EN BANC

[G.R. No. L-21362. November 29, 1968.]

DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff appellant, vs.
LOURDES GASPAR BAUTISTA , THE DIRECTOR OF LANDS and
THE NATIONAL TREASURER OF THE PHILIPPINES, defendantsappellees.

Jesus A. Avancea for plaintiff-appellant.

Lourdes Gaspar Bautista in her own behalf as defendant-appellee.
Assistant Solicitor Ceneral Antonio Torres, Solicitor Francisco J. Bautista and Special
Attorney Daniel G. Florida for defendant- appellees Director of Lands, et al.
SYLLABUS
1.
CIVIL LAW; REAL ESTATE MORTGAGE; NULLIFICATION OF DEBTOR'S TITLE IN
A JUDICIAL PROCEEDING AFTER THE SAME HAS BEEN FORECLOSED
EXTRAJUDICIALLY BY CREDITOR; CASE AT BAR, A VIOLATION OF DUE PROCESS.
The question this appeal presents is one that possesses both novelty and
signicance. It is this: What is the right, if any, of a creditor which previously
satised its claim by foreclosing extrajudicially on a mortgage executed by the
debtor, whose title was thereafter nullied in a judicial proceeding where she was
not brought in as a party? Held: The fundamental due process requirement having
been disregarded, Bautista could not in any wise be made to suer, whether directly
or indirectly, from the eects of such decision. After the DBP had acquired her title
by such extrajudicial foreclosure sale, through its own act, seen to it that her
obligation had been satised, it could not thereafter, seek to revive the same on the
allegation that the title in question was subsequently annulled, considering that she
was not made a party on the occasion of such nullication. If it were otherwise,
then the cardinal requirement that no party should he made to suer in person or
property without being given a hearing would be brushed aside. The doctrine
consistently adhered to by this Court whenever such a question arises in a series of
decisions is that a denial of due process suces to cast on the ocial act taken by
whatever branch of the government the impress of nullity (Cf. Cuaycong v.
Sengbengco, L-11837, Nov. 29, 1960). See also Macabingkil v. Yatco, L-23174, Sept.
18, 1967.
2.
ID.; ID.; ID.; VENDOR MUST BE SUMMONED. Reinforcement to the above
conclusion comes from Article 1558 of the Civil Code which reads: "The vendor shall
not be obliged to make good the proper warranty, unless he is summoned in the
suit for eviction at the instance of the vendee." In eect, the DBP would hold
Bautista liable for the warranty on her title, its annulment having the same eect
as that of an eviction. In such a case, it is wisely provided by the Civil Code that

Bautista, as vendor, should have been summoned and given the opportunity to
defend herself. In view of her being denied her day in court, it would follow, if the
intent of the above codal provision were to be respected, that she is not obliged to
make good the proper warranty.
3.
LAND REGISTRATION; ASSURANCE FUND; RECOVERY THEREUNDER;
REQUIREMENT. Recovery could be had from the Assurance Fund only upon a
showing that there be no negligence on the part of the party sustaining any loss or
damage or being deprived of any land or interest therein by the operation of the
Land Registration Act (Cf. Sec. 101, Act No. 496).
DECISION
FERNANDO, J :
p

The question this appeal from a judgment of a lower court presents is one that
possesses both novelty and signicance. It is this: What is the right, if any, of a
creditor which previously satised its claim by foreclosing extrajudicially on a
mortgage executed by the debtor, whose title was thereafter nullied in a judicial
proceeding where she was not brought in as a party?
As creditor, the Development Bank of the Philippines now appellant, led a
complaint against one of its debtors, Lourdes Gaspar Bautista, now appellee, for the
recovery of a sum of money representing the unpaid mortgage indebtedness, which
previously had been wiped out with the creditor bank acquiring the title of the
mortgaged property in an extrajudicial sale. Thereafter, the title was nullied in a
judicial proceeding, the land in question being adjudged as belonging to another
claimant, without, however, such debtor, as above noted, having been cited to
appear in such court action.
The Development Bank was unsuccessful, the lower court being of the view that
with the due process requirement thus agrantly disregarded, since she was not a
party in such action where her title was set aside, such a judgment could in no wise
be binding on her and be the source of a claim by the appellant bank. The complaint
was thus dismissed by the lower court, then presided by Judge, now Justice, Magno
Gatmaitan of the Court of Appeals. Hence, this appeal by appellant bank.
Such dismissal is in accordance with law. There is no occasion for us to repudiate the
lower court.
From the very statement of facts in the brief for appellant bank, the following
appears: "On or before May 31, 1949, the defendant- appellee, Lourdes Gaspar
Bautista, who shall hereafter be referred to as Bautista, applied to the Government
for the sale in her favor of a parcel of land with an area of 12 has., 44 ares, and 22
centares, located at Bo. Sta. Barbara, San Jose, Nueva Ecija. After proper
investigation, Sales Patent No. V-132 covering said property was issued in her favor

on June l, 1949 (Exh. A-I) by the Director of Lands. Sales Patent No. V-132 was
registered in the oce of the Register of Deeds of Nueva Ecija pursuant to Section
122 of Act 496 on June 3, 1949 (Exh. A), as a result of which Original Certicate of
Title No. P-389 was issued in her favor." 1
How the loan was contracted by now appellee Bautista was therein set forth. Thus:
"On July 16, 1949, Bautista applied for a loan with the Rehabilitation Finance
Corporation (RFC), predecessor in interest of the plainti-appellee Development
Bank of the Philippines (DBP), oering as security the parcel of land covered by
O.C.T. No. P-389. Aside from her certicate of title, Bautista also submitted to the
RFC other documents to show her ownership and possession of the land in question,
namely, Tax Declaration No. 5153 (Exh. A-4) in her name and the blueprint plan of
the land. On the basis of the documents mentioned and the appraisal of the
property by its appraiser, the RFC approved a loan of P4,000.00 in favor of Bautista.
On July 16, 1949, Bautista executed the mortgage contract over the property
covered by O.C.T. No. P-389 and the promissory note for P4,000.00 in favor of the
RFC (Exhs. C and C-1), after which the proceeds of the loan were released." 2
The satisfaction of the mortgage debt with the acquisition of the title to such
property by appellant Bank, by virtue of an extrajudicial foreclosure sale, and such
title losing its validity in view of a court proceeding, where however, appellee
Bautista, was not made a party, was next taken up in the brief of plainti-appellant.
Thus: "Bautista failed to pay the amortization on the loan so that the RFC took
steps to foreclose the mortgage extrajudicially under Act 3135, as amended. In the
ensuing auction sale conducted by the sheri of Nueva Ecija on June 27, 1951, the
RFC acquired the mortgaged property as the highest bidder (Exh. D). On the date of
the sale, the total obligation of Bautista with the RFC was P4,858.84 (Exh. I). On
July 21, 1952, upon failure of Bautista to redeem the property within the one (1)
year period as provided by law, plainti-appellant RFC consolidated its ownership
thereon (Exhs. E and E-1). On July 26, 1952, the Register of Deeds of Nueva Ecija
cancelled O.C.T. No. P-389 and replaced it with T.C.T. No. NT-12108 in the name of
the RFC (Exhs. F and F-1). On or about this time, however, an action (Civil Case No.
870) was led by Runo Ramos and Juan Ramos in the Court of First Instance of
Nueva Ecija against the Government of the Republic of the Philippines and the RFC
(as successor in interest of Bautista) claiming ownership of the land in question and
seeking the annulment of T.C.T. No. 2336 in the name of the Government, O.C.T.
No. P-389 in the name of Bautista and T.C.T. No. NT-12108 in the name of the RFC.
A decision thereon was rendered on June 27, 1955 (Exhs. G, G-1, and G-3) whereby
the aforementioned certificates of title were declared null and void." 3
Why the complaint had to be dismissed was explained thus in the decision now on
appeal: "The Court after examining the proofs, is constrained to sustain her on that;
it will really appear that she had never been placed within the jurisdiction of the
Nueva Ecija Court; as the action there was one to annul the title, it was an action
strictly in personam , if that was the case as it was, the judgment there could not in
any way bind Lourdes who had not acquiesced in said decision in any way for what
only happened is that as to the mortgage, the Bank foreclosed, and then sold unto
Conrada and when the title had been annulled, the Bank reimbursed Conrada;

stated otherwise, the annullment of Lourdes' title was a proceeding ex-parte as far
as she was concerned and could not bind her at all; and her mortgage was
foreclosed and the Bank realized on it, when the Bank afterwards acquiesced in the
annulment of the title and took it upon itself to reimburse Conrada, the Bank was
acting on its own peril because it could not have by that, bound Lourdes at all." 4
As stated at the outset, the decision must be armed. The fundamental due process
requirement having been disregarded, appellee Bautista could not in any wise be
made to suer, whether directly or indirectly, from the eects of such decision. After
appellant bank had acquired her title by such extrajudicial foreclosure sale and thus,
through its own act, seen to it that her obligation had been satised, it could not
thereafter, seek to revive the same on the allegation that the title in question was
subsequently annulled, considering that she was not made a party on the occasion
of such nullification.

If it were otherwise, then the cardinal requirement that no party should be made to
suer in person or property without being given a hearing would be brushed aside.
The doctrine consistently adhered to by this Court whenever such a question arises
in a series of decisions is that a denial of due process suces to cast on the ocial
act taken by whatever branch of the government the impress of nullity. 5
A recent decision, Macabingkil v. Yatco, 6 possesses relevance. "A 1957 decision,
Cruzcosa v. Concepcion, is even more illuminating in so far as the availability of the
remedy sought is concerned. In the language of this Court, speaking through Justice
J. B. L. Reyes: `The petition is clearly meritorious. Petitioners were conclusively
found by the Court of Appeals to be co-owners of the building in question. Having an
interest therein, they should have been made parties to the ejectment proceedings
to give them a chance to protect their rights; and not having been made parties
thereto, they are not bound and can not be aected by the judgment rendered
therein against their co- owner Catalino Cruzcosa, Jr. . . .' Two due process cases
deal specically with a writ of execution that could not validly be enforced against a
party who was not given his day in court, Sicat v. Reyes, and Hamoy v. Batingolo.
According to the former: `The above agreement, which served as basis for the
ejectment of Alipio Sicat, cannot be binding and conclusive upon the latter, who is
not a party to the case. Indeed, that order, as well as the writ of execution, cannot
legally be enforced against Alipio Sicat for the simple reason that he was not given
his day in court.' From the latter: `The issue raised in the motion of Rangar is not
involved in the appeal for it concerns a right which he claims over the property
which has not so far been litigated for the reason that he was not made a party to
the case either as plainti or as defendant. He only came to know of the litigation
when he was forced out of the property by the sheri, and so he led the present
motion to be heard and prove his title to the property. This he has the right to do as
the most expeditious manner to protect his interest instead of ling a separate
action which generally is long, tedious and protracted.'"
Reinforcement to the above conclusion comes from a codal provision. According to

the Civil Code: 7 "The vendor shall not be obliged to make good the proper
warranty, unless he is summoned in the suit for eviction at the instance of the
vendee." While not directly in point, the principle on which the above requirement
is based sustains the decision of the lower court. In eect, appellant bank would
hold appellee Bautista liable for the warranty on her title, its annulment having the
same eect as that of an eviction. In such a case, it is wisely provided by the Civil
Code that appellee Bautista, as vendor, should have been summoned and given the
opportunity to defend herself. In view of her being denied her day in court, it would
follow, if the intent of the above codal provision were to be respected, that she is
not "obliged to make good the proper warranty."
In the suit before the lower court, the Director of Lands and the National Treasurer
of the Philippines were likewise made defendants by appellant bank because of its
belief that if no right existed as against appellee Bautista, recovery could be had
from the Assurance Fund. Such a belief nds no support in the applicable law, which
allows recovery only upon a showing that there be no negligence on the part of the
party sustaining any loss or damage or being deprived of any land or interest
therein by the operation of the Land Registration Act 8 This certainly is not the case
here, plainti-appellant being solely responsible for the plight in which it now nds
itself. Accordingly, the Director of Lands and the National Treasurer of the
Philippines are likewise exempt from any liability.
WHEREFORE, the judgment appealed from is armed, with costs against the
Development Bank of the Philippines.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro and
Capistrano, JJ., concur.
Footnotes
1.

Statement of Facts, Brief for the Plaintiff-Appellant, p. 2.

2.

Ibid, pp. 2 to 3.

3.

Ibid, pp. 3 to 4.

4.

Record on Appeal, pp. 28 to 29.

5.

Cf. Cuaycong v. Sengbengco, L-11837, Nov. 29, 1960.

6.

L-23174, Sept. 18, 1967.

7.

Art. 1558, Civil Code of the Philippines.

8.

Cf. Sec. 101 of the Land Registration Act (Act No. 496)