GUARANTY:

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21109 June 26, 1967

NATIONAL SHIPYARDS & STEEL CORPORATION, plaintiff-appellee,

vs.
CARIDAD J. TORRENTO and MUTUAL SECURITY INSURANCE CORPORATION, defendants-
appellants.

Manuel A. Cammayo for defendants-appellants.

Augusto D. Trinidad for plaintiff-appellee.

MAKALINTAL, J.:

On December 5, 1958 defendant Caridad J. Torrento applied with the National Shipyards & Steel
Corporation (hereinafter referred to as NASSCO) for the purchase on credit of 60 tons of steel bars,
3/8" deformed or plain, at P430.00 per ton, for a 120-day period.

A contract of purchase and sale was executed on January 13, 1959, but was subsequently amended
when plaintiff exhausted its stock of 3/8" plain steel bars. As amended, the quantity of steel bars
stated to be 60 metric tons in the original contract was changed to 59.31 metric tons; the price was
changed from P430.00 to P435.00 per metric ton; and the specification of the steel bars was also
changed from "plain, round or corrugated" to "deformed."

Pursuant to the stipulation in the contract that the value of steel bars sold to defendant Torrento
should be secured by a surety bond issued by a reputable bonding company, defendant Torrento as
principal and Mutual Security Insurance Corporation, as surety executed in favor of plaintiff a surety
bond (S. 1754) on January 23, 1960. When it was noted that the undertaking under the bond was
only P25,000.00, whereas the contract called for the payment of P25,800.00, defendant surety
executed a supplemental bond increasing the amount of P25,800.00.

On February 6, 1959, when NASSCO could no longer supply the steel bars called for in the contract
of purchase and sale inasmuch as its stock of 3/8" deformed steel bars had been exhausted, the
plaintiff and defendant Torrento executed a supplemental agreement, the pertinent provisions of
which read:

. . . Whereas the NASSCO has agreed to sell to the vendee and the vendee has agreed to
buy from the NASSCO . . . Fifty Nine and thirty one hundredths (59-31) metric tons of steel
bars on credit basis for size and price as follows:

3/8 deformed 20 ft or

30 ft. at P435.00 per tons

Whereas, after consummation of said contract, only the following amount of steel bars were
delivered to the vendee, as follows:
20-67 M.T. 3/8" deformed

and that there were no more available stock of steel bars of size 3/8" x 20' or 30' deformed.

Now therefore, for and in consideration of the foregoing premises, the parties hereby agree to modify
and/or amend their said contract as follows:

1. That the NASSCO shall sell to the vendee and the vendee shall buy from the NASSCO, 38.50
tons of steel bars on credit basis subject to availability of stock in the following sizes and prices, to
wit:

25 M.T. — 1/2" x 30 deformed at P440.00 per ton.

13.50 M.T. — 5/8" x 30 deformed at P430.00 per ton

2. That aside from the above amendment and/or modification, the said contract shall not be affected,
altered, or modified in any way.

Pursuant to the contract of purchase and sale and the supplemental contract, NASSCO delivered to
defendant Torrento steel bars in the total value of P25,794.09. The 120-day period for payment
lapsed. Demand letters were sent, but defendant surety made no reply. Defendant Torrento did not
question her liability, but only asked for a 3-month extension to settle her account.

Action was brought to recover the unpaid contract price from defendant Torrento and her surety. On
October 18, 1960, the lower court rendered judgment: "ordering the defendants, jointly and severally,
to pay the plaintiff the sum of P25,794.09, with interest thereon at the rate of 12% per annum, from
August 29, 1959 until full payment, and the costs of suit. On the cross-claim, judgment is hereby
rendered, ordering the cross-defendant Caridad J. Torrento to pay the cross-plaintiff Mutual Security
Insurance Corporation whatever sums the latter would pay the plaintiff by virtue of this judgment,
with interest thereon at the rate of 12% per annum, from the date of payment to plaintiff, until full
payment, and the costs of this suit."

Defendants interposed an appeal to the Court of Appeals, which later on certified the case to Us on
the ground that the errors assigned raise only questions of law.

Appellant Torrento maintains that plaintiff has no cause of action against her for the reason that
inasmuch as she had paid the corresponding premium on the surety bond, the right of action, in
case of her default, is exclusively against her surety. Further, with respect to the cross-claim of the
Surety, Torrento claims that it was error for the lower court to take cognizance of the same even
before payment by said surety to NASSCO had been made. In other words, Torrento argues that the
cause of action alleged in the cross-claim does not arise until after payment has been made by the
surety to the plaintiff.

We find both arguments without merit. The surety bond (Exhibits C and C-1) states in very clear
terms that both principal and surety are held and firmly bound unto the NASSCO in the sum of
P25,800.00 for the payment of which they bind themselves, jointly and severally. "If a person binds
himself solidarity with the principal debtor, . . . the contract is called suretyship" (Art. 2047, C.C.) in
which case the provisions of the Civil Code with respect to joint and solidary obligations apply; and
Article 1216 of the Civil Code provides that "the creditor may proceed against any of the solidary
debtors or all of them simultaneously. . . ." It has been repeatedly held that although as a rule
sureties . . . are only subsidiarily liable for an obligation, nevertheless, if they bind themselves jointly
and severally, or in solidum, with the principal debtor, the creditor may bring an action against
anyone of them, either alone or together with the principal debtor (Molina vs. de la Riva, 7 Phil. 345;
Chinese Chamber vs. Pua Te Ching, 16 Phil. 406; La Yebana vs. Valenzuela, 67 Phil. 482; Chunaco
vs. Tria, 63 Phil. 500).

With respect to the contention that the lower court erred in taking cognizance of the surety's cross-
claim, suffice it to say that this point was not raised in the court a quo and, consequently may not be
raised for the first time on appeal. Besides, as the lower court also stated in its decision, "defendant
Torrento made no effort to dispute this (cross-claim) of defendant surety and did not even bother to
cross-examine the witness who identified the said indemnity agreement," which is the basis of the
cross-claim.1äwphï1.ñët

For its part, appellant surety company maintains that the execution of the supplemental agreement
of February 6, 1959 without its knowledge and consent released it from any liability under the surety
bond as there was a material alteration of the principal contract. We find the contention without merit.
The court a quo analyzed the factual set-up as follow:

x x x An examination and comparison of the contract and the supplemental agreement will
reveal that the only change or alteration consists of the following: Instead of the original
stipulation for the purchase and sale of 3/8, 20' or 30', deformed steel bars, at P435.00 per
ton, which kind of steel bars were no longer available in stock, the supplemental agreement
provides for the sale by the plaintiff to defendant Torrento of other sizes of deformed steel
bars at prices of P430.00 and P440.00 per metric ton. Specifically, the changes are in the
diameter of the steel bars which originally was 3/8", to 1/2 and 5/8"; and the price from
P435.00 per ton, to P430.00 per ton for the 1/211 bars. The amount of steel bars to be sold
to defendant Torrento remained the same. The length and the deformed quality of the bars
likewise remained unchanged. It is even specifically provided in Par. 2 of the supplemental
agreement that "aside from the above amendments and/or modifications, the said contract
(referring to the original contract) shall not be affected, altered or modified in any way." There
was no alteration in the principal condition of the contract. The period of payment was not
changed, and the amount of the liability of the principal debtor and of the surety was also
untouched. There was no added burden imposed upon or assumed by the buyer."
(Emphasis Supplied)

x x x In short, the supplemental agreement did not result in the principal debtor's assuming
more onerous conditions than those stipulated in the original contract, and for which the
surety furnished the bond. There was consequently, no material or essential alteration of the
original contract which could result in the release of the surety from the obligation under the
said bond.

We see no error in the ruling of the lower court just quoted.

In Pacific Tobacco Corporation vs. Lorenzana, et al., G.R. L-8086, October 31, 1961 it was held: "for
purposes of releasing a surety's obligation, there must be a material alteration of the contract in
connection with which the bond is given, a change which imposes some new obligation on the party
promising or takes away some obligation already imposed, changing the legal effect of the original
contract and not merely the form thereof . . . To allow compensated surety companies to collect and
retain premiums for their services and then repudiate their obligations on slight pretexts which have
no relation to the risk, would be most unjust and immoral, and would be a perversion of the wise and
just rules designed for the protection of voluntary sureties."
While it is the rule that the liability of a surety is limited by the terms of the surety bond fixing its
liability and that such liability cannot be extended by implication, it should be noted in the present
case that although the technical specifications of the items to be purchased have been changed, it
clearly appears that such changes are not substantial and have not added any other liability to that
originally assumed. A surety is not released by a change in the contract which does not have the
effect of making its obligation more onerous (Visayan Distributors, Inc. vs. Flores, 92 Phil. 145).

Wherefore, the appealed decision is hereby affirmed, with costs against defendants-appellants.

Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
 GUARANTY:

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-32542 November 26, 1970

THE COMMISSIONER OF CUSTOMS and THE COLLECTOR OF CUSTOMS for the Port of
Manila, petitioners,
vs.
HON. FEDERICO C. ALIKPALA, in his capacity as Judge of the Court of First Instance of
Manila, Branch XXII, GONZALO SY and TOMAS Y. DE LEON, respondents.

Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General Crispin V. Bautista
and Solicitor Pedro A. Ramirez for petitioners.

Jesus G. Barrera and De Santos, Delfino and Balgos for respondents.

MAKALINTAL, J.:

The Commissioner of Customs and the Collector of Customs for the port of Manila have come to this
Court on a petition for certiorari and prohibition with preliminary injunction, to declare null and void
and set aside certain orders of respondent Court of First Instance of Manila, Judge Federico C.
Alikpala presiding, in Civil Case No. 80655 entitled "Gonzalo Sy, doing business under the name and
style of Gonzalo Sy Trading, and Tomas Y. de Leon, doing business under the name and style of T.
Y. de Leon Enterprises, petitioners, vs. The Commissioner of Customs and the Collector of Customs,
respondents." That case was a petition for injunction with a prayer for a writ of preliminary injunction.

The basic order complained of is that issued on August 26, 1970, which recites the essential
pertinent facts of the case and is reproduced as follows:

On August 11, 1970, the petitioners filed an action wherein it was prayed that the
Commissioner of Customs and the Collector of Customs be restrained from carrying
out the seizure and scheduled auction sale of the fruits they imported from abroad
and that the said cargo be released to them under the surety bonds which they have
already submitted to respondent Collector of Customs.

On August 13, 1970, the Court issued an order setting the hearing of the petition for
the issuance of a writ of preliminary injunction on August 19, 1970, and restraining
the respondents, their agents, representatives and attorneys in the meantime from
carrying out the scheduled auction sale of the fruits imported by the petitioners, until
further orders from the Court.
The respondents filed a motion to dissolve the restraining order and an opposition to
the issuance of a writ of preliminary injunction invoking several grounds in support
thereof.

It appears that the Collector of Customs of the port of Manila issued several warrants
of seizure and detention against the cargo of the petitioners consisting of apples,
lemons, oranges and grapes, on the ground that they were imported in violation of
Central Bank circulars in relation to Section 2530-F of the Tariff and Customs Code.
In due time, the petitioners were notified of the seizure, but before they could be
heard, respondent Collector of Customs issued a notice of sale of the imported fruits
which was scheduled for sale on August 10, 1970.

The petitioners filed with the Court of Tax Appeals a petition seeking a review of the
action taken by the Collector of Customs of Manila who ordered the seizure of the
imported fresh fruits, with a prayer that pending final determination of the case, a writ
of preliminary injunction be issued restraining the Commissioner of Customs and
Collector of Customs from carrying out the seizure. On August 12, 1970, said Court,
however, denied the petition on the ground that it had no jurisdiction over the subject
matter thereof and to grant the writ of preliminary injunction.

Counsel for the respondents admitted that the petitioners have not been heard on the
seizure proceedings and the imported cargo have already been advertised for sale
and the same would have been sold had not this Court issued a restraining order.
The first question submitted for resolution is whether the Court has jurisdiction over
the subject matter of the petition and to issue the ancillary remedy prayed for.

The question involved herein is not whether the imported fruits are subject to seizure
but whether the respondent Collector of Customs of Manila acted in accordance with
law in scheduling the sale thereof without first giving the petitioners an opportunity to
be heard. In short, the question presented for resolution is whether there was
observance of due process and in the case of Nadeco vs. Collector of Customs (G.R.
No. L-19180, Oct. 31, 1963) the Supreme Court in effect held that the Court of First
Instance has jurisdiction over the subject matter of the action.

The provision of Tariff and Customs Code relied upon by the respondents in issuing
the warrants of seizure is Section 2530-F (which declares that articles of prohibited
importation are subject to forfeiture) in relation to circulars issued by the Central
Bank of the Philippines beginning March 10, 1970 prohibiting the issuance of release
certificates on no-dollar imports.

Section 2301 of the Tariff and Customs Code, however, provides that upon making
any seizure, the Collector shall issue a warrant for the detention of the property, but if
the owner or importer desires to secure the release of the property for legitimate use,
said official may surrender it upon the filing of a sufficient bond, in an amount to be
fixed by him, conditioned for the payment of the appraised value of the articles and/or
any fine, expenses and costs which may be adjudged in the case.

The Tariff and Customs Code further requires the Collector to give the owner or
importer of the property written notice of the seizure and an opportunity to be heard
in relation thereto (Section 2303) and that properties under seizure shall not be sold
except after liability to sale shall have been established by proper administrative or
judicial proceedings in conformity with the provisions of said Code.
 Evidently, the respondent Collector of Customs should not have ordered the sale at
public auction of the imported fruits until after the petitioners have been given an
opportunity to be heard. Moreover, they availed of the remedy granted them by
Section 2301, which respondent Collector of Customs granted but required the
submission of a cash instead of a surety bond.

The statute under consideration (Section 2301, Tariff and Customs Code) merely
provided that the release would be upon the filing of a sufficient "bond." The
petitioners affirmed that they presented to respondent Collector of Customs surety
bonds conditioned for the payment of the appraised value of the imported fruits
and/or any fine, expenses and costs which may be adjudged in the case. The
attention of the petitioners have not been called by the respondent Collector of
Customs to the "insufficiency" of the bonds nor did he raise any question as to the
solvency of the bonding company.

On the basis of the foregoing facts, the Court finds that the petitioners are entitled to
the relief prayed for. The imported goods are perishable in nature and unless
immediate relief is granted to petitioners, irreparable damage may be caused to them
and in the event petitioners' contention would be upheld, the judgment that may be
subsequently rendered would become ineffectual.

WHEREFORE, upon filing of a bond in the sum of P500, subject to the approval of
the Court, let a writ of preliminary injunction be issued enjoining the respondents,
their agents, representatives and any other person acting in their behalf from
proceeding with the seizure and sale at public auction of the imported fruits, until
further orders from this Court. The respondents are further directed to release
immediately the imported goods to the custody of the petitioners on the strength of
the surety bonds filed by them unless the respondents file with this Court their
objection to the sufficiency of said bonds, which should be done within twenty-four
(24) hours from notice of a copy of this order.

SO ORDERED.

On September 23, 1970 this Court gave, due course to the present petition and resolved to issue a
restraining order "enjoining respondent Judge from executing his order dated August 26, 1970 ...
insofar as it directed the petitioners herein from releasing to the custody of the respondents the
imported goods in question." In due time the respondents filed their answer to the petition and
subsequently both parties submitted their respective memorandum in lieu of oral argument.

Three grounds are relied upon in the petition for the issuance of the writ prayed for, namely:

1. Respondent Court has no jurisdiction over the subject matter of the case; it follows
that it does not have the authority to grant the writ of preliminary injunction ordering
the release of the imported fruits in question.

2. Assuming, ad arguendo, that it has jurisdiction over the subject matter of the case,
respondent Court acted with grave abuse of discretion amounting to lack of
jurisdiction in granting the writ of preliminary injunction despite the fact that the
respondents' complaint states no cause of action upon which the grant of injunction
may be predicated.
 3. Respondent Court gravely abused its discretion amounting to black of jurisdiction
in insisting on the sufficiency of the bonds filed by petitioners, undertaken by the
Communications Insurance Co., Inc. in the total amount of P513,865.46,
(P513,866.06), despite the fact that its writing capacity is P50,465.52 only.

For a proper understanding and resolution of the issues it is necessary to state the facts in greater
detail, as they appear from the pleadings and memoranda submitted by the parties as well as from
the different documents attached thereto and marked as annexes.

We first take up the case of Gonzalo Sy Trading. On Nov. 19, 1968 this firm was authorized by the
Central Bank, under Monetary Board Revolution No. 2038, to import fresh fruits from Japan to the
extent of $350,000.00, on a no-dollar basis and without letters of credit. As of November 1969 the
amount of $144,306.15 had been used. On October 30 of that year Gonzalo Sy Trading asked the
Central Bank for an amendment of the terms of the aforesaid resolution so that the importations
authorized under it could be procured not only from Japan but from other sources as well. On
November 19, 1969 the Deputy Governor of the Central Bank denied the request, and pointed out
that Monetary Board Resolution No. 2038 was intended only for the Christmas season of 1968 and
did not extend through 1969. Two days thereafter, however, or on November 21, the Director of the
Foreign Exchange Department of the Central Bank wrote the Prudential Bank and Trust Company in
connection with the release certificates so far issued by it covering the no-dollar importations of fresh
fruits by its client, Gonzalo Sy Trading, and noting that only $144,306.15 had been used out of the
total amount of $350,000.00, authorized the Prudential Bank and Trust Company to "continue to
issue release certificates to cover the No-Dollar importations of fresh fruits by your client, subject to
the same terms and conditions imposed by the Monetary Board under the above-mentioned
resolution." Pursuant to such authority Gonzalo Sy Trading continued importing fresh fruits, until by
the beginning of June 1970 the total amount already used was $314,142.51, leaving a balance of
$35,857.49.

On June 3, 1970, Gonzalo Sy Trading wrote a letter to the Central Bank, making reference to a
previous letter of May 27 requesting permission to utilize the said balance to pay for two shipments
of fresh fruits coming on June 4 and 6, respectively. This request was denied by the Central Bank in
its letter of June 10, 1970. On the following June 16 warrants of seizure and detention were issued
by the Collector of Customs after the customs duties, taxes and other charges had been paid by the
importer.

With respect to respondent Tomas T. de Leon, it appears that on many occasions in the past he had
always been allowed by the Central Bank to import fresh fruits on a dollar co-assignment basis. The
1968 imports alone were valued at over half a million dollars. The corresponding release certificates
were invariably authorized by said bank after the arrival of the shipments in the Philippines. On
November 20, 1969 De Leon filed the customary application with the bank for the issuance of a "no-
dollar import permit" to cover consignments of fruits from suppliers abroad. Pending action on said
application, orders were placed and the shipments arrived during the months of May through July
1970, and the customs duties, taxes and other charges were also paid by the importer. As in the
case of Gonzalo Sy Trading however, the said shipments were seized by the Collector of Customs.

On July 30, 1970 the Collector of Customs issued a notice of auction sale of the goods under
seizure to be held on the following August 12 and every day thereafter until terminated. On July 31
counsel for both importers wrote a letter to the Collector requesting that they be allowed to file
sufficient bonds for the release of the goods, without prejudice to their right to contest the validity of
seizure. On the same date the Collector granted the request by means of a handwritten marginal
notation on the letter itself, provided "duty and taxes have already been paid." This condition had
been previously met, and so the corresponding surety bonds were filed, in the aggregate amount of
P513,865.46. Their approval was requested in another letter dated August 10, 1970, but the
Collector of Customs thereupon required a cash bond instead, as indicated in a similar marginal
notation on this second letter.

On the same date — August 10 — the two importers filed a petition with the Court of Tax Appeals to
stop the sale at public auction of the fruit shipments in question, with a prayer for preliminary
injunction until the final determination of the validity of the seizure proceedings. The said Court,
however, by resolution dated August 12, 1970, dismissed the petition on the ground of lack of
jurisdiction, stating that neither the Collector of Customs nor the Commissioner of Customs had yet
rendered any decision from which an appeal could be taken pursuant to Section 7 of Republic Act,
No. 1125. Evidently anticipating such a ruling and considering the urgency of the matter, the
importers went to the Court of First Instance on a petition for injunction, wherein the resolution
reproduced in the beginning of this decision was thereafter promulgated after hearing.

That there must be some forum to which a party may apply for relief from an alleged violation or
denial of his rights is a legal principle from which there can be no dissent. Otherwise the rule of law
would be defeated. The choice in this case was between the Court of Tax Appeals and the Court of
First Instance. Recourse to the former was sought and denied. The Tax Court held that it could not
issue the preliminary injunction prayed for except in the exercise of its appellate jurisdiction, and no
appeal had been taken since no appealable decision had been rendered. The ruling appears to find
support in the decisions of this Court, thus:

... Nowhere does the law expressly vest in the Court of Tax Appeals original
jurisdiction to issue writs of prohibition or injunction independently of, and apart from,
an appealed case. The writ of prohibition or injunction that it may issue under the
provisions of section 11, Republic Act No. 1125, to suspend the collection of taxes, is
merely ancillary to and in furtherance of its appellate jurisdiction in the cases
mentioned in section 7 of the Act. The power to issue the writ exists only in cases
appealed to it. This is reflected in the explanatory note of the bill (House No. 175),
creating the Court of Tax Appeal. (Coll. of Int. Rev. v. Yuseco, G.R. No. L-12518, Oct.
28, 1961.)

Respondent Court of First Instance assumed jurisdiction over the petition before it on the ground that
"the question presented for resolution (was) whether there was absence of due process," citing our
decision in Nadeco vs. Collector of Customs, G.R. No.
L-19180, Oct. 31, 1969. The said Court found: "Counsel for the respondents admitted that the
petitioners have not been heard on the seizure proceedings and the imported cargo have already
been advertised for sale and some would have been sold had not this Court issued a restraining
order." Due notice and hearing, besides being an inherent element of due process, is provided for in
Section 2303 of the Tariff and Customs Code, which requires the Collector to give the owner or
importer of the property written notice of the seizure and an opportunity to be heard in relation to the
delinquency which was the occasion for such seizure, as well as in Section 2601, which directs that
seized property, other than contraband, shall be subject to sale after liability to sale shall have been
established by proper administrative or judicial proceedings in conformity with the provisions of said
Code.

In view of the foregoing, we hold that respondent Court of First Instance had jurisdiction to take
cognizance of the petition for injunction before it. The remedy prayed for was one in equity, which the
petitioner below tried to seek in the Court of Tax Appeals, but was denied on the ground that no
appealable decision had yet been rendered by the Collector and the Commissioner of Customs. The
jurisdiction of respondent Court was not invoked to determine the validity of the seizure proceedings,
which are pending before the Collector of Customs and regarding which an appeal could be
eventually taken only to the Tax Court, but rather to stop the projected auction sale of the goods in
question and secure the release thereof under surety bond, without prejudice to the main issue
concerning the validity of the seizure. Such relief is interlocutory in nature, and is sanctioned by
Section 2301 of the Tariff and Customs Code, which provides that "upon making any seizure the
Collector shall issue a warrant for the detention of the property; but if the owner or importer desires
to secure the release of the property for legitimate use, the Collector may surrender it upon the filing
of a sufficient bond, in an amount to be fixed by him, conditioned for payment of the appraised value
of the article and/or any fine, expenses and costs which may be adjudged in the case."

The really basic issue before us is whether or not respondent Court gravely abused its discretion in
issuing the orders complained of, particularly that dated August 26, 1970. For the resolution of this
issue we need not pass squarely upon the question of whether the importations in question are
prohibited by law within the meaning of the proviso in Section 2301 of the Tariff and Customs Code
which says that such prohibited importation may not be released under bond. That question is
involved and should properly be decided in the seizure proceedings. For purposes of the equitable
remedy of injunction granted by respondent Court, however, as well, as of the petition
for certiorari and prohibition before us, it is sufficient to note, first, that there is no clear showing that
the importations subject of seizure are prohibited by law; and second, that the Collector of Customs
has in fact agreed in the beginning to release the importations provided surety bonds were filed,
although he subsequently required a cash bond instead.

The warrants of seizure were issued in view of Central Bank Circulars Nos. 294 and 295,
promulgated on March 10 and 20, 1970, respectively, which provide that "no-dollar imports not
covered by Circular No. 247 shall not be issued any release certificates and shall be referred to the
Central Bank for official transmittal to the Bureau of Customs for appropriate seizure proceedings."

Evidently, in the opinion of the Collector of Customs himself, even in the light of those circulars there
exists no legal impediment to the release of the subject importations under bond, otherwise he would
not have agreed thereto, although he changed his requirement from surety bond to cash. In any
case, as pointed out by private respondents, the said importations had been ordered before Central
Bank Circulars 294 and 295 were promulgated, and since the orders were made in accordance with
previous practice there could be no bad faith or intent to violate those circulars.

The options presented in this case are few and clearcut: (1) to sell the imported fresh fruits at public
auction, as the petitioners due insist; (2) to release them to the private respondents upon the filing of
sufficient surety bonds, as respondent Court has directed; and (3) to require the private respondents
to file a cash bond instead.

We fail to see what good it would do either the Government or the private respondents to have the
fruits sold at public auction. The Government's interest, ultimately, is in the proceeds which may be
realized from such sale, in the event the fruits are declared forfeited in the seizure proceedings. By
now a considerable portion thereof must have deteriorated, and the rest will in all probability not
command the same prices as before. Besides, as pointed out by the respondents — and this has not
been denied — the Commissioner of Customs has been quoted by a newspaper on September 29,
1970, to the effect that "seized items worth hundreds of thousands of pesos could not be disposed of
because of the unrealistic bids received by the Bureau of Customs when the goods were offered for
sale at public auction. ... Some of the offers were not even enough to pay the import taxes and
customs duties due on the articles." To sell the goods at public auction, therefore, cannot but entail
great loss either to the Government or to the importers.

On the other hand the filing of sufficient bond would serve the purpose envisaged, that is, protect the
interest of the Government in the value of the imported goods should they be finally declared
forfeited, while at the same time avoiding needless damage or prejudice to the importers should the
forfeiture fail. The release on bond, it may be repeated, is expressly authorized by Section 2301 of
the Tariff and Customs Code.

But the petitioners would have the private respondents put up cash, alleging that it may be difficult to
realize upon a surety bond if it is allowed. We do not believe this reason is justified. In the first place,
a bond, when required by law, is commonly understood to mean an undertaking that is sufficiently
secured, and not cash or currency. According to the respondents this is the established practice in
the Bureau of Customs, and this statement has not been denied. Of course whatever surety bonds
are submitted by the importers are subject to any objections by the Collector of Customs as to their
sufficiency or as to the solvency of the bondsman. In the second place, to require the private
respondents here to put up cash in the sum of P513,865.46 is prohibitive and unrealistic, and
amounts to an arbitrary exercise of discretion under the circumstances of this case, assuming that
the matter is discretionary.

We note, however, that the bonds offered by the respondents are all subscribed by the same
bonding company, namely, the Communications Insurance Co., Inc., which has a net worth of only
P504,655.15 and a maximum writing capacity of P50,465.52, on the basis of its financial statement
as of December 31, 1969, according to a letter of the Acting Insurance Commissioner dated August
28, 1970. The figure given by the petitioners in their objection to the sufficiency of the bonds before
respondent court is P596,342.51 in reference to the net worth of said company. In any case the
petitioners have expressed doubts as to whether the bondsman can satisfy a liability of
P513,865.46, which is the aggregate amount of the bonds submitted. The objection on this ground
has been brushed aside by the lower court in its order of September 8, 1970, since the private
respondents "have shown that the bonding company obtained reinsurance on part of their liability for
those bonds." But it appears, as manifested by said respondents themselves, that only two of the
bonds submitted by them, in the respective amounts of P94,647.80 and P78,981.24, are covered by
reinsurance, leaving more than P340,000.00 not reinsured. In view thereof, it is incumbent upon the
respondents to either cause of sufficient portion of the other bonds submitted by it to be covered by
reinsurance or to put up other surety bonds acceptable to the Collector of Customs, the same to be
justified before respondent Court in case of dispute.

WHEREFORE, subject to the condition stated in the preceding paragraph, the writ prayed for is
denied, the petition dismissed, and the restraining order issued by this Court hereby lifted. No
pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ.,
concur.

Dizon and Makasiar, JJ., are on leave.

 REAL MORTGAGE

FIRST DIVISION

G.R. No. 141931 December 4, 2000

ANICETO RECEBIDO, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.

KAPUNAN, J.:

RESOLUTION

This is a petition for review on certiorari assailing the Decision of the Court of Appeals in C.A.-G.R.
No. 21347 entitled "People of the Philippines versus Aniceto Recebido," dated September 9, 1999
which found petitioner guilty beyond reasonable doubt of Falsification of Public Document; and its
Resolution dated February 15, 2000 denying petitioner's motion for reconsideration.

The antecedent facts are the following, to wit:

On September 9, 1990, private complainant Caridad Dorol went to the house of her cousin,
petitioner Aniceto Recebido, at San Isidro, Bacon, Sorsogon to redeem her property, an agricultural
land with an area of 3,520 square meters located at San Isidro, Bacon, Sorsogon, which Caridad
Dorol mortgaged to petitioner sometime in April of 1985. Petitioner and Caridad Dorol did not
execute a document on the mortgage but Caridad Dorol instead gave petitioner a copy of the Deed
of Sale dated June 16, 1973 (Exhibit "A") executed in her favor by her father, Juan Dorol.

In said confrontation, petitioner refused to allow Caridad Dorol to redeem her property on his claim
that she had sold her property to him in 1979. Caridad Dorol maintained and insisted that the
transaction between them involving her property was a mortgage.

Caridad Dorol verified from the Office of the Assessor in Sorsogon that there exists on its file a Deed
of Sale dated August 13, 1979 (Exhibit "J"), allegedly executed by Caridad Dorol in favor of petitioner
and that the property was registered in the latter's name. After comparison of the specimen
signatures of Caridad Dorol in other documents (Exhibits "K" to "K-10") with that of the signature of
Caridad Dorol on the questioned Deed of Sale, NBI Document Examiner Antonio Magbojas, found
that the latter signature was falsified (Exhibits "L-1" to "L-2").

Thereafter, Caridad Dorol filed her complaint against petitioner Aniceto Recebido with the National
Bureau of Investigation (NBI), Legaspi City and its Questioned Documents Division conducted an
examination in the original copy of the Deed of Sale in question allegedly signed by Caridad,
particularly her signature affixed thereon.
Mr. Magboja's report was approved by the Chief of the Questioned Documents Division, Arcadio
Ramos, and the Deputy Director of Technical Services, Manuel Roura, both of the NBI. 1

Thus, the Office of the Provincial Prosecutor of Sorsogon filed the information indicting petitioner for
Falsification of Public Document with the Regional Trial Court, 5th Judicial Region, Branch 51,
Sorsogon, Sorsogon, reading as follows:

"That on or about the 13th day of August, 1979, in the Municipality of Sorsogon, Province of
Sorsogon, Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, being a private individual, did then and there, willfully, unlawfully and feloniously,
with intent to defraud, falsify and/or imitate the signature of one Caridad Dorol and/or cause
it to appear that said Caridad Dorol has signed her name on a Deed of Absolute Sale of Real
Property in favor of the herein accused and Notarized as Doc. No. 680; page No. 54; Boon
No. XIV and Series of 1979 of the Registry of Notary Public Dominador S. Reyes, when in
truth and in fact accused well knew, that Caridad Dorol did not execute said document, to the
damage and prejudice of the latter.

Contrary to law."2

Upon arraignment petitioner pleaded "not guilty."

As narrated by the Court of Appeals, the petitioner contends that the land in question was mortgage
to him by Juan Dorol, the father of Caridad, on February 25, 1977 and was subsequently sold to him
on August 13, 1983 although it was made to appear that the deed of sale was executed on August
13, 1979. It was also on the said date that Recebido gave Caridad the amount of P1,000.00 in
addition to the P2,600.00 mortgage price given to Juan Dorol which culminated into the execution of
the Deed of Sale signed by Caridad. 3

After trial on the merits, the trial court rendered the decision on December 2, 1996, convicting
petitioner of the crime charged and sentencing him as follows:

ACCORDINGLY, accused ANECITO RECEBIDO is sentenced to an indeterminate penalty of

one (1) year to three (3) years and six (6) months of prision correccional as maximum and to
pay a fine of Three Thousand (P3,000.00) Pesos, with subsidiary imprisonment.

Accused is ordered to pay P5,000.00 damages and to vacate the land in question owned by
the offended party.

SO ORDERED.4

On appeal, the Court of Appeals affirmed with modification the decision of the trial court, the
dispositive portion of which reads:

WHEREFORE, with the modification that the award for damages is DELETED, is assailed
judgment is AFFIRMED in all of her respects.

SO ORDERED.5

The petitioner raises his case before this Court seeking the reversal of the assailed decision and
resolution of the Court of Appeals. Based on his petition, the following issues are before this Court:
 1. Whether or not the crime charged had already prescribed at the time the information was
filed?

2. Whether or not the Court of Appeals committed gave abuse of discretion in sustaining the
conviction of the petitioner?

3. Whether or not the Court of Appeals committed grievous error in affirming the decision of
the trial court for the petitioner to vacate the land in question owned by the offended party?

We rule in the negative on the three issues.

On the first issue: While the defense of prescription of the crime was raised only during the motion
for reconsideration of the decision of the Court of Appeals, there was no waiver of the defense.
Under the Rules of Court, the failure of the accused to assert the ground of extinction of the
offense, inter alia, in a motion to quash shall not be deemed a waiver of such ground. 6 The reason is
that by prescription, the State or the People loses the right to prosecute the crime or to demand the
service of the penalty imposed.7 Accordingly, prescription, although not invoked in the trial, may, as
in this case, be invoked on appeal. 8 Hence, the failure to raise this defense in the motion to quash
the information does not give rise to the waiver of the petitioner-accused to raise the same anytime
thereafter including during appeal.

Nonetheless, we hold that the crime charged has not prescribed. The petitioner is correct in stating
that whether or not the offense charged has already prescribed when the information was filed would
depend on the penalty imposable therefor, which in this case is "prision correccional in its medium
and maximum periods and a fine of not more than 5,000.00 pesos." 9 Under the Revised Penal
Code,10 said penalty is a correctional penalty in the same way that the fine imposed is categorized as
correctional. Both the penalty and fine being correctional, the offense shall prescribe in ten
years.11 The issue that the petitioner has missed, however, is the reckoning point of the prescriptive
period. The petitioner is of the impression that the ten-year prescriptive period necessarily started at
the time the crime was committed. This is inaccurate. Under Article 91 of the Revised Penal Code,
the period of prescription shall "commence to run from the day on which the crime is discovered by
the offended party, the authorities, or their agents,……" In People v. Reyes,12 this Court has declared
that registration in public registry is a notice to the whole world. The record is constructive notice of
its contents as well as all interests, legal and equitable, included therein. All persons are charged
with knowledge of what it contains.

The prosecution has established that private complainant Dorol did not sell the subject land to the
petitioner-accused at anytime and that sometime in 1983 the private complainant mortgaged the
agricultural land to petitioner Recebido. It was only on September 9, 1990, when she went to
petitioner to redeem the land that she came to know of the falsification committed by the petitioner.
On the other hand, petitioner contends that the land in question was mortgaged to him by Juan
Dorol, the father of private complainant, and was subsequently sold to him on August 13, 1983. This
Court notes that the private offended party had no actual knowledge of the falsification prior to
September 9, 1990. Meanwhile, assuming arguendo that the version of the petitioner is believable,
the alleged sale could not have been registered before 1983, the year the alleged deed of sale was
executed by the private complainant. Considering the foregoing, it is logical and in consonance with
human experience to infer that the crime committed was not discovered, nor could have been
discovered, by the offended party before 1983. Neither could constructive notice by registration of
the forged deed of sale, which is favorable to the petitioner since the running of the prescriptive
period of the crime shall have to be reckoned earlier, have been done before 1983 as it is impossible
for the petitioner to have registered the deed of sale prior thereto. Even granting arguendo that the
deed of sale was executed by the private complainant, delivered to the petitioner-accused in August
13, 1983 and registered on the same day, the ten-year prescriptive period of the crime had not yet
elapsed at the time the information was filed in 1991. The inevitable conclusion, therefore, is that the
crime had not prescribed at the time of the filing of the information.

On the second issue: We hold that the Court of Appeals did not commit any grave abuse of
discretion when it affirmed petitioner's conviction by the trial court. The petitioner admits that the
deed of sale that was in his possession is a forged document as found by the trial and appellate
court.13 Petitioner, nonetheless, argues that notwithstanding this admission, the fact remains that
there is no proof that the petitioner authored such falsification or that the forgery was done under his
direction. This argument is without merit. Under the circumstance, there was no need of any direct
proof that the petitioner was the author of the forgery. As keenly observed by the Solicitor General,
"the questioned document was submitted by petitioner himself when the same was requested by the
NBI for examination. Clearly in possession of the falsified deed of sale was petitioner and not
Caridad Dorol who merely verified the questioned sale with the Provincial Assessor's Office of
Sorsogon."14 In other words, the petitioner was in possession of the forged deed of sale which
purports to sell the subject land from the private complainant to him. Given this factual backdrop, the
petitioner is presumed to be the author of the forged deed of sale, despite the absence of any direct
evidence of his authorship of the forgery. Since the petitioner is the only person who stood to benefit
by the falsification of the document found in his possession, it is presumed that he is the material
author of the falsification.15 As it stands, therefore, we are unable to discern any grave abuse of
discretion on the part of the Court of Appeals.

On the third issue: Petitioner submits that the trial court is without jurisdiction to order petitioner to
vacate the land in question considering that the crime for which he is charged is falsification. 16 The
petitioner insists that the civil aspect involved in the criminal case at bar refer to the civil damages
recoverable ex delito or arising from the causative act or omission.17 In addition, petitioner argues
that he is entitled to possession as mortgagee since the private complainant has not properly
redeemed the property in question.

These are specious arguments. The petitioner based his claim of possession alternatively by virtue
of two alternative titles: one, based on the forged deed of sale and, two, as mortgagee of the land.
As already discussed, the deed of sale was forged and, hence, could not be a valid basis of
possession. Neither could his status as mortgagee be the basis of possession since it is the
mortgagor in a contract of mortgage who is entitled to the possession of the property. We have taken
note of the practice in the provinces that in giving a realty for a collateral, possession usually goes
with it.18 Besides, even assuming that petitioner had a right to possess the subject land, his
possession became unlawful when the private complainant offered to redeem the property and
petitioner unjustly refused. Petitioner cannot profit from the effects of his crime. The trial court,
therefore, did not commit any error in ordering petitioner to vacate the subject property.

In view of the foregoing, this Court finds that the Court of Appeals did not commit any reversible error
in its Decision dated September 9, 1999 and its Resolution dated February 15, 2000.

ACCORDINGLY, is instant petition is DENIED for lack of merit. 1âwphi1.nêt

SO ORDERED.

Davide, Jr., C .J ., Puno, Pardo and Ynares-Santiago, JJ ., concur.

 REAL MORTGAGE

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 115548 March 5, 1996

STATE INVESTMENT HOUSE INC., petitioner,

vs.
COURT OF APPEALS, ET AL., respondents.

FRANCISCO, J.:p

The factual background of the case, aptly summarized in the decision of the Office of the President and cited by respondent Court of
Appeals1 in its assailed decision, and which we have verified to be supported by the record is herein reproduced as follows:

The uncontroverted facts of the case as recited in the decision of the Office of the
President are as follows:

Records show that, on October 15, 1969, Contract to Sell No. 36 was executed by
the Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID),
involving a parcel of land identified as Block No. 8, Lot No. 1, Phase of the Capitol
Park Homes Subdivision, Quezon City, containing 511 square meters for a
consideration of P39,347.00. Upon signing of the contract, the spouses Oreta made
payment amounting to P7,869.40, with the agreement that the balance shall be
payable in monthly installments of P451.70, at 12% interest per annum.

On November 4, 1976, SOLID executed several real estate mortgage contracts in

favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of
land, one of which is the subject lot covered by Transfer Certificate of Title No.
209642.

For Failure of SOLID to comply with its mortgage obligations contract, STATE
extrajudicially foreclosed the mortgaged properties including the subject lot on April
6, 1983, with the corresponding certificate of sale issued therefor to STATE
annotated at the back of the titles covering the said properties on October 13, 1983.

On June 23, 1984; SOLID thru a Memorandum of Agreement negotiated for the
deferment of consolidation of ownership over the foreclosed properties by committing
to redeem the properties from STATE.

On August 15, 1988, the spouses filed a complaint before the Housing and Land Use
Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the
part of SOLID "to execute
 the necessary absolute deed of sale as well as to deliver title to said property . . . in
violation of the contract to sell . . .," despite full payment of the purchase price as of
January 7, 1981. In its Answer, SOLID, by way of alternative defense, alleged that
the obligations under the Contract to Sell has become so difficult . . . the herein
respondents be partially released from said obligation by substituting subject lot with
another suitable residential lot from another subdivision which respondents
own/operates". Upon the other hand, STATE, to which the subject lot was
mortgaged, averred that unless SOLID pays the redemption price of P125,1955.00,
(sic) it has "a right to hold on and not release the foreclosed properties.

On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs (OAALA)
rendered a decision the decretal portion of which reads:

1. Ordering respondent, State Investment House, Inc. to execute a Deed of

Conveyance of Lot 1, Block 8, in Capital Park Homes Subdivision in favor of
complainants and to deliver to the latter the corresponding certificate of title;

2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc. that
portion of its loan which corresponds to the value of the lot as collateral;

3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of Six
Thousand Pesos (P6,000.00) as administrative fine in accordance with Section 25 in
relation to Section 38 of P.D. 957.

Both the STATE and SOLID appealed to the Board of Commissioners, HLRB, which
affirmed on June 5, 1990 the OAALA's decision (Annex "C" of the Petition; ibid, p.
34). Again, both STATE and SOLID appealed the decision of the Board of
Commissioners, HLRB, to the Office of the President which dismissed the twin
appeals on February 26, 1993.

Petitioner filed with the Supreme Court this petition for review of decision of the
Office of the President where it was docketed as G.R. No. 109364. However, in a
resolution dated May 13, 1993, the Supreme Court referred this case to this Court for
proper disposition. On the other hand, SOLID does not appear to have joined herein
petitioner in this petition for review.
2

[Emphasis added.]

In a decision dated May 19, 1994, respondent court sustained the judgment of the Office of the
President. Hence, this petition substantially anchored on these two alleged errors, namely: (1) error
in ruling that private respondent spouses Oreta's unregistered rights over the subject property are
superior to the registered mortgage rights of petitioner State Investment House, Inc. (STATE); and
(2) error in not applying the settled rule that persons dealing with property covered by torrens
certificate of title are not required to go beyond what appears on the face of the title.

At the outset, we note that herein petitioner argues more extensively on the second assigned issue,
than on the first. In fact, petitioner admits the superior rights of respondents-spouses Oreta over the
subject property as it did not pray for the nullification of the contract between respondents-spouses
and SOLID, but instead asked for the payment of the release value of the property in question, plus
interest, attorney's fees and costs of suit against SOLID or, in case of the latter's inability to pay,
against respondents-spouses before it can be required to release the title of the subject property in
favor of the respondent spouses. And even if we were to pass upon the first assigned error, we find
3
respondent court's ruling on the matter to be well-founded. STATE's registered mortgage right over
the property is inferior to that of respondents-spouses' unregistered right. The unrecorded sale
between respondents-spouses and SOLID is preferred for the reason that if the original owner
(SOLID, in this case) had parted with his ownership of the thing sold then he no longer had
ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the
4

mortgage is of no moment since it is understood to be without prejudice to the better right of third
parties.
5

Anent the second issue, petitioner asserts that a purchaser or mortgagee of land/s covered under
the Torrens System "is not required to do more than rely upon the certificate of title [for] it is enough
that the (purchaser or mortgagee] examines the pertinent certificate of title [without] need [of]
look[ing] beyond such title." 6

As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, the purchaser is not required to explore
further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate
right that may subsequently defeat his right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee, has knowledge of a defect or lack of title in his vendor, or that he
was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the title
of the property in litigation. In this case, petitioner was well aware that it was dealing with SOLID, a
7

business entity engaged in the business of selling subdivision lots. In fact, the OAALA found that at
the time the lot was mortgaged, respondent State Investment House Inc., [now petitioner] had been
aware of the lot's location and that the said lot formed part of Capital Park/Homes
Subdivision." In Sunshine Finance and Investment Corp. v. Intermediate Appellate Court, the Court
8 9

noting petitioner therein to be a financing corporation, deviated from the general rule that a
purchaser or mortgagee of a land is not required to look further that what appears on the face of the
Torrens Title. Thus:

Nevertheless, we have to deviate from the general rule because of the failure of the
petitioner in this case to take the necessary precautions to ascertain if there was any
flaw in the title of the mortgage. The petitioner is an investment and financing
corporation. We presume it is experienced in its business. Ascertainment of the
status and condition of properties offerred to it as security for the loans it extends
must be a standard and indispensable part of its operations. Surely, it cannot simply
rely on an examination of a Torrens certificate to determine what the subject property
looks like as its condition is not apparent in the document. The land might be in a
depressed area. There might be squatters on it. It might be easily inundated. It might
be an interior lot, without convenient access. These and other similar factors
determine the value of the property and so should be of practical concern to the
petitioner.

xxx xxx xxx

Our conclusion might have been different if the mortgagee were an ordinary
individual or company without the expertise of the petitioner in the mortgage and sale
of registered land or if the land mortgaged were some distance from the mortgagee
and could not be conveniently inspected. But there were no such impediments in this
case. The facilities of the petitioner were not so limited as to prevent it from making a
more careful examination of the land to assure itself that there were no unauthorized
persons in possession. 10

[Emphasis supplied.]
 The above-enunciated rule should apply in this case as petitioner admits of being a financing
institution. We take judicial notice of the uniform practice of financing institutions to
11

investigate, examine and assess the real property offered as security for any loan application
especially where, as in this case, the subject property is a subdivision lot located at Quezon
City, M.M. It is a settled rule that a purchaser or mortgagee cannot close its eyes to facts
which should put a reasonable man upon his guard, and then claim that he acted in good
faith under the belief that there was no defect in the title of the vendor or
mortgagor. Petitioner's constructive knowledge of the defect in the title of the subject
12

property, or lack of such knowledge due to its negligence, takes the place of registration of
the rights of respondents-spouses. Respondent Court thus correctly ruled that petitioner was
not a purchaser or mortgagee in good faith; hence petitioner can not solely rely on what
merely appears on the face of the Torrens Title.

ACCORDINGLY, finding no reversible error in the assailed judgment, the same is hereby
AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.

 REAL MORTGAGE

FIRST DIVISION

G.R. No. 168736 April 19, 2006

SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, Petitioners,

vs.
SPOUSES RENATO CUYCO and FILIPINA CUYCO, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the Decision1 of the Court of Appeals (CA) in CA G.R. CV
No. 62352 dated November 5, 2003 which modified the Decision 2 of the Regional Trial Court (RTC)
of Quezon City, Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well as the
Resolution3 dated June 28, 2005 denying the motion for reconsideration thereof.

The facts of the case are as follows:

Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00
from respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per
annum, and secured by a Real Estate Mortgage4 over a parcel of land with improvements thereon
situated in Cubao, Quezon City covered by TCT No. RT-43723 (188321). 5

Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of
P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July
1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5)
P250,000.00 on January 13, 1993. 6

Petitioners made payments amounting to P291,700.00, 7 but failed to settle their outstanding loan
obligations. Thus, on September 10, 1997, respondents filed a complaint 8 for foreclosure of
mortgage with the RTC of Quezon City, which was docketed as Civil Case No. Q-97-32130. They
alleged that petitioners’ loans were secured by the real estate mortgage; that as of August 31, 1997,
their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly;
and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate
mortgage.

Petitioners filed a motion to dismiss9 on the ground that the complaint states no cause of action
which was denied by the RTC10 for lack of merit.
In their answer,11 petitioners admitted their loan obligations but argued that only the original loan of
P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no
agreement that the same will be compounded monthly.

On January 27, 1999, the RTC rendered judgment 12 in favor of the respondents, the dispositive
portion of which reads:

WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of
the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of
P6,332,019.84, plus interest until fully paid, P25,000.00 as attorney’s fees, and costs of suit, within a
period of one hundred and twenty (120) days from the entry of judgment, and in case of default of
such payment and upon proper motion, the property shall be ordered sold at public auction to satisfy
the judgment. Further, defendants[’] counterclaim is dismissed.

SO ORDERED.13

Petitioners appealed to the CA reiterating their previous claim that only the amount of P1,500,000.00
was secured by the real estate mortgage. 14 They also contended that the RTC erred in ordering the
foreclosure of the real estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of
January 10, 1999, plus interest until fully paid, and in imposing legal interest of 12% per annum on
the stipulated interest of 18% from the filing of the case until fully paid. 15

On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar as
the amount of the loan obligations secured by the real estate mortgage. It held that by express
intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the
subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5,
1992, respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January
13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate
tribunal held that the parties never intended the same to be secured by the real estate mortgage.
The Court of Appeals also found that the trial court properly imposed 12% legal interest on the
stipulated interest from the date of filing of the complaint. The dispositive portion of the Decision
reads:

WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional
Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130 is hereby MODIFIED to read:

"WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of
the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of
P2,149,113.92[,] representing the total outstanding principal loan of the said defendants, plus the
stipulated interest at the rate of 18% per annum accruing thereon until fully paid, within a period of
one hundred and twenty days from the entry of judgment, and in case of default of such payment
and upon motion, the property, subject of the real estate mortgage contract, shall be ordered sold at
public auction in satisfaction of the mortgage debts. 1avvphil.net

Defendants are further, ordered to pay the plaintiffs the following:

1. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per
annum, computed from the filing of the complaint until fully paid;

2. the sum of P25,000.00 as and for attorney’s fees; and

 3. the costs of suit."

SO ORDERED.16

Hence, the instant petition for review on the sole issue:

WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER
ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE
FILING OF THE COMPLAINT UNTIL FULL PAID.17

Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest
of 18% per annum computed from the filing of the complaint until fully paid was not provided in the
real estate mortgage contract, thus, the same has no legal basis.

We are not persuaded.

While a contract is the law between the parties,18 it is also settled that an existing law enters into and
forms part of a valid contract without the need for the parties expressly making reference to
it.19 Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the
imposition of the legal interest on the stipulated interest due. It reads:

Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.

The foregoing provision has been incorporated in the comprehensive summary of existing rules on
the computation of legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. Court of
Appeals,20 to wit:

1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
 this interim period being deemed to be by then an equivalent to a forbearance of
credit. (Emphasis supplied)

In the case at bar, the evidence shows that petitioners obtained several loans from the respondent,
some of which as held by the CA were secured by real estate mortgage and earned an interest of
18% per annum. Upon default thereof, respondents demanded payment from the petitioners by filing
an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule stated in
paragraph 1.

Applying the rules in the computation of interest, the principal amount of loans subject of the real
estate mortgage must earn the stipulated interest of 18% per annum, which interest, as long as
unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the
complaint on September 10, 1997 until finality of the Court’s Decision. Such interest is not due to
stipulation but due to the mandate of the law21 as embodied in Article 2212 of the Civil Code. From
such date of finality, the total amount due shall earn interest of 12% per annum until satisfied.22

Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no
longer be true upon the finality of this Court’s decision. In accordance with the rules laid down
in Eastern Shipping Lines, Inc. v. Court of Appeals, we derive the following formula23 for the RTC’s
guidance:

TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made

Interest = principal x 18 % per annum x no. of years from due date until finality of judgment

Interest on interest = Interest computed as of the filing of the complaint (September 10,
1997) x 12% x no. of years until finality of judgment

Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until
fully paid.

In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,24 this Court held
that the total amount due on the contracts of loan may be easily determined by the trial court through
a simple mathematical computation based on the formula specified above. Mathematics is an exact
science, the application of which needs no further proof from the parties.

As regards what loans were secured by the real estate mortgage, respondents contended that all
five additional loans were intended by the parties to be secured by the real estate mortgage. Thus,
the CA erred in ruling that only two of the five additional loans were secured by the real estate
mortgage when the documents evidencing said loans would show at least three loans were secured
by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31, 1992; (2) P150,000.00
obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992. 25

In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the
interest due, thus, by not filing their own petition for review, respondents waived their privilege to
bring matters for the Court’s review that do not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors,
however, it is equally settled that the Court is clothed with ample authority to review matters not
assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just
disposition of the case.26
Moreover, as an exception to the rule that findings of facts of the CA are conclusive and binding on
the Court,27 an independent evaluation of facts may be done by it when the findings of facts are
conflicting,28 as in this case.

The RTC held that all the additional loans were secured by the real estate mortgage, thus:

There is, therefore, a preponderance of evidence to show that the parties agreed that the additional
loans would be against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh.
B) was not amended and thereafter annotated at the back of the title (Exh. C) because under Article
2125 of the Civil Code, if the instrument of mortgage is not recorded, the mortgage is nevertheless
binding between the parties. It is extremely difficult for the court to perceive that the plaintiffs
required the defendants to execute a mortgage on the first loan and thereafter fail to do so on the
succeeding loans. Such contrary behavior is unlikely. 29

The CA modified the RTC decision holding that:

However, the real estate mortgage contract was supplemented by the express intention of the
mortgagors (defendants-appellants) to secure the subsequent loans they obtained from the
mortgagees (plaintiffs-appellees), on 01 July 1992, in the amount of P150,000.00, and on 05
September 1992, in the amount of P500,000.00. The mortgagors’ (defendants-appellants) intention
to secure a larger amount than that stated in the real estate mortgage contract was unmistakable in
the acknowledgment receipts they issued on the said loans. The acknowledgment receipts read:

"July 1, [1]992

"Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150,000.00 July
1/92 as additional loan against mortgaged property TCT No. RT-43723 (188321) Q.C.

(SGD) Adelina S. Cuyco"

"Sept. 05/92

"Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PCIB Ck #
468657 as additional loan from mortgage property TCT RT-43723.

(SGD) Adelina S. Cuyco"

In such case, the specific amount mentioned in the real estate mortgage contract no longer controls.
By express intention of the mortgagors (defendants-appellants) the real estate mortgage contract, as
supplemented, secures the P1,500,000.00 loan obtained on 25 November 1991; the P150,000.00
loan obtained on 01 July 1992; and the P500,000.00 loan obtained on 05 September 1992. All these
loans are subject to stipulated interest of 18% per annum provided in the real estate mortgage
contract.

With respect to the other subsequent loans of the defendants-appellants in the amount of
P150,000.00, obtained on 31 May 1992; in the amount of P200,000.00, obtained on 29 October
1992; and, in the amount of P250,000.00, obtained on 13 January 1993, nothing in the records
remotely suggests that the mortgagor (defendants-appellants), likewise, intended the said loans to
be secured by the real estate mortgage contract. Consequently, we rule that the trial court did err in
declaring said loans to be secured by the real estate mortgage contract. 30
As a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract.31 However, the amounts named as consideration in a contract of mortgage do not limit the
amount for which the mortgage may stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered. This stipulation is valid and binding
between the parties and is known in American Jurisprudence as the "blanket mortgage clause," also
known as a "dragnet clause." 32

A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes

available additional funds without their having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.33

While a real estate mortgage may exceptionally secure future loans or advancements, these future
debts must be sufficiently described in the mortgage contract. An obligation is not secured by a
mortgage unless it comes fairly within the terms of the mortgage contract. 34

The pertinent provisions of the November 26, 1991 real estate mortgage reads:

That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE
THOUSAND PESOS (sic) (1,500,000.00) Philippine Currency, receipt whereof is hereby
acknowledged and confessed, payable within a period of one year, with interest at the rate of
eighteen percent (18%) per annum;

That for and in consideration of said indebtedness, the MORTGAGOR does hereby convey and
deliver by way of MORTGAGE unto said MORTGAGEE, the latter’s heirs and assigns, the following
realty together with all the improvements thereon and situated at Cubao, Quezon City, and described
as follows:

xxxx

PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto the
MORTGAGEE or his heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED
THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the agreed interest thereon,
within the agreed term of one year on a monthly basis then this MORTGAGE shall be discharged,
and rendered of no force and effect, otherwise it shall subsist and be subject to foreclosure in the
manner and form provided by law.

It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the
mortgaged realty shall also secure future loans and advancements. Thus, what applies is the
general rule above stated.

Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992,
P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be
secured by the same real estate mortgage, as shown in the acknowledgement receipts, it is not
sufficient in law to bind the realty for it was not made substantially in the form prescribed by law.

In order to constitute a legal mortgage, it must be executed in a public document, besides being
recorded. A provision in a private document, although denominating the agreement as one of
mortgage, cannot be considered as it is not susceptible of inscription in the property registry. A
mortgage in legal form is not constituted by a private document, even if such mortgage be
accompanied with delivery of possession of the mortgage property. 35 Besides, by express provisions
of Section 127 of Act No. 496, a mortgage affecting land, whether registered under said Act or not
registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or bind the
land unless made substantially in the form therein prescribed. It is required, among other things, that
the document be signed by the mortgagor executing the same, in the presence of two witnesses,
and acknowledged as his free act and deed before a notary public. A mortgage constituted by means
of a private document obviously does not comply with such legal requirements. 36

What the parties could have done in order to bind the realty for the additional loans was to execute a
new real estate mortgage or to amend the old mortgage conformably with the form prescribed by the
law. Failing to do so, the realty cannot be bound by such additional loans, which may be recovered
by the respondents in an ordinary action for collection of sums of money.

Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the
stipulated interest of 18% per annum is sufficient as the mortgage document does not contain a
stipulation that the legal interest on the stipulated interest due, attorney’s fees, and costs of suit must
be paid first before the same may be discharged.37

We do not agree.

Section 2, Rule 68 of the Rules of Court provides:

SEC. 2. Judgment on foreclosure for payment or sale. — If upon the trial in such action the court
shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the
plaintiff upon the mortgage debt or obligation, including interest and other charges as
approved by the court, and costs, and shall render judgment for the sum so found due and order
that the same be paid to the court or to the judgment obligee within a period of not less than ninety
(90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in
default of such payment the property shall be sold at public auction to satisfy the judgment.
(Emphasis added)

Indeed, the above provision of the Rules of Court provides that the mortgaged property may be
charged not only for the mortgage debt or obligation but also for the interest, other charges and
costs approved by the court. Thus, to discharge the real estate mortgage, petitioners must pay the
respondents (1) the total amount due, as computed in accordance with the formula indicated above,
that is, the principal loan of P1,500,000.00, the stipulated interest of 18%, the interest on the
stipulated interest due of 12% computed from the filing of the complaint until finality of the decision
less partial payments made, (2) the 12% legal interest on the total amount due from finality until fully
satisfied, (3) the reasonable attorney’s fees of P25,000.00 and (4) the costs of suit, within the period
specified by the Rules. Should the petitioners default in the payment thereof, the property shall be
sold at public auction to satisfy the judgment.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No.
62352 dated November 5, 2003, which modified the Decision of the Regional Trial Court of Quezon
City, Branch 105, in Civil Case No. Q-97-32130, is AFFIRMED with the MODIFICATIONS that
petitioners are ordered to pay the respondents (1) the total amount due, as computed by the RTC in
accordance with the formula specified above, (2) the legal interest of 12% per annum on the total
amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorney’s
fees, and (4) the costs of suit, within a period of not less than 90 days nor more than 120 days from
the entry of judgment, and in case of default of such payment the property shall be sold at public
auction to satisfy the judgment.

SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
 REAL MORTGAGE

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 167058 July 9, 2008

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES TOMAS CABATINGAN and AGAPITA EDULLANTES Represented by RAMIRO DIAZ
as Their Attorney-in-Fact, Respondents.

RESOLUTION

CORONA, J.:

Respondent spouses Tomas Cabatingan and Agapita Edullantes obtained two loans, secured by a
real estate mortgage,1 in the total amount of ₱421,2002 from petitioner Philippine National Bank.
However, they were unable to fully pay their obligation despite having been granted more than
enough time to do so.3 Thus, on September 25, 1991, petitioner extrajudicially foreclosed on the
mortgage pursuant to Act 3135. 4

Thereafter, a notice of extrajudicial sale5 was issued stating that the foreclosed properties would be
sold at public auction on November 5, 1991 between 9:00 a.m. and 4:00 p.m. at the main entrance
of the office of the Clerk of Court on San Pedro St., Ormoc City.

Pursuant to the notice, the properties were sold at public auction on November 5, 1991. The auction
began at 9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder. 6

On March 16, 1993, respondent spouses filed in the Regional Trial Court (RTC) of Ormoc City,
Branch 12 a complaint for annulment of extrajudicial foreclosure of real estate mortgage and the
November 5, 1991 auction sale.7 They invoked Section 4 of Act 3135 which provides:

Section 4. The sale shall be made at public auction, between the hours of nine in the morning
and four in the afternoon, and shall be under the direction of the sheriff of the province, the justice
or auxiliary justice of peace of the municipality in which such sale has to be made, or of a notary
public of said municipality, who shall be entitled to collect a fee of Five pesos for each day of actual
work performed, in addition to his expenses. (emphasis supplied)

Petitioners claimed that the provision quoted above must be observed strictly. Thus, because the
public auction of the foreclosed properties was held for only 20 minutes (instead of seven hours as
required by law), the consequent sale was void.

On November 4, 2004, the RTC issued an order8 annulling the November 5, 1991 sale at public
auction. It held:

[T]he rationale behind the holding of auction sale between the hours of 9:00 in the morning and 4:00
in the afternoon of a particular day as mandated in Section 4 of Act 3135 is to give opportunity to
more would-be bidders to participate in the auction sale thus giving the judgment-debtor more
opportunity to recover the value of his or her property subject of the auction sale.

Petitioner moved for reconsideration but it was denied in an order dated February 7, 2005. 9 Hence,
this petition.

The issue here is whether a sale at public auction, to be valid, must be conducted the whole
day from 9:00 a.m. until 4:00 p.m. of the scheduled auction day.

Petitioner contends that the RTC erred in interpreting Section 4 of Act 3135. The law only prohibits
the conduct of a sale at any time before nine in the morning and after four in the afternoon. Thus, a
sale held within the intervening period (i.e., at any time between 9:00 a.m. and 4:00 p.m.),
regardless of duration, is valid.

We grant the petition.

We note that neither the previous rule (Administrative Order No. 3)10 nor the current rules (A.M. No.
99-10-05-O, as amended, and the guidelines for its enforcement, Circular No. 7-2002) 11 governing
the conduct of foreclosure proceedings provide a clear answer to the question at hand.

Statutes should be sensibly construed to give effect to the legislative intention. 12 Act 3135 regulates
the extrajudicial sale of mortgaged real properties 13 by prescribing a procedure which effectively
safeguards the rights of both debtor and creditor. Thus, its construction (or interpretation) must be
equally and mutually beneficial to both parties.

Section 4 of Act 3135 provides that the sale must take place between the hours of nine in the
morning and four in the afternoon. Pursuant to this provision, Section 5 of Circular No. 7-2002
states:

Section 5. Conduct of extrajudicial foreclosure sale--

a. The bidding shall be made through sealed bids which must be submitted to the Sheriff who
shall conduct the sale between the hours of 9 a.m. and 4 p.m. of the date of the auction (Act
3135, Sec. 4).14 The property mortgaged shall be awarded to the party submitting the highest bid
and, in case of a tie, an open bidding shall be conducted between the highest bidders. Payment of
the winning bid shall be made in either cash or in manager's check, in Philippine Currency, within
five (5) days from notice. (emphasis supplied)

xxx xxx xxx

A creditor may foreclose on a real estate mortgage only if the debtor fails to pay the principal
obligation when it falls due.15 Nonetheless, the foreclosure of a mortgage does not ipso
facto extinguish a debtor’s obligation to his creditor. The proceeds of a sale at public auction may not
be sufficient to extinguish the liability of the former to the latter. 16 For this reason, we favor a
construction of Section 4 of Act 3135 that affords the creditor greater opportunity to satisfy his claim
without unduly rewarding the debtor for not paying his just debt.

The word "between" ordinarily means "in the time interval that separates." 17 Thus, "between the
hours of nine in the morning and four in the afternoon" merely provides a time frame within which an
auction sale may be conducted. Therefore, a sale at public auction held within the intervening period
provided by law (i.e., at any time from 9:00 a.m. until 4:00 p.m.) is valid, without regard to the
duration or length of time it took the auctioneer to conduct the proceedings. 1avvphi1

In this case, the November 5, 1991 sale at public auction took place from 9:00 a.m. to 9:20 a.m.
Since it was conducted within the time frame provided by law, the sale was valid.

WHEREFORE, the petition is hereby GRANTED. The November 4, 2004 and February 7, 2005
orders of the Regional Trial Court of Ormoc City, Branch 12 in Civil Case No. 3111-0
are REVERSED and SET ASIDE.

SO ORDERED.

RENATO C. CORONA
Associate Justice