ANICETO BANGIS substituted by his heirs,

namely: RODOLFO B. BANGIS, RONNIE B.

BANGIS, ROGELIO B. BANGIS, RAQUEL B.
QUILLO, ROMULO B. BANGIS, ROSALINA
B.
PARAN,
ROSARIO
B.
REDDY,
REYNALDO B. BANGIS, and REMEDIOS B.
LASTRE,
Petitioners,
-versus-

G.R. No. 190875

Present:
PERALTA, J., *Acting Chairperson,
ABAD,
VILLARAMA, JR.,**
MENDOZA, and
PERLAS-BERNABE, JJ.

HEIRS OF SERAFIN AND SALUD ADOLFO,

namely: LUZ A. BANNISTER, SERAFIN
ADOLFO, JR., and ELEUTERIO ADOLFO
Promulgated:
rep. by his Heirs, namely: MILAGROS,
JOEL, MELCHOR, LEA, MILA, NELSON, June 13, 2012
JIMMY and MARISSA, all surnamed
ADOLFO,
Respondents.
x-----------------------------------------------------------------------------------------x
DECISION
PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the March 30, 2009 Decision [1]of
the Court of Appeals Mindanao Station (CA) and its December 2, 2009 Resolution [2] in CA-G.R. CV No. 00722-MIN which
declared that the transaction between the parties was a mortgage, not a sale, and ordered petitioners to surrender the
possession of the disputed lot upon respondents' full payment of their indebtedness.

THE ANTECEDENT FACTS

The spouses Serafin, Sr. and Saludada [3]Adolfo were the original registered owners of a 126,622 square meter lot covered
by Original Certificate of Title (OCT) No. P-489 issued on December 15, 1954 (derived from Homestead Patent No. V34974), located in Valencia, Malaybalay, Bukidnon. This property was mortgaged to the then Rehabilitation Finance
Corporation (now Development Bank of the Philippines or DBP) on August 18, 1955, [4]and upon default in the payment of
the loan obligation, was foreclosed and ownership was consolidated in DBP's name under Transfer Certificate of Title
(TCT) No. T-1152.[5]Serafin Adolfo, Sr., however, repurchased the same and was issued TCT No. 6313 [6]on December 1,
1971, a year after his wife died in 1970.

Sometime in 1975, Serafin Adolfo, Sr. (Adolfo) allegedly mortgaged the subject property for the sum of P12,500.00 to
Aniceto Bangis (Bangis) who immediately took possession of the land. [7]The said transaction was, however, not reduced
into writing.[8]

When Adolfo died, his heirs, namely, Luz Adolfo Bannister, Serafin Adolfo, Jr. and Eleuterio Adolfo (Heirs of Adolfo),
executed a Deed of Extrajudicial Partition dated December 24, 1997 covering the subject property and TCT No. T65152[9]was issued to them. On May 26, 1998, the said property was subdivided and separate titles were issued in names

of the Heirs of Adolfo, as follows: TCT Nos. T-66562 and T-66563 for Luz Adolfo Banester [10]; TCT Nos. T-66560 and T66561 in the name of Serafin Adolfo, Jr.; and TCT Nos. T-66564 and T-66565 in favor of Eleuterio Adolfo. [11]

In June 1998, the Heirs of Adolfo expressed their intention to redeem the mortgaged property from Bangis but the latter
refused, claiming that the transaction between him and Adolfo was one of sale. During the conciliation meetings in the
barangay, Bangis' son, Rudy Bangis, showed them a copy of a deed of sale and a certificate of title to the disputed lot.
[12]

The parties having failed to amicably settle their differences, a certificate to file action [13]was issued by the barangay.

THE PROCEEDINGS BEFORE THE RTC

On July 26, 2000, the Heirs of Adolfo filed a complaint [14]before the Regional Trial Court (RTC) for annulment of deed of
sale and declaration of the purported contract of sale as antichresis, accounting and redemption of property and damages
against Bangis, docketed as Civil Case No. 2993-00. The complaint was amended on September 11, 2001 to include a
prayer for the cancellation of TCT No. T-10567 and the tax declarations in the name of Bangis in view of the
manifestation[15]filed by Ex-Officio Register of Deeds, Atty. Phoebe Loyola Toribio of the Registry of Deeds, Malaybalay
City which states that the said title was of "dubious" origin since there was no deed of conveyance upon which the said
transfer certificate of title was based and that its derivative title, TCT No. T-10566, does not exist in the files of the Registry
of Deeds.[16] On November 12, 2001, the complaint was again amended to reflect the other certificates of titles issued in
the names of the Heirs of Adolfo and the amount of P12,500.00 representing the mortgage debt, [17]followed by another
amendment on October 13, 2003 to include the allegation that they have partitioned the subject lot on December 24, 1997
and that no copy of the supposed deed of sale in favor of Bangis can be found in the records of the Provincial Assessor's
Office and the Registrar of Deeds. They further prayed, in the alternative, to be allowed to redeem the subject lot under
the Homestead Law and that Bangis be ordered to indemnify them: (a) P50,000.00 each as moral damages; (b) 20% of
the value of the property as attorney's fees; and (c) P50,000.00 as litigation expenses as well as the costs of suit. [18]

In his Answer with Counterclaim,[19]Bangis claimed to have bought the subject property from Adolfo for which TCT No. T10567[20]was issued. He also alleged to have been in open and adverse possession of the property since 1972 and that
the cause of action of the Heirs of Adolfo has prescribed. On November 11, 2001, Bangis died and was substituted in this
suit by his heirs, namely, Rodolfo B. Bangis, Ronie B. Bangis, Rogelio B. Bangis, Raquel B. Quillo, Romulo B. Bangis,
Rosalina B. Paran, Rosario B. Reddy, Reynaldo B. Bangis and Remedios B. Lastre (Heirs of Bangis). [21]

During the trial, one of the Heirs of Bangis, Rodolfo Bangis, presented a photocopy of an Extra-Judicial Settlement with
Absolute Deed of Sale dated December 30, 1971 [22]for the purpose of proving the sale of the subject lot by Adolfo and his
heirs in favor of his predecessors-in-interest, Aniceto Bangis and Segundino Cortel, for the sum of P13,000.00. He also
presented a Promissory Note[23]of even date purportedly executed by Bangis and Segundino Cortel undertaking to pay the
balance of the purchase price in the amount ofP1,050.00.[24] Both documents were notarized by Atty. Valentin Murillo who
testified to the fact of their execution.[25]Rodolfo Bangis likewise testified that they have been paying the taxes due on the
property and had even used the same as collateral for a loan with a bank. [26]

On rebuttal, one of the Heirs of Adolfo, Luz Adolfo Bannister, denied the due execution and genuineness of the foregoing
Extra-Judicial Settlement with Absolute Deed of Sale alleging forgery.[27]

On December 29, 2005, the RTC rendered a Decision [28]in favor of the Heirs of Adolfo, the dispositive portion of which
reads:
WHEREFORE, the preponderance of evidence being strongly in favor of the plaintiffs and against the
defendants, decision is hereby rendered:
1. Declaring the contract between the plaintiffs and defendants as a mere mortgage or antichresis and
since the defendants have been in the possession of the property in 1975 up to the present time enjoying
all its fruits or income, the mortgaged loan of P12,000.00 is deemed fully paid;
2. Ordering the defendants to deliver the possession of the property in question and all the improvements
thereon to the plaintiffs peacefully;
3. Declaring TCT No. 10567 in the name of Aniceto Bangis as NULL AND VOID AB INITIO and directing
the Office of the Register of Deeds to cause its cancellation from its record to avoid confusion regarding
the ownership thereof; and
4. Declaring all the transfer certificates of title issued in favor of the plaintiffs namely, Luz AdolfoBannister, Serafin Adolfo, Jr. and Eleuterio Adolfo, as above-mentioned as the ones valid and issued in
accordance with PD 1529.
SO ORDERED.

Aggrieved, the Heirs of Bangis appealed the foregoing disquisition to the Court of Appeals (CA).

THE CA RULING

In its assailed Decision, the CA affirmed the RTC finding that the contract between the parties was a mortgage, not a sale.
It noted that while Bangis was given possession of the subject property, the certificate of title remained in the custody of
Adolfo and was never cancelled. The CA also ordered the Heirs of Adolfo to pay the Heirs of Bangis the mortgage debt
of P12,500.00[29]with twelve (12%) percent interest reckoned from 1975 until 1998 and to deliver to them the possession of
the property upon full payment. [30]It, however, deleted the RTC order directing the Register of Deeds to cancel TCT No. T10567 in the name of Bangis for being a collateral attack proscribed under PD 1529.[31]

Dissatisfied, the Heirs of Bangis filed a Motion for Reconsideration [32]arguing that the CA erred in disregarding their
testimonial and documentary evidence, particularly, the Extra-Judicial Settlement with Absolute Deed of Sale (Exh. 2)
which purportedly established the sale in favor of their predecessor-in-interest, Aniceto Bangis. The said motion was,
however, denied in the Resolution[33]dated December 2, 2009.

THE ISSUE BEFORE THE COURT

Hence, the instant petition for review on certiorari based on the lone assignment of error [34]that the transaction between
the parties was one of sale and not a mortgage or antichresis. In support, petitioner Heirs of Bangis maintain that the CA
erred in not giving probative weight to the Extra-Judicial Settlement with Absolute Deed of Sale [35]which supposedly
bolsters their claim that their father, Aniceto Bangis, bought the subject parcel of land from Adolfo. Hence, the
corresponding title, TCT No. T-10567, issued as a consequence should be respected.

On their part, respondent Heirs of Adolfo averred that no reversible error was committed by the CA in upholding that no
sale transpired between the parties' predecessors-in-interest. Moreover, petitioners' TCT No. T-10567 was not offered in
evidence and worse, certified as of dubious origin per the Manifestation of the Registrar of Deeds. [36]

THE COURT'S RULING

The petition must fail.

At the outset, it should be emphasized that a petition for review on certiorari under Rule 45 of the Rules of Court involves
only questions of law and not of facts. A question of law exists when there is doubt as to what the law is on a given set of
facts while a question of fact arises when there is doubt as to the truth or falsity of the alleged facts. [37]

The Heirs of Bangis, in insisting that both the RTC and the CA erroneously disregarded the evidence of sale they
presented, are effectively asking the Court to re-evaluate factual issues which is proscribed under Rule 45. "Such
questions as to whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a
proposition in issue, are without doubt questions of fact." [38]

Nonetheless, the Court perused the records and found substantial evidence supporting the factual findings of the RTC, as
affirmed by the CA, that the nature of the transaction between the parties' predecessors-in-interest was a mortgage and
not a sale. Thus, the maxim that factual findings of the trial court when affirmed by the CA are final and conclusive on the
Court[39]obtains in this case.

THERE WAS NEITHER AN

ANTICHRESIS NOR SALE

For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that "the amount of the principal and of
the interest shall be specified in writing; otherwise the contract of antichresis shall be void." In this case, the Heirs of
Adolfo were indisputably unable to produce any document in support of their claim that the contract between Adolfo and
Bangis was an antichresis, hence, the CA properly held that no such relationship existed between the parties.

[40]

On the other hand, the Heirs of Bangis presented an Extra-Judicial Settlement with Absolute Deed of Sale dated
December 30, 1971[41]to justify their claimed ownership and possession of the subject land. However, notwithstanding that
the subject of inquiry is the very contents of the said document, only its photocopy [42]was presented at the trial without
providing sufficient justification for the production of secondary evidence, in violation of the best evidence rule embodied
under Section 3 in relation to Section 5 of Rule 130 of the Rules of Court, to wit:
SEC. 3. Original document must be produced; exceptions. - When the subject of inquiry is the contents of
a document, no evidence shall be admissible other than the original document itself, except in the
following cases:
(1) When the original has been lost or destroyed, or cannot be produced in court, without
bad faith on the part of the offeror;
(2) When the original is in the custody or under the control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice;
(3) When the original consists of numerous accounts or other documents which cannot
be examined in court without great loss of time and the fact sought to be established from
them is only the general result of the whole; and
(4) When the original is a public record in the custody of a public officer or is recorded in
a public office.

SEC. 5. When original document is unavailable. - When the original document has been lost or destroyed,
or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its
unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its content
in some authentic document, or by the testimony of witnesses in the order stated.

The bare testimony of one of the Heirs of Bangis, Rodolfo Bangis, that the subject document was only handed [43]to him by
his father, Aniceto, with the information that the original thereof "could not be found" [44]was insufficient to justify its
admissibility. Moreover, the identification made by Notary Public Atty. Valentin Murillo [45]that he notarized such document
cannot be given credence as his conclusion was not verified against his own notarial records. [46]Besides, the Heirs of
Bangis could have secured a certified copy of the deed of sale from the Assessor's Office [47]that purportedly had its
custody in compliance with Section 7, Rule 130[48]of the Rules of Court.

In sum, the Heirs of Bangis failed to establish the existence and due execution of the subject deed on which their claim of
ownership was founded. Consequently, the RTC and CA were correct in affording no probative value to the said
document.[49]

TCT NO. T-10567 IN THE NAME OF

ANICETO BANGIS CANNOT PREVAIL
OVER THE TITLES OF THE HEIRS OF
ADOLFO

Records reveal that TCT No. T-10567 purportedly secured as a consequence of the deed of sale executed by Adolfo and
his heirs in favor of Bangis was not offered in evidence. A perusal of its copy, however, shows that it was a transfer from
TCT No. T-10566,[50]which title the Heirs of Bangis unfortunately failed to account for, and bore no relation at all to either
OCT No. P-489 (the original title of the Spouses Adolfo) or TCT No. T-6313 (issued to Adolfo when he repurchased the

same property from DBP). The Manifestation [51]of the Register of Deeds of Malaybalay City regarding the doubtful origin of
TCT No. T-10567 and the regularity of the titles of the Heirs of Adolfo are insightful, thus:
That the verification from the office of the original copy of Transfer Certificate of Title No. T-10567 in the
name of Anecito Bangis is existing in the office. Machine copy of the said title is hereto attached as annex
"A" but nothing in the title whether annotated or attached, any Deed of Conveyance or other Documents
by which said title was issued or transferred in the name of Anecito Bangis.
That for the information and guidance of the court attached herewith is a machine copies [ sic] Original
Certificate of Title No. P-489 in the name of Serafin Adolfo, marked as annex "B" which supposedly the
mother title of Transfer Certificate of Title No. T-10567 as to how this title was transferred in the name of
Anecito Bangis. Nothing will show which will validly supports [sic] the said transfer, in other words the said
title is dubious.
This Original Certificate of Title No. P-489 in the name of Serafin Adolfo was mortgage to the
Development Bank of the Philippines and then it was consolidated and Transfer Certificate of Title No. T1152 was issued in the name of Development Bank of the Philippines. From the Development Bank of the
Philippines a Deed of Sale was executed by the Development Bank of the Philippines in favor of Serafin
Adolfo and Transfer Certificate of Title No. T-6313 marked annex "B-1" was issued in the name of Serafin
Adolfo.
An Extrajudicial Settlement was now [sic] by the Heirs of Serafin Adolfo and Transfer Certificate of Title
Nos. T-65152 annex "B-2", T-66560 annex "B-3", T-66561 annex "B-4", T-66562 annex "B-5", T-66563
annex "B-6", T-66564 annex "B-7", and T-66565 annex "B-8" were issued to the Heirs.
The titles issued to the Heirs of Serafin Adolfo were legitimately issued by this office after all its [sic]
requirements and supporting documents were submitted and proper annotations were reflected at the
back of the title of Serafin Adolfo.
Transfer Certificate of Title No. T-10567 as shown on the title was derived from Transfer Certificate of Title
No. T-10566 but [sic] title is not existing in this office.

As held in the case of Top Management Programs Corporation v. Luis Fajardo and the Register of Deeds of Las Pias City:
[52]

"if two certificates of title purport to include the same land, whether wholly or partly, the better approach is to trace

the original certificates from which the certificates of titles were derived."

Having, thus, traced the roots of the parties' respective titles supported by the records of the Register of Deeds of
Malaybalay City, the courts a quo[53]were correct in upholding the title of the Heirs of Adolfo as against TCT No. T-10567 of
Bangis, notwithstanding its earlier issuance on August 18, 1976 [54]or long before the Heirs of Adolfo secured their own
titles on May 26, 1998. To paraphrase the Court's ruling in Mathay v. Court of Appeals:[55]where two (2) transfer certificates
of title have been issued on different dates, the one who holds the earlier title may prevail only in the absence of any
anomaly or irregularity in the process of its registration, which circumstance does not obtain in this case.
CANCELLATION OF
TCT NO. T-10567

The Court cannot sustain the CA's ruling [56]that TCT No. T-10567 cannot be invalidated because it constitutes as a
collateral attack which is contrary to the principle of indefeasibility of titles.

It must be noted that Bangis interposed a counterclaim in his Answer seeking to be declared as the true and lawful owner
of the disputed property and that his TCT No. T-10567 be declared as superior over the titles of the Heirs of Adolfo.
[57]

Since a counterclaim is essentially a complaint[58]then, a determination of the validity of TCT No. T-10567 vis-a-vis the

titles of the Heirs of Adolfo can be considered as a direct, not collateral, attack on the subject titles. [59]

In Pasio v. Monterroyo, the Court has ruled, thus:

It is already settled that a counterclaim is considered an original complaint and as such, the attack on the
title in a case originally for recovery of possession cannot be considered as a collateral attack on the
title. Development Bank of the Philippines v. Court of Appeals is similar to the case before us insofar as
petitioner in that case filed an action for recovery of possession against respondent who, in turn, filed a
counterclaim claiming ownership of the land. In that case, the Court ruled:
Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true
that the indefeasibility of torrens title cannot be collaterally attacked. In the instant case,
the original complaint is for recovery of possession filed by petitioner against private
respondent, not an original action filed by the latter to question the validity of TCT No.
10101 on which petitioner bases its right. To rule on the issue of validity in a case for
recovery of possession is tantamount to a collateral attack. However, it should not [b]e
overlooked that private respondent filed a counterclaim against petitioner, claiming
ownership over the land and seeking damages. Hence, we could rule on the question of
the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on
the same. A counterclaim is considered a complaint, only this time, it is the original
defendant who becomes the plaintiff... It stands on the same footing and is to be tested
by the same rules as if it were an independent action. x x x (Citations omitted) [60]

Besides, the prohibition against collateral attack does not apply to spurious or non-existent titles, which are not accorded
indefeasibility,[61]as in this case.
THE PRESENT ACTION
HAS NOT PRESCRIBED

The claim of the Heirs of Bangis that since they have been in possession of the subject land since 1972 or for 28 years
reckoned from the filing of the complaint in 2000 then, the present action has prescribed is untenable. It bears to note
that while Bangis indeed took possession of the land upon its alleged mortgage, the certificate of title (TCT No. 6313)
remained with Adolfo and upon his demise, transferred to his heirs, thereby negating any contemplated transfer of
ownership. Settled is the rule that no title in derogation of that of the registered owner can be acquired by prescription or
adverse possession.[62]Moreover, even if acquisitive prescription can be appreciated in this case, the Heirs of Bangis'
possession being in bad faith is two years shy of the requisite 30-year uninterrupted adverse possession required
under Article 1137 of the Civil Code.

Consequently, the Heirs of Bangis cannot validly claim the rights of a builder in good faith as provided for under Article
449 in relation to Article 448 of the Civil Code. Thus, the order for them to surrender the possession of the disputed land
together with all its improvements was properly made.

LIABILITY FOR THE PAYMENT

OF INTEREST

Finally, it is undisputed that the Heirs of Bangis made no judicial or extrajudicial demand on the Heirs of Adolfo to pay the
mortgage debt. Instead, it was the latter who signified their intent to pay their father's loan obligation, admittedly in the
amount of P12,500.00,[63]which was refused. The mortgage contract therefore continued to subsist despite the lapse of a
considerable number of years from the time it was constituted in 1975 because the mortgage debt has not been satisfied.

Following the Court's ruling in the iconic case of Eastern Shipping Lines, Inc. v. Court of Appeals, [64]the foregoing liability,
which is based on a loan or forbearance of money, shall be subject to legal interest of 12% per annum from the date it was
judicially determined by the CA on March 30, 2009 until the finality of this Decision, and not from 1975 (the date of the
constitution of the mortgage); nor from 1998 (when an attempt to pay was made) or in 2000 at the time the complaint was
filed, because it was the Heirs of Adolfo and not Bangis who filed the instant suit [65]to collect the indebtedness. Thereafter,
the judgment award inclusive of interest shall bear interest at 12% per annum until its full satisfaction.[66]

WHEREFORE, premises considered, the instant petition for review on certiorari is DENIED and the assailed Decision
dated March 30, 2009 of the Court of Appeals Mindanao Station (CA) and its Resolution dated December 2, 2009 in CAG.R. CV No. 00722-MIN are AFFIRMED with MODIFICATION: (1) cancelling TCT No. T-10567; and (2) ordering
respondent Heirs of Adolfo to pay petitioner Heirs of Bangis the sum of P12,500.00 with legal interest of 12% per annum
reckoned from March 30, 2009 until the finality of this Decision and thereafter, 12% annual interest until its full satisfaction.

The rest of the Decision stands.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160758

January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
DECISION

BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal obligation is premature, and should be
undone for being void and ineffectual. The mortgagee who has been meanwhile given possession of the mortgaged
property by virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may be required to restore
the possession of the property to the mortgagor and to pay reasonable rent for the use of the property during the
intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the adverse decision promulgated on
March 26, 2003 in C.A.-G.R. CV No. 59491,1 whereby the Court of Appeals (CA) upheld the judgment rendered on
January 6, 19982 by the Regional Trial Court, Branch 25, in Iloilo City (RTC) annulling the extra-judicial foreclosure of the
real estate and chattel mortgages at the instance of DBP because the debtor-mortgagor, Guaria Agricultural and Realty
Development Corporation (Guaria Corporation), had not yet defaulted on its obligations in favor of DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan from DBP to finance the development of its resort complex situated in
Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976.3Guaria Corporation
executed a promissory note that would be due on November 3, 1988. 4 On October 5, 1976, Guaria Corporation executed
a real estate mortgage over several real properties in favor of DBP as security for the repayment of the loan. On May 17,
1977, Guaria Corporation executed a chattel mortgage over the personal properties existing at the resort complex and
those yet to be acquired out of the proceeds of the loan, also to secure the performance of the obligation. 5 Prior to the
release of the loan, DBP required Guaria Corporation to put up a cash equity of P1,470,951.00 for the construction of the
buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guaria Corporation used the proceeds to defray the cost of additional
improvements in the resort complex. In all, the amount released totalled P3,003,617.49, from which DBP
withheld P148,102.98 as interest.6
Guaria Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP directly paid some
suppliers of Guaria Corporation over the latter's objection. DBP found upon inspection of the resort project, its
developments and improvements that Guaria Corporation had not completed the construction works. 7In a letter dated
February 27, 1978,8 and a telegram dated June 9, 1978,9 DBP thus demanded that Guaria Corporation expedite the
completion of the project, and warned that it would initiate foreclosure proceedings should Guaria Corporation not do
so.10
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated extrajudicial foreclosure proceedings.
A notice of foreclosure sale was sent to Guaria Corporation. The notice was eventually published, leading the clients and
patrons of Guaria Corporation to think that its business operation had slowed down, and that its resort had already
closed.11
On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific performance of the latter's obligations
under the loan agreement, and to stop the foreclosure of the mortgages (Civil Case No. 12707). 12However, DBP moved
for the dismissal of the complaint, stating that the mortgaged properties had already been sold to satisfy the obligation of
Guaria Corporation at a public auction held on January 15, 1979 at the Costa Mario Resort Beach Resort in Oton,
Iloilo.13 Due to this, Guaria Corporation amended the complaint on February 6, 1979 14 to seek the nullification of the
foreclosure proceedings and the cancellation of the certificate of sale. DBP filed its answer on December 17, 1979, 15 and
trial followed upon the termination of the pre-trial without any agreement being reached by the parties. 16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At first, the RTC denied the application
but later granted it upon DBP's motion for reconsideration. Aggrieved, Guaria Corporation assailed the granting of the
application before the CA on certiorari (C.A.-G.R. No. 12670-SP entitled Guaria Agricultural and Realty Development
Corporation v. Development Bank of the Philippines). After the CA dismissed the petition for certiorari, DBP sought the
implementation of the order for the issuance of the writ of possession. Over Guaria Corporation's opposition, the RTC
issued the writ of possession on June 16, 1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial sales of the mortgaged properties of
the plaintiff by the Office of the Provincial Sheriff of Iloilo on January 15, 1979 are null and void, so with the consequent

issuance of certificates of sale to the defendant of said properties, the registration thereof with the Registry of Deeds and
the issuance of the transfer certificates of title involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the actual possession and enjoyment of all
the properties foreclosed and possessed by it. To pay the plaintiff the reasonable rental for the use of its beach resort
during the period starting from the time it (defendant) took over its occupation and use up to the time possession is
actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as it takes possession and management
of the beach resort and resume its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN DECLARING DBP'S FORECLOSURE OF
THE MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED BY DBP TO JUSTIFY
FORECLOSURE AS "NOT SUFFICIENT." ON THE CONTRARY, THE MORTGAGE WAS FORECLOSED BY EXPRESS
AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE CONTRACT AND SECTION 2 OF P.D. 385 IN ADDITION
TO THE QUESTIONED PAR. NO. 26 PRINTED AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED PROPERTIES TO DBP AS INVALID
UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR IN ORDERING DBP TO RETURN
TO PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT OF ALL THE FORECLOSED PROPERTIES AND TO
PAY PLAINTIFF REASONABLE RENTAL FOR THE USE OF THE FORECLOSED BEACH RESORT.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP WHICH MERELY EXERCISED ITS
RIGHTS UNDER THE MORTGAGE CONTRACT.19
In its decision promulgated on March 26, 2003,20 however, the CA sustained the RTC's judgment but deleted the award of
attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998, rendered by the Regional Trial Court of Iloilo
City, Branch 25 in Civil Case No. 12707 for Specific Performance with Preliminary Injunction is hereby AFFIRMED with
MODIFICATION, in that the award for attorney's fees is deleted.
SO ORDERED.21
DBP timely filed a motion for reconsideration, but the CA denied its motion on October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:

WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED MARCH 26, 2003 AND ITS RESOLUTION
DATED OCTOBER 9, DENYING PETITIONER'S MOTION FOR RECONSIDERATION WERE ISSUED IN
ACCORDANCE WITH LAW, PREVAILING JURISPRUDENTIAL DECISION AND SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE USUAL COURSE OF JUDICIAL
PROCEEDINGS IN DECIDING C.A.-G.R. CV NO. 59491 AND THEREFORE IN ACCORDANCE WITH THE "LAW OF
THE CASE DOCTRINE."22
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing scheme for the development of a beach
resort, and the releases of the proceeds would be subject to conditions that included the verification of the progress of
works in the project to forestall diversion of the loan proceeds; and that under Stipulation No. 26 of the mortgage contract,
further loan releases would be terminated and the account would be considered due and demandable in the event of a
deviation from the purpose of the loan,23 including the failure to put up the required equity and the diversion of the loan
proceeds to other purposes.24 It assails the declaration by the CA that Guaria Corporation had not yet been in default in
its obligations despite violations of the terms of the mortgage contract securing the promissory note.
Guaria Corporation counters that it did not violate the terms of the promissory note and the mortgage contracts because
DBP had fully collected the interest notwithstanding that the principal obligation did not yet fall due and become
demandable.25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan requires the delivery of money
or any other consumable object by one party to another who acquires ownership thereof, on the condition that the same
amount or quality shall be paid.26 Loan is a reciprocal obligation, as it arises from the same cause where one party is the
creditor, and the other the debtor.27 The obligation of one party in a reciprocal obligation is dependent upon the obligation
of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release
the full loan amount and the debtor repays it when it becomes due and demandable. 28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security, executed real estate and chattel
mortgages. However, it was never established that appellee was already in default. Appellant, in a telegram to the
appellee reminded the latter to make good on its construction works, otherwise, it would foreclose the mortgage it
executed. It did not mention that appellee was already in default. The records show that appellant did not make any
demand for payment of the promissory note. It appears that the basis of the foreclosure was not a default on the loan but
appellee's failure to complete the project in accordance with appellant's standards. In fact, appellant refused to release the
remaining balance of the approved loan after it found that the improvements introduced by appellee were below
appellant's expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case bound itself to grant
appellee the loan amount of P3,387,000.00 condition on appellee's payment of the amount when it falls due. Furthermore,
the loan was evidenced by the promissory note which was secured by real estate mortgage over several properties and
additional chattel mortgage. Reciprocal obligations are those which arise from the same cause, and in which each party is
a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other (Areola
vs. Court of Appeals, 236 SCRA 643). They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310 SCRA 1). The promise of
appellee to pay the loan upon due date as well as to execute sufficient security for said loan by way of mortgage gave rise
to a reciprocal obligation on the part of appellant to release the entire approved loan amount. Thus, appellees are entitled
to receive the total loan amount as agreed upon and not an incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant therefore could not have made a demand
for payment of the loan since it had yet to fulfil its own obligation. Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.

The properties which stood as security for the loan were foreclosed without any demand having been made on the
principal obligation. For an obligation to become due, there must generally be a demand. Default generally begins from
the moment the creditor demands the performance of the obligation. Without such demand, judicial or extrajudicial, the
effects of default will not arise (Namarco vs. Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI
of Misamis Occidental, 88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of the approved loan. As a consequence,
the real estate mortgage of appellee becomes unenforceable, as it cannot be entirely foreclosed to satisfy appellee's total
debt to appellant (Central Bank of the Philippines vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows that appellee is still entitled to
possession of the foreclosed properties. However, appellant took possession of the same by virtue of a writ of possession
issued in its favor during the pendency of the case. Thus, the trial court correctly ruled when it ordered appellant to return
actual possession of the subject properties to appellee or its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's fees is the exception rather than the
rule and counsel's fees are not to be awarded every time a party wins a suit. Attorney's fees cannot be recovered as part
of damages because of the policy that no premium should be placed on the right to litigate (Pimentel vs. Court of Appeals,
et al., 307 SCRA 38).29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual findings of the RTC, the Court is bound to uphold such
findings, for it is axiomatic that the trial court's factual findings as affirmed by the CA are binding on appeal due to the
Court not being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guaria
Corporation the latter's compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a
loan does not perform its obligation, the other party cannot be obliged to perform what is expected of it while the other's
obligation remains unfulfilled.30 In other words, the latter party does not incur delay.31
Still, DBP called upon Guaria Corporation to make good on the construction works pursuant to the acceleration clause
written in the mortgage contract (i.e., Stipulation No. 26), 32 or else it would foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a mortgage constituted on real or
personal property to protect the creditor's interest in case of the default of the debtor. By its nature, however, a mortgage
remains an accessory contract dependent on the principal obligation, 33 such that enforcement of the mortgage contract
will depend on whether or not there has been a violation of the principal obligation. While a creditor and a debtor could
regulate the order in which they should comply with their reciprocal obligations, it is presupposed that in a loan the lender
should perform its obligation - the release of the full loan amount - before it could demand that the borrower repay the
loaned amount. In other words, Guaria Corporation would not incur in delay before DBP fully performed its reciprocal
obligation.34
Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an effective demand for
payment upon Guaria Corporation to perform its obligation under the loan. According to Development Bank of the
Philippines v. Licuanan,35 it would only be when a demand to pay had been made and was subsequently refused that a
borrower could be considered in default, and the lender could obtain the right to collect the debt or to foreclose the
mortgage.1wphi1 Hence, Guaria Corporation would not be in default without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan agreement, the letter dated February
27, 1978 that DBP sent would still not be regarded as a demand to render Guaria Corporation in default under the
principal contract because DBP was only thereby requesting the latter "to put up the deficiency in the value of
improvements."36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged properties at its instance were
premature, and, therefore, void and ineffectual.37
Being a banking institution, DBP owed it to Guaria Corporation to exercise the highest degree of diligence, as well as to
observe the high standards of integrity and performance in all its transactions because its business was imbued with
public interest.38 The high standards were also necessary to ensure public confidence in the banking system, for,

according to Philippine National Bank v. Pike:39 "The stability of banks largely depends on the confidence of the people in
the honesty and efficiency of banks." Thus, DBP had to act with great care in applying the stipulations of its agreement
with Guaria Corporation, lest it erodes such public confidence. Yet, DBP failed in its duty to exercise the highest degree
of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the foreclosure sale of the mortgaged
properties despite Guaria Corporation not being yet in default. DBP wrongly relied on Stipulation No. 26 as its basis to
accelerate the obligation of Guaria Corporation, for the stipulation was relevant to an Omnibus Agricultural Loan, to
Guaria Corporation's loan which was intended for a project other than agricultural in nature.
Even so, Guaria Corporation did not elevate the actionability of DBP's negligence to the CA, and did not also appeal the
CA's deletion of the award of attorney's fees allowed by the RTC.1wphi1 With the decision of the CA consequently
becoming final and immutable as to Guaria Corporation, we will not delve any further on DBP's actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already constituted the law of the case. Hence, the CA
could not decide the appeal in C.A.-G.R. CV No. 59491 differently.
Guaria Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not constitute the law of the case because
C.A.-G.R. No. 12670-SP concerned the issue of possession by DBP as the winning bidder in the foreclosure sale, and
had no bearing whatsoever to the legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a former appeal, and means, more specifically, that
whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same
case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such
decision was predicated continue to be the facts of the case before the court. 40
The concept of law of the case is well explained in Mangold v. Bacon, 41 an American case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions announced on a first appeal, whether on the general
law or the law as applied to the concrete facts, not only prescribe the duty and limit the power of the trial court to strict
obedience and conformity thereto, but they become and remain the law of the case in all other steps below or above on
subsequent appeal. The rule is grounded on convenience, experience, and reason. Without the rule there would be no
end to criticism, reagitation, reexamination, and reformulation. In short, there would be endless litigation. It would be
intolerable if parties litigants were allowed to speculate on changes in the personnel of a court, or on the chance of our
rewriting propositions once gravely ruled on solemn argument and handed down as the law of a given case. An itch to
reopen questions foreclosed on a first appeal would result in the foolishness of the inquisitive youth who pulled up his corn
to see how it grew. Courts are allowed, if they so choose, to act like ordinary sensible persons. The administration of
justice is a practical affair. The rule is a practical and a good one of frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when an appellate court has once declared the law in a
case, its declaration continues to be the law of that case even on a subsequent appeal, notwithstanding that the rule thus
laid down may have been reversed in other cases.42 For practical considerations, indeed, once the appellate court has
issued a pronouncement on a point that was presented to it with full opportunity to be heard having been accorded to the
parties, the pronouncement should be regarded as the law of the case and should not be reopened on remand of the case
to determine other issues of the case, like damages. 43 But the law of the case, as the name implies, concerns only legal
questions or issues thereby adjudicated in the former appeal.
The foregoing understanding of the concept of the law of the case exposes DBP's insistence to be unwarranted.
To start with, the ex parte proceeding on DBP's application for the issuance of the writ of possession was entirely
independent from the judicial demand for specific performance herein. In fact, C.A.-G.R. No. 12670-SP, being the
interlocutory appeal concerning the issuance of the writ of possession while the main case was pending, was not at all
intertwined with any legal issue properly raised and litigated in C.A.-G.R. CV No. 59491, which was the appeal to
determine whether or not DBP's foreclosure was valid and effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP
did not settle any question of law involved herein because this case for specific performance was not a continuation of
C.A.-G.R. No. 12670-SP (which was limited to the propriety of the issuance of the writ of possession in favor of DBP), and
vice versa.
3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP

Having found and pronounced that the extrajudicial foreclosure by DBP was premature, and that the ensuing foreclosure
sale was void and ineffectual, the Court affirms the order for the restoration of possession to Guarifia Corporation and the
payment of reasonable rentals for the use of the resort. The CA properly held that the premature and invalid foreclosure
had unjustly dispossessed Guarifia Corporation of its properties. Consequently, the restoration of possession and the
payment of reasonable rentals were in accordance with Article 561 of the Civil Code, which expressly states that one who
recovers, according to law, possession unjustly lost shall be deemed for all purposes which may redound to his benefit to
have enjoyed it without interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003; and ORDERS the petitioner to pay the
costs of suit.
SO ORDERED.

[G.R. No. 120098. October 2, 2001]

RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R.
VILLALUZ, respondents.
[G.R. No. 120109. October 2, 2001]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS and
MAMERTO R. VILLALUZ, respondents.
DECISION
QUISUMBING, J.:
These consolidated cases assail the decision[1] of the Court of Appeals in CA-G.R. CV No. 32986, affirming the
decision[2] of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265.Also assailed is respondent courts
resolution denying petitioners motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso
(P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX
executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory
stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. The pertinent
portions of the Real and Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, xxx certain
parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter exist thereon,
situated in xxx.

Annex A
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:
Serial Numbers Size of Machines
xxx
B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
xxx
C. Two (2) Circular Knitting Machines made in West Germany.
xxx
D. Four (4) Winding Machines.
xxx
SCHEDULE A
I. TCT # 372097 - RIZAL
xxx
II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at xxx
(a) Forty eight sets (48) Vayrow Knitting Machines xxx
(b) Sixteen sets (16) Vayrow Knitting Machines xxx
(c) Two (2) Circular Knitting Machines xxx
(d) Two (2) Winding Machines xxx
(e) Two (2) Winding Machines xxx
IV Any and all replacements, substitutions, additions, increases and accretions to above properties.
xxx[3]
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel
Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those
listed in Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased
various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No.
LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII.The CFI issued an order on November
24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including
the collateral, real and personal, securing the two mortgages as abovementioned.
In the meantime, upon EVERTEXs failure to meet its obligation to PBCom, the latter commenced extrajudicial
foreclosure proceedings against EVERTEX under Act 3135, otherwise known as An Act to Regulate the Sale of Property

under Special Powers Inserted in or Annexed to Real Estate Mortgages and Act 1506 or The Chattel Mortgage Law. A
Notice of Sheriffs Sale was issued on December 1, 1982.
On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and
a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held
and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it
leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month.On May 3, 1988, PBCom sold the
factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the
Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in
violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties,
which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23,
1979, and neither were those properties included in the Notice of Sheriffs Sale dated December 1, 1982 and Certificate of
Sale dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet
Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not
duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached
to the mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant
Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to
the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be
done within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation
for the use and possession of the properties in question from November 1986 to February 1991 and P100,000.00 every
month thereafter, with interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorneys
fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of
exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.[4]
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31,
1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award for exemplary damages, and reduction of the actual
damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored
to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs. [5]
Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and
Tsai filed their separate petitions for review with this Court.
In G.R. No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE
PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES
WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL
MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981
MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEAR IMPORT
OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN
BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL
DAMAGES, ATTORNEYS FEES AND EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND LEGAL
BASIS.
V
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONERS
ARGUMENTS ON PRESCRIPTION AND LACHES.[6]
In G.R. No. 120109, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE
COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE
AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE
THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF
THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID
MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY
EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?
II.
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED
CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD
SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE
BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID
MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A
CASE OF UNJUST ENRICHMENT?[7]
The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed
properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981
acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and Chattel
Mortgage or 1979 deed of Chattel Mortgage.[8] Additionally, Tsai argues that respondent court erred in holding that the
disputed 1981 machineries are not real properties. [9] Finally, she contends that the Court of Appeals erred in holding
against petitioners arguments on prescription and laches [10] and in assessing petitioner actual damages, attorneys fees
and expenses of litigation, for want of valid factual and legal basis. [11]
Essentially, PBCom contends that respondent court erred in affirming the lower courts judgment decreeing that the
pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further
argued that the Court of Appeals pronouncement that the pieces of machinery in question were personal properties have
no factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorneys fees
against PBCom.

In opposition, private respondents argue that the controverted units of machinery are not real properties but chattels,
and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof to
Tsai a nullity.[12]
Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to
be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of
the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of
are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts. [13] This
rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals. [14]
The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues:
(1) the controverted machineries are not covered by, or included in, either of the two mortgages, the Real Estate and
Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included in the list of properties
appended to the Notice of Sale, and neither were they included in the Sheriffs Notice of Sale of the foreclosed properties.
[15]

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the
real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the
New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the
controversy. We have to look at the parties intent.
While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel
Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate
courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and
equipment as chattels. The pertinent portion of respondent appellate courts ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the
1975 mortgage contract, which was actually real and chattel mortgage, militates against appellants posture. It should be
noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true
intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed
caption of mortgage, of the phrase real and chattel. So also, the machineries and equipment in the printed form of the
bank had to be inserted in the blank space of the printed contract and connected with the word building by typewritten
slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage,
there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of
the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage
of the land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The
inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the
schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics. [16]
In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on
record, we find no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from
treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA
631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in
the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as Real Estate Mortgage and Chattel Mortgage,
instead of just Real Estate Mortgage if indeed their intention is to treat all properties included therein as immovable, and
(2) attached to the said contract a separate LIST OF MACHINERIES & EQUIPMENT. These facts, taken together, evince
the conclusion that the parties intention is to treat these units of machinery as chattels. A fortiori, the contested afteracquired properties, which are of the same description as the units enumerated under the title LIST OF MACHINERIES &
EQUIPMENT, must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate courts ruling that inasmuch as the subject
mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the
Chattel Mortgage Law applies, which provides in Section 7 thereof that: a chattel mortgage shall be deemed to cover only
the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding.

And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979
chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the
properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the
sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one
does not have.[17]
Petitioner Tsai also argued that assuming that PBComs title over the contested properties is a nullity, she is
nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good
faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the
burden of proving such assertion.[18] Petitioner Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase,
or before he has notice of the claims or interest of some other person in the property. [19] Records reveal, however, that
when Tsai purchased the controverted properties, she knew of respondents claim thereon. As borne out by the records,
she received the letter of respondents counsel, apprising her of respondents claim, dated February 27, 1987. [20] She
replied thereto on March 9, 1987. [21] Despite her knowledge of respondents claim, she proceeded to buy the contested
units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.
Petitioner Tsais defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is
equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere
fact that the lot where the factory and the disputed properties stand is in PBComs name does not automatically make
PBCom the owner of everything found therein, especially in view of EVERTEXs letter to Tsai enunciating its claim.
Finally, petitioners defense of prescription and laches is less than convincing. We find no cogent reason to disturb the
consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners adamant refusal
to heed EVERTEXs claim, respondent company immediately filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale
demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his
legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to
prejudice or defeat the rights of an owner.[22]
As to the award of damages, the contested damages are the actual compensation, representing rentals for the
contested units of machinery, the exemplary damages, and attorneys fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the
contested properties based on the testimony of John Chua, who testified that theP100,000.00 was based on the accepted
practice in banking and finance, business and investments that the rental price must take into account the cost of money
used to buy them. The Court of Appeals did not give full credence to Chuas projection and reduced the award
to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must
actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the
actual amount thereof.[23] However, the allegations of respondent company as to the amount of unrealized rentals due
them as actual damages remain mere assertions unsupported by documents and other competent evidence. In
determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must
depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. [24] However, we are
not prepared to disregard the following dispositions of the respondent appellate court:
In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00,
representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award
of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto
Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of
unrealized rental income of subject machineries and equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in
business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained
of. What is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same for P100,000.00 a month.
xxx
Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income
of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom
should be deducted or removed, expenses for maintenance and repairs. Therefore, in the determination of the actual
damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the
machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the
foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair.[25]
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But
according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The
evidence, however, shows otherwise.
It is a requisite to award exemplary damages that the wrongful act must be accompanied by bad faith, [26] and the
guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner. [27] As previously stressed, petitioner Tsais
act of purchasing the controverted properties despite her knowledge of EVERTEXs claim was oppressive and subjected
the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz,
responding thereto on March 24, 1987. [28] Thus, PBComs act of taking all the properties found in the factory of the
financially handicapped respondent, including those properties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is
proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides
that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the
discretion of the court in accordance with the circumstances of each case. [29] While the imposition of exemplary damages
is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in the assessment of
damages must always be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary
damages by way of example for the public good should be reduced to P100,000.00.
By the same token, attorneys fees and other expenses of litigation may be recovered when exemplary damages are
awarded.[30] In our view, RTCs award of P50,000.00 as attorneys fees and expenses of litigation is reasonable, given the
circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R.
CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai
are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as
compensation for the use and possession of the properties in question from November 1986 [31] until subject personal
properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as
attorneys fees and litigation expenses. Costs against petitioners.
SO ORDERED.

SECOND DIVISION
FELIMON BIGORNIA, SPO3 BORROMEO GORRES,
ADELIANO RICO, SPO3 JOVENTINO BIGORNIA,
SPO3
ALMANZOR
JANGAO,
SPO2
MESTERIOSO ARANCO,
Petitioners,

- versus -

COURT OF APPEALS
MELCHOR AROMA,
Respondents.

(23rdDivision),

and

G.R. No. 173017

Present:
QUISUMBING, J., Chairperson,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,* and
BRION, JJ.

Promulgated:

March 17, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:

This petition for certiorari assails the Resolutions dated July 22, 2004[1] and April 3, 2006[2] of the Court of Appeals in CAG.R. CV No. 73091. The appellate court dismissed petitioners appeal and denied their motion for reconsideration.
The pertinent facts are as follows:
Private respondent Melchor Aroma filed an action for replevin with damages against petitioners before the Regional Trial
Court (RTC) of Lanao del Norte. Petitioners allegedly detained Aromas fishing vessel for 14 days after it was seized in a
seaborne patrol.
On August 28, 2001, the RTC rendered a Decision[3] in favor of respondent. It ordered petitioners to pay jointly
and severally the sums of P350,000 by way of actual and compensatory damages; P100,000 as moral and exemplary
damages; attorneys fees of P20,000; and the costs of suit.
Petitioners appealed. On January 19, 2004, the office of Atty. Arthur L. Abundiente, counsel for petitioners,
received notice requiring petitioners to file an appellants brief within 45 days or until March 4, 2004. Petitioners however,
filed their brief only on March 18, 2004, 14 days beyond the deadline. On July 22, 2004, the Court of Appeals issued the
challenged Resolution. Its fallo states:
Having been unjustifiably filed out of time, the Appellant[s] Brief is ORDERED EXPUNGED
FROM/STRICKEN OFF THE RECORDS. This instant appeal is accordinglyDISMISSED pursuant to
Section 1(e), Rule 50 of the 1997 Rules on Civil Procedure for appellants failure to file their Brief within
the time provided for under the Rules.
SO ORDERED.[4]

Petitioners moved for reconsideration, but the same was denied in a Resolution dated April 3, 2006, as follows:

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED.[5]

Hence, the instant petition which presents the single issue:

WHETHER OR NOT THE 23RD DIVISION OF THE COURT OF APPEALS ACTED WITH GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN NOT ADMITTING THE
APPELLANTS BRIEF, AND IN ORDERING THAT THE SAME BE EXPUNGED FROM THE RECORD. [6]

Stated simply, the lone issue for our consideration is whether the Court of Appeals gravely abused its discretion in
dismissing the appeal.
Petitioners explain that their counsel was unable to file the brief on time because he was busy campaigning as candidate
for Vice Governor of Lanao del Norte. [7] Petitioners fault the Court of Appeals for giving notice to file brief only two years
after they appealed.[8] They claim that they could have immediately submitted a brief had notice been sent earlier.
Petitioners contend that dismissal of an appeal under Section 1(e), [9] Rule 50 of the Rules of Court is directory, not
mandatory. They cite the case of United Feature Syndicate, Inc. v. Munsingwear Creation Manufacturing Company,
[10]

where a lapsed appeal was allowed by the Court in the interest of substantial justice. According to them, a lesser

offense of delay in filing of brief should merit the same consideration. Petitioners argue that rules of procedure should be
liberally construed so that cases may be resolved on the merits, and not on technicalities.
Private respondent counters that technical rules of procedure were designed to effect expediency. Thus, a party seeking
liberal application of the rules must adequately explain his failure to abide by them. Respondent believes that petitioners
failed in this respect.
Technically, the Court of Appeals may dismiss an appeal for failure of the appellant to file the appellants brief on time. But,
the dismissal is directory, not mandatory. Hence, the court has discretion to dismiss or not to dismiss the appeal. It is a
power conferred on the court, not a duty. The discretion, however, must be a sound one, to be exercised in accordance
with the tenets of justice and fair play, having in mind the circumstances obtaining in each case. [11]
Petitioners had 45 days or until March 4, 2004 to file an appellants brief. Unfortunately, petitioners could not be located as
some of them retired while the rest were assigned to other places. It was their counsel who took the liberty of filing a brief
in their behalf, but 14 days late and without a motion for leave of court for its admission. Nonetheless, the more pressing
consideration of substantial justice compels this Court to heed the plea of petitioners. The amount of damages involved in
this case is relatively substantial. Petitioners are police officers, and government employees who receive meager salaries
for risking life and limb. It is but fair that they be heard on the merits of their case before being made to pay damages, for
what could be, a faithful performance of duty.
The circulars of this Court prescribing technical and other procedural requirements are meant to promptly dispose of
unmeritorious petitions that clog the docket and waste the time of the courts. These technical and procedural rules, however,
are intended to ensure, not suppress, substantial justice. A deviation from their rigid enforcement may thus be allowed to attain
their prime objective for, after all, the dispensation of justice is the core reason for the existence of courts. [12] Thus, in a
considerable number of cases,[13] the Court has deemed it fit to suspend its own rules or to exempt a particular case from its
strict operation where the appellant failed to perfect his appeal within the reglementary period, resulting in the appellate courts
failure to obtain jurisdiction over the case. With more reason, there should be wider latitude in exempting a case from the
strictures of procedural rules when the appellate court has already obtained jurisdiction over the appealed case and, as in this
case, petitioners failed to file the appellants brief[14] on time.
WHEREFORE, in the interest of substantial justice, the instant petition is GRANTED. The Resolutions dated July 22,
2004 and April 3, 2006 of the Court of Appeals in CA-G.R. CV No 73091 are SET ASIDE; petitioners appeal is reinstated;
and the instant case is REMANDED to the Court of Appeals for further proceedings.

SO ORDERED.