Republic of the Philippines
 When Adolfo died, his heirs, namely, Luz Adolfo Bannister, Serafin Adolfo, Jr.

SUPREME COURT
 and Eleuterio Adolfo (Heirs of Adolfo), executed a Deed of Extrajudicial
Manila Partition dated December 24, 1997 covering the subject property and TCT
No. T-651529 was issued to them. On May 26, 1998, the said property was
THIRD DIVISION
subdivided and separate titles were issued in names of the Heirs of Adolfo,
G.R. No. 190875               June 13, 2012 as follows: TCT Nos. T-66562 and T-66563 for Luz Adolfo Banester10 ; TCT
ANICETO BANGIS substituted by his heirs, namely: RODOLFO B. Nos. T-66560 and T-66561 in the name of Serafin Adolfo, Jr.; and TCT Nos.
BANGIS, RONNIE B. BANGIS, ROGELIO B. BANGIS, RAQUEL B. T-66564 and T-66565 in favor of Eleuterio Adolfo.11
QUILLO, ROMULO B. BANGIS, ROSALINA B. PARAN, ROSARIO B. In June 1998, the Heirs of Adolfo expressed their intention to redeem the
R E D D Y, R E Y N A L D O B . B A N G I S , a n d R E M E D I O S B . mortgaged property from Bangis but the latter refused, claiming that the
LASTRE, Petitioners, 
 transaction between him and Adolfo was one of sale. During the conciliation
vs.
 meetings in the barangay, Bangis' son, Rudy Bangis, showed them a copy of
HEIRS OF SERAFIN AND SALUD ADOLFO, namely: LUZ A. BANNISTER, a deed of sale and a certificate of title to the disputed lot.12  The parties
SERAFIN ADOLFO, JR., and ELEUTERIO ADOLFO rep. by his Heirs, having failed to amicably settle their differences, a certificate to file
namely: MILAGROS, JOEL, MELCHOR, LEA, MILA, NELSON, JIMMY action13was issued by the barangay.
and MARISSA, all surnamed ADOLFO, Respondents.
THE PROCEEDINGS BEFORE THE RTC
DECISION
On July 26, 2000, the Heirs of Adolfo filed a complaint14 before the Regional
PERLAS-BERNABE, J.: Trial Court (RTC) for annulment of deed of sale and declaration of the
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules purported contract of sale as antichresis, accounting and redemption of
of Court is the March 30, 2009 Decision1 of the Court of Appeals Mindanao property and damages against Bangis, docketed as Civil Case No. 2993-00.
Station (CA) and its December 2, 2009 Resolution2  in CA-G.R. CV No. The complaint was amended on September 11, 2001 to include a prayer for
00722-MIN which declared that the transaction between the parties was a the cancellation of TCT No. T-10567 and the tax declarations in the name of
mortgage, not a sale, and ordered petitioners to surrender the possession of Bangis in view of the manifestation15  filed by Ex-Officio Register of Deeds,
the disputed lot upon respondents' full payment of their indebtedness. Atty. Phoebe Loyola Toribio of the Registry of Deeds, Malaybalay City which
states that the said title was of "dubious" origin since there was no deed of
THE ANTECEDENT FACTS conveyance upon which the said transfer certificate of title was based and
The spouses Serafin, Sr. and Saludada3 Adolfo were the original registered that its derivative title, TCT No. T-10566, does not exist in the files of the
owners of a 126,622 square meter lot covered by Original Certificate of Title Registry of Deeds.16  On November 12, 2001, the complaint was again
(OCT) No. P-489 issued on December 15, 1954 (derived from Homestead amended to reflect the other certificates of titles issued in the names of the
Patent No. V-34974), located in Valencia, Malaybalay, Bukidnon. This Heirs of Adolfo and the amount ofP12,500.00 representing the mortgage
property was mortgaged to the then Rehabilitation Finance Corporation (now debt,17  followed by another amendment on October 13, 2003 to include the
Development Bank of the Philippines or DBP) on August 18, 1955,4 and upon allegation that they have partitioned the subject lot on December 24, 1997
default in the payment of the loan obligation, was foreclosed and ownership and that no copy of the supposed deed of sale in favor of Bangis can be
was consolidated in DBP's name under Transfer Certificate of Title (TCT) No. found in the records of the Provincial Assessor's Office and the Registrar of
T-1152.5 Serafin Adolfo, Sr., however, repurchased the same and was issued Deeds. They further prayed, in the alternative, to be allowed to redeem the
TCT No. 63136 on December 1, 1971, a year after his wife died in 1970. subject lot under the Homestead Law and that Bangis be ordered to
indemnify them: (a)  P50,000.00 each as moral damages; (b) 20% of the
Sometime in 1975, Serafin Adolfo, Sr. (Adolfo) allegedly mortgaged the
value of the property as attorney's fees; and (c)  P50,000.00 as litigation
subject property for the sum of P12,500.00 to Aniceto Bangis (Bangis) who
expenses as well as the costs of suit.18
immediately took possession of the land.7  The said transaction was,
however, not reduced into writing.8
Page 1 of 23
In his Answer with Counterclaim,19  Bangis claimed to have bought the 4. Declaring all the transfer certificates of title issued in favor of the
subject property from Adolfo for which TCT No. T-1056720  was issued. He plaintiffs namely, Luz Adolfo-Bannister, Serafin Adolfo, Jr. and
also alleged to have been in open and adverse possession of the property Eleuterio Adolfo, as above-mentioned as the ones valid and issued in
since 1972 and that the cause of action of the Heirs of Adolfo has prescribed. accordance with PD 1529.
On November 11, 2001, Bangis died and was substituted in this suit by his SO ORDERED.
heirs, namely, Rodolfo B. Bangis, Ronie B. Bangis, Rogelio B. Bangis,
Raquel B. Quillo, Romulo B. Bangis, Rosalina B. Paran, Rosario B. Reddy, Aggrieved, the Heirs of Bangis appealed the foregoing disquisition to the
Reynaldo B. Bangis and Remedios B. Lastre (Heirs of Bangis).21 Court of Appeals (CA).
During the trial, one of the Heirs of Bangis, Rodolfo Bangis, presented a THE CA RULING
photocopy of an Extra-Judicial Settlement with Absolute Deed of Sale dated In its assailed Decision, the CA affirmed the RTC finding that the contract
December 30, 197122 for the purpose of proving the sale of the subject lot by between the parties was a mortgage, not a sale. It noted that while Bangis
Adolfo and his heirs in favor of his predecessors-in-interest, Aniceto Bangis was given possession of the subject property, the certificate of title remained
and Segundino Cortel, for the sum ofP13,000.00. He also presented a in the custody of Adolfo and was never cancelled. The CA also ordered the
Promissory Note23  of even date purportedly executed by Bangis and Heirs of Adolfo to pay the Heirs of Bangis the mortgage debt
Segundino Cortel undertaking to pay the balance of the purchase price in the of P12,500.0029 with twelve (12%) percent interest reckoned from 1975 until
amount of  P1,050.00.24  Both documents were notarized by Atty. Valentin 1998 and to deliver to them the possession of the property upon full
Murillo who testified to the fact of their execution.25 Rodolfo Bangis likewise payment.30  It, however, deleted the RTC order directing the Register of
testified that they have been paying the taxes due on the property and had Deeds to cancel TCT No. T-10567 in the name of Bangis for being a
even used the same as collateral for a loan with a bank.26 collateral attack proscribed under PD 1529.31
On rebuttal, one of the Heirs of Adolfo, Luz Adolfo Bannister, denied the due Dissatisfied, the Heirs of Bangis filed a Motion for Reconsideration32 arguing
execution and genuineness of the foregoing Extra-Judicial Settlement with that the CA erred in disregarding their testimonial and documentary
Absolute Deed of Sale alleging forgery.27 evidence, particularly, the Extra-Judicial Settlement with Absolute Deed of
On December 29, 2005, the RTC rendered a Decision28 in favor of the Heirs Sale (Exh. 2) which purportedly established the sale in favor of their
of Adolfo, the dispositive portion of which reads: predecessor-in-interest, Aniceto Bangis. The said motion was, however,
denied in the Resolution33 dated December 2, 2009.
WHEREFORE, the preponderance of evidence being strongly in favor of the
plaintiffs and against the defendants, decision is hereby rendered: THE ISSUE BEFORE THE COURT
1. Declaring the contract between the plaintiffs and defendants as a Hence, the instant petition for review on certiorari based on the lone
mere mortgage or antichresis and since the defendants have been in assignment of error34  that the transaction between the parties was one of
the possession of the property in 1975 up to the present time sale and not a mortgage or antichresis. In support, petitioner Heirs of Bangis
enjoying all its fruits or income, the mortgaged loan of P12,000.00 is maintain that the CA erred in not giving probative weight to the Extra-Judicial
deemed fully paid; Settlement with Absolute Deed of Sale35  which supposedly bolsters their
claim that their father, Aniceto Bangis, bought the subject parcel of land from
2. Ordering the defendants to deliver the possession of the property Adolfo. Hence, the corresponding title, TCT No. T-10567, issued as a
in question and all the improvements thereon to the plaintiffs consequence should be respected.
peacefully;
On their part, respondent Heirs of Adolfo averred that no reversible error was
3. Declaring TCT No. 10567 in the name of Aniceto Bangis as NULL committed by the CA in upholding that no sale transpired between the
AND VOID AB INITIO and directing the Office of the Register of parties' predecessors-in-interest. Moreover, petitioners' TCT No. T-10567
Deeds to cause its cancellation from its record to avoid confusion was not offered in evidence and worse, certified as of dubious origin per the
regarding the ownership thereof; and Manifestation of the Registrar of Deeds.36

Page 2 of 23
THE COURT'S RULING SEC. 3. Original document must be produced; exceptions. - When the
subject of inquiry is the contents of a document, no evidence shall be
The petition must fail.
admissible other than the original document itself, except in the following
At the outset, it should be emphasized that a petition for review cases:
on certiorari under Rule 45 of the Rules of Court involves only questions of
(1) When the original has been lost or destroyed, or cannot be
law and not of facts. A question of law exists when there is doubt as to what
produced in court, without bad faith on the part of the offeror;
the law is on a given set of facts while a question of fact arises when there is
doubt as to the truth or falsity of the alleged facts.37 (2) When the original is in the custody or under the control of the
party against whom the evidence is offered, and the latter fails to
The Heirs of Bangis, in insisting that both the RTC and the CA erroneously
produce it after reasonable notice;
disregarded the evidence of sale they presented, are effectively asking the
Court to re-evaluate factual issues which is proscribed under Rule 45. "Such (3) When the original consists of numerous accounts or other
questions as to whether certain items of evidence should be accorded documents which cannot be examined in court without great loss of
probative value or weight, or rejected as feeble or spurious, or whether or not time and the fact sought to be established from them is only the
the proofs on one side or the other are clear and convincing and adequate to general result of the whole; and
establish a proposition in issue, are without doubt questions of fact."38 (4) When the original is a public record in the custody of a public
Nonetheless, the Court perused the records and found substantial evidence officer or is recorded in a public office.
supporting the factual findings of the RTC, as affirmed by the CA, that the SEC. 5. When original document is unavailable. - When the original
nature of the transaction between the parties' predecessors-in-interest was a document has been lost or destroyed, or cannot be produced in court, the
mortgage and not a sale. Thus, the maxim that factual findings of the trial offeror, upon proof of its execution or existence and the cause of its
court when affirmed by the CA are final and conclusive on the Court39 obtains unavailability without bad faith on his part, may prove its contents by a copy,
in this case. or by a recital of its content in some authentic document, or by the testimony
THERE WAS NEITHER AN
 of witnesses in the order stated.
ANTICHRESIS NOR SALE The bare testimony of one of the Heirs of Bangis, Rodolfo Bangis, that the
For the contract of antichresis to be valid, Article 2134 of the Civil Code subject document was only handed43to him by his father, Aniceto, with the
requires that "the amount of the principal and of the interest shall be information that the original thereof "could not be found"44 was insufficient to
specified in writing; otherwise the contract of antichresis shall be void." In this justify its admissibility. Moreover, the identification made by Notary Public
case, the Heirs of Adolfo were indisputably unable to produce any document Atty. Valentin Murillo45  that he notarized such document cannot be given
in support of their claim that the contract between Adolfo and Bangis was an credence as his conclusion was not verified against his own notarial records.
antichresis, hence, the CA properly held that no such relationship existed 46Besides, the Heirs of Bangis could have secured a certified copy of the

between the parties. 40 deed of sale from the Assessor's Office47that purportedly had its custody in
compliance with Section 7, Rule 13048 of the Rules of Court.
On the other hand, the Heirs of Bangis presented an Extra-Judicial
Settlement with Absolute Deed of Sale dated December 30, 197141 to justify In sum, the Heirs of Bangis failed to establish the existence and due
their claimed ownership and possession of the subject land. However, execution of the subject deed on which their claim of ownership was
notwithstanding that the subject of inquiry is the very contents of the said founded. Consequently, the RTC and CA were correct in affording no
document, only its photocopy42  was presented at the trial without providing probative value to the said document.49
sufficient justification for the production of secondary evidence, in violation of TCT NO. T-10567 IN THE NAME OF

the best evidence rule embodied under Section 3 in relation to Section 5 of ANICETO BANGIS CANNOT PREVAIL

Rule 130 of the Rules of Court, to wit: OVER THE TITLES OF THE HEIRS OF

ADOLFO

Page 3 of 23
Records reveal that TCT No. T-10567 purportedly secured as a consequence Transfer Certificate of Title No. T-10567 as shown on the title was derived
of the deed of sale executed by Adolfo and his heirs in favor of Bangis was from Transfer Certificate of Title No. T-10566 but [sic] title is not existing in
not offered in evidence. A perusal of its copy, however, shows that it was a this office.
transfer from TCT No. T-10566,50 which title the Heirs of Bangis unfortunately As held in the case of  Top Management Programs Corporation v. Luis
failed to account for, and bore no relation at all to either OCT No. P-489 (the Fajardo and the Register of Deeds of Las Piñas City:52 "if two certificates of
original title of the Spouses Adolfo) or TCT No. T-6313 (issued to Adolfo title purport to include the same land, whether wholly or partly, the better
when he repurchased the same property from DBP). The Manifestation51 of approach is to trace the  original certificates  from which the certificates of
the Register of Deeds of Malaybalay City regarding the doubtful origin of TCT titles were derived."
No. T-10567 and the regularity of the titles of the Heirs of Adolfo are
insightful, thus: Having, thus, traced the roots of the parties' respective titles supported by
the records of the Register of Deeds of Malaybalay City, the courts a
That the verification from the office of the original copy of Transfer Certificate quo53 were correct in upholding the title of the Heirs of Adolfo as against TCT
of Title No. T-10567 in the name of Anecito Bangis is existing in the office. No. T-10567 of Bangis, notwithstanding its earlier issuance on August 18,
Machine copy of the said title is hereto attached as annex "A" but nothing in 197654 or long before the Heirs of Adolfo secured their own titles on May 26,
the title whether annotated or attached, any Deed of Conveyance or other 1998. To paraphrase the Court's ruling in Mathay v. Court of Appeals:55where
Documents by which said title was issued or transferred in the name of two (2) transfer certificates of title have been issued on different dates, the
Anecito Bangis. one who holds the earlier title may prevail only in the absence of any
That for the information and guidance of the court attached herewith is a anomaly or irregularity in the process of its registration, which circumstance
machine copies [sic] Original Certificate of Title No. P-489 in the name of does not obtain in this case.
Serafin Adolfo, marked as annex "B" which supposedly the mother title of CANCELLATION OF TCT NO. T-10567
Transfer Certificate of Title No. T-10567 as to how this title was transferred in
the name of Anecito Bangis. Nothing will show which will validly supports [sic] The Court cannot sustain the CA's ruling56 that TCT No. T-10567 cannot be
the said transfer, in other words the said title is dubious. invalidated because it constitutes as a collateral attack which is contrary to
the principle of indefeasibility of titles.
This Original Certificate of Title No. P-489 in the name of Serafin Adolfo was
mortgage to the Development Bank of the Philippines and then it was It must be noted that Bangis interposed a counterclaim in his Answer seeking
consolidated and Transfer Certificate of Title No. T-1152 was issued in the to be declared as the true and lawful owner of the disputed property and that
name of Development Bank of the Philippines. From the Development Bank his TCT No. T-10567 be declared as superior over the titles of the Heirs of
of the Philippines a Deed of Sale was executed by the Development Bank of Adolfo.57  Since a counterclaim is essentially a complaint58  then, a
the Philippines in favor of Serafin Adolfo and Transfer Certificate of Title No. determination of the validity of TCT No. T-10567  vis-a-vis  the titles of the
T-6313 marked annex "B-1" was issued in the name of Serafin Adolfo. Heirs of Adolfo can be considered as a direct, not collateral, attack on the
subject titles.59
An Extrajudicial Settlement was now [sic] by the Heirs of Serafin Adolfo and
Transfer Certificate of Title Nos. T-65152 annex "B-2", T-66560 annex "B-3", In Pasiño v. Monterroyo, the Court has ruled, thus:
T-66561 annex "B-4", T-66562 annex "B-5", T-66563 annex "B-6", T-66564 It is already settled that a counterclaim is considered an original complaint
annex "B-7", and T-66565 annex "B-8" were issued to the Heirs. and as such, the attack on the title in a case originally for recovery of
The titles issued to the Heirs of Serafin Adolfo were legitimately issued by possession cannot be considered as a collateral attack on the title.
this office after all its [sic] requirements and supporting documents were Development Bank of the Philippines v. Court of Appeals is similar to the
submitted and proper annotations were reflected at the back of the title of case before us insofar as petitioner in that case filed an action for recovery of
Serafin Adolfo. possession against respondent who, in turn, filed a counterclaim claiming
ownership of the land. In that case, the Court ruled:

Page 4 of 23
Nor is there any obstacle to the determination of the validity of TCT No. considerable number of years from the time it was constituted in 1975
10101. It is true that the indefeasibility of torrens title cannot be collaterally because the mortgage debt has not been satisfied.
attacked. In the instant case, the original complaint is for recovery of Following the Court's ruling in the iconic case of Eastern Shipping Lines, Inc.
possession filed by petitioner against private respondent, not an original v. Court of Appeals,64  the foregoing liability, which is based on a loan or
action filed by the latter to question the validity of TCT No. 10101 on which forbearance of money, shall be subject to legal interest of 12%  per
petitioner bases its right. To rule on the issue of validity in a case for recovery annumfrom the date it was judicially determined by the CA on March 30,
of possession is tantamount to a collateral attack. However, it should not [b]e 2009 until the finality of this Decision, and not from 1975 (the date of the
overlooked that private respondent filed a counterclaim against petitioner, constitution of the mortgage); nor from 1998 (when an attempt to pay was
claiming ownership over the land and seeking damages. Hence, we could made) or in 2000 at the time the complaint was filed, because it was the
rule on the question of the validity of TCT No. 10101 for the counterclaim can Heirs of Adolfo and not Bangis who filed the instant suit65  to collect the
be considered a direct attack on the same. ‘A counterclaim is considered a indebtedness. Thereafter, the judgment award inclusive of interest shall bear
complaint, only this time, it is the original defendant who becomes the interest at 12%per annum until its full satisfaction.66
plaintiff... It stands on the same footing and is to be tested by the same rules
as if it were an independent action.’ x x x (Citations omitted) 60 WHEREFORE, premises considered, the instant petition for review on
certiorari is DENIED and the assailed Decision dated March 30, 2009 of the
Besides, the prohibition against collateral attack does not apply to spurious Court of Appeals Mindanao Station (CA) and its Resolution dated December
or non-existent titles, which are not accorded indefeasibility,61 as in this case. 2, 2009 in CA-G.R. CV No. 00722-MIN are  AFFIRMED with
THE PRESENT ACTION HAS NOT PRESCRIBED MODIFICATION:  (1) cancelling TCT No. T-10567; and (2) ordering
respondent Heirs of Adolfo to pay petitioner Heirs of Bangis the sum
The claim of the Heirs of Bangis that since they have been in possession of
of P12,500.00 with legal interest of 12% per annum reckoned from March 30,
the subject land since 1972 or for 28 years reckoned from the filing of the
2009 until the finality of this Decision and thereafter, 12% annual interest until
complaint in 2000 then, the present action has prescribed is untenable.
its full satisfaction.
1âwphi1 It bears to note that while Bangis indeed took possession of the land
upon its alleged mortgage, the certificate of title (TCT No. 6313) remained The rest of the Decision stands.
with Adolfo and upon his demise, transferred to his heirs, thereby negating SO ORDERED.
any contemplated transfer of ownership. Settled is the rule that no title in
derogation of that of the registered owner can be acquired by prescription or ESTELA M. PERLAS-BERNABE

adverse possession.62  Moreover, even if acquisitive prescription can be Associate Justice
appreciated in this case, the Heirs of Bangis' possession being in bad faith is WE CONCUR:
two years shy of the requisite 30-year uninterrupted adverse possession
required under Article 1137 of the Civil Code.1âwphi1 DIOSDADO M. PERALTA*

Associate Justice

Consequently, the Heirs of Bangis cannot validly claim the rights of a builder Acting Chairperson
in good faith as provided for under Article 449 in relation to Article 448 of the
Civil Code. Thus, the order for them to surrender the possession of the ROBERTO A. ABAD

disputed land together with all its improvements was properly made. Associate Justice
MARTIN S. VILLARAMA, JR.**

LIABILITY FOR THE PAYMENT OF INTEREST Associate Justice

Finally, it is undisputed that the Heirs of Bangis made no judicial or Acting Member
extrajudicial demand on the Heirs of Adolfo to pay the mortgage debt. JOSE CATRAL MENDOZA

Instead, it was the latter who signified their intent to pay their father's loan Associate Justice
obligation, admittedly in the amount of P12,500.00,63 which was refused. The
mortgage contract therefore continued to subsist despite the lapse of a ATTE STATI O N

Page 5 of 23
I attest that the conclusions in the above Decision had been reached in 12 TSN, March 5, 2004, pp. 19-21.
consultation before the case was assigned to the writer of the opinion of the 13 Supra note 4, Exhibit "G" at 279.
Court’s Division.
14 Records, pp. 1-4.
DIOSDADO M. PERALTA

15 Id. at 52-53.
Associate Justice

Acting Chairperson, Third Division 16 Id. at 54-60.
C E RTI F I CATI O N 17 Id. at 70, 72-76.
I certify that the conclusions in the above Decision had been reached in 18 Id. at 114, 116-120.
consultation before the case was assigned to the writer of the opinion of the
19 Id. at 31-33.
Court’s Division.
20 Id. at 49-51.
ANTONIO T. CARPIO

Senior Associate Justice
 21 Id. at 97, 108-109.
(Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended) 22 Folder of exhibits, Exhibit "I" for petitioners; Exhibit "2" for

 respondents, at 350-351.
23 Id., Exhibit "1", at 349.
Footnotes 24  TSN, May 20, 2005, p. 10; TSN, November 26, 2004, pp. 7, 11
* Per Special Order No. 1228 dated June 6, 2012. and 12.
** Designated acting member in lieu of Justice Presbitero J. Velasco, 25 TSN, November 26, 2004, p. 5; TSN, September 2, 2005, pp. 3-6.
Jr., per Special Order No. 1229 dated June 6, 2012. 26 TSN, May 20, 2005, pp. 18-19.
1  Penned by Associate Justice Rodrigo F. Lim, Jr., with Associate 27 TSN, August 5, 2005, pp. 4-8.
Justices Romulo V. Borja and Michael P. Elbinias concurring, and
28 Supra note 14 at 204-218.
Associate Justices Elihu A. Ybañez and Ruben C. Ayson,
dissenting; rollo, pp. 24-39. 29 Rollo, pp. 31-34.
2 Id. at 40-41. 30 Id. at 38.
3 Sometimes referred to as "Salud" in the records. 31 Id., at 36-38.
4 Folder of exhibits, Exhibit "A", pp. 269-270. 32 CA rollo, pp. 94-107.
5 Id., Exhibit "B" at 271. 33 See Supra note 2.
6 Id., Exhibit "C" at 272. 34 Id. at 7.
7 TSN, March 3, 2004, p. 13. 35 See Supra note 23.
8 Id. at 14. 36 Supra note 29 at 67-75.
9 Exhibit "C-1", (dorsal portion) at 272. 37  Abalos
v. Sps. Darapa, G.R. No. 164693, March 23, 2011, 646
10 Should be "Bannister." SCRA 200, 207 and 208.
11 Supra note 4, Exhibits "D" to "F-1", at 273-278.

Page 6 of 23
38 Heirs
of Mario Pacres v. Heirs of Cecilia Ygoña, G.R. No. 174719, 59 Id.

May 5, 2010, 620 SCRA 213, 225, citing Paterno v. Paterno, G.R. 60 G.R. No. 159494, July 31, 2008, 560 SCRA 739, 750 and 751.
No. 63680, March 23, 1990, 183 SCRA 630, 636.
61 Supra note 58.
39 Abalos v. Spouses Darapa, supra note 37.
62  Feliciano
v. Spouses Zaldivar, G.R. No. 162593, September 26,
40 Supra note 29 at 32-33. 2006, 503 SCRA 182, 197.
41 Supra note 4, Exhibit "I" for petitioners; Exhibit "2" for respondents, 63 See Supra note 7.
at 350-351.
64 G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95 and 96.
42 See Supra note 23.
65 
Crystal v. Bank of the Philippine Islands, G.R. No. 180274,
43 TSN, May 20, 2005, p. 5. September 4, 2009, 598 SCRA 464, 470 and 471.
44 Id. at 6-7. 66 Id.
45 TSN, November 26, 2004, pp. 14-15.
46 Departmentof Education, Culture and Sports v. Del Rosario, et al.,
G.R. No. 146586, January 26, 2005, 449 SCRA 299, 317. Republic of the Philippines

47 TSN,
SUPREME COURT

May 20, 2005, pp. 20-22. Manila
48  Sec.7. Evidence admissible when original document is a public FIRST DIVISION
record. - When the original of a document is in the custody of a
public officer or is recorded in a public office, its contents may be G.R. No. 160758               January 15, 2014
proved by a certified copy issued by the public officer in custody DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, 

thereof. vs.

49 
Duero v. Hon. Court of Appeals, G.R. No. 131282, January 4, G U A R I Ñ A A G R I C U LT U R A L A N D R E A LT Y D E V E L O P M E N T
2002, 373 SCRA 11, 17. CORPORATION, Respondent.
50 Supra note 14 at 49. DECISION
51 Supra note at 15. BERSAMIN, J.:
52 G.R.No. 150462, June 15, 2011, citing the case of Degollacion v. The foreclosure of a mortgage prior to the mortgagor's default on the
Register of Deeds of Cavite, G.R. No. 161433, August 29, 2006, 500 principal obligation is premature, and should be undone for being void and
SCRA 108, 115. ineffectual. The mortgagee who has been meanwhile given possession of the
53 Supra note 29 at
mortgaged property by virtue of a writ of possession issued to it as the
34-36. purchaser at the foreclosure sale may be required to restore the possession
54 Supra note 14 at 49. of the property to the mortgagor and to pay reasonable rent for the use of the
55 G.R. property during the intervening period.
No. 115788, September 17, 1998, 295 SCRA 556, 578.
56 Supra note The Case
29 at 36-38.
57 Records, In this appeal, Development Bank of the Philippines (DBP) seeks the
pp. 32-33.
reversal of the adverse decision promulgated on March 26, 2003 in C.A.-
58 Oliveros v. San Miguel Corporation, G.R. No. 173531, February 1, G.R. CV No. 59491,1  whereby the Court of Appeals (CA) upheld the
2012. judgment rendered on January 6, 19982 by the Regional Trial Court, Branch

Page 7 of 23
25, in Iloilo City (RTC) annulling the extra-judicial foreclosure of the real On January 6, 1979, Guariña Corporation sued DBP in the RTC to demand
estate and chattel mortgages at the instance of DBP because the debtor- specific performance of the latter's obligations under the loan agreement,
mortgagor, Guariña Agricultural and Realty Development Corporation and to stop the foreclosure of the mortgages (Civil Case No. 12707).
(Guariña Corporation), had not yet defaulted on its obligations in favor of 12However, DBP moved for the dismissal of the complaint, stating that the

DBP. mortgaged properties had already been sold to satisfy the obligation of
Guariña Corporation at a public auction held on January 15, 1979 at the
Antecedents
Costa Mario Resort Beach Resort in Oton, Iloilo.13  Due to this, Guariña
In July 1976, Guariña Corporation applied for a loan from DBP to finance the Corporation amended the complaint on February 6, 197914  to seek the
development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, nullification of the foreclosure proceedings and the cancellation of the
in the amount of P3,387,000.00, was approved on August 5, 1976.3Guariña certificate of sale. DBP filed its answer on December 17, 1979,15  and trial
Corporation executed a promissory note that would be due on November 3, followed upon the termination of the pre-trial without any agreement being
1988.4  On October 5, 1976, Guariña Corporation executed a real estate reached by the parties.16
mortgage over several real properties in favor of DBP as security for the
In the meantime, DBP applied for the issuance of a writ of possession by the
repayment of the loan. On May 17, 1977, Guariña Corporation executed a
RTC. At first, the RTC denied the application but later granted it upon DBP's
chattel mortgage over the personal properties existing at the resort complex
motion for reconsideration. Aggrieved, Guariña Corporation assailed the
and those yet to be acquired out of the proceeds of the loan, also to secure
granting of the application before the CA on certiorari (C.A.-G.R. No. 12670-
the performance of the obligation.5  Prior to the release of the loan, DBP
SP entitled Guariña Agricultural and Realty Development Corporation v.
required Guariña Corporation to put up a cash equity of  P1,470,951.00 for
Development Bank of the Philippines). After the CA dismissed the petition for
the construction of the buildings and other improvements on the resort
certiorari, DBP sought the implementation of the order for the issuance of the
complex.
writ of possession. Over Guariña Corporation's opposition, the RTC issued
The loan was released in several instalments, and Guariña Corporation used the writ of possession on June 16, 1982.17
the proceeds to defray the cost of additional improvements in the resort
Judgment of the RTC
complex. In all, the amount released totalled P3,003,617.49, from which DBP
withheld P148,102.98 as interest.6 On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707,
disposing as follows:
Guariña Corporation demanded the release of the balance of the loan, but
DBP refused. Instead, DBP directly paid some suppliers of Guariña WHEREFORE, premises considered, the court hereby resolves that the
Corporation over the latter's objection. DBP found upon inspection of the extra-judicial sales of the mortgaged properties of the plaintiff by the Office of
resort project, its developments and improvements that Guariña Corporation the Provincial Sheriff of Iloilo on January 15, 1979 are null and void, so with
had not completed the construction works.7In a letter dated February 27, the consequent issuance of certificates of sale to the defendant of said
1978,8  and a telegram dated June 9, 1978,9  DBP thus demanded that properties, the registration thereof with the Registry of Deeds and the
Guariña Corporation expedite the completion of the project, and warned that issuance of the transfer certificates of title involving the real property in its
it would initiate foreclosure proceedings should Guariña Corporation not do name.
so.10 It is also resolved that defendant give back to the plaintiff or its representative
Unsatisfied with the non-action and objection of Guariña Corporation, DBP the actual possession and enjoyment of all the properties foreclosed and
initiated extrajudicial foreclosure proceedings. A notice of foreclosure sale possessed by it. To pay the plaintiff the reasonable rental for the use of its
was sent to Guariña Corporation. The notice was eventually published, beach resort during the period starting from the time it (defendant) took over
leading the clients and patrons of Guariña Corporation to think that its its occupation and use up to the time possession is actually restored to the
business operation had slowed down, and that its resort had already closed. plaintiff.
11

Page 8 of 23
And, on the part of the plaintiff, to pay the defendant the loan it obtained as In its decision promulgated on March 26, 2003,20 however, the CA sustained
soon as it takes possession and management of the beach resort and the RTC's judgment but deleted the award of attorney's fees, decreeing:
resume its business operation. WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998,
Furthermore, defendant is ordered to pay plaintiff's attorney's fee rendered by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case
of P50,000.00. No. 12707 for Specific Performance with Preliminary Injunction is hereby
AFFIRMED with MODIFICATION, in that the award for attorney's fees is
So ORDERED.18
deleted.
Decision of the CA
SO ORDERED.21
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the
DBP timely filed a motion for reconsideration, but the CA denied its motion on
RTC, and insisted that:
October 9, 2003.
I
Hence, this appeal by DBP.
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN
Issues
D E C L A R I N G D B P ' S F O R E C L O S U R E O F T H E M O RT G A G E D
PROPERTIES AS INVALID AND UNCALLED FOR. DBP submits the following issues for consideration, namely:
II WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS
DATED MARCH 26, 2003 AND ITS RESOLUTION DATED OCTOBER 9,
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS
DENYING PETITIONER'S MOTION FOR RECONSIDERATION WERE
INVOKED BY DBP TO JUSTIFY FORECLOSURE AS "NOT SUFFICIENT."
ISSUED IN ACCORDANCE WITH LAW, PREVAILING JURISPRUDENTIAL
ON THE CONTRARY, THE MORTGAGE WAS FORECLOSED BY
DECISION AND SUPPORTED BY EVIDENCE;
EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE
CONTRACT AND SECTION 2 OF P.D. 385 IN ADDITION TO THE WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED
QUESTIONED PAR. NO. 26 PRINTED AT THE BACK OF THE FIRST PAGE TO THE USUAL COURSE OF JUDICIAL PROCEEDINGS IN DECIDING
OF THE MORTGAGE CONRACT. C.A.-G.R. CV NO. 59491 AND THEREFORE IN ACCORDANCE WITH THE
"LAW OF THE CASE DOCTRINE."22
III
Ruling
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE
MORTGAGED PROPERTIES TO DBP AS INVALID UNDER ARTICLES The appeal lacks merit.
2113 AND 2141 OF THE CIVIL CODE. 1.

IV Findings of the CA were supported by the

evidence as well as by law and jurisprudence
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE]
ERROR IN ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL DBP submits that the loan had been granted under its supervised credit
POSSESSION AND ENJOYMENT OF ALL THE FORECLOSED financing scheme for the development of a beach resort, and the releases of
PROPERTIES AND TO PAY PLAINTIFF REASONABLE RENTAL FOR THE the proceeds would be subject to conditions that included the verification of
USE OF THE FORECLOSED BEACH RESORT. the progress of works in the project to forestall diversion of the loan
proceeds; and that under Stipulation No. 26 of the mortgage contract, further
V
loan releases would be terminated and the account would be considered due
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST and demandable in the event of a deviation from the purpose of the loan,
DBP WHICH MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE 23 including the failure to put up the required equity and the diversion of the
CONTRACT.19 loan proceeds to other purposes.24  It assails the declaration by the CA that
Guariña Corporation had not yet been in default in its obligations despite
Page 9 of 23
violations of the terms of the mortgage contract securing the promissory (Areola vs. Court of Appeals, 236 SCRA 643). They are to be performed
note. simultaneously such that the performance of one is conditioned upon the
simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310
Guariña Corporation counters that it did not violate the terms of the
SCRA 1). The promise of appellee to pay the loan upon due date as well as
promissory note and the mortgage contracts because DBP had fully collected
to execute sufficient security for said loan by way of mortgage gave rise to a
the interest notwithstanding that the principal obligation did not yet fall due
reciprocal obligation on the part of appellant to release the entire approved
and become demandable.25
loan amount. Thus, appellees are entitled to receive the total loan amount as
The submissions of DBP lack merit and substance. agreed upon and not an incomplete amount.
The agreement between DBP and Guariña Corporation was a loan. Under The appellant did not release the total amount of the approved loan.
the law, a loan requires the delivery of money or any other consumable Appellant therefore could not have made a demand for payment of the loan
object by one party to another who acquires ownership thereof, on the since it had yet to fulfil its own obligation. Moreover, the fact that appellee
condition that the same amount or quality shall be paid.26 Loan is a reciprocal was not yet in default rendered the foreclosure proceedings premature and
obligation, as it arises from the same cause where one party is the creditor, improper.
and the other the debtor.27  The obligation of one party in a reciprocal
The properties which stood as security for the loan were foreclosed without
obligation is dependent upon the obligation of the other, and the performance
any demand having been made on the principal obligation. For an obligation
should ideally be simultaneous. This means that in a loan, the creditor should
to become due, there must generally be a demand. Default generally begins
release the full loan amount and the debtor repays it when it becomes due
from the moment the creditor demands the performance of the obligation.
and demandable.28
Without such demand, judicial or extrajudicial, the effects of default will not
In its assailed decision, the CA found and held thusly: arise (Namarco vs. Federation of United Namarco Distributors, Inc., 49
xxxx SCRA 238; Borje vs. CFI of Misamis Occidental, 88 SCRA 576).

x x x It is undisputed that appellee obtained a loan from appellant, and as xxxx

security, executed real estate and chattel mortgages. However, it was never Appellant also admitted in its brief that it indeed failed to release the full
established that appellee was already in default. Appellant, in a telegram to amount of the approved loan. As a consequence, the real estate mortgage of
the appellee reminded the latter to make good on its construction works, appellee becomes unenforceable, as it cannot be entirely foreclosed to
otherwise, it would foreclose the mortgage it executed. It did not mention that satisfy appellee's total debt to appellant (Central Bank of the Philippines vs.
appellee was already in default. The records show that appellant did not Court of Appeals, 139 SCRA 46).
make any demand for payment of the promissory note. It appears that the
Since the foreclosure proceedings were premature and unenforceable, it only
basis of the foreclosure was not a default on the loan but appellee's failure to
follows that appellee is still entitled to possession of the foreclosed
complete the project in accordance with appellant's standards. In fact,
properties. However, appellant took possession of the same by virtue of a
appellant refused to release the remaining balance of the approved loan after
writ of possession issued in its favor during the pendency of the case. Thus,
it found that the improvements introduced by appellee were below appellant's
the trial court correctly ruled when it ordered appellant to return actual
expectations.
possession of the subject properties to appellee or its representative and to
The loan agreement between the parties is a reciprocal obligation. Appellant pay appellee reasonable rents.
in the instant case bound itself to grant appellee the loan amount
However, the award for attorney's fees is deleted. As a rule, the award of
of P3,387,000.00 condition on appellee's payment of the amount when it falls
attorney's fees is the exception rather than the rule and counsel's fees are
due. Furthermore, the loan was evidenced by the promissory note which was
not to be awarded every time a party wins a suit. Attorney's fees cannot be
secured by real estate mortgage over several properties and additional
recovered as part of damages because of the policy that no premium should
chattel mortgage. Reciprocal obligations are those which arise from the same
be placed on the right to litigate (Pimentel vs. Court of Appeals, et al., 307
cause, and in which each party is a debtor and a creditor of the other, such
SCRA 38).29
that the obligation of one is dependent upon the obligation of the other
Page 10 of 23
xxxx under the principal contract because DBP was only thereby requesting the
latter "to put up the deficiency in the value of improvements."36
We uphold the CA.
Under the circumstances, DBP's foreclosure of the mortgage and the sale of
To start with, considering that the CA thereby affirmed the factual findings of
the mortgaged properties at its instance were premature, and, therefore, void
the RTC, the Court is bound to uphold such findings, for it is axiomatic that
and ineffectual.37
the trial court's factual findings as affirmed by the CA are binding on appeal
due to the Court not being a trier of facts. Being a banking institution, DBP owed it to Guariña Corporation to exercise
the highest degree of diligence, as well as to observe the high standards of
Secondly, by its failure to release the proceeds of the loan in their entirety,
integrity and performance in all its transactions because its business was
DBP had no right yet to exact on Guariña Corporation the latter's compliance
imbued with public interest.38  The high standards were also necessary to
with its own obligation under the loan. Indeed, if a party in a reciprocal
ensure public confidence in the banking system, for, according to Philippine
contract like a loan does not perform its obligation, the other party cannot be
National Bank v. Pike:39  "The stability of banks largely depends on the
obliged to perform what is expected of it while the other's obligation remains
confidence of the people in the honesty and efficiency of banks." Thus, DBP
unfulfilled.30 In other words, the latter party does not incur delay.31
had to act with great care in applying the stipulations of its agreement with
Still, DBP called upon Guariña Corporation to make good on the construction Guariña Corporation, lest it erodes such public confidence. Yet, DBP failed in
works pursuant to the acceleration clause written in the mortgage contract its duty to exercise the highest degree of diligence by prematurely foreclosing
(i.e., Stipulation No. 26),32 or else it would foreclose the mortgages. the mortgages and unwarrantedly causing the foreclosure sale of the
DBP's actuations were legally unfounded. It is true that loans are often mortgaged properties despite Guariña Corporation not being yet in default.
secured by a mortgage constituted on real or personal property to protect the DBP wrongly relied on Stipulation No. 26 as its basis to accelerate the
creditor's interest in case of the default of the debtor. By its nature, however, obligation of Guariña Corporation, for the stipulation was relevant to an
a mortgage remains an accessory contract dependent on the principal Omnibus Agricultural Loan, to Guariña Corporation's loan which was
obligation,33 such that enforcement of the mortgage contract will depend on intended for a project other than agricultural in nature.
whether or not there has been a violation of the principal obligation. While a Even so, Guariña Corporation did not elevate the actionability of DBP's
creditor and a debtor could regulate the order in which they should comply negligence to the CA, and did not also appeal the CA's deletion of the award
with their reciprocal obligations, it is presupposed that in a loan the lender of attorney's fees allowed by the RTC.1âwphi1  With the decision of the CA
should perform its obligation - the release of the full loan amount - before it consequently becoming final and immutable as to Guariña Corporation, we
could demand that the borrower repay the loaned amount. In other words, will not delve any further on DBP's actionable actuations.
Guariña Corporation would not incur in delay before DBP fully performed its
2.

reciprocal obligation.34
The doctrine of law of the case

Considering that it had yet to release the entire proceeds of the loan, DBP did not apply herein
could not yet make an effective demand for payment upon Guariña
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already
Corporation to perform its obligation under the loan. According to
constituted the law of the case. Hence, the CA could not decide the appeal in
Development Bank of the Philippines v. Licuanan,35 it would only be when a
C.A.-G.R. CV No. 59491 differently.
demand to pay had been made and was subsequently refused that a
borrower could be considered in default, and the lender could obtain the right Guariña Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did
to collect the debt or to foreclose the mortgage.1âwphi1  Hence, Guariña not constitute the law of the case because C.A.-G.R. No. 12670-SP
Corporation would not be in default without the demand. concerned the issue of possession by DBP as the winning bidder in the
foreclosure sale, and had no bearing whatsoever to the legal issues
Assuming that DBP could already exact from the latter its compliance with
presented in C.A.-G.R. CV No. 59491.
the loan agreement, the letter dated February 27, 1978 that DBP sent would
still not be regarded as a demand to render Guariña Corporation in default Law of the case has been defined as the opinion delivered on a former
appeal, and means, more specifically, that whatever is once irrevocably
Page 11 of 23
established as the controlling legal rule of decision between the same parties properly raised and litigated in C.A.-G.R. CV No. 59491, which was the
in the same case continues to be the law of the case, whether correct on appeal to determine whether or not DBP's foreclosure was valid and
general principles or not, so long as the facts on which such decision was effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP did not settle
predicated continue to be the facts of the case before the court.40 any question of law involved herein because this case for specific
performance was not a continuation of C.A.-G.R. No. 12670-SP (which was
The concept of law of the case is well explained in Mangold v. Bacon,41  an
limited to the propriety of the issuance of the writ of possession in favor of
American case, thusly:
DBP), and vice versa.
The general rule, nakedly and boldly put, is that legal conclusions announced
3.

on a first appeal, whether on the general law or the law as applied to the
Guarifia Corporation is legally entitled to the

concrete facts, not only prescribe the duty and limit the power of the trial
restoration of the possession of the resort complex

court to strict obedience and conformity thereto, but they become and remain
and payment of reasonable rentals by DBP
the law of the case in all other steps below or above on subsequent appeal.
The rule is grounded on convenience, experience, and reason. Without the Having found and pronounced that the extrajudicial foreclosure by DBP was
rule there would be no end to criticism, reagitation, reexamination, and premature, and that the ensuing foreclosure sale was void and ineffectual,
reformulation. In short, there would be endless litigation. It would be the Court affirms the order for the restoration of possession to Guarifia
intolerable if parties litigants were allowed to speculate on changes in the Corporation and the payment of reasonable rentals for the use of the resort.
personnel of a court, or on the chance of our rewriting propositions once The CA properly held that the premature and invalid foreclosure had unjustly
gravely ruled on solemn argument and handed down as the law of a given dispossessed Guarifia Corporation of its properties. Consequently, the
case. An itch to reopen questions foreclosed on a first appeal would result in restoration of possession and the payment of reasonable rentals were in
the foolishness of the inquisitive youth who pulled up his corn to see how it accordance with Article 561 of the Civil Code, which expressly states that
grew. Courts are allowed, if they so choose, to act like ordinary sensible one who recovers, according to law, possession unjustly lost shall be
persons. The administration of justice is a practical affair. The rule is a deemed for all purposes which may redound to his benefit to have enjoyed it
practical and a good one of frequent and beneficial use. without interruption.
The doctrine of law of the case simply means, therefore, that when an WHEREFORE, the Court AFFIRMS the decision promulgated on March 26,
appellate court has once declared the law in a case, its declaration continues 2003; and ORDERS the petitioner to pay the costs of suit.
to be the law of that case even on a subsequent appeal, notwithstanding that SO ORDERED.
the rule thus laid down may have been reversed in other cases.42  For
practical considerations, indeed, once the appellate court has issued a LUCAS P. BERSAMIN

pronouncement on a point that was presented to it with full opportunity to be Associate Justice
heard having been accorded to the parties, the pronouncement should be WE CONCUR:
regarded as the law of the case and should not be reopened on remand of
the case to determine other issues of the case, like damages.43 But the law MARIA LOURDES P. A. SERENO

of the case, as the name implies, concerns only legal questions or issues Chief Justice
thereby adjudicated in the former appeal. TERESITA J. LEONARDO-DE CASTRO

The foregoing understanding of the concept of the law of the case exposes Associate Justice
DBP's insistence to be unwarranted. MARTIN S. VILLARAMA, JR.

Associate Justice
To start with, the ex parte proceeding on DBP's application for the issuance
of the writ of possession was entirely independent from the judicial demand BIENVENIDO L. REYES

for specific performance herein. In fact, C.A.-G.R. No. 12670-SP, being the Associate Justice
interlocutory appeal concerning the issuance of the writ of possession while C E RTI F I CATI O N
the main case was pending, was not at all intertwined with any legal issue
Page 12 of 23
Pursuant to Section 13, Article VIII of the Constitution, I certify that the 22 Id. at 23.
conclusions in the above Decision had been reached in consultation before 23 Id. at 25.
the case was assigned to the writer of the opinion of the Court's Division.
24 Id. at 28-29.
MARIA LOURDES P.A. SERENO

25 Id. at 127-137.
Chief Justice
26 Article 1953, in relation to Article 1933, Civil Code.


27 IV Tolentino, The Civil Code of the Philippines, p. 175 (1999).
Footnotes 28 
Subic Bay Metropolitan Authority v. Court of Appeals, G.R. No.
1 Rollo, at 36-44; penned by Associate Justice Juan Q. Enriquez, Jr. 192885, July 4, 2012 675 SCRA 758, 766.
(retired), and concurred in by Associate Justice Rodrigo V. Cosico 29 Supra note 1, at 41-43.
(retired) and Associate Justice Edgardo F. Sundiam (retired/
30 Cortes
v. Court of Appeals, G.R. No. 126083, July 12, 2006, 494
deceased).
SCRA 570, 576.
2 CA rollo, at 23-34; penned by Judge Bartolome M. Fanuñal.
31 Article 1169, Civil Code; IV Tolentino, op. cit., at 109.
3 Rollo, p. 37.
32 Records, Volume 2, at 646-a.
4 Records, Vol. 1, p. 8.
Stipulation No. 26 reads:
5 Id. at 9-10.
26. That the Mortgagee reserves the right to reduce or stop
6 Rollo, pp. 37-38. releases/advances if after inspection and verification the
7 Id. at 38. accomplishment of the financed project does not justify
8 Records,
giving the full amount, or if the conditions of the project do
Vol. 1, pp. 23-24. not show improvement commensurate with the amount
9 Id. at 25. already advanced/released. In such an event or in the event
10 Rollo, of abandonment of the project, all advances/releases made
p. 38.
shall automatically become due and demandable and the
11 Id.
Mortgagee shall take such legal steps as are necessary to
12 Records pp. 1-7 protect its interest.
13 Id. 33 
Rigor v. Consolidated Orix Leasing and Financing Corporation,
at 30-31.
387 SCRA 437, 444.
14 Id. at 40-46.
34 
Selegna Management and Development Corporation v. United
15 Id. at 55-57. Coconut Planters Bank, G.R. No. 165662, May 3, 2006, 489 SCRA
16 Rollo, pp. 38-39. 125, 138.
17 Id. 35 G.R. No.150097, February 26, 2007, 516 SCRA 644.
at 39.
18 CA 36 Supra note 8.
rollo, p. 34.
19 Id. 37 Development Bank of the Philippines v. Licuanan, supra, note 35,
at 49-51.
20 Supra
at 654.
note 1.
21 Rollo, p. 43.
Page 13 of 23
 38 ComsavingsBank (now GSIS Family Savings Bank) v. Capistrano, Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent
G.R. 170942, August 28, 2013; citing Philippine National Bank v. court's resolution denying petitioners' motion for reconsideration.
Chea Chee Chong, G.R. Nos. 170865 and 170892, April 25, 2012, On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)
671 SCRA 49, 62-63; Solidbank Corporation v. Arrieta, G.R. No. obtained a three million peso (P3,000,000.00) loan from petitioner Philippine
152720, February 17, 2005, 451 SCRA 711, 720; and Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX
Commercial International Bank v. Court of Appeals, G.R. Nos. executed in favor of PBCom, a deed of Real and Chattel Mortgage over the
121413, 121479 and 128604, January 29, 2001, 350 SCRA 446, lot under TCT No. 372097, where its factory stands, and the chattels located
472. therein as enumerated in a schedule attached to the mortgage contract. The
39 G.R. No. 157845, September 20, 2005, 470 SCRA 328, 347. pertinent portions of the Real and Chattel Mortgage are quoted below:
40 
Kilosbayan, Incorporated v. Morato, G.R. No. 118910, July 17, MORTGAGE
1995, 246 SCRA 540, 559, citing People v. Pinuila, 103 Phil. 992, (REAL AND CHATTEL)
999 (1958).
41  237
xxx           xxx           xxx
Mo. 496, cited and quoted in Zarate v. Director of Lands, 39
Phil. 747, 750 (1919). The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of
42 Zarate
First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land,
v. Director of Lands, 39 Phil. 747, 750 (1919). together with all the buildings and improvements now existing or
43 Bachrach Motor Co.v. Esteva, 67 Phil 16 (1938). which may hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of
Republic of the Philippines

PBCommunications — continued)
SUPREME COURT

Manila LIST OF MACHINERIES & EQUIPMENT
FIRST DIVISION A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins
made in Hongkong:
G.R. No. 120098            October 2, 2001
Serial Numbers Size of Machines
RUBY L. TSAI, petitioner, 

vs.
 xxx           xxx           xxx
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
R VILLALUZ, respondents.
xxx           xxx           xxx
x---------------------------------------------------------x
C. Two (2) Circular Knitting Machines made in West Germany.
[G.R. No. 120109. October 2, 2001.]
xxx           xxx           xxx
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, 

vs.
 D. Four (4) Winding Machines.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R xxx           xxx           xxx
VILLALUZ, respondents.
SCHEDULE "A"
QUISUMBING, J.:
I. TCT # 372097 - RIZAL
These consolidated cases assail the decision1 of the Court of Appeals in CA-
G.R. CV No. 32986, affirming the decision2  of the Regional Trial Court of xxx           xxx           xxx

Page 14 of 23
 II. Any and all buildings and improvements now existing or hereafter On March 7, 1984, PBCom consolidated its ownership over the lot and all the
to exist on the above-mentioned lot. properties in it. In November 1986, it leased the entire factory premises to
petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom
III. MACHINERIES & EQUIPMENT situated, located and/or installed
sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including
on the above-mentioned lot located at . . .
the contested machineries.
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
(b) Sixteen sets (16) Vayrow Knitting Machines . . . reconveyance, and damages with the Regional Trial Court against PBCom,
(c) Two (2) Circular Knitting Machines . . . alleging inter alia that the extrajudicial foreclosure of subject mortgage was in
violation of the Insolvency Law. EVERTEX claimed that no rights having
(d) Two (2) Winding Machines . . . been transmitted to PBCom over the assets of insolvent EVERTEX, therefore
(e) Two (2) Winding Machines . . . Tsai acquired no rights over such assets sold to her, and should reconvey the
assets.
IV. Any and all replacements, substitutions, additions, increases and
accretions to above properties. Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real
xxx           xxx           xxx3
and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to April 23, 1979, and neither were those properties included in the Notice of
EVERTEX. The loan was secured by a Chattel Mortgage over personal Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated
properties enumerated in a list attached thereto. These listed properties were December 15, 1982.
similar to those listed in Annex A of the first mortgage deed.
The disputed properties, which were valued at P4,000,000.00, are: 14
After April 23, 1979, the date of the execution of the second mortgage Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
mentioned above, EVERTEX purchased various machines and equipments. Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
On November 19, 1982, due to business reverses, EVERTEX filed The RTC found that the lease and sale of said personal properties were
insolvency proceedings docketed as SP Proc. No. LP-3091-P before the irregular and illegal because they were not duly foreclosed nor sold at the
defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued December 15, 1982 auction sale since these were not included in the
an order on November 24, 1982 declaring the corporation insolvent. All its schedules attached to the mortgage contracts. The trial court decreed:
assets were taken into the custody of the Insolvency Court, including the
WHEREFORE, judgment is hereby rendered in favor of plaintiff
collateral, real and personal, securing the two mortgages as
corporation and against the defendants:
abovementioned.
1. Ordering the annulment of the sale executed by defendant
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom,
Philippine Bank of Communications in favor of defendant Ruby L.
the latter commenced extrajudicial foreclosure proceedings against
Tsai on May 3, 1988 insofar as it affects the personal properties
EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale
listed in par. 9 of the complaint, and their return to the plaintiff
of Property under Special Powers Inserted in or Annexed to Real Estate
corporation through its assignee, plaintiff Mamerto R. Villaluz, for
Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of
disposition by the Insolvency Court, to be done within ten (10) days
Sheriff's Sale was issued on December 1, 1982.
from finality of this decision;
On December 15, 1982, the first public auction was held where petitioner
2. Ordering the defendants to pay jointly and severally the plaintiff
PBCom emerged as the highest bidder and a Certificate of Sale was issued
corporation the sum of P5,200,000.00 as compensation for the use
in its favor on the same date. On December 23, 1982, another public auction
and possession of the properties in question from November 1986 to
was held and again, PBCom was the highest bidder. The sheriff issued a
February 1991 and P100,000.00 every month thereafter, with interest
Certificate of Sale on the same day.
thereon at the legal rate per annum until full payment;
Page 15 of 23
 3. Ordering the defendants to pay jointly and severally the plaintiff THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
corporation the sum of P50,000.00 as and for attorney's fees and ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH.
expenses of litigation; IV
4. Ordering the defendants to pay jointly and severally the plaintiff THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
corporation the sum of P200,000.00 by way of exemplary damages; ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES,
5. Ordering the dismissal of the counterclaim of the defendants; and ATTORNEY'S FEES AND EXPENSES OF LITIGATION — FOR
WANT OF VALID FACTUAL AND LEGAL BASIS.
6. Ordering the defendants to proportionately pay the costs of suit.
V
SO ORDERED.4
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which
ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON
issued its decision dated August 31, 1994, the dispositive portion of which
PRESCRIPTION AND LACHES.6
reads:
In G.R. No. 120098, PBCom raised the following issues:
WHEREFORE, except for the deletion therefrom of the award; for exemplary
damages, and reduction of the actual damages, from P100,000.00 to I.
P20,000.00 per month, from November 1986 until subject personal DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES
properties are restored to appellees, the judgment appealed from is hereby LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS
AFFIRMED, in all other respects. No pronouncement as to costs.5 PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE
Motion for reconsideration of the above decision having been denied in the MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE
review with this Court. PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED
PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL
In G.R No. 120098, petitioner Tsai ascribed the following errors to the
FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT
respondent court:
SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON
I THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?
ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY II
TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN
INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975
QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER
DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD
CHATTEL MORTGAGE.
SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED
II MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE
ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS
ARE NOT REAL PROPERTIES DEEMED PART OF THE THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?
7
MORTGAGE — DESPITE THE CLEAR IMPORT OF THE
EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME The principal issue, in our view, is whether or not the inclusion of the
COURT. questioned properties in the foreclosed properties is proper. The secondary
III

Page 16 of 23
issue is whether or not the sale of these properties to petitioner Ruby Tsai is Petitioners contend that the nature of the disputed machineries, i.e., that they
valid. were heavy, bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3)
For her part, Tsai avers that the Court of Appeals in effect made a contract
and (5) of the New Civil Code. This assertion, however, does not settle the
for the parties by treating the 1981 acquired units of machinery as chattels
issue. Mere nuts and bolts do not foreclose the controversy. We have to look
instead of real properties within their earlier 1975 deed of Real and Chattel
at the parties' intent.
Mortgage or 1979 deed of Chattel Mortgage.8  Additionally, Tsai argues that
respondent court erred in holding that the disputed 1981 machineries are not While it is true that the controverted properties appear to be immobile, a
real properties.9  Finally, she contends that the Court of Appeals erred in perusal of the contract of Real and Chattel Mortgage executed by the parties
holding against petitioner's arguments on prescription and laches10  and in herein gives us a contrary indication. In the case at bar, both the trial and the
assessing petitioner actual damages, attorney's fees and expenses of appellate courts reached the same finding that the true intention of PBCOM
litigation, for want of valid factual and legal basis.11 and the owner, EVERTEX, is to treat machinery and equipment as chattels.
The pertinent portion of respondent appellate court's ruling is quoted below:
Essentially, PBCom contends that respondent court erred in affirming the
lower court's judgment decreeing that the pieces of machinery in dispute As stressed upon by appellees, appellant bank treated the
were not duly foreclosed and could not be legally leased nor sold to Ruby machineries as chattels; never as real properties. Indeed, the 1975
Tsai. It further argued that the Court of Appeals' pronouncement that the mortgage contract, which was actually real and chattel mortgage,
pieces of machinery in question were personal properties have no factual militates against appellants' posture.  It should be noted that the
and legal basis. Finally, it asserts that the Court of Appeals erred in printed form used by appellant bank was mainly for real estate
assessing damages and attorney's fees against PBCom. mortgages. But reflective of the true intention of appellant PBCOM
and appellee EVERTEX was the typing in capital letters, immediately
In opposition, private respondents argue that the controverted units of
following the printed caption of mortgage, of the phrase "real and
machinery are not "real properties" but chattels, and, therefore, they were not
chattel." So also, the "machineries and equipment" in the printed
part of the foreclosed real properties, rendering the lease and the
form of the bank had to be inserted in the blank space of the printed
subsequent sale thereof to Tsai a nullity.12
contract and connected with the word "building" by typewritten slash
Considering the assigned errors and the arguments of the parties, we find marks. Now, then, if the machineries in question were contemplated
the petitions devoid of merit and ought to be denied. to be included in the real estate mortgage, there would have been no
Well settled is the rule that the jurisdiction of the Supreme Court in a petition necessity to ink a chattel mortgage specifically mentioning as part III
for review on certiorari under Rule 45 of the Revised Rules of Court is limited of Schedule A a listing of the machineries covered thereby. It would
to reviewing only errors of law, not of fact, unless the factual findings have sufficed to list them as immovables in the Deed of Real Estate
complained of are devoid of support by the evidence on record or the Mortgage of the land and building involved.
assailed judgment is based on misapprehension of facts.13  This rule is As regards the 1979 contract, the intention of the parties is clear and
applied more stringently when the findings of fact of the RTC is affirmed by beyond question. It refers solely tochattels. The inventory list of the
the Court of Appeals.14 mortgaged properties is an itemization of sixty-three (63) individually
The following are the facts as found by the RTC and affirmed by the Court of described machineries while the schedule listed only machines and
Appeals that are decisive of the issues: (1) the "controverted machineries" 2,996,880.50 worth of finished cotton fabrics and natural cotton
are not covered by, or included in, either of the two mortgages, the Real fabrics.16
Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said In the absence of any showing that this conclusion is baseless, erroneous or
machineries were not included in the list of properties appended to the Notice uncorroborated by the evidence on record, we find no compelling reason to
of Sale, and neither were they included in the Sheriff's Notice of Sale of the depart therefrom.
foreclosed properties.15
Too, assuming  arguendo  that the properties in question are immovable by
nature, nothing detracts the parties from treating it as chattels to secure an
Page 17 of 23
obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 interest in such property  and pays a full and fair price for the same, at the
SCRA 631 (1963), an immovable may be considered a personal property if time of purchase, or before he has notice of the claims or interest of some
there is a stipulation as when it is used as security in the payment of an other person in the property.19Records reveal, however, that when Tsai
obligation where a chattel mortgage is executed over it, as in the case at bar. purchased the controverted properties, she knew of respondent's claim
thereon. As borne out by the records, she received the letter of respondent's
In the instant case, the parties herein: (1) executed a contract styled as "Real
counsel, apprising her of respondent's claim, dated February 27, 1987.20 She
Estate Mortgage and Chattel Mortgage," instead of just "Real Estate
replied thereto on March 9, 1987.21  Despite her knowledge of respondent's
Mortgage" if indeed their intention is to treat all properties included therein as
claim, she proceeded to buy the contested units of machinery on May 3,
immovable, and (2) attached to the said contract a separate "LIST OF
1988. Thus, the RTC did not err in finding that she was not a purchaser in
MACHINERIES & EQUIPMENT". These facts, taken together, evince the
good faith.
conclusion that the parties' intention is to treat these units of machinery as
chattels. A  fortiori, the contested after-acquired properties, which are of the Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the
same description as the units enumerated under the title "LIST OF disputed properties are located is equally unavailing. This defense refers to
MACHINERIES & EQUIPMENT," must also be treated as chattels. sale of lands and not to sale of properties situated therein. Likewise, the
mere fact that the lot where the factory and the disputed properties stand is
Accordingly, we find no reversible error in the respondent appellate court's
in PBCom's name does not automatically make PBCom the owner of
ruling that inasmuch as the subject mortgages were intended by the parties
everything found therein, especially in view of EVERTEX's letter to Tsai
to involve chattels, insofar as equipment and machinery were concerned, the
enunciating its claim.
Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a
chattel mortgage shall be deemed to cover  only the property described Finally, petitioners' defense of prescription and laches is less than
therein and not like or substituted property thereafter acquired by the convincing. We find no cogent reason to disturb the consistent findings of
mortgagor and placed in the same depository as the property originally both courts below that the case for the reconveyance of the disputed
mortgaged, anything in the mortgage to the contrary notwithstanding." properties was filed within the reglementary period. Here, in our view, the
doctrine of laches does not apply. Note that upon petitioners' adamant refusal
And, since the disputed machineries were acquired in 1981 and could not
to heed EVERTEX's claim, respondent company immediately filed an action
have been involved in the 1975 or 1979 chattel mortgages, it was
to recover possession and ownership of the disputed properties. There is no
consequently an error on the part of the Sheriff to include subject
evidence showing any failure or neglect on its part, for an unreasonable and
machineries with the properties enumerated in said chattel mortgages.
unexplained length of time, to do that which, by exercising due diligence,
As the auction sale of the subject properties to PBCom is void, no valid title could or should have been done earlier. The doctrine of stale demands would
passed in its favor. Consequently, the sale thereof to Tsai is also a nullity apply only where by reason of the lapse of time, it would be inequitable to
under the elementary principle of nemo dat quod non habet, one cannot give allow a party to enforce his legal rights. Moreover, except for very strong
what one does not have.17 reasons, this Court is not disposed to apply the doctrine of laches to
Petitioner Tsai also argued that assuming that PBCom's title over the prejudice or defeat the rights of an owner.22
contested properties is a nullity, she is nevertheless a purchaser in good faith As to the award of damages, the contested damages are the actual
and for value who now has a better right than EVERTEX. compensation, representing rentals for the contested units of machinery, the
To the contrary, however, are the factual findings and conclusions of the trial exemplary damages, and attorney's fees.
court that she is not a purchaser in good faith. Well-settled is the rule that the As regards said actual compensation, the RTC awarded P100,000.00
person who asserts the status of a purchaser in good faith and for value has corresponding to the unpaid rentals of the contested properties based on the
the burden of proving such assertion.18 Petitioner Tsai failed to discharge this testimony of John Chua, who testified that the P100,000.00 was based on
burden persuasively. the accepted practice in banking and finance, business and investments that
Moreover, a purchaser in good faith and for value is one who buys the the rental price must take into account the cost of money used to buy them.
property of another  without notice that some other person has a right to or
Page 18 of 23
The Court of Appeals did not give full credence to Chua's projection and due to absence of a lessee or while being repaired. In the light of the
reduced the award to P20,000.00. foregoing rationalization and computation, We believe that a net
unrealized rental income of P20,000.00 a month, since November
Basic is the rule that to recover actual damages, the amount of loss must not
1986, is more realistic and fair.25
only be capable of proof but must actually be proven with reasonable degree
of certainty, premised upon competent proof or best evidence obtainable of As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX
the actual amount thereof.23  However, the allegations of respondent which the Court of Appeals deleted. But according to the CA, there was no
company as to the amount of unrealized rentals due them as actual damages clear showing that petitioners acted malevolently, wantonly and oppressively.
remain mere assertions unsupported by documents and other competent The evidence, however, shows otherwise.It is a requisite to award exemplary
evidence. In determining actual damages, the court cannot rely on mere damages that the wrongful act must be accompanied by bad faith,26 and the
assertions, speculations, conjectures or guesswork but must depend on guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent
competent proof and on the best evidence obtainable regarding the actual manner.27  As previously stressed, petitioner Tsai's act of purchasing the
amount of loss.24  However, we are not prepared to disregard the following controverted properties despite her knowledge of EVERTEX's claim was
dispositions of the respondent appellate court: oppressive and subjected the already insolvent respondent to gross
disadvantage. Petitioner PBCom also received the same letters of Atty.
. . . In the award of actual damages under scrutiny, there is nothing
Villaluz, responding thereto on March 24, 1987.28  Thus, PBCom's act of
on record warranting the said award of P5,200,000.00, representing
taking all the properties found in the factory of the financially handicapped
monthly rental income of P100,000.00 from November 1986 to
respondent, including those properties not covered by or included in the
February 1991, and the additional award of P100,000.00 per month
mortgages, is equally oppressive and tainted with bad faith. Thus, we are in
thereafter.
agreement with the RTC that an award of exemplary damages is proper.
As pointed out by appellants, the testimonial evidence, consisting of
The amount of P200,000.00 for exemplary damages is, however, excessive.
the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of
Article 2216 of the Civil Code provides that no proof of pecuniary loss is
what is necessary to substantiate the actual damages allegedly
necessary for the adjudication of exemplary damages, their assessment
sustained by appellees, by way of unrealized rental income of
being left to the discretion of the court in accordance with the circumstances
subject machineries and equipments.
of each case.29 While the imposition of exemplary damages is justified in this
The testimony of John Cua (sic) is nothing but an opinion or case, equity calls for its reduction. In  Inhelder Corporation v. Court of
projection based on what is claimed to be a practice in business and Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid
industry. But such a testimony cannot serve as the sole basis for down the rule that judicial discretion granted to the courts in the assessment
assessing the actual damages complained of. What is more, there is of damages must always be exercised with balanced restraint and measured
no showing that had appellant Tsai not taken possession of the objectivity. Thus, here the award of exemplary damages by way of example
machineries and equipments in question, somebody was willing and for the public good should be reduced to P100,000.00.
ready to rent the same for P100,000.00 a month.
By the same token, attorney's fees and other expenses of litigation may be
xxx           xxx           xxx recovered when exemplary damages are awarded.30  In our view, RTC's
Then, too, even assuming  arguendo  that the said machineries and award of P50,000.00 as attorney's fees and expenses of litigation is
equipments could have generated a rental income of P30,000.00 a reasonable, given the circumstances in these cases.
month, as projected by witness Mamerto Villaluz, the same would WHEREFORE, the petitions are DENIED. The assailed decision and
have been a gross income. Therefrom should be deducted or resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED
removed, expenses for maintenance and repairs . . . Therefore, in WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and
the determination of the actual damages or unrealized rental income Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile
sued upon, there is a good basis to calculate that at least four Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the
months in a year, the machineries in dispute would have been idle use and possession of the properties in question from November 198631 until

Page 19 of 23
subject personal properties are restored to respondent corporation; (2) 22 Noel vs. Court of Appeals, 240 SCRA 78,90 (1995).
P100,000.00 by way of exemplary damages, and (3) P50,000.00 as 23 Ace Hailers Corporation v. CA, et al., G.R No. 127934, August 23,
attorney's fees and litigation expenses. Costs against petitioners. 2000, p. 11.
SO ORDERED. 24 Barzaga vs. Court of Appeals, 268 SCRA 105, 113-114 (1997).
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur. 25 Rollo G.R. No. 120109, pp. 43-44.

 26 "J" Marketing Corp. vs. Sia, Jr., 285 SCRA 580, 583-584 (1998).
27 Cervantes vs. Court of Appeals, 304 SCRA 25, 33 (1997).
Footnotes
28 Exhibit "X", Folder of Exhibits, p. 69.
1 Rollo, G.R. No. 120098, pp. 23-45.
29 Art.2216. Civil Code. — No proof of pecuniary loss is necessary in
2 Id. at 23-24. order that moral, nominal, temperate liquidated or exemplary
3 Folder of Exhibits, pp. 5-12. damages may be adjudicated. The assessment of such damages,
4 Rollo, except liquidated ones, is left to the discretion of the court, according
G.R. No. 120098, pp. 23-24.
to the circumstances of each case.
5 Id. at 45. 30 Vital-Gozon v. Court of Appeals, 292 SCRA 124, 147 (1998).
6 Rollo, G.R. No. 120098, pp. 23-25. 31 The time when PBCom leased the disputed properties to Tsai. CA
7 Rollo, G.R. No. 120098, pp. 9-10. Rollo, p. 34.
8 Rollo, G.R. No. 120098, p. 25.
9 Id., at 33.
FIRST DIVISION
10 Id., at 49.
11 Id., at 44.
12 Id., at 133. [G.R. No. 103576. August 22, 1996]
13 
Congregation of the Religious of the Virgin Mary v. Court of
Appeals, 291 SCRA 385, 391-392 (1998).
14 Manlapaz. Court of Appeals, 147 SCRA 236, 239 (1987).
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA
15 Rollo, G.R No. 120109, pp. 62-63. PAC,  petitioners, vs.  HON. COURT OF APPEALS, PRODUCERS
16 Rollo, G.R. No. 120098, pp. 68-69. BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY, respondents.
17 Segura vs. Segura, 165 SCRA 368,375 (1988); Noel vs. Court of
Appeals, G.R. No. 59550, 240 SCRA 78,88 (1995).
DECISION
18 Mathay v. Court of Appeals, 295 SCRA 556, 575 (1998).
VITUG, J.:
19 Diaz-Duarte vs. Ong, 298 SCRA 388, 397 (1998).
20 Exhibit "U", Folder of Exhibits, p.64. Would it be valid and effective to have a clause in a chattel mortgage
21 Exhibit that purports to likewise extend its coverage to obligations yet to be
"V", Id., at 66.

Page 20 of 23
contracted or incurred? This question is the core issue in the instant petition foreclosure of the chattel mortgage.  It held petitioner corporation bound by
for review on certiorari. the stipulations, aforequoted, of the chattel mortgage.
Petitioner Chua Pac, the president and general manager of co-petitioner Petitioner corporation appealed to the Court of Appeals[4]  which, on 14
"Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for August 1991, affirmed, "in all respects," the decision of the court a quo. The
and in behalf of the company, a chattel mortgage in favor of private motion for reconsideration was denied on 24 January 1992.
respondent Producers Bank of the Philippines.  The mortgage stood by way
of security for petitioner's corporate loan of three million pesos The instant petition interposed by petitioner corporation was initially
(P3,000,000.00).  A provision in the chattel mortgage agreement was to this denied on 04 March 1992 by this Court for having been insufficient in form
effect - and substance. Private respondent filed a motion to dismiss the petition while
petitioner corporation filed a compliance and an opposition to private
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and respondent's motion to dismiss. The Court denied petitioner's first motion for
truly perform the full obligation or obligations above-stated according to the reconsideration but granted a second motion for reconsideration, thereby
terms thereof, then this mortgage shall be null and void. x x x. reinstating the petition and requiring private respondent to comment thereon.
[5]
"In case the MORTGAGOR executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof, or as a new Except in criminal cases where the penalty of  reclusion perpetua  or
loan, or is given any other kind of accommodations such as overdrafts, death is imposed[6]  which the Court so reviews as a matter of course, an
letters of credit, acceptances and bills of exchange, releases of import appeal from judgments of lower courts is not a matter of right but of sound
shipments on Trust Receipts, etc., this mortgage shall also stand as security judicial discretion. The circulars of the Court prescribing technical and other
for the payment of the said promissory note or notes and/or accommodations procedural requirements are meant to weed out unmeritorious petitions that
without the necessity of executing a new contract and this mortgage shall can unnecessarily clog the docket and needlessly consume the time of the
have the same force and effect as if the said promissory note or notes and/or Court.  These technical and procedural rules, however, are intended to help
accommodations were existing on the date thereof. This mortgage shall also secure, not suppress, substantial justice.  A deviation from the rigid
stand as security for said obligations and any and all other obligations of the enforcement of the rules may thus be allowed to attain the prime objective
MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether for, after all, the dispensation of justice is the core reason for the existence of
such obligations have been contracted before, during or after the constitution courts. In this instance, once again, the Court is constrained to relax the rules
of this mortgage."[1] in order to give way to and uphold the paramount and overriding interest of
justice.
In due time, the loan of P3,000,000.00 was paid by petitioner
corporation.  Subsequently, in 1981, it obtained from respondent bank Contracts of security are either personal or real. In contracts of personal
additional financial accommodations totalling P2,700,000.00.[2]  These security, such as a guaranty or a suretyship, the faithful performance of the
borrowings were on due date also fully paid. obligation by the principal debtor is secured by the personal commitment of
another (the guarantor or surety).  In contracts of real security, such as a
On 10 and 11 January 1984, the bank yet again extended to petitioner
pledge, a mortgage or an antichresis, that fulfillment is secured by
corporation a loan of one million pesos (P1,000,000.00) covered by four
anencumbrance of property  - in  pledge, the placing of movable property in
promissory notes for P250,000.00 each.Due to financial constraints, the loan
the possession of the creditor; in  chattel  mortgage, by the execution of the
was not settled at maturity.[3]  Respondent bank thereupon applied for an
corresponding deed substantially in the form prescribed by law; in real estate
extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the
mortgage,  by the execution of a public instrument encumbering the real
Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an
property covered thereby; and in antichresis, by a written instrument granting
action for injunction, with damages and a prayer for a writ of preliminary
to the creditor the right to receive the fruits of an immovable property with the
injunction, before the Regional Trial Court of Caloocan City (Civil Case No.
obligation to apply such fruits to the payment of interest, if owing, and
C-12081).  Ultimately, the court dismissed the complaint and ordered the
thereafter to the principal of his credit - upon the essential condition that if the

Page 21 of 23
principal obligation becomes due and the debtor defaults, then the property automatically rendered the chattel mortgage void or terminated.  In  Belgian
encumbered can be alienated for the payment of the obligation,[7]  but that Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.,[14]  the Court
should the obligation be duly paid, then the contract is automatically said -
extinguished proceeding from the accessory character [8]  of the
"x x x A mortgage that contains a stipulation in regard to future advances in
agreement. As the law so puts it, once the obligation is complied with, then
the credit will take effect only from the date the same are made and not from
the contract of security becomes, ipso facto, null and void.[9]
the date of the mortgage."[15]
While a pledge, real estate mortgage, or antichresis may exceptionally
secure after-incurred obligations so long as these future debts are accurately The significance of the ruling to the instant problem would be that since the
described,[10]  a chattel mortgage, however, can only cover obligations 1978 chattel mortgage had ceased to exist coincidentally with the full
e x i s t i n g a t t h e t i m e t h e m o r t g a g e i s c o n s t i t u t e d .  A l t h o u g h payment of the P3,000,000.00 loan,[16]there no longer was any chattel
a promise expressed in a chattel mortgage to include debts that are yet to be mortgage that could cover the new loans that were concluded thereafter.
contracted can be a binding commitment that can be compelled upon, the We find no merit in petitioner corporation's other prayer that the case
security itself, however, does not come into existence or arise until after a should be remanded to the trial court for a specific finding on the amount of
chattel mortgage agreement covering the newly contracted debt is executed damages it has sustained "as a result of the unlawful action taken by
either by concluding a fresh chattel mortgage or by amending the old respondent bank against it."[17]  This prayer is not reflected in its complaint
contract conformably with the form prescribed by the Chattel Mortgage Law. which has merely asked for the amount of P3,000,000.00 by way of  moral
[11]  Refusal on the part of the borrower to execute the agreement so as to
damages.[18] In LBC Express, Inc. vs. Court of Appeals,[19] we have said:
cover the after-incurred obligation can constitute an act of default on the part
of the borrower of the financing agreement whereon the promise is written "Moral damages are granted in recompense for physical suffering, mental
but, of course, the remedy of foreclosure can only cover the debts extant at anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
the time of constitution and during the life of the chattel mortgage sought to moral shock, social humiliation, and similar injury.  A corporation, being an
be foreclosed. artificial person and having existence only in legal contemplation, has no
feelings, no emotions, no senses; therefore, it cannot experience physical
A chattel mortgage, as hereinbefore so intimated, must comply suffering and mental anguish.  Mental suffering can be experienced only by
substantially with the form prescribed by the Chattel Mortgage Law one having a nervous system and it flows from real ills, sorrows, and griefs of
itself.  One of the requisites, under Section 5 thereof, is an affidavit of good life - all of which cannot be suffered by respondent bank as an artificial
faith.  While it is not doubted that if such an affidavit is not appended to the person."[20]
agreement, the chattel mortgage would still be valid between the parties (not
against third persons acting in good faith[12]), the fact, however, that the While Chua Pac is included in the case, the complaint, however, clearly
statute has provided that the parties to the contract must execute an oath states that he has merely been so named as a party in  representation  of
that - petitioner corporation.

"x x x (the) mortgage is made for the purpose of securing the obligation Petitioner corporation's counsel could be commended for his zeal in
specified in the conditions thereof, and for no other purpose, and that the pursuing his client's cause. It instead turned out to be, however, a source of
same is a just and valid obligation, and one not entered into for the purpose disappointment for this Court to read in petitioner's reply to private
of fraud."[13] respondent's comment on the petition his so-called "One Final Word;" viz:

makes it obvious that the debt referred to in the law is a current, not an "In simply quoting  in toto  the patently erroneous decision of the trial court,
obligation that is yet merely contemplated.  In the chattel mortgage here respondent Court of Appeals should be required to justify its decision which
involved, the only obligation specified in the chattel mortgage contract was completely disregarded the basic laws on obligations and contracts, as well
the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue as the clear provisions of the Chattel Mortgage Law and well-settled
of Section 3 of the Chattel Mortgage Law, the payment of the obligation jurisprudence of this Honorable Court; that in the event that its explanation is

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wholly unacceptable, this Honorable Court should impose appropriate [5] In the Court's resolution, dated 27 May 1992, Rollo, p. 91.
sanctions on the erring justices. This is one positive step in ridding our courts [6] Sec. 5 (2) (d), Art. VIII, 1987 Constitution.
of law of incompetent and dishonest magistrates especially members of a
superior court of appellate jurisdiction."[21] (Italics supplied.) [7] See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.
The statement is not called for.  The Court invites counsel's attention to the [8] See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.
admonition in Guerrero vs. Villamor;[22] thus:
[9] See Sec. 3, Act 1508.
"(L)awyers x x x should bear in mind their basic duty `to observe and
[10] SeeMojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49
maintain the respect due to the courts of justice and judicial officers and x x x
(to) insist on similar conduct by others.' This respectful attitude towards the Phil. 703.
court is to be observed, `not for the sake of the temporary incumbent of the [11] Act No. 1508.
judicial office, but for the maintenance of its supreme importance.' And it is
`through a scrupulous preference for respectful language that a lawyer best [12] See Philippine Refining Co. vs. Jarque, 61 Phil. 229.
demonstrates his observance of the respect due to the courts and judicial [13]  Civil
Code, Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C.
officers x x x.'"[23]
Grio-Aquino, pp. 610-611.
The virtues of humility and of respect and concern for others must still live on [14] 49 Phil. 647.
even in an age of materialism.
[15]  At
p. 655. This ruling was reiterated in Jaca vs. Davao Lumber Company,
WHEREFORE, the questioned decisions of the appellate court and the
113 SCRA 107.
lower court are set aside without prejudice to the appropriate legal recourse
by private respondent as may still be warranted as an unsecured creditor. No [16]  Beingmerely accessory in nature, it cannot exist independently of the
costs. principal obligation.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be [17] Petitioner's Memorandum, p. 5; Rollo, p. 119.
circumspect in dealing with the courts.
[18] Complaint, p. 6; Record, p. 9.
SO ORDERED.
[19] 236 SCRA 602.
Kapunan and Hermosisima, Jr., JJ., concur.
[20] At p. 607.
Padilla, J.,  took no part in view of lessor-lessee relationship with
respondent bank. [21] Rollo, p. 113.
Bellosillo, J., on leave.

 [22] 179 SCRA 355, 362.
[23] At p. 362.

[1] Rollo, p. 45.
[2] Ibid., p. 34.
[3] Ibid.

[4] 
Associate Justice Consuelo Ynares Santiago,  ponente, with Associate
Justices Ricardo L. Pronove, Jr. and Nicolas P. Lapea, Jr., concurring.

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