REAL MORTGAGEMARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA GALIT, respondents.

D E C I S I O NYNARES-SANTIAGO, J.:

Petitioner was issued a writ of possession in Civil Case No. 6643 [1] for Sum of Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of possession was, however, nullified by the Court of Appeals in CA-G.R. SP No. 65891[2] because it included a parcel of land which was not among those explicitly enumerated in the Certificate of Sale issued by the Deputy Sheriff, but on which stand the immovables covered by the said Certificate. Petitioner contends that the sale of these immovables necessarily encompasses the land on which they stand.

Dissatisfied, petitioner filed the instant petition for review on certiorari.Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano, in the total sum of P480,000.00,

evidenced by four promissory notes in the amount of P120,000.00 each dated August 2, 1996;[3] August 15, 1996;[4] September 4, 1996[5] andSeptember 14, 1996.[6] This loan was secured by a real estate mortgage over a parcel of land covered by Original Certificate of Title No. 569. [7] After he failed to pay his obligation, Soriano filed a complaint for sum of money against him with the Regional Trial Court ofBalanga City, Branch 1, which was docketed as Civil Case No. 6643.[8]

Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their answer. Hence, upon motion of Marcelo Soriano, the trial court declared the spouses in default and proceeded to receive evidence for petitioner Soriano ex parte.

On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered judgment[9] in favor of petitioner Soriano, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter to pay:

1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed from the dates of maturity of the promissory notes until the same are fully paid;

2. the plaintiff P20,000.00, as attorneys fees; and

3. the costs of suit.

SO ORDERED.[10]

The judgment became final and executory. Accordingly, the trial court issued a writ of execution in due course, by virtue of which, Deputy Sheriff Renato E. Robles levied on the following real properties of the Galit spouses:

1. A parcel of land covered by Original Certificate of Title No. T-569 (Homestead Patent No. 14692) situated in the Bo. of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by Lot No. 3, Cad. 145; containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) SQUARE METERS, more or less x x x;

2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong materials G.I. roofing situated at Centro I, Orani, Bataan, x x x containing an area of 30 sq. meters, more or less x x x (constructed on TCT No. T40785);

3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing, situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x.[11]

At the sale of the above-enumerated properties at public auction held on December 23, 1998, petitioner was the highest and only bidder with a bid price of P483,000.00. Accordingly, on February 4, 1999, Deputy Sheriff Robles issued a Certificate of Sale of Execution of Real Property,[12] which reads:

CERTIFICATE OF   SALE   ON EXECUTION OF REAL PROPERTY

TO ALL WHO MAY SEE THESE PRESENTS:

GREETINGS:

I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued in the above-entitled case by the HON. BENJAMIN T. VIANZON, ordering the Provincial Sheriff of Bataan or her authorized Deputy Sheriff to cause to be made (sic) the sum of P350,000.00 plus 12% interest to be computed from the date of maturity of the promissory notes until the same are fully paid; P20,000.00 as attorneys fees plus legal expenses in the implementation of the writ of execution, the undersigned Deputy Sheriff sold at public auction on December 23, 1998 the rights and interests of defendants Sps. Ricardo and Rosalina Galit, to the plaintiff Marcelo Soriano, the highest and only bidder for the amount of FOUR HNDRED EIGHTY THREE THOUSAND PESOS (P483,000.00, Philippine Currency), the following real estate properties more particularly described as follows :

ORIGINAL CERTIFICATE OF TITLE NO. T-569

A parcel of land (Homestead Patent No. 14692) situated in the Bo. of Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No. 3, Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) SQUARE METERS, more or less xx x

TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02

STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing situated at Centro I, Orani, Bataan x x x containing an area of 30 sq. meters, more or less x x (constructed on TCT No. 40785)

TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02

BODEGA constructed on Lot 1103, made of strong materials G.I. roofing situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x

IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder, Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff of Bataan the amount of P483,000.00, the sale price of the above-described property which amount was credited to partial/full satisfaction of the judgment embodied in the writ of execution.

The period of redemption of the above described real properties together with all the improvements thereon will expire One (1) year from and after the registration of this Certificate of Sale with the Register of Deeds.

This Certificate of Sheriffs Sale is issued to the highest and lone bidder, Marcelo Soriano, under guarantees prescribed by law.

Balanga, Bataan, February 4, 1999.

On April 23, 1999, petitioner caused the registration of the Certificate of Sale on Execution of Real Property with the Registry of Deeds.

The said Certificate of Sale registered with the Register of Deeds includes at the dorsal portion thereof the following entry, not found in the Certificate of Sale on file with Deputy Sheriff Renato E. Robles:[13]

ORIGINAL CERTIFICATE OF TITLE NO. T-40785

A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the improvements thereon, situated in the Municipality of Orani, Bounded on the NE; by Calle P. Gomez; on the E. by Lot No. 1104; on the SE by Calle Washington; and on the W. by Lot 4102, containing an area of ONE HUNDRED THIRTY NINE (139) SQUARE METERS, more or less. All points referred to are indicated on the plan; bearing true; declination 0 deg. 40E., date of survey, February 191-March 1920.

On February 23, 2001, ten months from the time the Certificate of Sale on Execution was registered with the Registry of Deeds, petitioner moved[14] for the issuance of a writ of possession. He averred that the one-year period of redemption had elapsed without the respondents having redeemed the properties sold at public auction; thus, the sale of said properties had already become final. He also argued that after the lapse of the redemption period, the titles to the properties should be considered, for all legal intents and purposes, in his name and favor.[15]

On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted the motion for issuance of writ of possession.[16] Subsequently, on July 18, 2001, a writ of possession[17] was issued in petitioners favor which reads:

WRIT OF POSSESSION

Mr. Renato E. RoblesDeputy Sheriff

RTC, Br. 1, Balanga City

Greetings :

WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance of Writ of Possession;

WHEREAS on June 4, 2001, this court issued an order granting the issuance of the Writ of Possession;

WHEREFORE, you are hereby commanded to place the herein plaintiff Marcelo Soriano in possession of the property involved in this case situated (sic) more particularly described as:

1. STORE HOUSE constructed on Lot No. 1103 situated at Centro 1, Orani, Bataan covered by TCT No. 40785;

2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square meters under Tax Declaration No. 86 situated at Centro 1, Orani, Bataan;

3. Original Certificate of Title No. 40785 with an area of 134 square meters known as Lot No. 1103 of the Cadastral Survey of Orani

against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic) heirs, successors, assigns and all persons claiming rights and interests adverse to the petitioner and make a return of this writ every thirty (30) days from receipt hereof together with all the proceedings thereon until the same has been fully satisfied.

WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this 18th day of July 2001, at Balanga City.

(Sgd) GILBERT S. ARGONZAOIC

Respondents filed a petition for certiorari with the Court of Appeals, which was docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel of land covered by Transfer Certificate of Title No. T-40785 among the list of real properties in the writ of possession.[18] Respondents argued that said property was not among those sold on execution by Deputy Sheriff Renato E. Robles as reflected in the Certificate of Sale on Execution of Real Property.

In opposition, petitioner prayed for the dismissal of the petition because respondent spouses failed to move for the reconsideration of the assailed order prior to the filing of the petition. Moreover, the proper remedy against the assailed order of the trial court is an appeal, or a motion to quash the writ of possession.

On May 13, 2002, the Court of Appeals rendered judgment as follows:

WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of possession issued by the Regional Trial Court of Balanga City, Branch 1, on 18 July 2001 is declared NULL and VOID.

In the event that the questioned writ of possession has already been implemented, the Deputy Sheriff of the Regional Trial Court of Balanga City, Branch 1, and private respondent Marcelo Soriano are hereby ordered to cause the redelivery of Transfer Certificate of Title No. T-40785 to the petitioners.

SO ORDERED.[19]

Aggrieved, petitioner now comes to this Court maintaining that

1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS NOT THE PLAIN, SPEEDY AND ADEQUATE REMEDY OF THE RESPONDENTS IN ASSAILING THE WRIT OF POSSESSION ISSUED BY THE LOWER COURT BUT THERE WERE STILL OTHER REMEDIES AVAILABLE TO THEM AND WHICH WERE NOT RESORTED TO LIKE THE FILING OF A MOTION FOR RECONSIDERATION OR MOTION TO QUASH OR EVEN APPEAL.

2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DECLARAING THE CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY AS NULL AND VOID AND SUBSEQUENTLY THE WRIT OF POSSESSION BECAUSE THE SAME IS A PUBLIC DOCUMENT WHICH ENJOYS THE PRESUMPTION OF REGULARITY AND IT CANNOT BE OVERCOME BY A MERE STRANGE FEELING THAT SOMETHING IS AMISS ON ITS SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON THE FRONT PAGE AND AT THE DORSAL PORTION THEREOF IS DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF TO USE THE DORSAL PORTION OF THE FIRST PAGE BECAUSE THE SECOND PAGE IS MERELY HALF FILLED AND THE NOTATION ON THE DORSAL PORTION COULD STILL BE MADE AT THE SECOND PAGE.

On the first ground, petitioner contends that respondents were not without remedy before the trial court. He points out that respondents could have filed a motion for reconsideration of the Order dated June 4, 1999, but they did not do so. Respondents could also have filed an appeal but they, likewise, did not do so.  When the writ of possession was issued, respondents could have filed a motion to quash the writ. Again they did not. Respondents cannot now avail of the special civil action for certiorari as a substitute for these remedies. They should suffer the consequences for sleeping on their rights.

We disagree.Concededly, those who seek to avail of the procedural remedies provided by the rules must adhere to the

requirements thereof, failing which the right to do so is lost. It is, however, equally settled that the Rules of Court seek to eliminate undue reliance on technical rules and to make litigation as inexpensive as practicable and as convenient as can be done.[20] This is in accordance with the primary purpose of the 1997 Rules of Civil Procedure as provided in Rule 1, Section 6, which reads:

Section 6. Construction. These rules shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive determination of every action and proceeding.[21]

The rules of procedure are not to be applied in a very rigid, technical sense and are used only to help secure substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated. [22] They should be liberally construed so that litigants can have ample opportunity to prove their claims and thus prevent a denial of justice due to technicalities.[23] Thus, in China Banking Corporation v. Members of the Board of Trustees of Home Development Mutual Fund,[24] it was held:

while certiorari as a remedy may not be used as a substitute for an appeal, especially for a lost appeal, this rule should not be strictly enforced if the petition is genuinely meritorious.[25] It has been said that where the rigid application of the rules would frustrate substantial justice, or bar the vindication of a legitimate grievance, the courts are justified in exempting a particular case from the operation of the rules.[26] (Emphasis ours)

Indeed, well-known is the rule that departures from procedure may be forgiven where they do not appear to have impaired the substantial rights of the parties.[27] Apropos in this regard is Cometa   v.   CA ,[28] where we said that

There is no question that petitioners were remiss in attending with dispatch to the protection of their interests as regards the subject lots, and for that reason the case in the lower court was dismissed on a technicality and no definitive pronouncement on the inadequacy of the price paid for the levied properties was ever made. In this regard, it bears stressing that procedural rules are not to be belittled or dismissed simply because their non-

observance may have resulted in prejudice to a partys substantive rights as in this case. Like all rules, they are required to be followed except when only for the most persuasive of reasons they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.[29] (emphasis and italics supplied.)

In short, since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial justice must always be avoided.[30] Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties.[31]

Eschewing, therefore, the procedural objections raised by petitioner, it behooves us to address the issue of whether or not the questioned writ of possession is in fact a nullity considering that it includes real property not expressly mentioned in the Certificate of Sale of Real Property.

Petitioner, in sum, dwells on the general proposition that since the certificate of sale is a public document, it enjoys the presumption of regularity and all entries therein are presumed to be done in the performance of regular functions.

The argument is not persuasive.There are actually two (2) copies of the Certificate of Sale on Execution of Real Properties issued on February 4,

1999 involved, namely: (a) copy which is on file with the deputy sheriff; and (b) copy registered with the Registry of Deeds. The object of scrutiny, however, is not the copy of the Certificate of Sale on Execution of Real Properties issued by the deputy sheriff on February 4, 1999,[32] but the copy thereof subsequently registered by petitioner with the Registry of Deeds on April 23, 1999,[33] which included an entry on the dorsal portion of the first page thereof describing a parcel of land covered by OCT No. T-40785 not found in the Certificate of Sale of Real Properties on file with the sheriff.

True, public documents by themselves may be adequate to establish the presumption of their validity. However, their probative weight must be evaluated not in isolation but in conjunction with other evidence adduced by the parties in the controversy, much more so in this case where the contents of a copy thereof subsequently registered for documentation purposes is being contested. No reason has been offered how and why the questioned entry was subsequently intercalated in the copy of the certificate of sale subsequently registered with the Registry of Deeds. Absent any satisfactory explanation as to why said entry was belatedly inserted, the surreptitiousness of its inclusion coupled with the furtive manner of its intercalation casts serious doubt on the authenticity of petitioners copy of the Certificate of Sale. Thus, it has been held that while a public document like a notarized deed of sale is vested with the presumption of regularity, this is not a guarantee of the validity of its contents.[34]

It must be pointed out in this regard that the issuance of a Certificate of Sale is an end result of judicial foreclosure where statutory requirements are strictly adhered to; where even the slightest deviations therefrom will invalidate the proceeding[35] and the sale.[36]Among these requirements is an explicit enumeration and correct description of what properties are to be sold stated in the notice. The stringence in the observance of these requirements is such that an incorrect title number together with a correct technical description of the property to be sold and vice versa is deemed a substantial and fatal error which results in the invalidation of the sale.[37]

The certificate of sale is an accurate record of what properties were actually sold to satisfy the debt.  The strictness in the observance of accuracy and correctness in the description of the properties renders the enumeration in the certificate exclusive. Thus, subsequently including properties which have not been explicitly mentioned therein for registration purposes under suspicious circumstances smacks of fraud. The explanation that the land on which the properties sold is necessarily included and, hence, was belatedly typed on the dorsal portion of the copy of the certificate subsequently registered is at best a lame excuse unworthy of belief.

The appellate court correctly observed that there was a marked difference in the appearance of the typewritten words appearing on the first page of the copy of the Certificate of Sale registered with the Registry of Deeds [38] and those appearing at the dorsal portion thereof. Underscoring the irregularity of the intercalation is the clearly devious attempt to let such an insertion pass unnoticed by typing the same at the back of the first page instead of on the second page which was merely half-filled and could accommodate the entry with room to spare.

The argument that the land on which the buildings levied upon in execution is necessarily included is, likewise, tenuous. Article 415 of the Civil Code provides:

ART. 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil.

x x x x x x x x x

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking them material or deterioration of the object;

(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements;

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;

(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are also included;

x x x x x x x x x

(9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake or coast;

x x x x x x x x x.The foregoing provision of the Civil Code enumerates land and buildings separately. This can only mean that a

building is, by itself, considered immovable.[39] Thus, it has been held that

. . . while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built. Such mortgage would be still a real estate mortgage for the building would still be considered immovable property even if dealt with separately and apart from the land.[40] (emphasis and italics supplied)

In this case, considering that what was sold by virtue of the writ of execution issued by the trial court was merely the storehouse and bodega constructed on the parcel of land covered by Transfer Certificate of Title No. T-40785, which by themselves are real properties of respondents spouses, the same should be regarded as separate and distinct from the conveyance of the lot on which they stand.

WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for lack of merit. The Decision dated May 13, 2002 of the Court of Appeals in CA-G.R. SP No. 65891, which declared the writ of possession issued by the Regional Trial Court of BalangaCity, Branch 1, on July 18, 2001, null and void, is AFFIRMED in toto.

CORNELIO M. ISAGUIRRE, petitioner, vs. FELICITAS DE LARA, respondent.

D E C I S I O N

GONZAGA-REYES, J.:

In this petition for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, petitioner Cornelio M. Isaguirre assails the October 5, 1998 decision[1] of the Court of Appeals[2] and its Resolution promulgated on March 5, 1999.

The antecedent facts of the present case are as follows:

Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales Application over a parcel of land identified as portion of Lot 502, Guianga Cadastre, filed with the Bureau of Lands on January 17, 1942 and with an area of 2,342 square meters. Upon his death, Alejandro de Lara was succeeded by his wife - respondent Felicitas de Lara, as claimant. On November 19, 1954, the Undersecretary of Agriculture and Natural Resources amended the sales application to cover only 1,600 square meters. Then, on November 3, 1961, by virtue of a decision rendered by the Secretary of Agriculture and Natural Resources dated November 19, 1954, a subdivision survey was made and the area was further reduced to 1,000 square meters. On this lot stands a two-story residential-commercial apartment declared for taxation purposes under TD 43927 in the name of respondents sons - Apolonio and Rodolfo, both surnamed de Lara.

Sometime in 1953, respondent obtained several loans from the Philippine National Bank. When she encountered financial difficulties, respondent approached petitioner Cornelio M. Isaguirre, who was married to her niece, for assistance. On February 10, 1960, a document denominated as "Deed of Sale and Special Cession of Rights and Interests" was executed by respondent and petitioner, whereby the former sold a 250 square meter portion of Lot No. 502, together with the two-story commercial and residential structure standing thereon, in favor of petitioner, for and in consideration of the sum of P5,000.

Sometime in May, 1968, Apolonio and Rodolfo de Lara filed a complaint against petitioner for recovery of ownership and possession of the two-story building.[3] However, the case was dismissed for lack of jurisdiction.

On August 21, 1969, petitioner filed a sales application over the subject property on the basis of the deed of sale. His application was approved on January 17, 1984, resulting in the issuance of Original Certificate of Title No. P-11566 on February 13, 1984, in the name of petitioner. Meanwhile, the sales application of respondent over the entire 1,000 square meters of subject property (including the 250 square meter portion claimed by petitioner) was also given due course, resulting in the issuance of Original Certificate of Title No. P-13038 on June 19, 1989, in the name of respondent.[4]

Due to the overlapping of titles, petitioner filed an action for quieting of title and damages with the Regional Trial Court of Davao City against respondent on May 17, 1990. The case was docketed as Civil Case No. 20124-90. After trial on the merits, the trial court rendered judgment on October 19, 1992, in favor of petitioner, declaring him to be the lawful owner of the disputed property. However, the Court of Appeals reversed the trial courts decision, holding that the transaction entered into by the parties, as evidenced by their contract, was an equitable mortgage, not a sale.[5] The appellate courts decision was based on the inadequacy of the consideration agreed upon by the parties, on its finding that the payment of a large portion of the "purchase price" was made after the execution of the deed of sale in several installments of minimal amounts; and finally, on the fact that petitioner did not take steps to confirm his rights or to obtain title over the property for several years after the execution of the deed of sale. As a consequence of its decision, the appellate court also declared Original Certificate of Title No.P-11566 issued in favor of petitioner to be null and void. On July 8, 1996, in a case docketed as G. R. No. 120832, this Court affirmed the decision of the Court of Appeals and on September 11, 1996, we denied petitioners motion for reconsideration.

On May 5, 1997, respondent filed a motion for execution with the trial court, praying for the immediate delivery of possession of the subject property, which motion was granted on August 18, 1997. On February 3, 1998, respondent moved for a writ of possession, invoking our ruling in G. R. No. 120832. Petitioner opposed the motion, asserting that he had the right of retention over the property until payment of the loan and the value of the improvements he had introduced on the property. On March 12, 1998, the trial court granted respondents motion for writ of possession. Petitioners motion for reconsideration was denied by the trial court on May 21, 1998. Consequently, a writ of possession dated June 16, 1998, together with the Sheriffs Notice to Vacate dated July 7, 1998, were served upon petitioner.

Petitioner filed with the Court of Appeals a special civil action for certiorari and prohibition with prayer for a temporary restraining order or preliminary injunction to annul and set aside the March 12, 1998 and May 21, 1998 orders of the trial court, including the writ of possession dated June 16, 1998 and the sheriffs notice to vacate dated July 7, 1998. [6]

The appellate court summarized the issues involved in the case as follows: (1) whether or not the mortgagee in an equitable mortgage has the right to retain possession of the property pending actual payment to him of the amount of indebtedness by the mortgagor; and (b) whether or not petitioner can be considered a builder in good faith with respect to the improvements he made on the property before the transaction was declared to be an equitable mortgage.

The Court of Appeals held that petitioner was not entitled to retain possession of the subject property. It said that -

the mortgagee merely has to annotate his claim at the back of the certificate of title in order to protect his rights against third persons and thereby secure the debt. There is therefore no necessity for him to actually possess the property. Neither should a mortgagee in an equitable mortgage fear that the contract relied upon is not registered and hence, may not operate as a mortgage to justify its foreclosure. In Feliza Zubiri v. Lucio Quijano, 74 Phil 47, it was ruled "that when a contract x x x is held as an equitable mortgage, the same shall be given effect as if it had complied with the formal requisites of mortgage. x x x by its very nature the lien thereby created ought not to be defeated by requiring compliance with the formalities necessary to the validity of a voluntary real estate mortgage, as long as the land remains in the hands of the petitioner (mortgagor) and the rights of innocent parties are not affected."

Proceeding from the foregoing, petitioners imagined fears that his lien would be lost by surrendering possession are unfounded.

In the same vein, there is nothing to stop the mortgagor de Lara from acquiring possession of the property pending actual payment of the indebtedness to petitioner. This does not in anyway endanger the petitioners right to security since, as pointed out by private respondents, the petitioner can always have the equitable mortgage annotated in the Certificate of Title of private respondent and pursue the legal remedies for the collection of the alleged debt secured by the mortgage. In this case, the remedy would be to foreclose the mortgage upon failure to pay the debt within the required period.

It is unfortunate however, that the Court of Appeals, in declaring the transaction to be an equitable mortgage failed to specify in its Decision the period of time within which the private respondent could settle her account, since such period serves as the reckoning point by which foreclosure could ensue. As it is, petitioner is now in a dilemma as to how he could enforce his rights as a mortgagee. ...

Hence, this Court, once and for all resolves the matter by requiring the trial court to determine the amount of total indebtedness and the period within which payment shall be made.

Petitioners claims that he was a builder in good faith and entitled to reimbursement for the improvements he introduced upon the property were rejected by the Court of Appeals. It held that petitioner knew, or at least had an inkling, that there was a defect or flaw in his mode of acquisition. Nevertheless, the appellate court declared petitioner to have the following rights:

He is entitled to reimbursement for the necessary expenses which he may have incurred over the property, in accordance with Art. 526 and Art. 452 of the Civil Code. Moreover, considering that the transaction was merely an equitable mortgage, then he is entitled to payment of the amount of indebtedness plus interest, and in the event of non-payment to foreclose the mortgage. Meanwhile, pending receipt of the total amount of debt, private respondent is entitled to possession over the disputed property.

The case was finally disposed of by the appellate court in the following manner:

WHERFORE, the Petition is hereby DISMISSED, and this case is ordered remanded to the Regional Trial Court of Davao City for further proceedings, as follows:

1) The trial court shall determine

a) The period within which the mortgagor must pay his total amount of indebtedness.

b) The total amount of indebtedness owing the petitioner-mortgagee plus interest computed from the time when the judgment declaring the contract to be an equitable mortgage became final.

c) The necessary expenses incurred by petitioner over the property.[7]

On March 5, 1999, petitioners motion for reconsideration was denied by the appellate court.[8] Hence, the present appeal wherein petitioner makes the following assignment of errors:

A.......THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE RTC ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING A WRIT OF POSSESSION IN FAVOR OF RESPONDENT.

A.1......The RTC patently exceeded the scope of its authority and acted with grave abuse of discretion in ordering the immediate delivery of possession of the Property to respondent as said order exceeded the parameters of the final and executory decision and constituted a variance thereof.

B.......THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS NOT ENTITLED TO THE POSSESSION OF THE PROPERTY PRIOR TO THE PAYMENT OF RESPONDENTS MORTGAGE LOAN.

C.......THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONER WAS NOT A BUILDER IN GOOD FAITH.

D.......THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS ENTITLED TO INTEREST COMPUTED ONLY FROM THE TIME WHEN THE JUDGMENT DECLARING THE CONTRACT TO BE AN EQUITABLE MORTGAGE BECAME FINAL.[9]

Basically, petitioner claims that he is entitled to retain possession of the subject property until payment of the loan and the value of the necessary and useful improvements he made upon such property.[10] According to petitioner, neither the Court of Appeals decision in G.R. CV No. 42065 nor this Courts decision in G.R. No. 120832 ordered immediate delivery of possession of the subject property to respondent.

The dispositive portion of the March 31, 1995 decision of the Court of Appeals in G.R. CV No. 42065, which was affirmed by this Court, provides that

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is REVERSED and SET ASIDE and a new one entered: (1) dismissing the complaint; (2) declaring the "Document of Sale and Special Cession of Rights and Interests" (Exhibit B) dated February 10, 1960, to be an equitable mortgage not a sale; (3) upholding the validity of OCT No. P-13038 in the name of Felicitas de Lara; and (3) declaring null and void OCT No. P-11566 in the name of plaintiff Cornelio Isaguirre. All other counterclaims for damages are likewise dismissed. Costs against the appellee.[11]

Petitioner argues that the abovementioned decision merely settled the following matters: (1) that the transaction between petitioner and respondent was not a sale but an equitable mortgage; (2) that OCT No. P-13038 in the name of respondent is valid; and (3) that OCT No. P-11566 in the name of petitioner is null and void. Since the aforementioned decision did not direct the immediate ouster of petitioner from the subject property and the delivery thereof to respondent, the issuance of the writ of possession by the trial court on June 16, 1998 constituted an unwarranted modification or addition to the final and executory decision of this Court in G.R. No. 120832.[12]

We do not agree with petitioners contentions. On the contrary, the March 31, 1995 decision of the appellate court, which was affirmed by this Court on July 8, 1996, served as more than adequate basis for the issuance of the writ of possession in favor of respondent since these decisions affirmed respondents title over the subject property. As the sole owner, respondent has the right to enjoy her property, without any other limitations than those established by law.[13] Corollary to such right, respondent also has the right to exclude from the possession of her property any other person to whom she has not transmitted such property.[14]

It is true that, in some instances, the actual possessor has some valid rights over the property enforceable even against the owner thereof, such as in the case of a tenant or lessee.[15] Petitioner anchors his own claim to possession upon his declared status as a mortgagee. In his Memorandum, he argues that

4.8 It was respondent who asserted that her transfer of the Property to petitioner was by way of an equitable mortgage and not by sale. After her assertion was sustained by the Courts, respondent cannot now ignore or disregard the legal effects of such judicial declaration regarding the nature of the transaction.

xxx......xxx......xxx

4.13 Having delivered possession of the Property to petitioner as part of the constitution of the equitable mortgage thereon, respondent is not entitled to the return of the Property unless and until the mortgage loan is discharged by full payment thereof. Petitioners right as mortgagee to retain possession of the Property so long as the mortgage loan remains unpaid is further supported by the rule that a mortgage may not be extinguished even though then mortgagor-debtor may have made partial payments on the mortgage loan:

"Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or the creditor.

"Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

"Neither can the creditors heir who has received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid."

(Emphasis supplied.)

xxx......xxx......xxx

4.14 ......To require petitioner to deliver possession of the Property to respondent prior to the full payment of the latters mortgage loan would be equivalent to the cancellation of the mortgage. Such effective cancellation would render petitioners rights ineffectual and nugatory and would constitute unwarranted judicial interference.

xxx......xxx......xxx

4.16 The fact of the present case show that respondent delivered possession of the Property to petitioner upon the execution of the Deed of Absolute Sale and Special Cession of Rights and Interest dated 10 February 1960. Hence, transfer of possession of the Property to petitioner was an essential part of whatever agreement the parties entered into, which, in this case, the Supreme Court affirmed to be an equitable mortgage.

xxx......xxx......xxx

4.19 Petitioner does not have the mistaken notion that the mortgagee must be in actual possession of the mortgaged property in order to secure the debt. However, in this particular case, the delivery of possession of the Property was an integral part of the contract between petitioner and respondent. After all, it was supposed to be a contract of sale. If delivery was not part of the agreement entered into by the parties in 1960, why did respondent surrender possession thereof to petitioner in the first place?

4.20 Now that the Courts have ruled that the transaction was not a sale but a mortgage, petitioners entitlement to the possession of the Property should be deemed as one of the provisions of the mortgage, considering that at the time the contract was entered into, possession of the Property was likewise delivered to petitioner. Thus, until respondent has fully paid her mortgage loan, petitioner should be allowed to retain possession of the subject property.[16]

Petitioners position lacks sufficient legal and factual moorings.

A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation.[17] It is constituted by recording the document in which it appears with the proper Registry of Property, although, even if it is not recorded, the mortgage is nevertheless binding between the parties.[18] Thus, the only right granted by law in favor of the mortgagee is to demand the execution and the recording of the document in which the mortgage is formalized.[19] As a general rule, the mortgagor retains possession of the mortgaged property since a mortgage is merely a lien and title to the property does not pass to the mortgagee.[20] However, even though a mortgagee does not have possession of the property, there is no impairment of his security since the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.[21] If the debtor is unable to pay his debt, the mortgage creditor may institute an action to foreclose the mortgage, whether judicially or extrajudicially, whereby the mortgaged property will then be sold at a public auction and the proceeds therefrom given to the creditor to the extent necessary to discharge the mortgage loan. Apparently, petitioners contention that "[t]o require [him] to deliver possession of the Property to respondent prior to the full payment of the latters mortgage loan would be equivalent to the cancellation of the mortgage" is without basis. Regardless of its possessor, the mortgaged property may still be sold, with the prescribed formalities, in the event of the debtors default in the payment of his loan obligation.

Moreover, this Court cannot find any justification in the records to uphold petitioners contention that respondent delivered possession of the subject property upon the execution of the "Deed of Sale and Special Cession of Rights and Interests" on February 10, 1960 and that the transfer of possession to petitioner must therefore be considered an essential part of the agreement between the parties. This self-serving assertion of petitioner was directly contradicted by respondent in her pleadings.[22] Furthermore, nowhere in the Court of Appeals decisions promulgated on March 31, 1995 (G.R. CV No. 42065) and on October 5, 1998 (G.R. SP No. 48310), or in our own decision promulgated on July 8, 1996 (G.R. No. 120832) was it ever established that the mortgaged properties were delivered by respondent to petitioner.

In Alvano v. Batoon,[23] this Court held that "[a] simple mortgage does not give the mortgagee a right to the possession of the property unless the mortgage should contain some special provision to that effect." Regrettably for petitioner, he has not presented any evidence, other than his own gratuitous statements, to prove that the real intention of the parties was to allow him to enjoy possession of the mortgaged property until full payment of the loan.

Therefore, we hold that the trial court correctly issued the writ of possession in favor of respondent. Such writ was but a necessary consequence of this Courts ruling in G.R. No. 120832 affirming the validity of the original certificate of title (OCT No. P-13038) in the name of respondent Felicitas de Lara, while at the same time nullifying the original certificate of title (OCT No. P-11566) in the name of petitioner Cornelio Isaguirre. Possession is an essential attribute of ownership; thus, it would be redundant for respondent to go back to court simply to establish her right to possess subject property. Contrary to petitioners claims, the issuance of the writ of possession by the trial court did not constitute an unwarranted modification of our decision in G.R. No. 120832, but rather, was a necessary complement thereto.[24] It bears stressing that a judgment is not confined to what appears upon the face of the decision, but also those necessarily included therein or necessary thereto.[25]

With regard to the improvements made on the mortgaged property, we confirm the Court of Appeals characterization of petitioner as a possessor in bad faith. Based on the factual findings of the appellate court, it is evident that petitioner knew from the very beginning that there was really no sale and that he held respondents property as mere security for the payment of the loan obligation. Therefore, petitioner may claim reimbursement only for necessary expenses; however, he is not entitled to reimbursement for any useful expenses[26] which he may have incurred.[27]

Finally, as correctly pointed out by the Court of Appeals, this case should be remanded to the Regional Trial Court of Davao City for a determination of the total amount of the loan, the necessary expenses incurred by petitioner, and the period within which respondent must pay such amount.[28] However, no interest is due on the loan since there has been no express stipulation in writing.[29]

WHEREFORE, the assailed Decision of the Court of Appeals dated October 5, 1998 and its Resolution dated March 5, 1999 are hereby AFFIRMED. Respondent is entitled to delivery of possession of the subject property. This case is hereby REMANDED to the trial court for determination of the amount of the loan, the necessary expenses incurred by petitioner and the period within which the respondent must pay the same.

G.R. No. 183987               July 25, 2012

ASIA TRUST DEVELOPMENT BANK, Petitioner, vs.CARMELO H. TUBLE, Respondent.

D E C I S I O N

SERENO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to respondent the refund of P845,805.491 representing the amount he had paid in excess of the redemption price.

The antecedent facts are as follows: 2

Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed himself of the car incentive plan and loan privileges offered by the bank. He was also entitled to the bank’s Senior Managers Deferred Incentive Plan (DIP).

Respondent acquired a Nissan Vanette through the company’s car incentive plan. The arrangement was made to appear as a lease agreement requiring only the payment of monthly rentals. Accordingly, the lease would be terminated in case of the employee’s resignation or retirement prior to full payment of the price.

As regards the loan privileges, Tuble obtained three separate loans. The first, a real estate loan evidenced by the 18 January 1993 Promissory Note No. 01423 with maturity date of 1 January 1999, was secured by a mortgage over his property covered by Transfer Certificate of Title No. T 145794. No interest on this loan was indicated.

The second was a consumption loan, evidenced by the 10 January 1994 Promissory Note No. 01434 with the maturity date of 31 January 1995 and interest at 18% per annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan, his third loan.

On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further obligation or retain the unit and pay its remaining book value.

Respondent had the following obligations to the bank after his retirement: (1) the purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan; (3) P421,800 as real estate loan; and (4) P16,250 as salary loan.5

In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be issued after the bank had given the resigned employee’s clearance; and (2) P25,797.35 representing his final salary and corresponding 13th month pay.

Respondent claimed that since he and the bank were debtors and creditors of each other, the offsetting of loans could legally take place. He then asked the bank to simply compute his DIP and apply his receivables to his outstanding loans.6 However, instead of heeding his request, the bank sent him a 1 June 1995 demand letter7obliging him to pay

his debts. The bank also required him to return the Nissan Vanette. Despite this demand, the vehicle was not surrendered.

On 14 August 1995, Tuble wrote the bank again to follow up his request to offset the loans. This letter was not immediately acted upon. It was only on 13 October 1995 that the bank finally allowed the offsetting of his various claims and liabilities. As a result, his liabilities were reduced to P970,691.46 plus the unreturned value of the vehicle.

In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against Tuble. Petitioner obtained a favorable judgment. Then, to collect the liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of real estate mortgage over his property. The Petition was based only on his real estate loan, which at that time amounted to P421,800. His other liabilities to the bank were excluded. The foreclosure proceedings terminated, with the bank emerging as the purchaser of the secured property.

Thereafter, Tuble timely redeemed the property on 17 March 1997 for P1,318,401.91.8 Notably, the redemption price increased to this figure, because the bank had unilaterally imposed additional interest and other charges.

With the payment of P1,318,401.91, Tuble was deemed to have fully paid his accountabilities. Thus, three years after his payment, the bank issued him a Clearance necessary for the release of his DIP share. Subsequently, he received a Manager’s Check in the amount of P166,049.73 representing his share in the DIP funds.

Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the bank explained that this redemption price included the Nissan Vanette’s book value, the salary loan, car insurance, 18% annual interest on the bank’s redemption price of P421,800, penalty and interest charges on Promissory Note No. 0142, and litigation expenses.9 By way of note, from these items, the amounts that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest on the redemption price and (2) the interest charge on Promissory Note No. 0142.

Because Tuble disputed the redemption price, he filed a Complaint for recovery of a sum of money and damages before the RTC. He specifically sought to collect P896,602.0210 representing the excess charges on the redemption price. Additionally, he prayed for moral and exemplary damages.

The RTC ruled in favor of Tuble. The trial court characterized the redemption price as excessive and arbitrary, because the correct redemption price should not have included the above-mentioned charges. Moral and exemplary damages were also awarded to him.

According to the trial court,11 the value of the car should not have been included, considering that the bank had already recovered the Nissan Vanette. The obligations arising from the salary loan and car insurance should have also been excluded, for there was no proof that these debts existed. The interest and penalty charges should have been deleted, too, because Promissory Note No. 0142 did not indicate any interest or penalty charges. Neither should litigation expenses have been added, since there was no proof that the bank incurred those expenses.

As for the 18% annual interest on the bid price of P421,800, the RTC agreed with Tuble that this charge was unlawful. Act 313512 as amended, in relation to Section 28 of Rule 39 of the Rules of Court,13 only allows the mortgagee to charge an interest of 1% per month if the foreclosed property is redeemed. Ultimately, under the principle of solutio indebiti, the trial court required the refund of these amounts charged in excess of the correct redemption price.

On appeal, the CA affirmed the findings of the RTC.14 The appellate court only expounded the rule that, at the time of redemption, the one who redeemed is liable to pay only 1% monthly interest plus taxes. Thus, the CA also concluded that there was practically no basis to impose the additional charges.

Before this Court, petitioner reiterates its claims regarding the inclusion in the redemption price of the 18% annual interest on the bid price of P421,800 and the interest charges on Promissory Note No. 0142. Petitioner emphasizes that an 18% interest rate allegedly referred to in the mortgage deed is the proper basis of the interest. Pointing to the Real Estate Mortgage Contract, the bank highlights the blanket security clause or "dragnet clause" that purports to cover all obligations owed by Tuble:15

All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or novation irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of new, separate or additional obligations;

All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee, executed before or after the execution of this document whether presently owing or hereinafter incurred and whether or not arising from or connection with the aforesaid loan/Credit accommodation; x x x.

Tuble’s obligations are defined in Promissory Note Nos. 0142 and 0143. By way of recap, Promissory Note No. 0142 refers to the real estate loan; it does not contain any stipulation on interest. On the other hand, Promissory Note No. 0143 refers to the consumption loan; it charges an 18% annual interest rate. Petitioner uses this latter rate to impose an interest over the bid price of P421,800.

Further, the bank sees the inclusion in the redemption price of an addition 12% annual interest on Tuble’s real estate loan.

On top of these claims, the bank raises a new item – the car’s rental fee – to be included in the redemption price. In dealing with this argument raised for the first time on certiorari, this Court dismisses the contention based on the well-entrenched prohibition on raising new issues, especially factual ones, on appeal.16

Thus, the pertinent issue in the instant appeal is whether or not the bank is entitled to include these items in the redemption price: (1) the interest charges on Promissory Note No. 0142; and (2) the 18% annual interest on the bid price of P421,800.

RULING OF THE COURT

The 18% Annual Interest on the BidPrice of P421,800

The Applicable Law

The bank argues that instead of referring to the Rules of Court to compute the redemption price, the courts a quoshould have applied the General Banking Law,17 considering that petitioner is a banking institution.

The statute referred to requires that in the event of judicial or extrajudicial foreclosure of any mortgage on real estate that is used as security for an obligation to any bank, banking institution, or credit institution, the mortgagor can redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage.18

Petitioner is correct. We have already established in Union Bank of the Philippines v. Court of Appeals,19 citingPonce de Leon v. Rehabilitation Finance Corporation20 and Sy v. Court of Appeals,21 that the General Banking Act – being a special and subsequent legislation – has the effect of amending Section 6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a bank. Thus, the amount to be paid in redeeming the property is determined by the General Banking Act, and not by the Rules of Court in Relation to Act 3135.

The Remedy of Foreclosure

In reviewing the bank’s additional charges on the redemption price as a result of the foreclosure, this Court will first clarify certain vital points of fact and law that both parties and the courts a quo seem to have missed.

Firstly, at the time respondent resigned, which was chronologically before the foreclosure proceedings, he had several liabilities to the bank. Secondly, when the bank later on instituted the foreclosure proceedings, it foreclosed only the mortgage secured by the real estate loan of P421,800.22 It did not seek to include, in the foreclosure, the consumption loan under Promissory Note No. 0143 or the other alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed itself of the remedy of foreclosure and, in doing so, effectively gained the property.

As a result of these established facts, one evident conclusion surfaces: the Real Estate Mortgage Contract on the secured property is already extinguished.

In foreclosures, the mortgaged property is subjected to the proceedings for the satisfaction of the obligation.23 As a result, payment is effected by abnormal means whereby the debtor is forced by a judicial proceeding to comply with the presentation or to pay indemnity.24

Once the proceeds from the sale of the property are applied to the payment of the obligation, the obligation is already extinguished.25 Thus, in Spouses Romero v. Court of Appeals,26 we held that the mortgage indebtedness was extinguished with the foreclosure and sale of the mortgaged property, and that what remained was the right of redemption granted by law.

Consequently, since the Real Estate Mortgage Contract is already extinguished, petitioner can no longer rely on it or invoke its provisions, including the dragnet clause stipulated therein. It follows that the bank cannot refer to the 18% annual interest charged in Promissory Note No. 0143, an obligation allegedly covered by the terms of the Contract.

Neither can the bank use the consummated contract to collect on the rest of the obligations, which were not included when it earlier instituted the foreclosure proceedings. It cannot be allowed to use the same security to collect on the other loans. To do so would be akin to foreclosing an already foreclosed property.

Rather than relying on an expired contract, the bank should have collected on the excluded loans by instituting the proper actions for recovery of sums of money. Simply put, petitioner should have run after Tuble separately, instead of hostaging the same property to cover all of his liabilities.

The Right of Redemption

Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right to redeem the security by paying the redemption price.

The right of redemption of foreclosed properties was a statutory privilege27 he enjoyed. Redemption is by force of law, and the purchaser at public auction is bound to accept it.28 Thus, it is the law that provides the terms of the right; the mortgagee cannot dictate them. The terms of this right, based on Section 47 of the General Banking Law, are as follows:

1. The redemptioner shall have the right within one year after the sale of the real estate, to redeem the property.

2. The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.

3. In case of redemptioners who are considered by law as juridical persons, they shall have the right to redeem not after the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.

Consequently, the bank cannot alter that right by imposing additional charges and including other loans. Verily, the freedom to stipulate the terms and conditions of an agreement is limited by law.29

Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court30 that the power to decide whether or not to foreclose is the prerogative of the mortgagee; however, once it has made the decision by filing a petition with the sheriff, the acts of the latter shall thereafter be governed by the provisions of the mortgage laws, and not by the instructions of the mortgagee. In direct contravention of this ruling, though, the bank included numerous charges and loans in the redemption price, which inexplicably ballooned to P1,318,401.91. On this error alone, the claims of petitioner covering all the additional charges should be denied. Thus, considering the undue inclusions of the additional charges, the bank cannot impose the 18% annual interest on the redemption price.

The Dragnet Clause

In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that the dragnet clause therein does not justify the imposition of an 18% annual interest on the redemption price.

This Court has recognized that, through a dragnet clause, a real estate mortgage contract may exceptionally secure future loans or advancements.31 But an obligation is not secured by a mortgage, unless, that mortgage comes fairly within the terms of the mortgage contract.32

We have also emphasized that the mortgage agreement, being a contract of adhesion, is to be carefully scrutinized and strictly construed against the bank, the party that prepared the agreement.33

Here, after reviewing the entire deed, this Court finds that there is no specific mention of interest to be added in case of either default or redemption. The Real Estate Mortgage Contract itself is silent on the computation of the redemption price. Although it refers to the Promissory Notes as constitutive of Tuble’s secured obligations, the said contract does not state that the interest to be charged in case of redemption should be what is specified in the Promissory Notes.

In Philippine Banking Communications v. Court of Appeals,34 we have construed such silence or omission of additional charges strictly against the bank. In that case, we affirmed the findings of the courts a quo that penalties and charges are not due for want of stipulation in the mortgage contract.

Worse, when petitioner invites us to look at the Promissory Notes in determining the interest, these loan agreements offer different interest charges: Promissory Note No. 0142, which corresponds exactly to the real estate loan, contains no stipulation on interest; while Promissory Note No. 0143, which in turn corresponds to the consumption loan, provides a charge of 18% interest per annum.

Thus, an ambiguity results as to which interest shall be applied, for to apply an 18% interest per annum based on Promissory Note No. 0143 will negate the existence of the 0% interest charged by Promissory Note No. 0142. Notably, it is this latter Promissory Note that refers to the principal agreement to which the security attaches.

In resolving this ambiguity, we refer to a basic principle in the law of contracts: "Any ambiguity is to be takencontra proferentem, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care."35 Therefore, the ambiguity in the mortgage deed whose terms are susceptible of different interpretations must be read against the bank that drafted it. Consequently, we cannot impute grave error on the part of the courts a quo for not appreciating a charge of 18% interest per annum.

Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real Estate Mortgage Contract to automatically include the consumption loan, and its corresponding interest, in computing the redemption price.

As we have held in Prudential Bank v. Alviar,36 in the absence of clear and supportive evidence of a contrary intention, a mortgage containing a dragnet clause will not be extended to cover future advances, unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor.

In this regard, this Court adopted the "reliance on the security test" used in the above-mentioned cases, Prudential Bank37 and Philippine Bank of Communications.38 In these Decisions, we elucidated the test as follows:

x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.39 (Emphasis supplied)

Here, the second loan agreement, or Promissory Note No. 0143, referring to the consumption loan makes no reference to the earlier loan with a real estate mortgage. Neither does the bank make any allegation that it relied on the security of the real estate mortgage in issuing the consumption loan to Tuble.

It must be remembered that Tuble was petitioner’s previous vice-president. Hence, as one of the senior officers, the consumption loan was given to him not as an ordinary loan, but as a form of accommodation or privilege.40The bank’s grant of the salary loan to Tuble was apparently not motivated by the creation of a security in favor of the bank, but by the fact the he was a top executive of petitioner.

Thus, the bank cannot claim that it relied on the previous security in granting the consumption loan to Tuble. For this reason, the dragnet clause will not be extended to cover the consumption loan. It follows, therefore, that its corresponding interest – 18% per annum – is inapplicable. Consequently, the courts a quo did not gravely abuse their discretion in refusing to apply an annual interest of 18% in computing the redemption price. A finding of grave abuse of discretion necessitates that the judgment must have been exercised arbitrarily and without basis in fact and in law.41

The Interest Charges on PromissoryNote No. 0142

In addition to the 18% annual interest, the bank also claims a 12% interest per annum on the consumption loan. Notwithstanding that Promissory Note No. 0142 contains no stipulation on interest payments, the bank still claims that Tuble is liable to pay the legal interest. This interest is currently at 12% per annum, pursuant to Central Bank Circular No. 416 and Article 2209 of the Civil Code, which provides:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. (Emphasis supplied)

While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a form of monetary interest, but as one of compensatory interest.42

Monetary interest refers to the compensation set by the parties for the use or forbearance of money.43 On the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or by the courts.44 Compensatory interest, as a form of damages, is due only if the obligor is proven to have defaulted in paying the loan.45

Thus, a default must exist before the bank can collect the compensatory legal interest of 12% per annum. In this regard, Tuble denies being in default since, by way of legal compensation, he effectively paid his liabilities on time.

This argument is flawed. The bank correctly explains in its Petition that in order for legal compensation to take effect, Article 1279 of the Civil Code requires that the debts be liquidated and demandable. This provision reads:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Emphasis supplied)

Liquidated debts are those whose exact amount has already been determined.46 In this case, the receivable of Tuble, including his DIP share, was not yet determined; it was the petitioner’s policy to compute and issue the computation only after the retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked legal compensation in addressing this issue of default.

Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999. But then, he had already settled his liabilities on 17 March 1997 by paying P1,318,401.91 as redemption price. Then, in 1999, the bank issued his Clearance and share in the DIP in view of the full settlement of his obligations. Thus, there being no substantial delay on his part, the CA did not grievously err in not declaring him to be in default.

The Award of Moral and ExemplaryDamages

The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as exemplary damages.1âwphi1 As appreciated by the RTC, which had the opportunity to examine the parties,47 the bank treated Tuble unfairly and unreasonably by refusing to lend even a little charity and human consideration when it immediately foreclosed the loans of its previous vice-president instead of heeding his request to make a straightforward calculation of his receivables and offset them against his liabilities.48

To the mind of the trial court, this was such a simple request within the control of the bank to grant; and if petitioner had only acceded, the troubles of the lawsuit would have been avoided.1âwphi1

Moreover, the RTC found that the bank caused Tuble severe humiliation when the Nissan Vannette was seized from his new office at Kuok Properties Philippines. The trial court also highlighted the fact that respondent as the previous vice-president of petitioner was no ordinary employee – he was a man of good professional standing, and one who actively participated in civic organizations. The RTC then concluded that a man of his standing deserved fair treatment from his employer, especially since they served common goals.

This Court affirms the dispositions of the RTC and the CA. They correctly ruled that the award of moral damages also includes cases of besmirched reputation, moral shock, social humiliation and similar injury. In this regard, the social and financial standings of the parties are additional elements that should be taken into account in the determination of the amount of moral damages.49 Based on their findings that Tuble suffered undue embarrassment, given his social standing, the courts a quo had factual Basis50 to justify the award of moral damages and, consequently, exemplary damages51 in his favor.

From all the foregoing, we rule that the appellate court correctly deleted the 18% annual interest charges, albeit for different reasons. First, the interest cannot be imposed, because any reference to it under the Real Estate Mortgage Contract is misplaced, as the contract is already extinguished. Second, the said interest cannot be collected without any basis in terms of Tuble's redemption rights. Third, assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect the interest because of the contract's ambiguity. Fourth, the dragnet clause referred to in the contract cannot be presumed to include the 18% annual interest specified in the consumption loan. Fifth, with respect to the compensatory interest claimed by the bank, we hold that neither is the interest due, because Tuble cannot be deemed to be in default of his obligations.

IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.

G.R. No. 151903               October 9, 2009

MANUEL GO CINCO and ARACELI S. GO CINCO, Petitioners, vs.COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING CORPORATION Respondents.

D E C I S I O N

BRION, J.:

Before the Court is a petition for review on certiorari1 filed by petitioners, spouses Manuel and Araceli Go Cinco (collectively, the spouses Go Cinco), assailing the decision2 dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 47578, as well as the resolution3 dated January 25, 2002 denying the spouses Go Cinco’s motion for reconsideration.

THE FACTUAL ANTECEDENTS

In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of P700,000.00 from respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December 11, 1987,4 and secured by a real estate mortgage executed on December 15, 1987 over the spouses Go Cinco’s land and 4-storey building located in Maasin, Southern Leyte.

Under the terms of the promissory note, the P700,000.00 loan was subject to a monthly interest rate of 3% or 36% per annum and was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989, Manuel’s outstanding obligation with MTLC amounted to P1,071,256.66, which amount included the principal, interest, and penalties.5

To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank, Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The PNB approved the loan application for P1.3 Million6 through a letter dated July 8, 1989; the release of the amount, however, was conditioned on the cancellation of the mortgage in favor of MTLC.

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

On July 20, 1989, Manuel executed a Special Power of Attorney7 (SPA) authorizing Ester to collect the proceeds of his PNB loan. Ester again went to the bank to inquire about the proceeds of the loan. This time, the bank’s officers confirmed the existence of the P1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the P1.3 Million loan proceeds.

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

To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages, and preliminary injunction8 before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuel’s obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Ester’s refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the PNB loan were, to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages.

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

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

(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of actual or compensatory damages, if defendant corporation insists on the original 3% monthly interest rate;

(b) P100,000.00 as unrealized profit;

(c) P1,000,000.00 as moral damages;

(d) P20,000.00 as exemplary damages;

(e) P22,000.00 as litigation expenses; and

(f) 10% of the total amount as attorney’s fees plus costs.11

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

THE PETITION

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

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

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

THE COURT’S RULING

The Court finds the petition meritorious.

Preliminary Considerations

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

Payment as Mode of Extinguishing Obligations

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

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

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

a. Unjust Refusal to Accept Payment

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

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

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

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

b. Unjust Refusal Cannot be Equated to Payment

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

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

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

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

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

c. Effects of Unjust Refusal

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

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

For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (P1,044,475.15, plusP563.63 per month) representing loss of savings on interests for lack of legal basis. These amounts were computed based on the difference in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum), from the date of tender of payment up to the time of the promulgation of the RTC decision. The trial court failed to consider the effects of a tender of payment and erroneously declared that MTLC can charge interest at the rate of only 18% per annum – the same rate that PNB charged, not the 36% interest rate that MTLC charged; the RTC awarded the difference in the interest rates as actual damages.

As part of the actual and compensatory damages, the RTC also awarded P100,000.00 to the spouses Go Cinco representing unrealized profits. Apparently, if the proceeds of the PNB loan (P1,203,685.17) had been applied to the MTLC loan (P1,071,256.55), there would have been a balance of P132,428.62 left, which amount the spouses Go Cinco could have invested in their businesses that would have earned them a profit of at leastP100,000.00.1avvphi1

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

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

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

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

We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same reasons that justified the grant of moral damages.

As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to payment of 10% of the total amount of awarded damages as attorney’s fees and expenses of litigation.

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

(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cinco’s PNB loan, if still available, and to consent to the release of the mortgage on the property given as security for the loan upon PNB’s acknowledgment that the proceeds of the loan, sufficient to cover the total indebtedness to respondent Maasin Traders Lending Corporation computed as of June 20, 1989, shall forthwith be released;

(2) The award for loss of savings and unrealized profit is deleted;

(3) The award for moral damages is reduced to P100,000.00; and

(4) The awards for exemplary damages, attorney’s fees, and expenses of litigation are retained.

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

SO ORDERED.