G.R. No. 118375             October 3, 2003

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAÑO, respondents.

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 19941, which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay City.2

The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño) filed a complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present petition.1ªvvphi1.nét

The operative facts follow:

Queaño applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queaño Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queaño, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute the loan granted by Naguiat to Queaño.3

To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to the latter the owner’s duplicates of the titles covering the mortgaged properties.4 On the same day, the mortgage deed was notarized, and Queaño issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable on 11 September 1980.5 Queaño also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On the following day, 12 September 1980, Queaño requested Security Bank to stop payment of her postdated

check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds.6

On 16 October 1980, Queaño received a letter from Naguiat’s lawyer, demanding settlement of the loan. Shortly thereafter, Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queaño told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiat’s agent.7

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queaño filed the case before the Pasay City RTC,8 seeking the annulment of the mortgage deed. The trial court eventually stopped the auction sale.9

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and ordering Naguiat to return to Queaño the owner’s duplicates of her titles to the mortgaged lots.10 Naguiat appealed the decision before the Court of Appeals, making no less than eleven assignments of error. The Court of Appeals promulgated the decision now assailed before us that affirmed in toto the RTC decision. Hence, the present petition.

Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queaño had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.11

The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law may be raised12 as the Supreme Court is not a trier of facts.13 The resolution of factual issues is the function of lower courts, whose findings on these matters are received with respect and are in fact generally binding on the Supreme Court.14 A question of law which the Court may pass upon must not involve an examination of the probative value of the evidence presented by the litigants.15 There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.16

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower courts.17 But Naguiat’s case does not fall under any of the exceptions. In any event, both the decisions of the appellate and trial courts are supported by the evidence on record and the applicable laws.

Against the common finding of the courts below, Naguiat vigorously insists that Queaño received the loan proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a public document enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing evidence in this case that pointed to the absence of consideration.18 This Court has held that the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this case.19

On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed.20 It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides:

"An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract."

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract.21 In this case, the objects of the contract are the loan proceeds which Queaño would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaño’s account.1awphi1.nét

Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they could not bind her following the res inter alia acta alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a recognized

exception to the rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent.

Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queaño the checks she issued or indorsed to Queaño, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaño’s friend, Marilou Farralese, and it was in connection with that transaction that Queaño came to know Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that occasion, on her own and without Queaño asking for it, Reubenfeldt actually drew a check for the sum ofP220,000.00 payable to Naguiat, to cover for Queaño’s alleged liability to Naguiat under the loan agreement.24

The Court of Appeals recognized the existence of an "agency by estoppel25 citing Article 1873 of the Civil Code.26 Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat and Ruebenfeldt, Queaño got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaño’s impression. In that situation, the rule is clear. One who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief that he is what he appears to be.27 The Court of Appeals is correct in invoking the said rule on agency by estoppel.1awphi1.nét

More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queaño were never encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract.28 A mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan secured by it.29

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner. SO ORDERED.

G.R. No. 96770. March 30, 1993.

HERMENEGILDO AGDEPPA (substituted by his heirs MAGDALENA S. AGDEPPA, EMMANUEL S. AGDEPPA, NELIA A. UNISA, MARILYN A. LEONES, EVANGELINE A. PIMENTEL, EDWIN S. AGDEPPA EDNA A. AGDEPPA EDNA A. ABELLA, JOCELYN A. VICUNA, MA. THERESA S. AGDEPPA and VIVIANNE S. AGDEPPA, petitioners, vs. EMILIANO IBE (substituted by her husband FRUCTUOSO IBE and children LOLITA and CESAR IBE), BENJAMIN IBE and FERDINAND IBE, respondents.

Cabio and Rabanes Law Offices for petitioners.

Public Attorney's Office for private respondents.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; CERTIORARI; ISSUE LIMITED TO REVIEW OF ERRORS OF LAW. — In a petition for certiorari under Rule 45 of the Rules of Court like the instant petition, the jurisdiction of this Court is limited to the review of errors of law.

2. ID.; EVIDENCE; CREDIBILITY; FINDINGS OF FACT OF THE COURT OF APPEALS, GENERALLY CONCLUSIVE; EXCEPTIONS. — The findings of fact of the Court of Appeals are conclusive upon this Court (Ronquillo vs. Court of Appeals, 195 SCRA 433 [1991]). However, there are exceptions to this rule such as when there is a conflict between the factual findings of the Court of Appeals and the trial court. The resolution of such conflict requires the review of the same factual findings by this Court (Co vs. Court of Appeals, 193 SCRA 198 [1991] citing Raneses vs. IAC, 187 SCRA 397 [1990] and Remalante vs. Tibe, 158 SCRA 138 [1988]).

3. ID.; ID.; RESIDENCE CERTIFICATE; A PUBLIC DOCUMENT. — A residence certificate, being a receipt prescribed by the government to be issued upon receipt of money for public purposes (Moran, Comments on the Rules of Court, Vol. 6, 1980 ed., p. 101), is a public document.

4. ID.; ID.; PROOF OF DOCUMENTS; CONTENTS OF RESIDENCE CERTIFICATE, HOW PROVED. — As such, presentation of the same document would suffice to prove its contents. As part of the public record, it may also be proved by the presentation of a copy attested by the officer having legal custody of the duplicates (Sec. 25, Rule 132, Rules of Court) if, as in this case, a certified copy of the residence certificate itself cannot be presented. Exhibit F, upon which the trial court relied in nullifying the questioned documents, is, as correctly pointed out by the Court of Appeals, merely a secondary evidence. It is even based on the lost pages of an

abstract of the residence certificates issued by the municipal treasurer of Sinait. The evidentiary value of Exh. F is therefore suspect.

5. ID.; ID.; NOTARIZED DEEDS OF CONVEYANCES, PRESUMED VALID; PREPONDERANT EVIDENCE, NOT SUFFICIENT TO OVERCOME PRESUMPTION. — The questioned deeds of conveyances, being public documents as they are duly notarized (Moran, Comments on the Rules of Court, supra), therefore retain the presumption of validity in the absence of a full, clear and convincing evidence to overcome such presumption (Favor vs. Court of Appeals, 194 SCRA 308 [1991] citing Antonio vs. Estrella, 156 SCRA 68 [1987]). Merely preponderant evidence may not destroy such presumption because strong evidence is required to prove a defect of a public instrument.

6. ID.; ID.; ID.; CASE AT BAR. — In the case at bar, no clear and convincing evidence had been adduced by petitioners to impugn the validity of the documents executed by Rosario Igarta. Consequently, the validity of the said documents must be, as they are hereby, upheld.

D E C I S I O N

BIDIN, J p:

This is a petition for review on certiorari of the December 17,1990 decision of the Court of Appeals affirming with modification the May 12, 1989 decision of the Regional Trial Court of Ilocos Sur, Branch 24 at Cabugao, on the complaint for the partition of the properties of the late Rosario Igarta.

Rosario Igarta was one of the three daughters of the deceased Joaquin Igarta and Angela Gascon. Her two sisters were Carmen and Emiliana, Carmen married Maximo Agdeppa and they begot Hermenegildo and Jose. The latter died in 1954 leaving three sons named Joseph, Jefferson and Stevenson.

Rosario's other sister Emiliana married Fructuoso Ibe. The couple had three children: Benjamin, Lolita and Cesar.

On October 19, 1986, Rosario, an octogenarian, died single and without issue. At that time, her nearest relatives were her sister Emiliana Ibe and her nephew Hermenegildo Agdeppa as Carmen, the latter's mother, had predeceased Rosario. All the properties of Rosario were in the possession of the family of her sister Emiliana Ibe to the exclusion of the heirs of her other sister, Carmen. From time to time, however, Hermenegildo would got a share from the produce of the properties.

Hermenegildo thus expressed his desire to partition Rosario's estate in accordance with law but the Ibes adamantly objected. Hence, on January 27, 1987, Hermenegildo, together with the sons of his deceased brother Jose named Joseph, Jefferson and Stevenson Agdeppa, filed in the Regional Trial Court of Ilocos Sur, Branch 24 at Cabugan, a complaint against Emiliana Ibe, assisted by her husband Fructuoso Ibe, Benjamin Ibe and Ferdinand Ibe (Benjamin's son), for partition (Civil Case No. 300- KC) of Rosario's properties.

The complaint enumerated the following properties which are located in different barangays of Sinait, Ilocos Sur as subjects of the complaint for partition:

(1) Parcel I, an unirrigated riceland and forest land in Balingasa with an area of 7,750 square meters and assessed at P780.00;

(2) Parcel II, an irrigated riceland in Cadanglaan, with an area of 1,305 square meters and assessed at P470.00;

(3) Parcel III, an unirrigated riceland at Zapat with an area of 594 square meters and assessed at P170.00;

(4) Parcel IV, an unirrigated riceland in Paratong with an area of 2,037 square meters and assessed at P570.00;

(5) Parcel V, a residential land in the poblacion (Namnama) with an area of 131 square meters and assessed at P1,180.00;

(6) Parcel VI, an unirrigated riceland, tobacco land and forest land in Cotin, with an area of 36,271 and assessed at P4,540.00;

(7) Parcel VII, a residential land in the poblacion with an area of 275 square meters and assessed at P1,350.00;

(8) Parcel VIII, a sugarland with an area of 3,380 square meters and assessed at P680.00;

(9) Parcel IX, an unirrigated riceland, cornland, cogonland and "bushyland" with an area of 34,601 square meters and assessed at P6,550.00; and

(10) Parcel X, a cornland and a residential land with respective areas of 1,454 square meters and 100 square meters assessed at P470.00 and P600.00.

Parcels I, II, IV, V, VII and VIII were all declared in the name of Rosario Igarta for tax purposes. Parcel III was declared in the names of Rosario Igarta and Emiliana Igarta, Parcel IX in the names of Rosario, Higino and Fernando Igarta while Parcel X was in the name of Joaquin Igarta (Record, pp. 23-A and 23-B).

Subsequently, the plaintiffs filed a supplemental pleading enumerating the following properties which are also all located in Sinait, Ilocos Sur as included in the estate of Rosario Igarta:

(a) Cornland in Cortin, with an area of 1168 square meters and assessed at P230.00

(b) Riceland in Sitio, with an area of 3740 square meters and assessed at Pl,050.00;

(c) Cornland in Teppeng, with an area of 6023 square meters and assessed at P1,200.00;

(d) Riceland in Masadag, with an area of 578 square meters and assessed at P160.00

(e) Riceland in Masadag, with an area of 1011 square meters and assessed at P280.00;

(f) Riceland in Masadag, with an area of 578 square meters and assessed at P160.00;

(g) Riceland in Nagbalioartian, with an area of 4040 square meters and assessed at P1,460.00; and

(h) Riceland in Nagbalioartian, with an area of 1330 square meters and assessed at P480.00.

Properties (a) to (b)were declared for tax purposes in the name of Joaquin Igarta while properties (c) to (h) were all declared in the names of Rosario Igarta and Emiliana Ibe.

In their answer to the complaint, the defendants alleged that some of the properties had been conveyed and transferred by Rosario to different recipients, to wit: Parcels IV, VI and XI to Benjamin Ibe; Parcels V and X to Ferdinand Ibe and Parcel VII to Corazon Ibe Lanario. Defendants did not object to the partition of Parcels I, II, III and VIII although they averred that Parcel III was co-owned by Emiliana Ibe and Rosario (Ibid., pp. 8-9). With

regard to the properties enumerated in the plaintiffs' supplemental pleading, the defendants stated that property "c" had been sold by Rosario to a third person and that properties "a", "d", "e", "f', "g" and "h" had been acquired by them from Rosario by virtue of a deed of conveyance. They admitted, however, that property "b" should be partitioned (Ibid., p. 42).

In support of their claim, the defendants presented the following documents:

"(1) A deed of quitclaim and transfer of ownership executed by Rosario Igarta on April 28, 1985 showing that Rosario conveyed and relinquished her interests over four (4) parcels of land in favor of Benjamin Ibe and another parcel of land in favor of Ferdinand Ibe. This appears as Document No. 384, Page No. 78, Book No. II, Series of 1985 of the Notarial Registry of Ernesto S. Yalao (Exh. 1).

(2) A deed of quitclaim executed by Rosario Igarta ceding all her rights to three parcels of land to Benjamin Ibe and his children Corazon I. Lanario and Ferdinand Ibe. This appears as Document No. 157, Page 33, Book No. I, Series of 1985 also in the Notarial Registry of Ernesto S. Yalao, Municipal Trial Judge and Ex-Officio Notary Public (Exh. 2).

(3) A deed of absolute sale, appearing as Document No. 380, Page 78, Book II, Series of 1985 also of the Notarial Registry of Ernesto S. Yalao, showing that on April 28, 1985, Rosario Igarta sold to Benjamin Ibe the same parcel of land denominated as Parcel VI in the complaint in consideration of the amount of P50,000.00. (Exh. 3).

Another document, denominated as a deed of quitclaim was presented as Exh. 11 to show that on January 16, 1984, Rosario Igarta renounced all her rights and interests over properties "d", "e", "f", "g, and "h" of the supplemental pleading, in favor of Emiliana Ibe.

During the pendency of the case or on June 10, 1987, Emiliana Ibe died (Record, p.33). She was therefore substituted as party-defendant by her husband Fructuoso Ibe and their children Lolita and Cesar.

After trial on the merits, the lower court rendered its decision 1 finding Exhs. 1,2 and 3 to be defective as the residence certificate numbers appearing therein as that of Rosario Igarta actually belonged to three other persons indicated in the certification issued by the municipal treasurer of Sinait (Exh. F). The said certification states that Residence Certificate No. 10529408 in the deed of absolute sale (Exh. 3) belonged to one David Arrocena; Residence Certificate No. 10529708 used in the deed of quitclaim and transfer of ownership Exh. 1) was issued to Simeon Bautista, and Residence Certificate No. 10502786 in the deed of quitclaim (Exh. 2) was issued to

Florante Rosal who, as a witness during the trial, admitted having prepared the questioned documents notarized by Atty. Ernesto Yalao.

The trial court also noted that Exhs. 1 and 3 conveying inter vivos certain properties of Rosario Igarta to Benjamin Ibe and his children, were executed "at different hours of the same day." In view thereof, the said court observed that the "situation does not seem to jibe with the ordinary and natural course of things because if it were true, as alleged, that the grantor freely, voluntarily and intelligently disposed of her properties in favor of the Ibes in more than one instance on the same day, the dispositions should have been embodied in only one document" (Decision, p. 8; Rollo, p. 28).

Another "badge of anomaly" that the trial court noted is that Parcel IV is the subject matter of both the deed of quitclaim and transfer of ownership of April 28, 1985 (Exh. 1) and the deed of quitclaim of December 20, 1985 (Exh. 2). These documents both have Benjamin Ibe as recipient of the subject properties. These findings led the trial court to conclude that there is a "clear, strong and convincing evidence to prove that the documents notarized by Atty. Yalao do not reflect the truth" (Ibid., p. 9).

The trial court, however, found as "lawful and regular" the deed of quitclaim executed on January 16,1984 wherein Rosario renounced all her rights over the properties described as parcels "d", "e", "f", "g", and "h" in favor of her sister Emiliana Ibe because even the tax declarations indicate the co-ownership of Rosario and Emiliana over said properties. Thus, the trial court concluded, said properties were not part of Rosario's hereditary estate. However, Parcel No. III, which is also declared in the names of Rosario and Emiliana, must be deemed the former's exclusive property as it was not included in the deed of quitclaim. The trial court disposed of the case as follows:

"WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:

"(1) Declaring all the parcels of land subject-matter of this suit, except Parcels 'c', 'd', 'e', 'f', 'g', and 'h' under the Supplemental Pleading, as comprising the hereditary' estate of the deceased, Rosario Igarta;

"(2) Ordering the partition of the same, except those indicated above, between plaintiff Hermenegildo Agdeppa and defendant Benjamin Ibe, in representation of their parents, Carmen Igarta-Agdeppa and Emiliana Igarta-Ibe, respectively, in equal shares;

"(3) Declaring Parcels "d", "e", "f', "g", and "h'" under the Supplemental Pleading, as the exclusive properties of the late Emiliana Igarta-Ibe, subject

to such dispositions as the deceased owner might have made during her lifetime;

"(4) Ordering plaintiff Hermenegildo Agdeppa and defendant Benjamin Ibe to agree on the division of the properties subject of partition and to submit their written agreement to the Court, for confirmation, within thirty (30) days after the finality of this decision; otherwise, the Court shall appoint commissioners to make the partition pursuant to Section 3, Rule 69, of the Rules of Court;

"(5) Ordering the defendants, Benjamin Ibe and Ferdinand Ibe, to render an accounting of the fruits and income of the portions of the partible properties that may be allotted to plaintiff Hermenegildo Agdeppa, and to vacate the same in order that the said plaintiff may have peaceful possession thereof.

"No pronouncement as to costs, in the same manner that no damages and attorney's fees are awarded either under the complaint or under the counterclaim which is hereby dismissed for lack of merit.

"Let a copy of this decision be furnished the Revenue District Officer, Bureau of Internal Revenue, Vigan, Ilocos Sur, for a determination of the tax aspect of the case.

"SO ORDERED."

Only Hermenegildo Agdeppa appealed to the Court of Appeals as the lower court had ruled that his co-plaintiffs, Joseph, Jefferson and Stevenson, the sons of his brother Jose, "cannot be considered as heirs of the late Rosario Igarta because in the collateral line, representation takes place only in favor of the children of brothers and sisters (in this case, children of Carmen and Emiliana) whether they be of the full or half blood" (Ibid., p. 2, Citing Art. 972, Civil Code). While the appeal was pending resolution before the Court of Appeals, Hermenegildo died on October 23, 1989.

On December 17, 1999, the Court of Appeals rendered its decision 2 finding merit in the appeal. Giving full faith and credit to the documents involved, the Court of Appeals said:

"The proof adduced by plaintiff-appellees is not sufficient to overcome the presumption of regularity in favor of the questioned documents. Their attempt to show that the residence certificates appearing on said documents belonged to persons other than the late Rosario Igarta through the testimony of Mrs. Ester T. Remos, Municipal Treasurer of Sinait, Ilocos Sur, and her Certification to that effect dated October 15, 1988 do not impress Us. The court a quo erred in considering said testimony and certification since they were merely secondary evidences, and plaintiff-appellees have not laid the

basis for their presentation. The best evidence of the residence certificates are the residence certificates themselves. in lieu thereof, certified true copies of the residence certificates should have been presented since these are part of the public record.

"The presumption of validity of the questioned documents have not been overcome by the circumstances surrounding its execution. There is no showing that fraud, force or intimidation was perpetuated on Rosario Igarta in the preparation of the documents. Neither have plaintiff-appellees shown that the signature of Rosario Igarta appearing on said documents was forged. Forgery cannot be presumed. It must be proved. Faced with the fact that the signature of Rosario Igarta on said documents appears to be genuine, the provisions of said documents must be upheld.

'Thus, the court a quo erred in disregarding the dispositions contained in the questioned documents and tendering the partition of the properties covered thereby. The decision appealed from is hereby modified declaring the aforementioned properties, Parcels IV, V, VI, VII, IX, X and one-half of Parcel III under paragraph 5 (a) of the Complaint and Parcel 'a' under the Supplemental Pleading, the exclusive properties of the late Emiliana Igarta-Ibe and therefore, not subject to partition. We note that defendant appellants admitted the partible nature of one-half of Parcel III, and thus partition should take place only with regard to that half" (CA Decision, pp. 8-9, Rollo, pp. 51-52).

The heirs of Hermenegildo Agdeppa filed the instant petition for review on certiorari assailing the decision of the Court of Appeals for having set aside the findings of the lower court that the three documents which conveyed to the respondents parcels IV, V, VI, IX and X and property "a" were irregular and not reflective of the truth, and for excluding from Rosario Igarta's estate Parcels IV, V, VI, VII, IX and X.

From the foregoing, the resolution of this case revolves around the issue of the validity of the documents executed by Rosario Igarta conveying certain properties belonging to her to the herein respondents.

In a petition for certiorari under Rule 45 of the Rules of Court like the instant petition, the jurisdiction of this Court is limited to the review of errors of law. The findings of fact of the Court of Appeals are conclusive upon this Court (Ronquillo vs. Court of Appeals, 195 SCRA 433 [1991]). However, there are exceptions to this rule such as when there is a conflict between the factual findings of the Court of Appeals and the trial court. The resolution of such conflict requires the review of the same factual findings by this Court (Co vs. Court of Appeals, 193 SCRA 198 [1991] citing Raneses vs. IAC, 187 SCRA 397(1990] and Remalante vs. Tibe, 158 SCRA 138[1988]). Thus, the

divergent findings of the trial court and the Court of Appeals on the validity of the three documents executed by Rosario Igarta in favor of Benjamin Ibe and his children Ferdinand and Corazon, necessitate this Court's scrutiny.

The trial court's objections to the documents are based on its finding that residence certificates of other persons were used therein by Rosario Igarta. The plaintiffs (now appellants) tried to prove this through the rebuttal testimony of Mrs. Ester Y. Ramos, the Municipal Treasurer of Sinait. Mrs. Ramos admitted having signed the certification marked as Exh. F and which shows the names of the persons to whom the residence certificates appearing in the questioned documents were issued. According to Mrs. Ramos, the certification was based on the abstract of residence certificates because one of their office clerks, a certain Florida Ines, could not find the triplicates of the residence certificates subject of her certification (TSN, April 10,1989, pp. 5-6). Mrs. Ramos had with her "the abstract where Mrs. Ines quoted the certification, but unluckily, the data are no longer available" meaning the pages of the abstract where the three (3) residence certificate numbers are found had been "lost" (Ibid., pp. 8-9). Mrs. Ramos could not explain why and how they were lost (Ibid., p. 9).

A residence certificate, being a receipt prescribed by the government to be issued upon receipt of money for public purposes (Moran, Comments on the Rules of Court, Vol. 6, 1980 ed., p.101), is a public document. As such, presentation of the same document would suffice to prove its contents. As part of the public record, it may also be proved by the presentation of a copy attested by the officer having legal custody of the duplicates (Sec. 25, Rule 132 Rules of Court)if, as in this case, a certified copy of the residence certificate itself cannot be presented. Exhibit F, upon which the trial court relied in nullifying the questioned documents, is, as correctly pointed out by the Court of Appeals, merely a secondary evidence. It is even based on the lost pages of an abstract of the residence certificates issued by the municipal treasurer of Sinait. The evidentiary value of Exh. F. is therefore suspect.

The questioned deeds, being public documents as they are duly notarized (Moran, Comments on the Rules of Court, supra), therefore retain the presumption of validity in the absence of a full, clear and convincing evidence to overcome such presumption (Favor vs. Court of Appeals, 194 SCRA 308 [1991] citing Antonio vs. Estrella, 156 SCRA 68 [1987]). Merely preponderant evidence may not destroy such presumption because strong evidence is required to prove a defect of a public instrument.

The petitioners never questioned the authenticity of the signature of Rosario Igarta on the documents. Their due execution has been amply proved below. The testimony of Florante Rosal who prepared them, was corroborated by Atty. Ernesto Yalao who notarized all three documents. Yalao, who was a citizens' attorney and who had become a municipal trial court judge by the

time he notarized the December 20,1985 document, testified that while he noticed that Rosario Igurta was a "little bit sickly" and thin when she signed the documents in his presence, she was mentally okay (TSN, September 13, 1988, p.5).

Even the nagging doubts nurtured by the trial court appear more apparent than real upon a close examination of the testimonial evidence presented before it. Thus, the execution of two documents on the same day was explained by defense witness Florante Rosal. According to Rosal, who was an employee of the Citizens Legal Assistance Office, in April, 1985, Rosario Igarta requested him to accompany her to a lawyer "for purpose of drawing up a document." He accompanied her to the house of Atty. Ernesto Yalao who was then a citizens' attorney. Atty. Yalao, after having been informed of the purpose of Rosario Igarta's visit, told Rosal to prepare the documents promising that he would go over them later. Thus, Rosal who appears to have previous experience in drafting documents, prepared the document in his house (TSN, July 19, 1988, pp. 1315).

Rosario Igarta then went to Rosal's house and, after the document was prepared, they went back together to the house of Atty. Yalao. The latter examined the document and asked Rosario if its contents were alright. Rosario, a former school teacher, said that the document was indeed alright and signed it. Rosal and a visitor of Atty. Yalao signed as witnesses in the document which, although written in English was understood by Rosario as she was a former teacher (Ibid, pp. 15-19).

According to Rosal, after Atty. Yalao had delivered Exh. 1 to Rosario, the latter remarked that another document had to be prepared otherwise Benjamin Ibe could not give her any cash. So, in the afternoon, Rosal prepared Exh. 3 (Ibid., pp. 23-24) and it was notarized on the same day by Atty. Yalao. While on that day Rosario did not receive the consideration of the sale in Exh. 3 from Benjamin Ibe, the latter actually paid Rosario the P50,000.00 consideration of the sale at a much later date as the money had to come from Benjamin's younger brother in America (TSN, November 17, 1988, pp. 7-9).

With regard to the discrepancy in the residence certificate numbers, Rosal testified that Rosario did not show him her residence certificate but she only gave him a piece of paper containing its number (Ibid, p. 11). On why the two documents executed on April 28, 1985 bear two different residence certificate numbers both purportedly belonging to Rosario Igarta, Rosal admitted that he "might have committed a mistake" (Ibid., p. 26). This narration of facts had not been rebutted by the plaintiffs (now appellants) by evidence aside from Exh. F.

In the same manner, the deed of quitclaim and transfer of ownership of April 28,1985 and the deed of quitclaim of December 20, 1985 may not be nullified just because they refer to the same Parcel IV with Benjamin Ibe as the recipient in both instances. That Rosario Igarta conveyed the same property to Benjamin Ibe in two different documents only shows that she favored Benjamin over Hermenegildo. There is unrebutted evidence that it was Benjamin who took care of Rosario. While Rosario Igarta had a house of her own, Benjamin would fetch her in the afternoon and accompany her back to the house in the morning from his own residence (TSN, November 17, 1988, pp. 1-2). Further, according to the deputy public land inspector who testified, Rosario Igarta even tried to delete the name of Hermenegildo from the space indicating her nearest relatives in her application for free patent over Lot 9796 (Exh. 8-a) because Rosario believed that Hermenegildo had "another woman in his life" (TSN, October 13, 1988, p. 9).

In Gevero vs. Intermediate Appellate Court (189 SCRA 201 [1990]), this court held:

". . . it has long been settled that a public document executed and attested through the intervention of the notary public is evidence of the facts in clear, unequivocal manner therein expressed. It has the presumption of regularity and to contradict all these, evidence must be clear, convincing and more than merely preponderant (Rebuldela v. I.A.C. 155 SCRA 520-521 [1987]). Forgery cannot be presumed, it must be proven (Siasat v. IAC No. 67889, October 10, 1985). Likewise, petitioners' allegation of absence of consideration of the deed was not substantiated. Under Art. 1354 of the Civil Code, consideration is presumed unless the contrary is proven."

Similarly, in the case at bar, no clear and convincing evidence had been adduced by petitioners to impugn the validity of the documents executed by Rosario Igarta. Consequently, the validity of the said documents must be, as they are hereby, upheld.

WHEREFORE, the decision of the Court of Appeals dated December 17, 1990 is Affirmed in toto.

SO ORDERED.

Feliciano, Davide

G.R. No. 85909 February 9, 1993

TERESITA C. GERALES, CESAR DELA FUENTE, MARCELA GOLDING, MARIA VERGARA and PERLITO TRIGERO, petitioners, vs.HON. COURT OF APPEALS, ENRIQUE E. PIMENTEL and LETICIA FIDELDIA, respondents.

BIDIN, J.:

This is a petition for review on certiorari which seeks to reverse and set aside: (1) the decision of the Court of Appeals promulgated on September 26, 1988 in C.A.-G.R. S.P. No. 11811 entitled "Enrique E. Pimentel and Leticia T. Fideldia v. Hon. Ruben T. Reyes, as Regional Trial Court Judge, Branch 1, Balanga, Bataan and Teresita C. Gerales, Cesar Dela Fuente, Marcela Gelding, Maria Vergara, and Perlito Trigero" dismissing Civil Case. No. 5210 and reversing the decision of the trial court and (2) the resolution of the Court of Appeals promulgated on November 15, 1988 denying the Motion for Reconsideration.

The undisputed facts of the case are as follows:

On July 9, 1984, a car owned by Leticia Fideldia, then driven by Enrique E. Pimentel, hit another car, owned by Teresita Gerales then driven by Cesar Dela Fuente, with Marcela Golding, Maria Vergara and Perlito Trigero as passengers at San Jose, San Fernando, Pampanga.

On August 17, 1984, private respondent Enrique E. Pimentel was charged before the Municipal Trial Court of San Fernando, Pampanga with the crime of Damage to Property with Multiple Physical Injuries thru Reckless Imprudence, docketed as Criminal Case No. 84-9302 (Rollo, p. 18, Annex "A", p. 1).

During the pendency of the criminal case, particularly on January 11, 1985, private offended parties (now petitioners) Maria Vergara, Perlito Trigero, Marcela del Rosario Golding, Cesar Dela Fuente, and Teresita Gerales filed a civil case for Damages in the total amount of P400,000.00 docketed as Civil Case No. 5210, in the Regional Trial Court of Bataan against Enrique E. Pimentel and Leticia Fideldia. This civil case is based on the same incident for which private respondent, Enrique E. Pimentel was charged in Criminal Case No. 84-9302 (Rollo, p. 19, Annex "A", p. 2).

On April 23, 1985, or after the filing of Civil Case No. 5210 but before the service of summons upon the defendants (herein private respondents), the claims of the offended parties (plaintiffs in Civil Case No. 5210) were amicably settled, to wit:

Cesar Dela Fuente received 15,016.79

Marcela Golding received 10,171.75

Maria Vergara received 7,674.96

Teresita Gerales received 15,000.00

Perlito Trigero received 2,136.50

as full and final settlement of all their claims, both civil and criminal, in connection with the vehicular accident that occurred on July 9, 1984.

These offended parties (now petitioners), whose claims were amicably settled, individually executed and signed a "Release Of Claim," the contents of which substantially reads as follows:

For the sole consideration of . . ., the receipt whereof is hereby acknowledged, (I), (We) . . . for myself, my heirs, representatives, successors and assigns do hereby forever release, discharge and absolve Atty. Enrique E. Pimentel, Leticia Fideldia & F.E. Zuellig (M), Inc. of and from all actions, claims and demands whatsoever that now exist or may hereafter develop and particularly on account of all known, unknown and unanticipated injuries and damages arising out of and in consequence of the accident/illness occurring on or about July 9, 1984 at about 6:00 P.M. along the North Expressway, San Fernando, Pampanga when I sustained serious physical injuries while riding as a passenger of a Toyota Corona Sedan with Plate No. CFR-447 was hit and bumped by a Mit. Lancer Sedan with Plate No. NLL-979 driven by Atty. Enrique E. Pimentel and owned by Leticia Fideldia.

The undersigned furthermore agrees that the foregoing sum is voluntarily accepted as full and final compromise, adjustment and settlement of all claims with respect to both civil and/or criminal actions that may have been filed in connection with the above accident; that the payment of said

amount shall never be construed as an admission of liability by the party/parties hereby released. (Rollo, Annexes "I" to "I-C", pp. 79-82; emphasis supplied).

A Motion to Dismiss the criminal case was filed by Atty. Jaime C. Bueza, counsel of the offended parties, with the conformity of the Prosecuting Fiscal, based on the Affidavits of Desistance executed by the offended parties.

On April 23, 1985, the Municipal Trial Court of San Fernando, Pampanga, Branch IV, acting on the Motion to Dismiss, accordingly dismissed Criminal Case No. 84-9302.

After the dismissal of the criminal charge against private respondent Enrique E. Pimentel, the latter and respondent Leticia Fideldia were served on July 30, 1985 with summons and a copy of the complaint in Civil Case No. 5210 (Rollo, p. 19, Annex "A", p. 3).

On August 14, 1985, respondent Enrique E. Pimentel wrote a letter addressed to the Clerk of Court of the Regional Trial Court of Bataan, which reads:

Please (sic) refer to summons Civil Case No. 5210 Balanga, Bataan dated July 1, 1985 which was received on July 30, 1985.

In relation thereto, is Criminal Case No. 84-9302 wherein a Motion to Dismiss was submitted on April 23, 1985, 9:30 a.m. thus the affected parties mutually settled the case before the Municipal Trial Court of Pampanga, Branch IV.

In view thereof, may we request that said settlement be considered. (Annex "G")

On August 21, 1985, or after receipt of respondent Pimentel's letter, the Presiding Judge of Branch 1 of the Regional Trial Court of Balanga, Bataan issued an order in Civil Case No. 5210, to wit:

It appearing that defendants Enrique E. Pimentel and Leticia T. Fideldia were served with summons and copies of the complaint on July 30, 1985 at their Quezon City residence and they have not filed their answer up to now, plaintiffs are hereby ordered to file the necessary motion within (5) days from receipt of this order.

Should plaintiffs fail to comply herewith, the Court shall consider that they have no more interest in the prosecution of this action, especially considering that according to a letter of defendant Enrique E. Pimentel dated August 14, 1985, a motion to dismiss was filed by plaintiffs' counsel in the related criminal case (C.C. Case No. 9302) before the Municipal Trial Court of San Fernando, Pampanga, Branch IV. (Annex "H")

On motion of petitioners, the trial court issued an order declaring respondents Enrique E. Pimentel and Leticia Fideldia in default and forthwith set the case for presentation of petitioners' evidence ex-parte on October 8, 1985. A copy of said order was received by private respondents on September 18, 1985.

Judgment was rendered in favor of the petitioners, ordering respondents Enrique E. Pimentel and Leticia T. Fideldia, to pay jointly and severally the following:

(1) To Cesar Dela Fuente, actual damages in the amount of P55,771.05;

(2) To Marcela Golding, actual damages in the amount of P30,101.55;

(3) To Maria Vergara, actual damages in the amount of P21,142.00;

(4) To Teresita Gerales, compensatory damages in the amount of P50,000.00;

(5) No further award is due Perlito Trigero as he had been fully compensated;

(6) To all plaintiffs, attorney's fees in the total amount of P50,000.00 plus costs of suit.

Copy of the said judgment was received by private respondents on February 12, 1986. On March 10, 1986, private respondents filed a Petition for Relief from Judgment. On February 20, 1987, the trial judge denied the Petition for Relief from Judgment. A writ of execution was issued on March 6, 1987 (Rollo, p. 20, Annex "A", p. 3). Private respondents received a copy of the order of denial on March 26, 1987 (Rollo, p. 20, Annex "A", p. 3).

Private respondents filed a Petition for Certiorari, Mandamus and Prohibition with Prayer for Writ of Preliminary Injunction and Restraining Order with the Court of Appeals to set aside the aforementioned judgment and orders of the Regional Trial Court in Civil Case No. 5210, alleging among others that the trial court acted without or in excess of its jurisdiction and with grave abuse of discretion amounting to lack of jurisdiction in rendering a judgment by default against private respondents, in denying the petition for relief from judgment and in issuing a writ of execution.

The Court of Appeals, citing the case of Ledesma v. Avelino (82 SCRA 396 [1978]), reversed the decision of the trial court, the dispositive portion of which reads as follows:

Following the action of the Supreme Court in said case and considering that the only defense of the petitioners is the release of claims signed by all the respondents which released all the petitioners from all actions, claims and demands whatsoever that now may exist or may hereafter develop and particularly on all known and unknown and unanticipated injuries and damages arising out of and in consequence of the accident, a new decision is entered dismissing the complaint against petitioners (Rollo, p. 18, Annex "A", p. 6).

The Motion for Reconsideration filed by petitioners was denied in a resolution promulgated on November 15, 1988. (Rollo, p. 25, Annex "B", p. 2)

Hence, this petition.

In a resolution dated March 1, 1989, this Court gave due course to the petition and required both parties to file their respective memoranda.

Petitioners raise the issue of whether or not the respondent Court of Appeals committed reversible error in deciding private respondents' petition on the merits, thereby reversing the decision of the trial court and disregarding petitioners' evidence.

Petitioners claim that the respondent Court of Appeals should have denied and dismissed private respondents' petition for certiorari as there was no error of jurisdiction correctible by certiorari under Rule 65 of the Rules of Court. They insist that the court a quo had jurisdiction over the subject matter of the case and over the persons of the private respondents when the latter were duly served with summons on July 30, 1985. Hence, whatever error may have been committed in the case was not an error of jurisdiction correctible by certiorari. They claim that the respondent court, in dismissing

the civil case for damages on the sole basis of the "releases of claims," had denied them procedural due process as they were not afforded the opportunity to refute, assail, and overcome their/probative value (Rollo, pp. 10-12).

On the other hand, private respondents maintain that the trial court committed grave abuse of discretion in not considering their letter dated August 14, 1985 as their responsive pleading and in consequently declaring them in default; in denying in its order dated February 20, 1987 their petition for relief from judgment; and in issuing a writ of execution on March 6, 1987, even before they received a copy of the order denying their petition for relief from judgment.

An examination of the records of the case shows that the trial court, after taking judicial notice of the letter of private respondents informing the court that the parties have mutually settled the case, and that a Motion to Dismiss was even filed by petitioners' counsel in the related criminal case, altogether did not consider nor treat it as private respondents' responsive pleading to the complaint for damages. In fact, on motion of petitioners, the private respondents were declared in default and accordingly, a judgment by default was rendered against them (private respondents).

Under the factual setting of the case, the trial court ought to have considered the letter of respondent Enrique E. Pimentel as a responsive pleading even if it lacks the formalities required by law. Undoubtedly, the letter made mention of the fact that the parties mutually settled the case, which allegation may be deemed as an averment of an affirmative defense and if proven in a preliminary hearing pursuant to Section 5, Rule l6, would constitute a meritorious defense of private respondents which would bar petitioners from recovering damages from the former as the claim or demand set forth in plaintiffs' (petitioners') pleading had been paid or extinguished.

Pleadings as well as remedial laws should be liberally construed in order that the litigant may have ample opportunity to prove their respective claims, and possible denial of substantial justice, due to technicalities, may be avoided (Cabutin, et al. v. Amacio, 170 SCRA 750 [1989], citing Quibuyen v. CA, 9 SCRA 741 [1963]). Litigations should as much as possible be decided on the merits and not on technicality (Fonseca v. Court of Appeals, 165 SCRA 40 [1988], citing A-One Feeds, Inc. v. Court of Appeals, 100 SCRA 590, 594 [1980]). Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts (American Express International, Inc. v. Intermediate Appellate Court, 167 SCRA 209 [1988] citing Alonso v. Villamor, 16 Phil. 315 (1910]), and because there is no vested right in technicalities, in meritorious crises, a liberal, not literal interpretation of the rules becomes imperative and technicalities should not be resorted to in derogation of the intent and

purpose of the rules, which is the proper and just determination of a litigation (Fonseca v. C.A., supra.).

In addition thereto, the trial court's denial of private respondents' petition for relief from judgment, inspite of the fact that they raise the meritorious defense of full settlement and/or payment of the claim is improper. The trial judge should have granted the aforesaid petition as it would ultimately afford both parties the opportunity to prove their respective claims by fully and fairly laying before the Court, the facts in issue and seek justice upon the merits thereof and that possible denial of justice due to legal technicalities may be avoided.

The courts should be liberal in setting aside orders of default for default judgment is frowned upon, and unless it clearly appears that the reopening of the case is intended for delay, it is best that the trial courts give both parties every chance to fight their case fairly and in the open, without resort to technicality (Zenith Insurance Corporation v. Hon. Fidel Purisima, 114 SCRA 62 [1982], citing Pineda v. Court of Appeals, 67 SCRA 229 [1975]).

In the light of the foregoing, it is evident that indeed the trial court committed grave abuse of discretion in declaring private respondents in default, and in denying their petition for relief from judgment. Consequently, the validity of the order of default and all the proceedings that transpired subsequent thereto cannot be sustained.

A petition for Certiorari lies when any tribunal, board or officer exercising judicial functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law (Section I of Rule 65 of the Rules of Court). It is the inadequacy — not the mere absence of all other legal remedies and the danger of failure of justice without/such writ that usually determines the propriety of certiorari(Philippine National Bank v. Puno, 170 SCRA 229 [1989] citing Jaca v. Davao Lumber Co., 113 SCRA 107 (1982]).

Undoubtedly, Certiorari is a more speedy and efficacious remedy to have the judgment by default be set aside as a nullity where a party has been illegally declared in default. It will be noted that the trial court had already issued a writ of execution even before respondents received a copy of the order denying their petition for relief from judgment (Rollo, p. 20). Clearly therefore even if appeal was available to private respondents, it was no longer speedy and adequate.

Petitioners contend that respondent Court of Appeals, in dismissing the complaint (Civil Case No. 5210) against private respondents on the basis

solely of the releases of claims, had denied them their right to procedural due process. They claim that the settlements contained in the releases of claims were not true; that patent irregularities attended their execution as petitioners executed them because private respondents led them to believe that what they were receiving were partial settlements only; and that the said documents were more of a receipt rather than any document (Rollo, p. 12).

Conversely, private respondents contend that the releases of claims executed and signed by petitioners show that full settlements were received by the latter from private respondents and their insurer, F.E. Zuellig, Inc.; that when petitioners executed these documents, they were assisted by their very own counsel, Atty. Jaime C. Bueza; that the same was duly notarized and that petitioners cannot now impugn the veracity of the documents upon the self-serving argument that they were misled by their own counsel into believing that the settlements were but partial.

It should be borne in mind that the petitioners do not deny at all their having executed the releases of claims which are in the nature of quitclaims. Their allegation that the execution thereof was attended by false pretenses is self-serving. Contrary thereto, petitioners, in executing these releases of claims, were in fact assisted by their counsel, Atty. Bueza, and the document was even notarized.

A notarized instrument is admissible in evidence without further proof of its due execution and is conclusive as to the truthfulness of its contents, although not absolute but rebuttable by clear and convincing evidence to the contrary (Baranda v. Baranda, 150 SCRA 59 [1987], citing Antillon v. Barcelon, 37 Phil. 148 [1917] and Mendezona v. Phil Sugar Estate Development Corporation. 41 Phil. 475 [1921]). A public document executed and attested through the intervention of the notary public is evidence of the facts in clear, unequivocal manner therein expressed. It has in its favor the presumption of regularity. To contradict all these, there must be evidence that is clear and convincing more than merely preponderant (Collantes v. Capuno, 123 SCRA 652 [1983]).

Petitioners can not now question the validity and/or veracity of the releases of claims on the allegation that the same were executed on their belief that what they received were only partial settlements and that they could not have released them "forever from all actions arising from such vehicular accident." If they did not release their claims against, respondents forever, why did they cause the dismissal of the criminal case against Enrique Pimentel?

In essence, petitioners are varying the terms embodied in the releases of claims, which is proscribed by Section 7 of Rule 130 of the Rules of Court. It is a well-settled principle of law that proof of verbal agreements offered to

vary the terms of written agreements is inadmissible under the Parol Evidence Rule (Continental Airlines Inc. v. Santiago, 172 SCRA 490 [1989]), and while Parol Evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing, unless there has been fraud or mistake (Tupue v. Urgel, 161 SCRA 417 [1988] citing Yu Tek & Co. v. Gonzalez, 29 Phil. 384 [1915]).

It is edgy to see that the exceptions to the rule do not apply in the instant case. The wordings of the "releases of claims" are clear, simple and unambiguous and there is no showing of any fraud, mistake or failure to express the true agreement of the parties. The second paragraph of the releases of claims executed by petitioners provides:

the undersigned agrees that the foregoing sum is voluntarily accepted as full and final compromise, adjustments and settlement of claims with respect to both civil and/or criminal actions that may have been filed in connection with the above accident; . . . . (Rollo, Annexes "I" to "I-C", pp. 79-82, emphasis supplied).

When petitioners executed the releases of claims on April 23, 1986, Civil Case No. 5210 for damages had already been filed on January 11, 1985 by petitioners as plaintiffs against private respondents as defendants. With the subsequent execution of the releases of claims by petitioners, all claims and demands of petitioners as plaintiffs in Civil Case No. 5210 which "had been filed in connection with the above (vehicular) accident," were fully and finally compromised, settled and forever released as stipulated in the releases of claims and agreed upon by petitioners.

There could have been no fraud or mistake in the execution of the "releases of claims" because the petitioners were assisted by their counsel in the execution thereof, who affixed his signature on each and every document as witness thereto, which documents ("releases of claims") were acknowledged before a notary public.

While strictly speaking, a remand of the case to the trial court to enable petitioners to present their evidence would be the normal course to follow before a decision is rendered, it has been held that such time-consuming procedure may be properly dispensed with for being unnecessary where the Supreme Court could resolve the dispute on the basis of the records before it (Quisumbing v. CA, SCRA 703 [1983]; Board of Liquidators v. Zulueta, 115 SCRA 549 [1982]). The only defense of the private respondents is the "releases of claims" executed by the petitioners, the existence of which is beyond dispute and is sufficient basis for rendering a decision on the

merits, i.e., the dismissal of petitioners' complaint on the ground that the claim or demand of petitioners as plaintiffs had been paid or released.

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals dismissing the complaint for damages against private respondents is hereby AFFIRMED.

SO ORDERED.

G.R. No. L-49101 October 24, 1983

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners, vs.THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.

GUERRERO, J:

Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution denying the motion for reconsideration.

The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by one who was not the owner of the mortgaged property. It further alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended, without, however, complying with the condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have accepted petitioner's offer to redeem the property under the principle of equity said justice.

On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied most of the allegations in the complaint and raised the following affirmative defenses: (a) that the defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be released from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless reminders and demands; of that the

property in question remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking practice that payments against accounts need not be personally made by the debtor himself; and (h) that it is not true that the mortgage, at the time of its execution and registration, was without consideration as alleged because the execution and registration of the securing mortgage, the signing and delivery of the promissory note and the disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of loan.

After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for intervention. The intervention was premised on the Deed of Assignment executed by petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over the subject property. The intervention was ultimately granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.

On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as follows:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered dismissing the complaint with costs against the plaintiff and the intervenor.

After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to respondent Court of Appeals assigning the following errors:

1. The lower court erred in not finding that the real estate mortgage executed by Jose Lozano was null and void;

2. The lower court erred in not finding that the auction sale decide on August 19, 1968 was null and void;

3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the property;

4. The lower court erred in not finding that the defendant acted in bad faith; and

5. The lower court erred in dismissing the complaint.

On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower court, and on October 3. 1978 denied the motion for reconsideration. Hence, the present petition for review.

The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt the facts found the trial court and found by the Court of Appeals to be consistent with the evidence adduced during trial, to wit:

It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property which they mortgaged on December 6, 1966, to secure the payment of the loan in the principal amount of P75,000.00 they were about to obtain from defendant-appellee Philippine Bank of Commerce; that on December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in consideration of the sum of P100,000.00, P25,000.00 of which amount being payable to the Lozano spouses upon the execution of the document, and the balance of P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when the mortgage was executed by the Lozano spouses in favor of defendant-appellee, the loan of P75,000.00 was not yet received them, as it was on December 12, 1966 when they and their co-maker Alfonso Lim signed the promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made payments to defendant-appellee on the mortgage in the total amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and notice of sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968; that auction sale was conducted on August 19, 1968, and the property was sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of the property. (Decision of the Court of Appeals, p. 5).

Presented for resolution in this review are the following issues:

I

Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally executed.

II

Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.

III

Whether petitioners had a right to redeem the foreclosed property.

IV

Granting that petitioners had such a right, whether respondent was justified in refusing their offers to repurchase the property.

As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the deed of mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in the absence of a principal obligation, there is want of consideration in the accessory contract, which consequently impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.

Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as security the same

property which the Lozano spouses had already sold to petitioners, rendered the mortgage null and void,

This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.

Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage the property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals thereof.

Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:

a) petitioners were never notified of the foreclosure sale.

b) The notice of auction sale was not posted for the period required by law.

c) publication of the notice of auction sale in the Luzon Weekly Courier was not in accordance with law.

The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights and interests over the property in favor

of intervenor Raoul Bonnevie and respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor. The requirement on notice is that:

Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city

In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices of the sale were posted for not less than twenty days in at least three (3) public places in the Municipality where the property is located. Petitioners were thus placed on constructive notice.

The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered making the mortgaged privy to the sale.

As regards the claim that the period of publication of the notice of auction sale was not in accordance with law, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week for at least three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.

The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit of publication, executed by the Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This constitutes prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).

To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and general information; that it has a bona

fide subscription list of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of general circulation in the province of Rizal.

Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were also posted in the place where the property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of respondent bank, namely:

Q How many days were the notices posted in these two places, if you know?

A We posted them only once in one day. (TSN, p. 45, July 25, 1973)

is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement in the absence of proof or even of allegation that the notices were removed before the expiration of the twenty- day period. A single act of posting (which may even extend beyond the period required by law) satisfies the requirement of law. The burden of proving that the posting requirement was not complied with is now shifted to the one who alleges non-compliance.

On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court of Appeals did not err in ruling that they had no right to redeem. No consent having been secured from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged with the obligation to recognize the right of redemption only of the Lozano spouses. But even granting that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a right to redeem the property, petitioners failed to exercise said right within the period granted by law. Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered to

redeem the property. Moreover, on September 29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.

On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make payments for the amount secured by the mortgage on the subject property, to receive acknowledgment of payments, obtain the Release of the Mortgage after full payment of the obligation and to take delivery of the title of said property. On the assumption that the letter was received by respondent Bank, a careful reading of the same shows that the plaintiff was merely authorized to do acts mentioned therein and does not mention that petitioner is the new owner of the property nor request that all correspondence and notice should be sent to him.

The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for the foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners' payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.

WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. L-45710 October 3, 1985

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs.THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.

MAKASIAR, CJ.:

This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with preliminary injunction.

On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).

On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:

In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by unanimous vote, decided as follows:

1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;

xxx xxx xxx

(p. 46, rec.).

On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).

On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.

On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).

On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).

On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).

On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.

On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).

Hence, this instant petition by the central Bank.

The issues are:

1. Can the action of Sulpicio M. Tolentino for specific performance prosper?

2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?

3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount?

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or

when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.

The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)

The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other.

The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence and evaluation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever bank

officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.

Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay.

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability

of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.

WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt.

The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).

The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case.

Article 2089 provides:

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

Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

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

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply

WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND

1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED.

G.R. No. L-48349 December 29, 1986

FRANCISCO HERRERA, plaintiff-appellant, vs.PETROPHIL CORPORATION, defendant-appellee.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First Instance of Rizal on a pure question of law. 1

The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on the factual antecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his property for a period of twenty (20) years from said date, subject inter alia to the following conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400 sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of each year; provided, a financial aid in the sum of P15,000 to clear the leased premises of existing improvements thereon is paid in this manner; P10,000 upon execution of this lease and P5,000 upon delivery of leased premises free and clear of improvements thereon within 30 days from the date of execution of this agreement. The portion on the side of the leased premises with an area of 365 sqrm. more or less, will be occupied by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at 12% interest per annum or a total net amount of P130,288.47 before registration of lease. Leased premises shall be delivered within 30 days after 1st partial payment of financial aid. 2

On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfff-appellant advance rentals for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee,

explaining that there had been a mistake in computation, paid to the appellant the additional sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming this had been illegally deducted from him in violation of the Usury Law. 4 He also prayed for moral damages and attorney's fees. In its answer, the defendant-appellee admitted the factual allegations of the complaint but argued that the amount deducted was not usurious interest but a given to it for paying the rentals in advance for eight years. 5Judgment on the pleadings was rendered for the defendant. 6

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest collected out of the rentals paid for the first eight years; that such interest was excessive and violative of the Usury Law; and that he had neither agreed to nor accepted the defendant-appellant's computation of the total amount to be deducted for the eight years advance rentals. 7

The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read:

6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest should be computed excluding the first year rental because at the time the amount of P281, 199.20 was paid it was already due under the lease contract hence no interest should be collected from the rental for the first year, the amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and above that allowed by law.

As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its obligation

in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount.

The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish such stipulations, clauses, terms and condition as they may want to include; and as long as such agreements are not contrary to law, morals, good customs, public policy or public order, they shall have the force of law between them. 8

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his possession. 9 There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on usury. 10

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." 11

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared. 12

Concerning the computation of the deductible discount, the trial court declared:

As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shag pay the lessor (plaintiff) eight (8) years in advance rentals based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first eight (8) years should be only

P33,755.90 (P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant claimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just computed the annual discount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into consideration the naked fact that the rentals due on the eight year were paid in advance by seven (7) years, the rentals due on the seventh year were paid in advance by six (6) years, those due on the sixth year by five (5) years, those due on the fifth year by four (4) years, those due on the fourth year by three (3) years, those due on the third year by two (2) years, and those due on the second year by one (1) year, so much so that the total number of years by which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28), resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the discount. However, defendant was most fair to plaintiff. It did not simply multiply the annual rental discount by 28 years. It computed the total discount with the principal diminishing month to month as shown by Annex 'A' of its memorandum. This is why the total discount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the computation in a compounded manner is erroneous. Also after making its own computations and after examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not charge 12% discount on the rentals due for the first year so much so that the computation conforms with the provision of the Lease Agreement to the effect that the rentals shall be 'payable yearly in advance within the 1st 20 days of each year. '

We do not agree. The above computation appears to be too much technical mumbo-jumbo and could not have been the intention of the parties to the transaction. Had it been so, then it should have been clearly stipulated in the contract. Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. 13

The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and this amount would be the same for each of the eight years. There is no showing that the intricate computation applied by the trial court was explained to him by the defendant-appellee or that he knowingly accepted it.

The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a 12% reduction for advance rentals

for all of twenty eight years. That is absurd. It is not normal for a person to agree to a reduction corresponding to twenty eight years advance rentals when all he is receiving in advance rentals is for only eight years.

The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the lease agreement. "Simplistic" it may be, as the Solicitor General describes it, but that is how the lessor understood the arrangement. In fact, the Court will reject his subsequent modification that the interest should be limited to only seven years because the first year rental was not being paid in advance. The agreement was for auniform deduction for the advance rentals for each of the eight years, and neither of the parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was P281,347.20 from which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.

The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation invoked by the respondent for the flat reduction of P130,288.47.

WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the defendant-appellee.

SO ORDERED.