Thursday, March 27, 2014

Case Digest: Islamic Directorate of the Philippines v. CA

G.R. No. 117897, 14 May 1997.


1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated  with the primary purpose of establishing a mosque, school, and other religious infrastructures in Quezon City.

IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-26520 (176616) and RT-26521 (170567).

When President Marcos declared martial law in 1972, most of the members of the 1971 Board of Trustees ("Tamano Group")flew to the Middle East to escape political persecution.

Thereafter, two contending groups claiming to be the IDP Board of Trustees sprung: the Carpizo group and Abbas group.

In a suit between the two groups, SEC rendered a decision in 1986 declaring both groups to be null and void. SEC recommeded that the a new by-laws be approved and a new election be conducted upon the approval of the by-laws. However, the SEC recommendation was not heeded.

In 1989, the Carpizo group passed a Board Resolution authorizing the sale of the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale was eventually executed.

In 1991, the Tamano Group filed a petition before the SEC questioning the sale.

Meanwhile, INC filed a suit for specific performance before RTC Branch 81 against the Carpizo group. INC also moved to compel  a certain Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the title.

The Tamano group sought to intervene, but the intervention was denied despite being informed of the pending SEC case. In 1992, the Court subsequently ruled that the INC as the rightful owner of the land, and ordered Ligon to surrender the titles for annotation. Ligon appealed to CA and SC, but her appeals were denied.

In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed the SEC ruling.

MAIN ISSUE: W/N the sale between the Carpizo group and INC is null and void.


Since the SEC has declared the Carpizo group as a void Board of Trustees, the sale it entered into with INC is likewise void. Without a valid consent of a contracting party, there can be no valid contract.

In this case, the IDP, never gave its consent, through a legitimate Board of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. Therefore, this is a case not only of vitiated consent, but one where consent on the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.

Further, the Carpizo group failed to comply with Section 40 of the Corporation Code, which provides that: " ... a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets... when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders' or members' meeting duly called for the purpose...."

The subject lot constitutes the only property of IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements were not met in the case at bar.

ANCILLARY ISSUE: W/N The Ligon ruling constitutes res judicata.


Section 49(b), Rule 39 enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section 49(c), Rule 39 is referred to as "conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is only identity of parties but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is termed "conclusiveness of judgment."

Neither applies to the case at bar. There is no "bar by former judgment" since while there may be identity of subject matter (IDP property) in both cases, there is no identity of parties.  The principal parties in the first case were Ligon and the Iglesia Ni Cristo. The IDP can not be considered essentially a formal party thereto for the simple reason that it was not duly represented by a legitimate Board of Trustees.

Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that the primary issue in the first case is the possession of the titles, and not the sale of the land, as in this case.

Thursday, March 6, 2014

Case Digest: Pagsibigan v. CA

G.R. No. 90169, April 7, 1993.


On November 3, 1976, Petitioner Pilar Pagsigiban obtained a loan from Respondent Planters Development Bank ("Bank") for P4,500.00, secured by a mortgage over a parcel of land.

The Promissory Note for the said loan stipulated for the first payment to be made on May 3, 1977 and payments every six months thereafter at P1,018.14 with 19% interest for unpaid amortizations. It also contained an acceleration clause.

Initial payment was made in July 6, 1977, followed by several payments in the total amount of P11,900.00. However, only four of these payments were applied to the loan, while the rest were "temporarily lodged to accounts payable since the account was already past due".

In 1984, the property was foreclosed extrajudicially upon Petition by the bank for failure to pay an outstanding balance of P29,554.81. This resulted in the property being sold to the bank for P8,163.00, and later claimed a deficiency of P21,391.81.

Petitioner filed an action for annulment of sale by Petitioner, which the lower court granted. However, it was overturned by CA.

1st Issue: W/N the auction sale is valid.

Ruling: No.
The respondent bank had the right to foreclose the mortgage upon the first default of petitioner on May 3, 1977, but it did not. When it received payment of petitioner on July 6, 1977, the respondent bank had clearly waived its right under the acceleration clause since instead of claiming penalty charges on the entire amount of P4,500.00, it only computed the penalty based on the defaulted amortization payment which is P1,018.14.

Further, for more than four years, the bank made petitioner believe that it was applying her payment on the loan and interest. It is now bound by estoppel to apply the payments to petitioner's debt and from foreclosing the property.

Accordingly, the legality of the foreclosure cannot be sustained because of substantial performance on the part of petitioner (Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.) and acceptance of payment by the bank (Article 1235: when the creditor accepts performance, knowing its incompleteness and irregularity without protest or objection, the obligation is deemed complied with.).

2nd Issue: W/N Petitioner is entitled to recover damages.

Ruling: Yes.
Moral damages are warranted for the mental anguish, sleepless nights and serious anxiety that the bank's acts have caused petitioner. The bank succeeded in taking advantage of the ignorance of petitioner by lodging the bulk of petitioner's payment to account payable based on the flimsy reason that she had been in default, and then considering the entire debt pursuant to an acceleration clause as earning interest and penalty charges at an exorbitant rate of 19% each from the date of first default up to the date of foreclosure, thus bringing the obligation to an astronomical amount of P29,554.81 instead of just P11,000.00.

Exemplary damages are also proper, to serve as a deterrent for the bank from repeating similar acts and to set an example and correction for the public good.

Wednesday, March 5, 2014

Case Digest: Spouses Ruiz v. Sheriff of Manila


G.R. No. L-24016. July 31, 1970.

Spouses Ruiz ("Appellants") executed in favor of Appellee Bank of the Philippine Islands ("BPI") a real estate mortgage covering a parcel of land in Sta. Ana, Manila, as security for a loan of P15,000.00.

At the heart of the controversy is the following stipulation in the contract:
WHEREAS, the [Appellants]... have applied for and ... obtained from [BPI] ... a loan in the sum of P 15,000.00 ... to be amortized at the rate of not less than P300.00... to be effected at the end of each month. Failure to pay two successive monthly amortizations will cause this loan to be automatically due and payable in its entirety. Notwithstanding the foregoing, this loan shall not run for more than 5 years.
Upon failure of Appellants to pay 12 successive monthly amortizations despite several demands, BPI asked the Sheriff of Manila to foreclose the mortgage extrajudicially. The Sheriff caused the notice of auction to be published in the "Daily Record."

The Sheriff proceeded to sell the mortgaged property, with the BPI as the highest bidder. Since the mortgagee's bid of P15,173.74 represented the total mortgage debt, the Sheriff did not collect cash but merely applied the same to the amount of the bid.

Appellants then filed with the lower court praying for the annulment of the foreclosure sale, but the same was denied.

1st Issue: W/N the foreclosure sale was premature and therefore illegal

Ruling: No.

The acceleration clause is valid. All that the stipulation in issue meant is that while monthly amortizations could be as little as P300.00 the loan should anyway be paid within 5 years; and that failure to pay two successive amortizations would render the entire loan due and payable. Consequently, default leaving been committed for twelve months, the foreclosure of the mortgage was not premature.

2nd Issue: W/N the foreclosure sale was null and void for failure to comply with the requirements prescribed by Act 3135.

Ruling: No.

Re "Daily Record" as a newspaper of general circulation: The party alleging non-compliance with the requisite publication has the burden of proving the same. The appellants did not present evidence to show that the "Daily Record" was not a newspaper of general circulation.

Re Non-payment of cash by BPI as highest bidder: It was not necessary for BPI to pay cash to the sheriff, since the amount of its bid represented the total mortgage debt. It would serve no purpose for the sheriff to go through the ceremony of receiving the money and paying it back to the creditor.

Tuesday, March 4, 2014

Case Digest: DBP v. Licuanan


G.R. No. 150097, February 26, 2007. 


In 1974, Respondent spouses Alejandro and Adelaida Licuanan ("Respondents") were granted a P4,700 loan by petitioner Development Bank of the Philippines ("DBP") to mature in 1979, and secured by a real estate mortgage over a 980-square meter property.

In 1975, DBP granted respondents a second loan of P12,000 payable on or before the year 1980, which was secured by a real estate mortgage over four parcels of land.

In 1975, DBP granted Respondents a third loan of P22,000 maturing in 1985, and was secured by a real estate mortgage over three parcels of land.

In 1979, petitioner and respondents restructured the second loan, extending the maturity date to 1982.

In 1981, DBP sent a letter to Respondents informing them that they would institute extrajudicial foreclosure proceedings for breach of the conditions of the mortgage (of the first loan).

After an application for extrajudicial foreclosure, the properties were sold in a public auction, in which DBP was the highest bidder for bidding a total of P16,340.

In 1984, DBP informed Respondents that the properties could be reacquired by negotiated sale. Three days later, however, the properties were sold to one Emelita Peralta for P104,000.

After being informed of the sale, Respondents offered to repurchase the properties, but it was rejected by DBP.

Respondents then filed a complaint for recovery of real properties and damages in RTC of Lingayen against DBP and Peralta.

In its counterclaim, DBP asserts its right to claim for deficiency since the proceeds of the sale (P104,000) did not cover the debt of Petitioners of P131,642.33. Thus, it is entitled to claim the difference (P27,642.33) with interest.

DBP also argues that demand is not necessary as the maturity dates are already known to Respondents, and that Respondents are estopped from questioning the foreclosure sale since they offered to repurchase the property.

The RTC ruled in favor of respondents. It held that there was no demand for payment prior to the extrajudicial foreclosure and ordered Peralta to reconvey the properties to respondents, subject to Peralta’s right to be paid. It also held that petitioner did not deal fairly with respondents making it liable for nominal and moral damages, as well as attorney’s fees and litigation expenses.

CA affirmed RTC's findings.

1st Issue: W/N a demand for payment of the loans was made before the mortgage was foreclosed.  

Ruling: No.
Whether or not demand was made is a question of fact. Both the CA and RTC found that demand was never made, and no compelling reason has been shown by DBP to rule otherwise.

2nd Issue: W/N demand is necessary to make respondents guilty of default.

Ruling: Yes.
It is only when demand to pay is made and subsequently refused that respondents can be considered in default and DBP obtains the right to file an action to collect the debt or foreclose the mortgage.

The maturity dates only indicate when payment can be demanded. It is the refusal to pay after demand that gives the creditor a cause of action against the debtor.

Since demand was never made by DBP, the foreclosure was premature and therefore null and void.

Further, DBP's argument that respondents are estopped from questioning the validity of the foreclosure sale since they offered to repurchase the foreclosed properties is incorrect.

An offer to repurchase should not be construed as a waiver of the right to question the sale. Instead, it must be taken as an intention to avoid further litigation and thus is in the nature of an offer to compromise. By offering to redeem the properties, respondents can attain their ultimate objective: to pay off their debt and regain ownership of their lands.

3rd Issue: W/N respondents are liable for the deficiency claim of petitioner.

Ruling: No.
While it is true that in extrajudicial foreclosure of mortgage, the mortgagee has the right to recover the deficiency from the debtor, this presupposes that the foreclosure must first be valid.

4th Issue: W/N petitioner is liable for damages.

Ruling: Yes
DBP is liable for moral damages. Apart from the rushed foreclosure proceedings, certain acts of DBP were most certainly ruthless and in bad faith, which caused serious anxiety and wounded feelings to Respondents, to wit -

1st: DBP granted the three loans for a total of P45,740.61 because the market value of the collaterals exceeds P100,000.00. But 6 years later, when the value must have appreciated, DBP bidded for a measly P16,000.00 and claimed a deficiency. That it was measly and shocking to the conscience was conclusively proven by the fact that Peralta  bought the properties for P104,000.00 barely three 3 years later.

2nd: It is odd that DBP restructured the second loan, but not the first. This lulled Respondents into a false sense of security and a feeling of relief that the entire loan accommodation will mature in 1985. Thus, they were blindsided by the foreclosure proceedings, causing them to suffer sleepless nights.

3rd: Respondents also made pleas to repurchase the properties, which fell on deaf ears. It also had the temerity to unconscionably making deficiency claims plus interest.

Further, Respondents’ property rights were invaded or violated, hence the grant of nominal damages was also proper.

Respondents are likewise entitled to the award of attorney’s fees and expenses of litigation since the premature foreclosure by petitioner compelled them to incur expenses to protect their interest.
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