IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE RIGHTS TO A LOT.

MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees.

RODOLFO LANUZA, vendor,
vs.
MARTIN DE LEON, intervenor-appellant.
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria Guizon Subdivision in Tondo,
Manila, which the spouses leased from the Consolidated Asiatic Co. On January 12, 1961, Lanuza executed a document entitled
"Deed of Sale with Right to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro the house,
together with the leasehold rights to the lot, a television set and a refrigerator in consideration of the sum of P3,000. The deed
reads:
DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and residing at 783-D Interior 14
Maria Guizon, Gagalangin, Tondo, Manila, hereby declare that I am the true and absolute owner of a new two
storey house of strong materials, constructed on a rented lot — Lot No. 12 of the Maria Guizon Subdivision,
owned by the Consolidated Asiatic Co. — as evidenced by the attached Receipt No. 292, and the plan of the
subdivision, owned by said company.

That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00) which I have received this
day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of legal age, widow; and Aurelia Reyes, married to Jose S.
Navarro, Filipinos, of legal ages, and residing at 1112 Antipolo St., Tondo, Manila, I hereby SELL, CEDE,
TRANSFER, AND CONVEY unto said Maria Bautista Vda. de Reyes, her heirs, succesors, administrators and
assigns said house, including my right to the lot on which it was constructed, and also my television, and
frigidaire "Kelvinator" of nine cubic feet in size, under the following conditions:
I hereby reserve for myself, my heirs, successors, administrators, and assigns the right to repurchase the above
mentioned properties for the same amount of P3,000.00, without interest, within the stipulated period of three (3)
months from the date hereof. If I fail to pay said amount of P3,000.00, within the stipulated period of three months,
my right to repurchase the said properties shall be forfeited and the ownership thereto shall automatically pass to
Mrs. Maria Bautista Vda. de Reyes, her heirs, successors, administrators, and assigns, without any Court
intervention, and they can take possession of the same.1äwphï1.ñët
IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this 12th day of January, 1961.

s/t RODOLFO LANUZA s/t MARIA BAUTISTA VDA. DE REYES

Vendor Vendee

s/t AURELIA REYES WITH MY MARITAL CONSENT:

Vendee s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to July 12, 1961 by an annotation to this effect on the left
margin of the instrument. Lanuza's wife, who did not sign the deed, this time signed her name below the annotation.
It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same house in favor of Martin de Leon to
secure the payment of P2,720 within one year. This mortgage was executed on October 4, 1961 and recorded in the Office of the
Register of Deeds of Manila on November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a petition for the extra-judicial
foreclosure of the mortgage. On the other hand, Reyes and Navarro followed suit by filing in the Court of First Instance of Manila a
petition for the consolidation of ownership of the house on the ground that the period of redemption expired on July 12, 1961
without the vendees exercising their right of repurchase. The petition for consolidation of ownership was filed on October 19. On
October 23, the house was sold to De Leon as the only bidder at the sheriffs sale. De Leon immediately took possession of the
house, secured a discharge of the mortgage on the house in favor of a rural bank by paying P2,000 and, on October 29, intervened
in court and asked for the dismissal of the petition filed by Reyes and Navarro on the ground that the unrecorded pacto de
retro sale could not affect his rights as a third party.

The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based and submitted the case for decision.
In confirming the ownership of Reyes and Navarro in the house and the leasehold right to the lot, the court said:
It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was not signed by Belen Geronimo-
Lanuza, wife of the vendor a retro, Rodolfo Lanuza, at the time of its execution. It appears, however, that on the occasion
of the extension of the period for repurchase to July 12, 1961, Belen Geronimo-Lanuza signed giving her approval and
conformity. This act, in effect, constitutes ratification or confirmation of the contract (Annex "A" Stipulation) by Belen
Geronimo-Lanuza, which ratification validated the act of Rodolfo Lanuza from the moment of the execution of the said
contract. In short, such ratification had the effect of purging the contract (Annex "A" Stipulation) of any defect which it
might have had from the moment of its execution. (Article 1396, New Civil Code of the Philippines; Tang Ah Chan and
Kwong Koon vs. Gonzales, 52 Phil. 180)
Again, it is to be noted that while it is true that the original contract of sale with right to repurchase in favor of the
petitioners (Annex "A" Stipulation) was not signed by Belen Geronimo-Lanuza, such failure to sign, to the mind of the
Court, made the contract merely voidable, if at all, and, therefore, susceptible of ratification. Hence, the subsequent
ratification of the said contract by Belen Geronimo-Lanuza validated the said contract even before the property in question
was mortgaged in favor of the intervenor.
It is also contended by the intervenor that the contract of sale with right to repurchase should be interpreted as a mere
equitable mortgage. Consequently, it is argued that the same cannot form the basis for a judicial petition for consolidation
of title over the property in litigation. This argument is based on the fact that the vendors a retro continued in possession of
the property after the execution of the deed of sale with pacto de retro. The mere fact, however, that the vendors a
retro continued in the possession of the property in question cannot justify an outright declaration that the sale should be
construed as an equitable mortgage and not a sale with right to repurchase. The terms of the deed of sale with right to
 repurchase (Annex "A" Stipulation) relied upon by the petitioners must be considered as merely an equitable mortgage for
the reason that after the expiration of the period of repurchase of three months from January 12, 1961.
Article 1602 of the New Civil Code provides:
"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any of the following cases;
xxx xxx xxx
"(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or
granting a new period is executed.
xxx xxx xxx
In the present case, it appears, however, that no other instrument was executed between the parties extending the period
of redemption. What was done was simply to annotate on the deed of sale with right to repurchase (Annex "A" Stipulation)
that "the period to repurchase, extended as requested until July 12, 1961." Needless to say, the purchasers a retro, in the
exercise of their freedom to make contracts, have the power to extend the period of repurchase. Such extension is valid
and effective as it is not contrary to any provision of law. (Umale vs. Fernandez, 28 Phil. 89, 93)
The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public document. Consequently, the
same is sufficient for the purpose of transferring the rights of the vendors a retro over the property in question in favor of
the petitioners. It is to be noted that the deed of sale with right to repurchase (Annex "A" Stipulation) was executed on
January 12, 1961, which was very much ahead in point of time to the execution of the real estate mortgage on October 4,
1961, in favor of intervenor (Annex "B" Stipulation). It is obvious, therefore, that when the mortgagors, Rodolfo Lanuza and
Belen Geronimo Lanuza, executed the real estate mortgage in favor of the intervenor, they were no longer the absolute
owners of the property since the same had already been sold a retro to the petitioners. The spouses Lanuza, therefore,
could no longer constitute a valid mortgage over the property inasmuch as they did not have any free disposition of the
property mortgaged. (Article 2085, New Civil Code.) For a valid mortgage to exist, ownership of the property mortgaged is
an essential requisite. A mortgage executed by one who is not the owner of the property mortgaged is without legal
existence and the registration cannot validate. (Philippine National Bank vs. Rocha, 55 Phil. 497).
The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason that while the real estate
mortgage in his favor (Annex "B" Stipulation) has been registered with the Register of Deeds of Manila under the
provisions of Act No. 3344 on November 3, 1961, the deed of sale with right to repurchase (Annex "A" Stipulation)
however, has not been duly registered. Article 1544 of the New Civil Code, however, refers to the sale of the same
property to two or more vendees. This provision of law, therefore, is not applicable to the present case which does not
involve sale of the same property to two or more vendees. Furthermore, the mere registration of the property mortgaged in
favor of the intervenor under Act No. 3344 does not prejudice the interests of the petitioners who have a better right over
the property in question under the old principle of first in time, better in right. (Gallardo vs. Gallardo, C.B., 46 O.G. 5568)
De Leon appealed directly to this Court, contending (1) that the sale in question is not only voidable but void ab initio for having
been made by Lanuza without the consent of his wife; (2) that the pacto de retro sale is in reality an equitable mortgage and
therefore can not be the basis of a petition for consolidation of ownership; and (3) that at any rate the sale, being unrecorded,
cannot affect third parties.
We are in accord with the trial court's ruling that a conveyance of real property of the conjugal partnership made by the husband
without the consent of his wife is merely voidable. This is clear from article 173 of the Civil Code which gives the wife ten years
within which to bring an action for annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave
her conformity to the extension of the period of redemption by signing the annotation on the margin of the deed. We may add that
actions for the annulment of voidable contracts can be brought only by those who are bound under it, either principally or
subsidiarily (art. 1397), so that if there was anyone who could have questioned the sale on this ground it was Lanuza's wife alone.
We also agree with the lower court that between an unrecorded sale of a prior date and a recorded mortgage of a later date the
former is preferred to the latter for the reason that if the original owner had parted with his ownership of the thing sold then he no
longer had the ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under
Act No. 3344 would, in such case, be of no moment since it is understood to be without prejudice to the better right of third
parties.2 Nor would it avail the mortgagee any to assert that he is in actual possession of the property for the execution of the
conveyance in a public instrument earlier was equivalent to the delivery of the thing sold to the vendee.3
But there is one aspect of this case which leads us to a different conclusion. It is a point which neither the parties nor the trial court
appear to have sufficiently considered. We refer to the nature of the so-called "Deed of Sale with Right to Repurchase" and the
claim that it is in reality an equitable mortgage. While De Leon raised the question below and again in this Court in his second
assignment of error, he has not demonstrated his point; neither has he pursued the logical implication of his argument beyond
stating that a petition for consolidation of ownership is an inappropriate remedy to enforce a mortgage.
De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact that, first, the supposed vendors
(the Lanuzas) remained in possession of the thing sold and, second, when the three-month period of redemption expired the
parties extended it. These are circumstances which indeed indicate an equitable mortgage. 4 But their relevance emerges only
when they are seen in the perspective of other circumstances which indubitably show that what was intended was a mortgage and
not a sale.These circumstances are:
1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the decision of the trial court, the fact
has not been mentioned that for the price of P3,000, the supposed vendors "sold" not only their house, which they described as
new and as being made of strong materials and which alone had an assessed value of P4,000, but also their leasehold right
television set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the petition for consolidation of ownership is limited to
the house and the leasehold right, while the stipulation of facts of the parties merely referred to the object of the sale as "the
property in question." The failure to highlight this point, that is, the gross inadequacy of the price paid, accounts for the error in
determining the true agreement of the parties to the deed.
2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not really transfer their ownership of
the properties in question to Reyes and Navarro. What was agreed was that ownership of the things supposedly sold would vest in
the vendees only if the vendors failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount rather than on
the redemption of the things supposedly sold. Thus, the deed recites that —
If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three months, my right to repurchase the
said properties shall be forfeited and the ownership thereto automatically pass to Mrs. Maria Bautista Vda. de Reyes . . .
without any Court intervention and they can take possession of the same.
This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires ownership of the thing sold
immediately upon execution of the sale, subject only to the vendor's right of redemption. 5 Indeed, what the parties established by
this stipulation is an odious pactum commissorium which enables the mortgages to acquire ownership of the mortgaged properties
without need of foreclosure proceedings. Needless to say, such a stipulation is a nullity, being contrary to the provisions of article
2088 of the Civil Code.6 Its insertion in the contract of the parties is an avowal of an intention to mortgage rather than to sell. 7
3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked in the consideration of this case is
the fact that the period of redemption expired on July 12, 1961 and yet this action was not brought until October 19, 1962 and only
after De Leon had asked on October 5, 1962 for the extra-judicial for closure of his mortgage. All the while, the Lanuzas remained
in possession of the properties they were supposed to have sold and they remained in possession even long after they had lost
their right of redemption.
Under these circumstances we cannot but conclude that the deed in question is in reality a mortgage. This conclusion is of far-
reaching consequence because it means not only that this action for consolidation of ownership is improper, as De Leon claims, but,
what is more that between the unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the
registered mortgage of De Leon, the latter must be preferred. Preference of mortgage credits is determined by the priority of
registration of the mortgages,8 following the maxim "Prior tempore potior jure" (He who is first in time is preferred in right.)9 Under
article 2125 of the Civil Code, the equitable mortgage, while valid between Reyes and Navarro, on the one hand, and the Lanuzas,
on the other, as the immediate parties thereto, cannot prevail over the registered mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is dismissed. Costs against Reyes and
Navarro.

HOMEOWNERS SAVINGS AND LOAN BANK, vs.

ASUNCION P. FELONIA and LYDIA C. DE GUZMAN, represented by MARIBEL FRIAS, Respondents-Appellees.
MARIE MICHELLE P. DELGADO, REGISTER OF DEEDS OF LAS PINAS CITY and RHANDOLFO B. AMANSEC, in his
capacity as Clerk of Court Ex-Officio Sheriff, Office of the Clerk of Court, Las Piñas City,Respondents-Defendants.
Assailed in this Petition for Review on Certiorari is the Decision 1 and Resolution2 of the Court of Appeals (CA), in CA-G.R. CV No.
87540, which affirmed with modifications, the Decision 3 of the Regional Trial Court (RTC), reinstating the title of respondents
Asuncion Felonia (Felonia) and Lydia de Guzman (De Guzman) and cancelling the title of Marie Michelle Delgado (Delgado).
The facts as culled from the records are as follows:
Felonia and De Guzman were the registered owners of a parcel of land consisting of 532 square meters with a five-bedroom house,
covered by Transfer of Certificate of Title (TCT) No. T-402 issued by the register of deeds of Las Piñas City.
Sometime in June 1990, Felonia and De Guzman mortgaged the property to Delgado to secure the loan in the amount of
₱1,655,000.00. However, instead of a real estate mortgage, the parties executed a Deed of Absolute Sale with an Option to
Repurchase.4
On 20 December 1991, Felonia and De Guzman filed an action for Reformation of Contract (Reformation case), docketed as Civil
Case No. 91-59654, before the RTC of Manila. On the findings that it is "very apparent that the transaction had between the parties
is one of a mortgage and not a deed of sale with right to repurchase," 5 the RTC, on 21 March 1995 rendered a judgment favorable
to Felonia and De Guzman. Thus:
WHEREFORE, judgment is hereby rendered directing the [Felonia and De Guzman] and the [Delgado] to execute a deed of
mortgage over the property in question taking into account the payments made and the imposition of the legal interests on the
principal loan.
On the other hand, the counterclaim is hereby dismissed for lack of merit.
No pronouncements as to attorney’s fees and damages in both instances as the parties must bear their respective expenses
incident to this suit.6
Aggrieved, Delgado elevated the case to the CA where it was docketed as CA-G.R. CV No. 49317. The CA affirmed the trial court
decision. On 16 October 2000, the CA decision became final and executory. 7
Inspite of the pendency of the Reformation case in which she was the defendant, Delgado filed a "Petition for Consolidation of
Ownership of Property Sold with an Option to Repurchase and Issuance of a New Certificate of Title" (Consolidation case) in the
RTC of Las Piñas, on 20 June 1994.8 After an ex-parte hearing, the RTC ordered the issuance of a new title under Delgado’s name,
thus:
WHEREFORE, judgment is rendered-
1. Declaring [DELGADO] as absolute owner of the subject parcel of land covered by Transfer Certificate of Title No. T-402
of the Register of Deeds of Las Piñas, Metro Manila;
2. Ordering the Register of Deeds of Las Piñas, Metro Manila to cancel Transfer Certificate of Title No. T-402 and issue in
lieu thereof a new certificate of title and owner’s duplicate copy thereof in the name of [DELGADO]. 9
By virtue of the RTC decision, Delgado transferred the title to her name. Hence, TCT No. T-402, registered in the names of Felonia
and De Guzman, was canceled and TCT No. 44848 in the name of Delgado, was issued.
Aggrieved, Felonia and De Guzman elevated the case to the CA through a Petition for Annulment of Judgment. 10
Meanwhile, on 2 June 1995, Delgado mortgaged the subject property to Homeowners Savings and Loan Bank (HSLB) using her
newly registered title. Three (3) days later, or on 5 June 1995, HSLB caused the annotation of the mortgage.
On 14 September 1995, Felonia and De Guzman caused the annotation of a Notice of Lis Pendens on Delgado’s title, TCT No.
44848. The Notice states:
Entry No. 8219/T-44848 – NOTICE OF LIS PENDENS – filed by Atty. Humberto A. Jambora, Counsel for the Plaintiff, that a case
been commenced in the RTC, Branch 38, Manila, entitled ASUNCION P. FELONIA and LYDIA DE GUZMAN thru VERONICA P.
BELMONTE, as Atty-in-fact (Plaintiffs) v.s. MARIE MICHELLE DELGADO defendant in Civil Case No. 91-59654 for Reformation of
Instrument.
Copy on file in this Registry.
Date of Instrument – Sept. 11, 1995
Date of Inscription – Sept. 14, 1995 at 9:55 a.m.11
On 20 November1997, HSLB foreclosed the subject property and later consolidated ownership in its favor, causing the issuance of
a new title in its name, TCT No. 64668.
On 27 October 2000, the CA annulled and set aside the decision of the RTC, Las Piñas City in the Consolidation case. The
decision of the CA, declaring Felonia and De Guzman as the absolute owners of the subject property and ordering the cancellation
of Delgado’s title, became final and executory on 1 December 2000.12 Thus:
WHEREFORE, the petition is GRANTED and the subject judgment of the court a quo is ANNULLED and SET ASIDE.13
On 29 April 2003, Felonia and De Guzman, represented by Maribel Frias (Frias), claiming to be the absolute owners of the subject
property, instituted the instant complaint against Delgado, HSLB, Register of Deeds of Las Piñas City and Rhandolfo B. Amansec
before the RTC of Las Piñas City for Nullity of Mortgage and Foreclosure Sale, Annulment of Titles of Delgado and HSLB, and
finally, Reconveyance of Possession and Ownership of the subject property in their favor.
As defendant, HSLB asserted that Felonia and De Guzman are barred from laches as they had slept on their rights to timely
annotate, by way of Notice of Lis Pendens, the pendency of the Reformation case. HSLB also claimed that it should not be bound
by the decisions of the CA in the Reformation and Consolidation cases because it was not a party therein.
Finally, HSLB asserted that it was a mortgagee in good faith because the mortgage between Delgado and HSLB was annotated on
the title on 5 June 1995, whereas the Notice of Lis Pendens was annotated only on 14 September 1995.
After trial, the RTC ruled in favor of Felonia and De Guzman as the absolute owners of the subject property. The dispositive portion
of the RTC decision reads:
WHEREFORE, premises considered, the Court hereby finds for the [Felonia and De Guzman] with references to the decision of the
Court of Appeals in CA-G.R. CV No. 49317 and CA-G.R. SP No. 43711 as THESE TWO DECISIONS CANNOT BE IGNORED and
against [Delgado] and [HSLB], Register of Deeds of Las Piñas City ordering the (sic) as follows:
1. The Register of Deeds of Las Piñas City to cancel Transfer Certificate of Title Nos. 44848 and T-64668 as null and void
and reinstating Transfer Certificate of Title No. T-402 which shall contain a memorandum of the fact and shall in all respect
be entitled to like faith and credit as the original certificate of title and shall, thereafter be regarded as such for all intents
and purposes under the law;
2. Declaring the Mortgage Sheriff’s Sale and the Certificate of Sale issued in favor of HSLB null and void, without prejudice
to whatever rights the said Bank may have against [Delgado];
3. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for compensatory damages;
4. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for exemplary damages;
5. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for moral damages;
6. Ordering [Delgado] to pay 20% of the total obligations as and by way of attorney’s fees;
7. Ordering [Delgado] to pay cost of suit.14
On appeal, the CA affirmed with modifications the trial court decision. The dispositive portion of the appealed Decision reads:
WHEREFORE, in the light of the foregoing, the decision appealed from is AFFIRMED with the MODIFICATIONS that the awards of
actual damages and attorney’s fees are DELETED, moral and exemplary damages are REDUCED to ₱50,000.00 each, and
Delgado is ordered to pay the appellees ₱25,000.00 as nominal damages. 15
Hence, this petition.
Notably, HSLB does not question the affirmance by the CA of the trial court’s ruling that TCT No. 44848, the certificate of title of its
mortgagor-vendor, and TCT No. 64668, the certificate of title that was secured by virtue of the Sheriff’s sale in its favor, should be
cancelled "as null and void" and that TCT No. T-402 in the name of Felonia and De Guzman should be reinstated.
Recognizing the validity of TCT No. T-402 restored in the name of Felonia and De Guzman, petitioners pray that the decision of the
CA be modified "to the effect that the mortgage lien in favor of petitioner HSLB annotated as entry No. 4708-12 on TCT No. 44848
be [ordered] carried over on TCT No. T-402 after it is reinstated in the name of [Felonia and De Guzman]." 16
Proceeding from the ruling of the CA that it is a mortgagee in good faith, HSLB argues that a denial of its prayer would run counter
to jurisprudence giving protection to a mortgagee in good faith by reason of public policy.
We cannot grant the prayer of petitioner. The priorly registered mortgage lien of HSLB is now worthless.
Arguably, HSLB was initially a mortgagee in good faith. In Bank of Commerce v. San Pablo, Jr., 17 the doctrine of mortgagee in
good faith was explained:
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being
fraudulent, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This is the
doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by the Torrens
Certificates of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public
interest in upholding indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance
thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.
When the property was mortgaged to HSLB, the registered owner of the subject property was Delgado who had in her name TCT
No. 44848. Thus, HSLB cannot be faulted in relying on the face of Delgado’s title. The records indicate that Delgado was at the
time of the mortgage in possession of the subject property and Delgado’s title did not contain any annotation that would arouse
HSLB’s suspicion. HSLB, as a mortgagee, had a right to rely in good faith on Delgado’s title, and in the absence of any sign that
might arouse suspicion, HSLB had no obligation to undertake further investigation. As held by this Court in Cebu International
Finance Corp. v.
CA:18
The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the
property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the
mortgagee or transferee in good faith is nonetheless entitled to protection.
However, the rights of the parties to the present case are defined not by the determination of whether or not HSLB is a mortgagee
in good faith, but of whether or not HSLB is a purchaser in good faith. And, HSLB is not such a purchaser.
A purchaser in good faith is defined as one who buys a property without notice that some other person has a right to, or interest in,
the property and pays full and fair price at the time of purchase or before he has notice of the claim or interest of other persons in
the property.19
When a prospective buyer is faced with facts and circumstances as to arouse his suspicion, he must take precautionary steps to
qualify as a purchaser in good faith. In Spouses Mathay v. CA,20 we determined the duty of a prospective buyer:
Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a
firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the
property being sold to him, such as the presence of occupants/tenants thereon, it is of course, expected from the purchaser of a
valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants
possess the land en concepto de dueño, in the concept of the owner. As is the common practice in the real estate industry, an
ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that
the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it
would then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. The failure of a prospective
buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or
invoking the rights of a purchaser in good faith.
In the case at bar, HSLB utterly failed to take the necessary precautions.1âwphi1 At the time the subject property was mortgaged,
there was yet no annotated Notice of Lis Pendens. However, at the time HSLB purchased the subject property, the Notice of Lis
Pendens was already annotated on the title.21
Lis pendens is a Latin term which literally means, "a pending suit or a pending litigation" while a notice of lis pendens is an
announcement to the whole world that a real property is in litigation, serving as a warning that anyone who acquires an interest
over the property does so at his/her own risk, or that he/she gambles on the result of the litigation over the property. 22 It is a
warning to prospective buyers to take precautions and investigate the pending litigation.
The purpose of a notice of lis pendens is to protect the rights of the registrant while the case is pending resolution or decision. With
the notice of lis pendens duly recorded and remaining uncancelled, the registrant could rest secure that he/she will not lose the
property or any part thereof during litigation.
The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject
matter of the litigation within the Court’s jurisdiction until the judgment or the decree have been entered; otherwise, by successive
alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution.23
Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the annotated Notice of Lis Pendens. Instead
of heeding the same, HSLB continued with the purchase knowing the legal repercussions a notice of lis pendens entails. HSLB
took upon itself the risk that the Notice of Lis Pendens leads to.1âwphi1 As correctly found by the CA, "the notice of lis pendens
was annotated on 14 September 1995, whereas the foreclosure sale, where the appellant was declared as the highest bidder, took
place sometime in 1997. There is no doubt that at the time appellant purchased the subject property, it was aware of the pending
litigation concerning the same property and thus, the title issued in its favor was subject to the outcome of said litigation."24
This ruling is in accord with Rehabilitation Finance Corp. v. Morales,25 which underscored the significance of a lis pendens, then
defined in Sec. 24, Rule 7 now Sec. 14 of Rule 13 in relation to a mortgage priorly annotated on the title covering the property.
Thus:
The notice of lis pendens in question was annotated on the back of the certificate of title as a necessary incident of the civil action
to recover the ownership of the property affected by it. The mortgage executed in favor of petitioner corporation was annotated on
the same title prior to the annotation of the notice of lis pendens; but when petitioner bought the property as the highest bidder at
the auction sale made as an aftermath of the foreclosure of the mortgage, the title already bore the notice of lis pendens. Held:
While the notice of lis pendens cannot affect petitioner’s right as mortgagee, because the same was annotated subsequent to the
mortgage, yet the said notice affects its right as purchaser because notice of lis pendens simply means that a certain property is
involved in a litigation and serves as a notice to the whole world that one who buys the same does so at his own risk. 26
The subject of the lis pendens on the title of HSLB’s vendor, Delgado, is the "Reformation case" filed against Delgado by the herein
respondents. The case was decided with finality by the CA in favor of herein respondents. The contract of sale in favor of Delgado
was ordered reformed into a contract of mortgage. By final decision of the CA, HSLB’s vendor, Delgado, is not the property owner
but only a mortgagee. As it turned out, Delgado could not have constituted a valid mortgage on the property. That the mortgagor be
the absolute owner of the thing mortgaged is an essential requisite of a contract of mortgage. Article 2085 (2) of the Civil Code
specifically says so:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
xxxx
(2) That the pledgor or mortagagor be the absolute owner of the thing pledged or mortgaged.
Succinctly, for a valid mortgage to exist, ownership of the property is an essential requisite.27
Reyes v. De Leon28 cited the case of Philippine National Bank v. Rocha29 where it was pronounced that "a mortgage of real
property executed by one who is not an owner thereof at the time of the execution of the mortgage is without legal existence." Such
that, according to DBP v. Prudential Bank,30 there being no valid mortgage, there could also be no valid foreclosure or valid auction
sale.
We go back to Bank of Commerce v. San Pablo, Jr.31 where the doctrine of mortgagee in good faith, upon which petitioner relies,
was clarified as "based on the rule that all persons dealing with property covered by the Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the face of the title. In turn, the rule is based on "x x x public interest in
upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon."32
Insofar as the HSLB is concerned, there is no longer any public interest in upholding the indefeasibility of the certificate of title of its
mortgagor, Delgado. Such title has been nullified in a decision that had become final and executory. Its own title, derived from the
foreclosure of Delgado's mortgage in its favor, has likewise been nullified in the very same decision that restored the certificate of
title in respondents' name. There is absolutely no reason that can support the prayer of HSLB to have its mortgage lien carried over
and into the restored certificate of title of respondents.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 87540 is AFFIRMED.

BIENVENIDO C. TEOCO and G.R. No. 162333

JUAN C. TEOCO, JR.,
- versus -
METROPOLITAN BANK Promulgated:
AND TRUST COMPANY,
REAL creditors are rarely unwilling to receive their debts from any hand which will pay them. [1] Ang tunay na may
pautang ay bihirang tumanggi sa kabayaran mula kaninuman.
This is a petition for review on certiorari seeking the reversal of the Decision[2] of the Court of Appeals (CA) in CA-G.R. CV
No. 58891 dated February 20, 2004 which annulled and set aside the decision of the Regional Trial Court (RTC) of
Catbalogan, Samar on July 22, 1997 in Cadastral
Record No. 1378. The RTC originally dismissed the petition for writ of possession filed by respondent Metropolitan Bank and Trust
Company (Metrobank) on the ground that intervenors and present petitioners, the brothers Bienvenido Teoco and Juan Teoco, Jr.
(the brothers Teoco), have redeemed the subject property. The CA reversed this dismissal and ordered the issuance of a writ of
possession in favor of respondent Metrobank.
Culled from the records, the facts are as follows:Lydia T. Co, married to Ramon Co, was the registered owner of two parcels of land
situated in Poblacion, Municipality of Catbalogan, Province of Samar under Transfer Certificate of Title (TCT) Nos. T-6220 and T-
6910.[3] Ramon Co mortgaged the said parcels of land to Metrobank for a sum of P200,000.00.

On February 14, 1991, the properties were sold to Metrobank in an extrajudicial foreclosure sale under Act No. 3135. One year
after the registration of the Certificates of Sale, the titles to the properties were consolidated in the name of Metrobank for failure of
Ramon Co to redeem the same within the one year period provided for by law. TCT Nos. T-6220 and T-6910 were cancelled
and TCT Nos. T-8482 and T-8493 were issued in the name of Metrobank.

On November 29, 1993, Metrobank filed a petition for the issuance of a writ of possession against Ramon Co and Lydia Co (the
spouses Co). However, since the spouses Co were no longer residing in the Philippines at the time the petition was filed, the trial
court ordered Metrobank, on January 12, 1994 and again on January 26, 1994 to effect summons by publication against the
spouses Co.

On May 17, 1994, the brothers Teoco filed an answer-in-intervention alleging that they are the successors-in-interest of the
spouses Co, and that they had duly andvalidly redeemed the subject properties within the reglementary period provided by
law. The brothers Teoco thus prayed for the dismissal of Metrobanks petition for a writ of possession, and for the nullification of the
TCTs issued in the name of Metrobank. The brothers Teoco further prayed for the issuance in their name of new certificates of title.

Metrobank, in its reply, alleged that the amount deposited by the brothers Teoco as redemption price was not sufficient, not being in
accordance with Section 78 of the General Banking Act. Metrobank also said the assignment of the right of redemption by the
spouses Co in favor of the brothers Teoco was not properly executed, as it lacks the necessary authentication from the Philippine
Embassy.

On February 24, 1995, the trial court was informed that the brothers Teoco had deposited the amount of P356,297.57 to the clerk of
court of the RTC in Catbalogan, Samar. The trial court ordered Metrobank to disclose whether it is allowing the brothers Teoco to
redeem the subject properties. Metrobank refused to accept the amount deposited by the brothers Teoco, alleging that they are
obligated to pay the spouses Cos subsequent obligations to Metrobank as well. The brothers Teoco claimed that they are not
bound to pay all the obligations of the spouses Co, but only the value of the property sold during the public auction.

On February 26, 1997, the trial court reiterated its earlier order directing Metrobank to effect summons by publication to the
spouses Co. Metrobank complied with said order by submitting documents showing that it caused the publication of summons
against the spouses Co. The brothers Teoco challenged this summons by publication, arguing that the newspaper where the
summons by publication was published, the Samar Reporter, was not a newspaper of general circulation in the Philippines. The
brothers Teoco furthermore argued that Metrobank did not present witnesses to identify the documents to prove summons by
publication.

RTC Disposition

On July 22, 1997, the RTC rendered its decision in favor of the brothers Teoco, to wit:

WHEREFORE, judgment is hereby rendered dismissing the petition for a writ of possession under Section 7 of
Act 3135 it appearing that intervenor Atty. Juan C. Teoco, Jr. and his brother Atty. Bienvenido C. Teoco have
legally and effectively redeemed Lot 61 and 67 of Psd-66654, Catbalogan, Cadastre, from the petitioner
Metropolitan Bank and Trust Company.

Accordingly, Metrobank may now withdraw the aforesaid redemption money of P356,297.57 deposited by Juan C.
Teoco, Jr., on February 10, 1992 with the clerk of court and it is ordered that the Transfer Certificate of Title Nos.
T-8492 and T-8493 of Metropolitan Bank and Trust Company be and are cancelled and in their place new
transfer certificates of title be issued in favor of Intervenors Attys. Bienvenido C. Teoco and Juan C. Teoco, Jr., of
legal age, married, and residents of Calbiga, Samar, Philippines, upon payment of the prescribed fees
therefore. No pronouncement as to costs.[4]

According to the RTC, the case filed by Metrobank should be dismissed since intervenor Juan C. Teoco, Jr., by his tender
of P356,297.57 to Metrobank on February 10, 1992, within the reglementary period of redemption of the foreclosed property, had
legally and effectively redeemed the subject properties from Metrobank. This redemption amount is a fair and reasonable price and
is in keeping with the letter and spirit of Section 78 of the General Banking Act because Metrobank purchased the mortgaged
properties from the sheriff of the same court for only P316,916.29. In debunking the argument that the amount tendered was
insufficient, the RTC held:

It is contended for Metrobank that the redemption money deposited by Juan C. Teoco, Jr., is insufficient and
ineffective because the spouses Ramon Co and Lydia T. Co owe it the total amount of P6,856,125 excluding
interest and other charges and the mortgage contract executed by them in favor of Metrobank in 1985 and 1986
(Exh. A and B) are not only security for payment of their obligation in the amount of P200,000 but also for those
obligations that may have been previously and later extended to the Co couple including interest and other
charges as appears in the accounts, books and records of the bank.

Metrobank cites the case of Mojica v. Court of Appeals, 201 SCRA 517 (1991) where the Supreme Court held
that mortgages given to secure future advancements are valid and legal contracts; that the amounts named as
consideration in said contract do not limit the amount for which the mortgage may stand as security; that a
mortgage given to secure the advancements is a continuing security and is not discharged by repayment of the
amount named in the mortgage until the full amount of the advancements are paid. In the opinion of this court, it
is not fair and just to apply this rule to the case at bar. There is no evidence offered by Metrobank that these
 other obligations of Ramon Co and his wife were not secured by real estate mortgages of other lands. If the other
indebtedness of the Co couple to Metrobank are secured by a mortgage on their other lands or properties the
obligation can be enforced by foreclosure which the court assumes Metrobank has already done. There is no
proof that Metrobank asked for a deficiency judgment for these unpaid loans.

The Supreme Court in the Mojica case was dealing with the rights of the mortgagee under a mortgage from an
owner of the land. It determined the security covered by the mortgage the intention of the parties and the equities
of the case. What was held in that case was hedged about so as to limit the decision to the particular facts. It
must be apparent that the Mojica ruling cannot be construed to give countenance or approval to the theory that in
all cases without exception mortgages given to secure past and future advancements are valid and legal
contracts.

In construing a contract between the bank and a borrower such a construction as would be more favorable to the
borrower should be adopted since the alleged past and future indebtedness of Ramon Co to the bank was not
described and specified therein and that the addendum was made because the mortgage given therefore were
not sufficient or that these past and future advancements were unsecured. That being the case the mortgage
contracts, Exh. A and B should be interpreted against Metrobank which drew said contracts.A written contract
should, in case of doubt, be interpreted against the party who has drawn the contract (6 R.C.L. 854; H.E.
Heackock Co. vs. Macondray & Co., 42 Phil. 205).Here, the mortgage contracts are in printed form prepared by
Metrobank and therefore ambiguities therein should be construed against the party causing it (Yatco vs. El Hogar
Filipino, 67 Phil. 610; Hodges vs. Tazaro, CA, 57 O.G. 6970).[5]

The RTC added that there is another reason for dismissing Metrobanks petition: the RTC failed to acquire jurisdiction over
the spouses Co. The RTC noted that Metrobank published its petition for writ of possession, but did not publish the writ of
summons issued by said court on February 16, 1994. According to the RTC:

A petition for a writ of possession of foreclosed property is in reality a possession suit. That Metrobank prayed for
a writ of possession in an independent special proceeding does not alter the nature of the case as a possessory
suit (Cabrera v. Sinoy, L.-12648, 23 November 1959).

The defendant or owner of the property foreclosed by the petitioner should be summoned to answer the
petition. Accordingly, the publication made by the petitioner is fatally flawed and defective and on that basis alone
this court acquired no jurisdiction over the person of respondents Ramon Co and his wife (Mapa vs. Court of
Appeals, G.R. No. 79394, October 2, 1992; Lopez vs. Philippine National Bank, L-34223, December 10, 1982).[6]

Metrobank appealed to the CA. In its appeal, Metrobank claimed that the RTC erred in finding that the publication made by it is
fatally flawed, and that the brothers Teoco had effectively redeemed the properties in question.

CA Disposition

On February 20, 2004, the CA decided the appeal in favor of Metrobank, with the following disposition:

WHEREFORE, the appeal is hereby GRANTED. The assailed Decision dated July 22, 1997 rendered
by the Regional Trial Court of Catbalogan, Samar Branch 29 in Cadastral Record No. 1378 is hereby ANNULLED
and SET ASIDE. Accordingly, let a writ of possession in favor of petitioner-appellant METROPOLITAN
BANK AND TRUST COMPANY be issued over the properties and improvements covered by Transfer
Certificates of Title Nos. T-8492 and T-8493 of the Registry of Deeds of Western Samar.

SO ORDERED.[7]

As regards the question of jurisdiction, the CA ruled that since the parcels of land in question were already registered in
the name of Metrobank at the time the petition was filed, and since the certificates of title of the spouses Co were already cancelled,
there is no more need to issue summons to the spouses Co. The CA noted that the best proof of ownership of the parcel of land is
a certificate of title.[8]

The CA also held that the issue of the validity of summons to the spouses Co is unimportant considering that the
properties in question were mortgaged to Metrobank and were subsequently sold to the same bank after the spouses Co failed to
satisfy the principal obligation. Hence, the applicable law is Act No. 3135,[9]as amended by Act No. 4118. Section 7 of said Act No.
3135 states that a petition for the issuance of a writ of possession filed by the purchaser of a property in an extrajudicial foreclosure
sale may be done ex parte. It is the ministerial duty of the trial court to grant such writ of possession. No discretion is left to the trial
court.Any question regarding the cancellation of the writ, or with respect to the validity and regularity of the public sale should be
determined in a subsequent proceeding as outlined in Section 9 of Act No. 3135. [10]

Further, the CA held that the brothers Teoco were not able to effectively redeem the subject properties, because the amount
tendered was insufficient, and the brothers Teoco have not sufficiently shown that the spouses Cos right of redemption was
properly transferred to them.

Issues

In this Rule 45 petition, the brothers Teoco impute to the CA the following errors:

I
 THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF JUDGMENT IN HOLDING
THAT PETITIONERS FAILED TO REDEEM THE SUBJECT PROPERTIES WITHIN THE REGLEMENTARY
PERIOD OF ONE YEAR AND THAT THE REDEMPTION PRICE TENDERED IS INSUFFICIENT.

II
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF JUDGMENT IN HOLDING
PETITIONERS TO PAY NOT ONLY THE P200,000 PRINCIPAL OBLIGATION BUT ALSO THAT PREVIOUSLY
EXTENDED, WHETHER DIRECT OR INDIRECT, PRINCIPAL OR SECONDARY AS APPEARS IN THE
ACCOUNTS, BOOKS AND RECORDS.

III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONERS HAVE NOT
SUFFICIENTLY SHOW(N) THAT THE RIGHT OF REDEMPTION WAS PROPERLY TRANSFERRED TO THEM.

IV
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL
COURT, BRANCH 29, AND GRANTING THE WRIT OF POSSESSION TO THE
RESPONDENT.[11] (Underscoring supplied)

Our Ruling

Sufficiency of Amount Tendered

We find that neither petitioners, the brothers Teoco, nor respondent, Metrobank, were able to present sufficient evidence
to prove whether the additional loans granted to the spouses Co by Metrobank were covered by the mortgage agreement between
them. The brothers Teoco failed to present any evidence of the supposedtrust receipt agreement between Metrobank and the
spouses Co, or an evidence of the supposed payment by the spouses Co of the other loans extended by Metrobank.Metrobank, on
the other hand, merely relied on the stipulation on the mortgage deed that the mortgage was intended to secure the payment of the
same (P200,000.00 loan) and those that may hereafter be obtained.[12] However, there was no mention whatsoever of the
mortgage agreement in the succeeding loans entered into by the spouses Co.

While we agree with Metrobank that mortgages intended to secure future advancements are valid and legal
contracts,[13] entering into such mortgage contracts does not necessarily put within its coverage all loan agreements that may be
subsequently entered into by the parties. If Metrobank wishes to apply the mortgage contract in order to satisfy loan obligations not
stated on the face of such contract, Metrobank should prove by a preponderance of evidence that such subsequent obligations are
secured by said mortgage contract and not by any other form of security.

In order to prevent any injustice to, or unjust enrichment of, any of the parties, this Court holds that the fairest resolution is
to allow the brothers Teoco to redeem the foreclosed properties based on the amount for which it was foreclosed (P255,441.14
plus interest). This is subject, however, to the right of Metrobank to foreclose the same property anew in order to satisfy the
succeeding loans entered into by the spouses Co, if they were, indeed, covered by the mortgage contract. The right of Metrobank
to foreclose the mortgage would not be hampered by the transfer of the properties to the brothers Teoco as a result of this decision,
since Article 2127 of the Civil Code provides:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or
income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing
to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate remains in the possession of
the mortgagor, or it passes into the hands of a third person. (Emphasis supplied)

Further, Article 2129 of the Civil Code provides:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the
payment of the part of the credit secured by the property which said third person possesses, in the terms and
with the formalities which the law establishes.

The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be to the
fulfillment of the obligation for whose security it was constituted. Otherwise stated, a mortgage creates a real right which is
enforceable against the whole world. Hence, even if the mortgage property is sold or its possession transferred to another, the
property remains subject to the fulfillment of the obligation for whose security it was constituted.[14]

Thus, the redemption by the brothers Teoco shall be without prejudice to the subsequent foreclosure of same properties
by Metrobank in order to satisfy other obligations covered by the Real Estate Mortgage.

Transfer of Right of Redemption

The CA held that the brothers Teoco have not sufficiently shown that the spouses Cos right of redemption was properly transferred
to them. The assignment of the right of redemption only stated that the spouses Co are transferring the right of redemption to their
parents, brothers, and sisters, but did not specifically include the brothers Teoco, who are just brothers-in-law of Ramon
Co. Furthermore, the spouses Co no longer reside in the Philippines, and the assignment of the right of redemption was not
properly executed and/or authenticated.

The alleged transfer of the right of redemption is couched in the following language:

KNOW ALL MEN BY THESE PRESENTS:

That we, RAMON CO and LYDIA CO, of legal ages, for and in consideration of preserving the continuous
ownership and possession of family owned properties, by these presents, hereby cede, transfer and convey in
favor of my parents, brothers and sisters, the right to redeem the properties under TCT Nos. T-6910 and T-
6220, located in Patag district, Catbalogan, Samar, sold by public auction sale on February 14, 1991 to the
Metropolitan Bank and Trust Company.

Furthermore, we waived whatever rights we may have over the properties in favor of the successor-in-interest
including that of transferring the title to whoever may redeem the aforesaid properties.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 10 th day of January, 1992
at Vancouver, Canada.[15]

The brothers Teoco may be brothers-in-law only of Ramon Co, but they are also the brothers of Lydia Teoco Co, who is actually the
registered owner of the properties covered by TCT Nos. T-6910 and T-6220. Clearly, the brothers Teoco are two of the persons
referred to in the above transfer of the right of redemption executed by the spouses Co.

Anent the CA observation that the assignment of the right of redemption was not properly executed and/or authenticated, Lopez v.
Court of Appeals[16] is instructive.In Lopez, this Court ruled that a special power of attorney executed in a foreign country is
generally not admissible in evidence as a public document in our courts.The Court there held:

Is the special power of attorney relied upon by Mrs. Ty a public document? We find that it is. It has been
notarized by a notary public or by a competent public official with all the solemnities required by law of a public
document. When executed and acknowledged in the Philippines, such a public document or a certified true copy
thereof is admissible in evidence. Its due execution and authentication need not be proven unlike a private writing.

Section 25, Rule 132 of the Rules of Court provides

Sec. 25. Proof of public or official record. An official record or an entry therein, when admissible
for any purpose, may be evidenced by an official publication thereof or by a copy attested by
the officer having the legal custody of the record, or by his deputy, and accompanied, if the
record is not kept in the Philippines, with a certificate that such officer has the custody. If the
office in which the record is kept is in a foreign country, the certificate may be made by a
secretary of embassy or legation consul general, consul, vice consul, or consular agent or by
any officer in the foreign service of the Philippines stationed in the foreign country in which the
record is kept, and authenticated by the seal of his office.

From the foregoing provision, when the special power of attorney is executed and acknowledged before a notary
public or other competent official in a foreign country, it cannot be admitted in evidence unless it is certified as
such in accordance with the foregoing provision of the rules by a secretary of embassy or legation, consul
general, consul, vice consul, or consular agent or by any officer in the foreign service of the Philippines stationed
in the foreign country in which the record is kept of said public document and authenticated by the seal of his
office. A city judge-notary who notarized the document, as in this case, cannot issue such certification. [17]

Verily, the assignment of right of redemption is not admissible in evidence as a public document in our courts. However, this does
not necessarily mean that such document has no probative value.

There are generally three reasons for the necessity of the presentation of public documents. First, public documents are prima
facie evidence of the facts stated in them, as provided for in Section 23, Rule 132 of the Rules of Court:

SEC. 23. Public documents as evidence. Documents consisting of entries in public records made in the
performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the fact which gave rise to their execution and of the
date of the latter. (Underscoring supplied)

Second, the presentation of a public document dispenses with the need to prove a documents due execution and authenticity,
which is required under Section 20, Rule 132 of the Rules of Court for the admissibility of private documents offered as authentic:

SEC. 20. Proof of private document. Before any private document offered as authentic is received in evidence, its
due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be. (Underscoring supplied)
In the presentation of public documents as evidence, on the other hand, due execution and authenticity are already presumed:

SEC. 23. Public documents are evidence. Documents consisting of entries in public records made in the
performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the fact which gave rise to their execution and of the
date of the latter. (Underscoring supplied)

SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as provided
by law, may be presented in evidence without further proof, the certificate of acknowledgment being prima
facie evidence of the execution of the instrument or document involved. (Underscoring supplied)

Third, the law may require that certain transactions appear in public instruments, such as Articles 1358 and 1625 of the Civil Code,
which respectively provide:

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or of an interest therein governed by Articles 1403, No.
2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which
should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private
one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2, and 1405.

Art. 1625. An assignment of a credit, right or action shall produce no effect as against third person, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment
involves real property. (Underscoring supplied)

Would the exercise by the brothers Teoco of the right to redeem the properties in question be precluded by the fact that the
assignment of right of redemption was not contained in a public document? We rule in the negative.

Metrobank never challenged either the content, the due execution, or the genuineness of the assignment of the right of
redemption. Consequently, Metrobank is deemed to have admitted the same. Having impliedly admitted the content of the
assignment of the right of redemption, there is no necessity for a prima facie evidence of the facts there stated. In the same manner,
since Metrobank has impliedly admitted the due execution and genuineness of the assignment of the right of redemption, a private
document evidencing the same is admissible in evidence. [18]

True it is that the Civil Code requires certain transactions to appear in public documents. However, the necessity of a public
document for contracts which transmit or extinguish real rights over immovable property, as mandated by Article 1358 of the Civil
Code, is only for convenience; it is not essential for validity or enforceability.[19] Thus, in Cenido v. Apacionado,[20] this Court ruled
that the only effect of noncompliance with the provisions of Article 1358 of the Civil Code is that a party to such a contract
embodied in a private document may be compelled to execute a public document:

Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in order to
validate the act or contract but only to insure its efficacy, so that after the existence of said contract has been
admitted, the party bound may be compelled to execute the proper document. This is clear from Article
1357, viz.:

Art. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article (Article 1358), the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.[21]

On the other hand, Article 1625 of the Civil Code provides that [a]n assignment of a credit, right or action shall produce no effect
as against third person, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case
the assignment involves real property.

In Co v. Philippine National Bank,[22] the Court interpreted the phrase effect as against a third person to be damage or prejudice to
such third person, thus:

x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held that whether or not x x x an execution debtor
was legally authorized to sell his right of redemption, is a question already decided by this Court in the affirmative
in numerous decisions on the precepts of Sections 463 and 464 and other sections related thereto, of the Code
of Civil Procedure.(The mentioned provisions are carried over in Rule 39 of the Revised Rules of Court.) That the
transfers or conveyances in question were not registered is of miniscule significance, there being no showing
that PNB was damaged or could be damaged by such omission. When CITADEL made its tender on May 5,
1976, PNB did not question the personality of CITADEL at all. It is now too late and purely technical to raise such
innocuous failure to comply with Article 1625 of the Civil Code. [23]
 In Ansaldo v. Court of Appeals,[24] the Court held:

In its Decision, the First Division of the Appellate Tribunal, speaking through the Presiding Justice at the time,
Hon. Magno S. Gatmaitan, held as regards Arnaldos contentions, that

xxxx

2) there was no need that the assignment be in a public document this being required
only to produce x x x effect as against third persons (Article 1625, Civil Code), i.e., to adversely
affect 3rd persons, i.e., a 3rd person with a right against original creditor, for example, an
original creditor of creditor, against whom surely such an assignment by his debtor (creditor in
the credit assigned) would be prejudicial, because he, creditor of assigning creditor, would thus
be deprived of an attachable asset of his debtor x x x;

xxxx

Except for the question of the claimed lack of authority on the part of TFCs president to execute the
assignment of credit in favor of PCIB improperly raised for the first time on appeal, as observed by the Court of
Appeals the issues raised by Ansaldo were set up by him in, and after analysis and assessment rejected by, both
the Trial Court and the Appellate Tribunal. This court sees no error whatever in the appreciation of the facts by
either Court or their application of the relevant law and jurisprudence to those facts, inclusive of the question
posed anew by Ansaldo relative to the alleged absence of authority on the part of TFCs president to assign the
corporations credit to PCIB.[25]

In the case at bar, Metrobank would not be prejudiced by the assignment by the spouses Co of their right of redemption in favor of
the brothers Teoco. As conceded by Metrobank, the assignees, the brothers Teoco, would merely step into the shoes of the
assignors, the spouses Co. The brothers Teoco would have to comply with all the requirements imposed by law on the
spouses Co. Metrobank would not lose any security for the satisfaction of any loan obtained from it by the spouses Co. In fact, the
assignment would even prove to be beneficial to Metrobank, as it can foreclose on the subject properties anew, provided it proves
that the subsequent loans entered into by the spouses Co are covered by the mortgage contract.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The decision of the Regional Trial Court in
Catbalogan, Samar is REINSTATED with the following MODIFICATION: the redemption by Bienvenido C. Teoco and Juan C.
Teoco, Jr. of the properties covered by TCT Nos. T-6910 and T-6220 shall be without prejudice to the subsequent foreclosure of
same properties by Metropolitan Bank and Trust Company to satisfy other loans covered by the Real Estate Mortgage.

SO ORDERED.

MANUEL GO CINCO and ARACELI S. GO

CINCO,
Petitioners,

- versus -

COURT OF APPEALS, ESTER SERVACIO

and MAASIN TRADERS LENDING
CORPORATION,
Respondents.
x ------------------------------------------------------------------------------------------x

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari[1] filed by petitioners, spouses Manuel and Araceli Go Cinco
(collectively, the spouses Go Cinco), assailing the decision[2] dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No.
47578, as well as the resolution[3] dated January 25, 2002 denying the spouses Go Cincos motion for reconsideration.

THE FACTUAL ANTECEDENTS

In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of P700,000.00 from respondent
Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December 11, 1987,[4] and
secured by a real estate mortgage executed on December 15, 1987 over the spouses Go Cincos land and 4-storey building located
in Maasin, Southern Leyte.
Under the terms of the promissory note, the P700,000.00 loan was subject to a monthly interest rate of 3% or 36% per annum and
was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989, Manuels outstanding
obligation with MTLC amounted to P1,071,256.66, which amount included the principal, interest, and penalties. [5]

To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank, Maasin
Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The PNB approved
the loan application for P1.3 Million[6] through a letter dated July 8, 1989; the release of the amount, however, was conditioned on
the cancellation of the mortgage in favor of MTLC.

On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLCs President, to inform her that there was
money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the information, but she
claimed that the banks officers informed her that Manuel had no pending loan application with them. When she told Manuel of the
banks response, Manuel assured her there was money with the PNB and promised to execute a document that would allow her to
collect the proceeds of the PNB loan.

On July 20, 1989, Manuel executed a Special Power of Attorney[7] (SPA) authorizing Ester to collect the proceeds of his
PNB loan. Ester again went to the bank to inquire about the proceeds of the loan. This time, the banks officers confirmed the
existence of the P1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage before they could
release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as
collateral for the PNB loan, Ester refused to sign the deed and did not collect the P1.3 Million loan proceeds.

As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24,
1989.

To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages,
and preliminary injunction[8] before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco
alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuels obligation in favor
of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Esters
refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the PNB loan were, to the spouses Go
Cinco, completely unjustified and entitled them to the payment of damages.

Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cincos plan to
obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with MTLC. She claimed that she had no explicit
agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuels loan with MTLC; the SPA merely
authorized her to collect the proceeds of the loan. She thus averred that it was unfair for the spouses Go Cinco to require the
release of the mortgage to MTLC when no actual payment of the loan had been made.

In a decision dated August 16, 1994,[9] the RTC ruled in favor of the spouses Go Cinco. The trial court found that the
evidence sufficiently established the existence of the PNB loan whose proceeds were available to satisfy Manuels obligation with
MTLC, and that Ester unjustifiably refused to collect the amount.Creditors, it ruled, cannot unreasonably prevent payment or
performance of obligation to the damage and prejudice of debtors who may stand liable for payment of higher interest rates.[10] After
finding MTLC and Ester liable for abuse of rights, the RTC ordered the award of the following amounts to the spouses Go Cinco:

(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of actual
or compensatory damages, if defendant corporation insists on the original 3% monthly interest rate;
(b) P100,000.00 as unrealized profit;
(c) P1,000,000.00 as moral damages;
(d) P20,000.00 as exemplary damages;
(e) P22,000.00 as litigation expenses; and
(f) 10% of the total amount as attorneys fees plus costs.[11]

Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the RTCs decision. Unlike the trial
court, the appellate court found it significant that there was no explicit agreement between Ester and the spouses Go Cinco for the
cancellation of the MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the proceeds of the PNB
loan. The CA read the SPA as merely authorizing Ester to withdraw the proceeds of the loan. As Manuels loan obligation with
MTLC remained unpaid, the CA ruled that no valid objection could be made to the institution of the foreclosure
proceedings. Accordingly, it dismissed the spouses Go Cinco complaint. From this dismissal, the spouses Go Cinco filed the
present appeal by certiorari.

THE PETITION

The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as equivalent to payment that
extinguished the MTLC loan; their act of applying for a loan with the PNB was indicative of their good faith and honest intention to
settle the loan with MTLC. They contend that the creditors have the correlative duty to accept the payment.

The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect the proceeds of
the loan and to execute the deed of release of mortgage. They assert that Esters justifications for refusing the payment were flimsy
excuses so she could proceed with the foreclosure of the mortgaged properties that were worth more than the amount due to
MTLC. Thus, they conclude that the acts of MTLC and of Ester amount to abuse of rights that warrants the award of damages in
their (spouses Go Cincos) favor.

In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments they raised before the RTC
and the CA. They claim that they were not aware of the loan and the mortgage to PNB, and that there was no agreement that the
proceeds of the PNB loan were to be used to settle Manuels obligation with MTLC. Since the MTLC loan remained unpaid, they
insist that the institution of the foreclosure proceedings was proper. Additionally, MTLC and Ester contend that the present petition
raised questions of fact that cannot be addressed in a Rule 45 petition.

THE COURTS RULING

The Court finds the petition meritorious.

Preliminary Considerations

Our review of the records shows that there are no factual questions involved in this case; the ultimate facts necessary for the
resolution of the case already appear in the records. The RTC and the CA decisions differed not so much on the findings of fact,
but on the conclusions derived from these factual findings. The correctness of the conclusions derived from factual findings raises
legal questions when the conclusions are so linked to, or are inextricably intertwined with, the appreciation of the applicable law that
the case requires, as in the present case.[12] The petition raises the issue of whether the loan due the MTLC had been
extinguished; this is a question of law that this Court can fully address and settle in an appeal by certiorari.

Payment as Mode of
Extinguishing Obligations
Obligations are extinguished, among others, by payment or performance, [13] the mode most relevant to the factual
situation in the present case. Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. Article 1233 of the Civil Code states that a debt shall not be understood to have
been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may
be. In contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These provisions must be read in
relation with the other rules on payment under the Civil Code,[14] which rules impliedly require acceptance by the creditor of the
payment in order to extinguish an obligation.

In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB
loan an act that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the delivery of the
SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be compelled to accept it as
payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the already-approved PNB
loan that, upon receipt by Ester, would have constituted as payment of the MTLC loan. [15] Had Ester presented the SPA to the bank
and signed the deed of release/cancellation of mortgage, the delivery of the sum of money would have been effected and the
obligation extinguished.[16] As the records show, Ester refused to collect and allow the cancellation of the mortgage.

Under these facts, Manuel posits two things: first, that Esters refusal was based on completely unjustifiable grounds;
and second, that the refusal was equivalent to payment that led to the extinguishment of the obligation.

a. Unjust Refusal to Accept Payment

After considering Esters arguments, we agree with Manuel that Esters refusal of the payment was without basis.

Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the
mortgage before the proceeds of the PNB loan could be released. As a prior mortgagee, she claimed that the spouses Go Cinco
should have obtained her consent before offering the properties already mortgaged to her as security for the PNB loan. Moreover,
Ester alleged that the SPA merely authorized her to collect the proceeds of the loan; there was no explicit agreement that the
MTLC loan would be paid out of the proceeds of the PNB loan.

There is nothing legally objectionable in a mortgagors act of taking a second or subsequent mortgage on a property
already mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the prior rights of
previous mortgages. Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the proceeds of sale after
foreclosure actually requires the payment of the proceeds to, among others, the junior encumbrancers in the order of their
priority.[17] Under Article 2130 of the Civil Code, a stipulation forbidding the owner from alienating the immovable mortgaged is
considered void. If the mortgagor-owner is allowed to convey the entirety of his interests in the mortgaged property, reason dictates
that the lesser right to encumber his property with other liens must also be recognized. Ester, therefore, could not validly require the
spouses Go Cinco to first obtain her consent to the PNB loan and mortgage. Besides, with the payment of the MTLC loan using the
proceeds of the PNB loan, the mortgage in favor of the MTLC would have naturally been cancelled.

We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the MTLC
loan. Beginning July 16, 1989, Manuel had already expressed intent to pay his loan with MTLC and thus requested for an updated
statement of account. Given Manuels express intent of fully settling the MTLC loan and of paying through the PNB loan he would
secure (and in fact secured), we also cannot give credit to the claim that the SPA only allowed Ester to collect the proceeds of the
PNB loan, without giving her the accompanying authority, although verbal, to apply these proceeds to the MTLC loan. Even Esters
actions belie her claim as she in fact even went to the PNB to collect the proceeds. In sum, the surrounding circumstances of the
case simply do not support Esters position.

b. Unjust Refusal Cannot be Equated to Payment

 While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position that this refusal had the
effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this point when it provides that

ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
[Emphasis supplied.]

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation.

Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,[18] is the definitive act of offering
the creditor what is due him or her, together with the demand that the creditor accept the same. When a creditor refuses the
debtors tender of payment, the law allows the consignation of the thing or the sum due. Tender and consignation have the effect of
payment, as by consignation, the thing due is deposited and placed at the disposal of the judicial authorities for the creditor to
collect.[19]

A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as
PNB would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of mortgage,
which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their mortgaged properties
from being foreclosed, the spouses Go Cinco found it necessary to institute the present case for specific performance and
damages.

c. Effects of Unjust Refusal

Under these circumstances, we hold that while no completed tender of payment and consignation took place sufficient to
constitute payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying off their loan
with MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan through
her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. In other words, MTLC and Ester in fact
prevented the spouses Go Cinco from the exercise of their right to secure payment of their loan. No reason exists under this legal
situation why we cannot compel MTLC and Ester: (1) to release the mortgage to MTLC as a condition to the release of the
proceeds of the PNB loan, upon PNBs acknowledgment that the proceeds of the loan are ready and shall forthwith be released;
and (2) to accept the proceeds, sufficient to cover the total amount of the loan to MTLC, as payment for Manuels loan with MTLC.

We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent of a
tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice and equity
demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from the time the
unjust refusal took place;[20] they would not have been liable for any interest from the time tender of payment was made if the
payment had only been accepted. Under Article 19 of the Civil Code, they should likewise be entitled to damages, as the unjust
refusal was effectively an abusive act contrary to the duty to act with honesty and good faith in the exercise of rights and the
fulfillment of duty.

For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (P1,044,475.15, plus P563.63
per month) representing loss of savings on interests for lack of legal basis. These amounts were computed based on the difference
in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum), from the date of tender of
payment up to the time of the promulgation of the RTC decision. The trial court failed to consider the effects of a tender of payment
and erroneously declared that MTLC can charge interest at the rate of only 18% per annum the same rate that PNB charged, not
the 36% interest rate that MTLC charged; the RTC awarded the difference in the interest rates as actual damages.

As part of the actual and compensatory damages, the RTC also awarded P100,000.00 to the spouses Go Cinco
representing unrealized profits. Apparently, if the proceeds of the PNB loan (P1,203,685.17) had been applied to the MTLC loan
(P1,071,256.55), there would have been a balance of P132,428.62 left, which amount the spouses Go Cinco could have invested in
their businesses that would have earned them a profit of at least P100,000.00.

We find no factual basis for this award. The spouses Go Cinco were unable to substantiate the amount they claimed as
unrealized profits; there was only their bare claim that the excess could have been invested in their other businesses. Without more,
this claim of expected profits is at best speculative and cannot be the basis for a claim for damages. In Lucas v. Spouses
Royo,[21] we declared that:

In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the
amount. Actual and compensatory damages are those recoverable because of pecuniary loss in business, trade,
property, profession, job or occupation and the same must be sufficiently proved, otherwise, if the proof is
flimsy and unsubstantiated, no damages will be given. [Emphasis supplied.]

We agree, however, that there was basis for the award of moral and exemplary damages and attorneys fees.

Esters act of refusing payment was motivated by bad faith as evidenced by the utter lack of substantial reasons to support it. Her
unjust refusal, in her behalf and for the MTLC which she represents, amounted to an abuse of rights; they acted in an oppressive
manner and, thus, are liable for moral and exemplary damages. [22] We nevertheless reduce the P1,000,000.00 to P100,000.00 as
the originally awarded amount for moral damages is plainly excessive.

We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same
reasons that justified the grant of moral damages.
 As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to payment of 10% of the
total amount of awarded damages as attorneys fees and expenses of litigation.

WHEREFORE, we GRANT the petitioners petition for review on certiorari, and REVERSE the decision of June 22, 2001 of
the Court of Appeals in CA-G.R. CV No. 47578, as well as the resolution of January 25, 2002 that followed. We REINSTATE the
decision dated August 16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern Leyte, with the
following MODIFICATIONS:

(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cincos PNB loan, if
still available, and to consent to the release of the mortgage on the property given as security for the loan
upon PNBs acknowledgment that the proceeds of the loan, sufficient to cover the total indebtedness to
respondent Maasin Traders Lending Corporation computed as of June 20, 1989, shall forthwith be
released;
(2) The award for loss of savings and unrealized profit is deleted;
(3) The award for moral damages is reduced to P100,000.00; and
(4) The awards for exemplary damages, attorneys fees, and expenses of litigation are retained.

The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the respondents as of June 20,
1989. C

SPS. ANTONIO & LETICIA VEGA, G.R. No. 181672

Petitioner,
Present:
CARPIO, J., Chairperson,
- versus - PERALTA,
BERSAMIN,*
ABAD, and
PEREZ,** JJ.
SOCIAL SECURITY SYSTEM (SSS)
& PILAR DEVELOPMENT Promulgated:
CORPORATION,
Respondents. September 20, 2010

x --------------------------------------------------------------------------------------- x

DECISION

ABAD, J.:

This case is about the lack of authority of a sheriff to execute upon a property that the judgment obligor had long sold to
another although the registered title to the property remained in the name of the former.

The Facts and the Case

Magdalena V. Reyes (Reyes) owned a piece of titled land [1] in Pilar Village, Las Pias City. On August 17, 1979 she got a
housing loan from respondent Social Security System (SSS) for which she mortgaged her land. [2] In late 1979, however, she asked
the petitioner spouses Antonio and Leticia Vega (the Vegas) to assume the loan and buy her house and lot since she wanted to
emigrate.[3]

Upon inquiry with the SSS, an employee there told the Vegas that the SSS did not approve of members transferring their
mortgaged homes. The Vegas could, however, simply make a private arrangement with Reyes provided they paid the monthly
amortizations on time. This practice, said the SSS employee, was commonplace. [4] Armed with this information, the Vegas agreed
for Reyes to execute in their favor a deed of assignment of real property with assumption of mortgage and paid Reyes P20,000.00
after she undertook to update the amortizations before leaving the country. The Vegas then took possession of the house in
January 1981.[5]

But Reyes did not readily execute the deed of assignment. She left the country and gave her sister, Julieta Reyes Ofilada
(Ofilada), a special power of attorney to convey ownership of the property. Sometime between 1983 and 1984, Ofilada finally
executed the deed promised by her sister to the Vegas. Ofilada kept the original and gave the Vegas two copies. The latter gave
one copy to the Home Development Mortgage Fund and kept the other. [6] Unfortunately, a storm in 1984 resulted in a flood that
destroyed the copy left with them.[7]

In 1992, the Vegas learned that Reyes did not update the amortizations for they received a notice to Reyes from the SSS
concerning it.[8] They told the SSS that they already gave the payment to Reyes but, since it appeared indifferent, on January 6,
1992 the Vegas updated the amortization themselves and paid P115,738.48 to the SSS, through Antonio Vegas personal
check.[9] They negotiated seven additional remittances and the SSS accepted P8,681.00 more from the Vegas.[10]

Meanwhile, on April 16, 1993 respondent Pilar Development Corporation (PDC) filed an action for sum of money against
Reyes before the Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that Reyes borrowed from Apex
Mortgage and Loans Corporation (Apex) P46,500.00 to buy the lot and construct a house on it.[11] Apex then assigned Reyes credit
to the PDC on December 29, 1992,[12] hence, the suit by PDC for the recovery of the unpaid debt. On August 26, 1993 the RTC
rendered judgment, ordering Reyes to pay the PDC the loan of P46,398.00 plus interest and penalties beginning April 11, 1979 as
well as attorneys fees and the costs.[13] Unable to do so, on January 5, 1994 the RTC issued a writ of execution against Reyes and
its Sheriff levied on the property in PilarVillage.[14]

On February 16, 1994 the Vegas requested the SSS to acknowledge their status as subrogees and to give them an
update of the account so they could settle it in full. The SSS did not reply. Meantime, the RTC sheriff published a notice for the
auction sale of the property on February 24, March 3 and 10, 1994.[15] He also served on the Vegas notice of that sale on or about
March 20, 1994.[16] On April 5, 1994, the Vegas filed an affidavit of third party claimant and a motion for leave to admit a motion in
intervention to quash the levy on the property.[17]

Still, stating that Vegas remedy lay elsewhere, the RTC directed the sheriff to proceed with the execution.[18] Meantime,
the Vegas got a telegram dated August 29, 1994, informing them that the SSS intended to foreclose on the property to satisfy the
unpaid housing debt of P38,789.58.[19] On October 19, 1994 the Vegas requested the SSS in writing for the exact computation of
the indebtedness and for assurance that they would be entitled to the discharge of the mortgage and delivery of the proper
subrogation documents upon payment. They also sent a P37,521.95 managers check that the SSS refused to accept. [20]

On November 8, 1994 the Vegas filed an action for consignation, damages, and injunction with application for preliminary
injunction and temporary restraining order against the SSS, the PDC, the sheriff of RTC Branch 19, and the Register of Deeds
before the RTC of Las Pias in Civil Case 94-2943. Still, while the case was pending, on December 27, 1994 the SSS released the
mortgage to the PDC.[21] And on August 22, 1996 the Register of Deeds issued TCT T-56657 to the PDC.[22]A writ of possession
subsequently evicted the Vegas from the property.

On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the Vegas. It ruled that the SSS was barred from rejecting
the Vegas final payment of P37,521.95 and denying their assumption of Reyes debt, given the SSS previous acceptance of
payments directly from them. The Vegas were subrogated to the rights of Reyes and substituted her in the SSS housing loan and
mortgage contract. That the Vegas had the receipts show that they were the ones who made those payments.The RTC ordered the
PDC to deliver to the Vegas the certificate of title covering the property. It also held the SSS and PDC solidarily liable to the Vegas
for P300,000.00 in moral damages, P30,000.00 in exemplary damages, and P50,000.00 in attorneys fees and for costs of the
suit.[23]

The SSS appealed to the Court of Appeals (CA) in CA G.R. CV 77582. On August 30, 2007 the latter court reversed the RTC
decision[24] for the reasons that the Vegas were unable to produce the deed of assignment of the property in their favor and that
such assignment was not valid as to PDC. Their motion for reconsideration having been denied, the Vegas filed this petition for
review on certiorari under Rule 45.[25]

The Issues Presented

The issues in this case are:

1. Whether or not the Vegas presented adequate proof of Reyes sale of the subject property to them;

2. In the affirmative, whether or not Reyes validly sold her SSS-mortgaged property to the Vegas; and

3. In the affirmative, whether or not the sheriff validly sold the same at public auction to satisfy Reyes debt to PDC.

The Rulings of the Court

One. The CA ruled that the Vegas were unable to prove that Reyes assigned the subject property to them, given that they failed to
present the deed of assignment in their favor upon a claim that they lost it. [26] But the rule requiring the presentation of the original
of that deed of assignment is not absolute. Secondary evidence of the contents of the original can be adduced, as in this case,
when the original has been lost without bad faith on the part of the party offering it.[27]

Here, not only did the Vegas prove the loss of the deed of assignment in their favor and what the same contained, they
offered strong corroboration of the fact of Reyes sale of the property to them. They took possession of the house and lot after they
bought it. Indeed, they lived on it and held it in the concept of an owner for 13 years before PDC came into the picture. They also
paid all the amortizations to the SSS with Antonio Vegas personal check, even those that Reyes promised to settle but did not. And
when the SSS wanted to foreclose the property, the Vegas sent a managers check to it for the balance of the loan. Neither Reyes
nor any of her relatives came forward to claim the property. The Vegas amply proved the sale to them.

Two. Reyes acquired the property in this case through a loan from the SSS in whose favor she executed a mortgage as
collateral for the loan. Although the loan was still unpaid, she assigned the property to the Vegas without notice to or the consent of
the SSS. The Vegas continued to pay the amortizations apparently in Reyes name. Meantime, Reyes apparently got a cash loan
from Apex, which assigned the credit to PDC. This loan was not secured by a mortgage on the property but PDC succeeded in
getting a money judgment against Reyes and had it executed on the property. Such property was still in Reyes name but, as
pointed out above, the latter had disposed of it in favor of the Vegas more than 10 years before PDC executed on it.
 The question is: was Reyes disposal of the property in favor of the Vegas valid given a provision in the mortgage
agreement that she could not do so without the written consent of the SSS?
The CA ruled that, under Article 1237[28] of the Civil Code, the Vegas who paid the SSS amortizations except the last on behalf of
Reyes, without the latters knowledge or against her consent, cannot compel the SSS to subrogate them in her rights arising from
the mortgage. Further, said the CA, the Vegas claim of subrogation was invalid because it was done without the knowledge and
consent of the SSS as required under the mortgage agreement.[29]

But Article 1237 cannot apply in this case since Reyes consented to the transfer of ownership of the mortgaged property
to the Vegas. Reyes also agreed for the Vegas to assume the mortgage and pay the balance of her obligation to SSS. Of course,
paragraph 4 of the mortgage contract covering the property required Reyes to secure SSS consent before selling the property. But,
although such a stipulation is valid and binding, in the sense that the SSS cannot be compelled while the loan was unpaid to
recognize the sale, it cannot be interpreted as absolutely forbidding her, as owner of the mortgaged property, from selling the same
while her loan remained unpaid. Such stipulation contravenes public policy, being an undue impediment or interference on the
transmission of property.[30]

Besides, when a mortgagor sells the mortgaged property to a third person, the creditor may demand from such third
person the payment of the principal obligation. The reason for this is that the mortgage credit is a real right, which follows the
property wherever it goes, even if its ownership changes. Article 2129[31]of the Civil Code gives the mortgagee, here the SSS, the
option of collecting from the third person in possession of the mortgaged property in the concept of owner. [32] More, the mortgagor-
owners sale of the property does not affect the right of the registered mortgagee to foreclose on the same even if its ownership had
been transferred to another person. The latter is bound by the registered mortgage on the title he acquired.

After the mortgage debt to SSS had been paid, however, the latter had no further justification for withholding the release of
the collateral and the registered title to the party to whom Reyes had transferred her right as owner. Under the circumstance, the
Vegas had the right to sue for the conveyance to them of that title, having been validly subrogated to Reyes rights.

Three. The next question is: was Reyes sale of the property to the Vegas binding on PDC which tried to enforce the
judgment credit in its favor on the property that was then still mortgaged to the SSS?
The CA ruled that Reyes assignment of the property to the Vegas did not bind PDC, which had a judgment credit against Reyes,
since such assignment neither appeared in a public document nor was registered with the register of deeds as Article 1625 of the
Civil Code required. Article 1625 reads:

Art. 1625. An assignment of a credit, right or action shall produce no effect as against third persons,
unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case
the assignment involves real property. (1526)

But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes did not assign any credit or incorporeal right
to the Vegas. She sold the Vegas her house and lot. They became owner of the property from the time she executed the deed of
assignment covering the same in their favor. PDC had a judgment for money against Reyes only. A courts power to enforce its
judgment applies only to the properties that are indisputably owned by the judgment obligor.[33] Here, the property had long ceased
to belong to Reyes when she sold it to the Vegas in 1981.

The PDC cannot take comfort in the fact that the property remained in Reyes name when it bought the same at the sheriff
sale. The PDC cannot assert that it was a buyer in good faith since it had notice of the Vegas claim on the property prior to such
sale.

Under the circumstances, the PDC must reconvey the subject property to the Vegas or, if this is no longer possible, pay
them its current market value as the trial court may determine with interest of 12 percent per annum from the date of the
determination of such value until it is fully paid. Further, considering the distress to which the Vegas were subjected after the
unlawful levy on their property, aggravated by their subsequent ouster from it through a writ of possession secured by PDC, the
RTC was correct in awarding the Vegas moral damages of P300,000.00, exemplary damages of P30,000.00 and attorneys fees
of P50,000.00 plus costs of the suit.But these are to be borne solely by PDC considering that the SSS had nothing to do with the
sheriffs levy on the property. It released the title to the PDC simply because it had a sheriffs sale in its favor.

The PDC is, however, entitled to reimbursement from the Vegas of the sum of P37,820.15 that it paid to the SSS for the
release of the mortgaged title.

WHEREFORE, the Court GRANTS the petition, REVERSES the assailed decision of the Court of Appeals in CA-G.R. CV
77582 dated August 30, 2007, and in its place DIRECTS respondent Pilar Development Corporation:

1. To convey to petitioner spouses Antonio and Leticia Vega the title to and possession of the property
subject of this case, covered by Transfer Certificate of Title 56657 of the Register of Deeds of Las Pias City, for
the issuance of a new title in their names; and

2. To pay the same petitioner spouses moral damages of P300,000.00, exemplary damages
of P30,000.00, and attorneys fees of P50,000.00.

On the other hand, the Court DIRECTS petitioner spouses to reimburse respondent Pilar Development Corp. the sum
of P37,820.15, representing what it paid the respondent SSS for the release of the mortgaged certificate of title.

SO ORDERED.