmative
defenses, petitioner-spouses absented themselves from the proceedings a
quo eventually leading to the foreclosure sale and its confirmation. They did
not pay the debt when, according to their own affirmative defense, it was
already due and demandable on the fifth year counted from 21 February
1991, that is, in any of the months in 1996. If they indeed believed in the
worthiness of their claim, they ought to have offered payment of the loan as
it was then already payable according to their own allegations and if refused
by respondent Inter-Urban Developers, Inc. consigned the money with the
trial court. Quite the reverse, petitioner-spouses resorted to irrelevant legal
actions, i.e., a motion for extension of time to file an unspecified petition for
review with the Court of Appeals, which they did not even pursue thus
manifesting a regrettable intention to delay the adverse effects of their
prejudicial admissions and to obscure the fact of finality of the Summary
Judgment. [61]

The case of Paz v. Court of Appeals cited by petitioner-spouses does

[62]

not square with the instant petition. The Paz case involved an action for
quieting of title and recovery of possession, accounting and damages with
preliminary mandatory injunction filed by the buyers of several parcels of land
against the defendant who was a co-heir of the vendors thereof. n the
defendant's answer, he alleged that the sale was void since he was not given
the opportunity to exercise his right of pre-emption to buy the property there
being no notice of sale having been given to him and that he was ready and
willing to buy the property. Thereafter the defendant filed his own complaint
seeking to annul the sale of the lots in question again invoking his right of
pre-emption which had been denied him as a result of the seemingly
deliberate omission of a notice of sale to him. This Court ruled that summary
judgment was improper given a plausible ground of substantial defense
which was fairly arguable -

In the case at bar, not only did petitioner herein and defendant in Civil Case No.
54158 assert genuine issues of fact and law which must be heard and tried, but he
even filed Civil Case No. 54408 for the annulment of sale of the controversial lots
in favor of the Nepomucenos and also opposed the survey of the controversial lots
in LRC Case No. R-3730. The court a quo failed to consider that the affidavits of
the two vendors Ramon and Luzonica Paz presented to the court by private
respondent only stated that they merely informed their brother Bienvenido of the
sale by way of showing their deeds of sale. The deeds of sale in favor of the
Nepomucenos were already fait accompli when they were shown to the petitioner,
hence does not justify a summary judgment. Petitioner asserts that he was unjustly
denied as a co-heir of his right of legal pre-emption or redemption provided for
under Art. 1623 of the Civil Code by the failure of his co-heirs to give him notice
in writing of their intended desire to sell their shares, as well as the
terms/consideration thereof, in order to enable him to match private respondents -
Nepomuceno's offer to buy or his co-heirs' selling price at P450.00 per square
meter. Petitioner's allegation of the lack of written notification to him by all his co-
heirs is a factual and legal issue which cannot justify dispensation of a trial on the
merits.[63]

Clearly, Paz differs from the case at bar. Herein petitioner-spouses were
grossly negligent in failing to pursue an affirmative defense which if true
would have certainly impelled them to raise hell the moment that the trial
court refused evidence of such allegation. Moreover, the spouses faced an
impenetrable wall barring the alteration of the specific and unambiguous
terms of the real estate mortgage which was not the case in Paz. Indeed,
while the defendant in Paz could have proved the deprivation of his right to
legal pre-emption, the petitioners in the instant case could not do so upon
veritable rules of evidence. Lastly, the representations of the defendant
in Paz were fairly arguable since the very evidence offered by the movant for
summary judgment showed the absence of the relevant notice to him. In
contrast, we cannot say that the petitioner-spouses here have adequate
basis for claiming an alleged contemporaneous agreement affecting the
contractual right of respondent Inter-Urban Developers, Inc. absent any
reasonable showing of the latter's consent to the alteration of the real estate
mortgage contract it had earlier executed. All in all, Paz presented genuine
and material issues of fact while the instant case proffered only one issue
which could properly be characterized as sham.
Finally, we find no merit in petitioner-spouses' claim that the purchase
price of the mortgaged real property was way below its appraised value. To
begin with, they deliberately withheld the presentation of their own evidence
which might have proved this matter and thus unfortunately deprived
respondent Inter-Urban Developers, Inc. the opportunity to cross-examine
whatever such evidence would tend to establish. Equally significant, the low
purchase price could have worked in the petitioner-spouses' favor if they
promptly exercised their equity of redemption. As held in Tarnate v. Court of
Appeals, "[a]nent the contention that the property has been sold at an
[64]

extremely low price, suffice it to say that, if correct, it would have, in fact,
favored an easy redemption of the property. That remedy could have well
been availed of but petitioners did not."
With respect to the award of attorneys fees and the reimbursement of
advances for real estate taxes and registration expenses allegedly incurred
by respondent Inter-Urban Developers, Inc. we rule that the determination
thereof was done arbitrarily since the evidence on record, particularly the
receipts proving payment of real estate taxes and registration expenses in
the names of petitioner-spouses as payor, does not support the
finding. In Warner Barnes & Co. v. Luzon Surety we held that the trial
[65] [66]

court cannot impose attorney's fees as well as other charges through

summary judgment absent the standard proof of liability for specified
amounts truly owing. Furthermore, since the attorney's fees along with the
purported costs for real estate taxes and registration expenses were
unjustifiably satisfied from proceeds of the sale of the mortgaged
property, we must order restitution of the amounts paid in excess of the
[67]

duly established debt although the judgment may have become final and
executory. In Esler v. de la Cruz we held -
[68]

The gist of the appeal is that since the order for the dismissal of the case was issued
on August 20, 1960, and said dismissal had become final, the court could no longer
issue its order of December 9, 1960 directing the return of the property. The
argument while apparently correct would be productive of clear injustice. As a
matter of principle courts should be authorized, as in this case, at any time to order
the return of property erroneously ordered to be delivered to one party, if the order
was found to have been issued without jurisdiction. Authority for the return of the
property is expressed under the provision of Section 5 of Rule 39, Rules of Court,
which reads as follows:

Sec. 5. Effect of reversal of executed judgment. - Where the judgment executed is

reversed totally or partially on appeal, the trial court, on motion, after the case is
remanded to it, may issue such orders of restitution as equity and justice may
warrant under the circumstances.

Under the same principle now expressed in Sec. 5, Rule 39, of the 1997
Rules of Civil Procedure respondent Inter-Urban Developers, Inc. must
[69]

return to petitioner-spouses the amounts of P10,000.00 for attorney's

fees, P1,691.15 for registration expenses and P10,582.02 for real estate
taxes, with interest thereon at twelve percent (12%) per annum from
promulgation of this Decision until fully satisfied. [70]

WHEREFORE, the instant Petition for Review on

Certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. SP
No. 54273, "Spouses Guillermo and Maxima Agbada v. Regional Trial Court,
Quezon City, Branch 105, and Inter-Urban Developers, Inc.," which
dismissed the petition for annulment of judgment with preliminary injunction
filed by the Spouses Guillermo and Maxima Agbada to nullify and to set aside
the Summary Judgment rendered by the Regional Trial Court-Br. 105 of
Quezon City in its Civil Case No. Q-93-18592 for foreclosure of real estate
mortgage, "Inter-Urban Developers, Inc. (represented by Philip Tiam Lee) v.
Spouses Guillermo and Maxima Agbada," as well as the Resolution of the
Court of Appeals denying reconsideration of the
assailed Decision is AFFIRMED, with theMODIFICATION that
respondent Inter-Urban Developers is directed to return to petitioner-
spouses Guillermo and Maxima Agbada the amounts of P10,000.00 for
attorney's fees, P1,691.15 for registration expenses and P10,582.02 for real
estate taxes, with interest thereon at twelve percent (12%) per annum from
promulgation of this Decision until satisfied.
Upon finality of this Decision, let this case be REMANDED to the
Regional Trial Court - Branch 105 of Quezon City for prompt completion of
the execution proceedings. No pronouncement as to costs.
SO ORDERED.