Credit Trans Assignment

8/3/2019 Credit Trans Assignment

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G.R. No. 112160 February 28, 2000

OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner,vs.COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C. CONTRARES and VICENTE MAOSCA,respondents.

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to review and set aside thDecision1 of the Court of Appeals in CA-G.R. CV No. 25242, which reversed the Decision2 of Branch 59 of the RTrial Court of Makati City in Civil Case No. M-028; the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and a new one is hereby enterDISMISSING the complaint of the spouses Osmundo and Angelina Canlas. On the counterclaim of defendant AsiaSavings Bank, the plaintiffs Canlas spouses are hereby ordered to pay the defendant Asian Savings Bank the amouP50,000.00 as moral and exemplary damages, plus P15,000.00 as and for attorney's fees.

With costs against appellees.

SO ORDERED.3

The facts that matter:

Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private respondent, Vicente Maosca, decided venture in business and to raise the capital needed therefor. The former then executed a Special Power of Attorneyauthorizing the latter to mortgage two parcels of land situated in San Dionisio, (BF Homes) Paranaque, Metro Maneach lot with semi-concrete residential house existing thereon, and respectively covered by Transfer Certificate of No. 54366 in his (Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of his wife AngelinCanlas.

Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente Maosca, for and in considerationP850,000.00, P500,000.00 of which payable within one week, and the balance of P350,000.00 to serve as his (Osminvestment in the business. Thus, Osmundo Canlas delivered to Vicente Maosca the transfer certificates of title of parcels of land involved. Vicente Maosca, as his part of the transaction, issued two postdated checks in favor of Osmundo Canlas in the amounts of P40,000.00 and P460,000.00, respectively, but it turned out that the check covethe bigger amount was not sufficiently funded.4

On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of land for P100,000.00 to a certaAttorney Manuel Magno, with the help of impostors who misrepresented themselves as the spouses, Osmundo CanAngelina Canlas.5

On September 29, 1982, private respondent Vicente Maosca was granted a loan by the respondent Asian Savings (ASB) in the amount of P500,000.00, with the use of subject parcels of land as security, and with the involvement same impostors who again introduced themselves as the Canlas spouses.6 When the loan it extended was not paid,respondent bank extrajudicially foreclosed the mortgage.

On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank that the execution of subjectmortgage over the two parcels of land in question was without their (Canlas spouses) authority, and request that stetaken to annul and/or revoke the questioned mortgage. On January 18, 1983, petitioner Osmundo Canlas also wrotoffice of Sheriff Maximo O. Contreras, asking that the auction sale scheduled on February 3, 1983 be cancelled or abeyance. But respondents Maximo C. Contreras and Asian Savings Bank refused to heed petitioner Canlas' stance proceeded with the scheduled auction sale.7

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Consequently, on February 3, 1983 the herein petitioners instituted the present case for annulment of deed of real emortgage with prayer for the issuance of a writ of preliminary injunction; and on May 23, 1983, the trial court issuOrder restraining the respondent sheriff from issuing the corresponding Certificate of Sheriff's Sale.8

For failure to file his answer, despite several motions for extension of time for the filing thereof, Vicente Maosca declared in default.9

On June 1, 1989, the lower court a quo came out with a decision annulling subject deed of mortgage and disposing

Premises considered, judgment is hereby rendered as follows.1wphi1.nt

1. Declaring the deed of real estate mortgage (Exhibit "L") involving the properties of the plaintiffs as null and voi

2. Declaring the public auction sale conducted by the defendant Sheriff, involving the same properties as illegal anwithout binding effect;

3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of P20,000.00 representing attorney'

4. On defendant ASB's crossclaim: ordering the cross-defendant Vicente Maosca to pay the defendant ASB the suP350,000.00, representing the amount which he received as proceeds of the loan secured by the void mortgage, pluinterest at the legal rate, starting February 3, 1983, the date when the original complaint was filed, until the amount paid;

5. With costs against the defendants.

SO ORDERED.10

From such Decision below, Asian Savings Bank appealed to the Court of Appeals, which handed down the assailed judgment of reversal, dated September 30, 1983, in CA-G.R. CV No. 25242. Dissatisfied therewith, the petitionerstheir way to this Court via the present Petition; theorizing that:

I

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE MORTGAGE OF THE PROPERTIESUBJECT OF THIS CASE WAS VALID.

II

RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS ARE NOT ENTITLED TRELIEF BECAUSE THEY WERE NEGLIGENT AND THEREFORE MUST BEAR THE LOSS.

III

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB EXERCISED DUEDILIGENCE IN GRANTING THE LOAN APPLICATION OF RESPONDENT.

IV

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB DID NOT ACT WIBAD FAITH IN PROCEEDING WITH THE FORECLOSURE SALE OF THE PROPERTIES.

V

RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB MORAL DAMAGES.11

The Petition is impressed with merit.

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Art. 1173 of the Civil Code, provides:

Art. 1173. The fault or negligence of the obligor consist in the omission of that diligence which is required bynature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. Whennegligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expectegood father of a family shall be required. (1104)

The degree of diligence required of banks is more than that of a good father of a family;12 in keeping with their responsibility to exercise the necessary care and prudence in dealing even on a registered or titled property. The buof a bank is affected with public interest, holding in trust the money of the depositors, which bank deposits the banshould guard against loss due to negligence or bad faith, by reason of which the bank would be denied the protectivmantle of the land registration law, accorded only to purchasers or mortgagees for value and in good faith.13

In the case under consideration, from the evidence on hand it can be gleaned unerringly that respondent bank did nobserve the requisite diligence in ascertaining or verifying the real identity of the couple who introduced themselvespouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not even a single identification card was ex by the said impostors to show their true identity; and yet, the bank acted on their representations simply on the basiresidence certificates bearing signatures which tended to match the signatures affixed on a previous deed of mortgacertain Atty. Magno, covering the same parcels of land in question. Felizado Mangubat, Assistant Vice President oSavings Bank, thus testified inter alia:

x x x x x x x x x

Q: According to you, the basis for your having recommended for the approval of MANASCO's (sic) loan particularly that one involving the property of plaintiff in this case, the spouses OSMUNDO CANLAS and ANGECANLAS, the basis for such approval was that according to you all the signatures and other things taken into accomatches with that of the document previously executed by the spouses CANLAS?

Q: That is the only basis for accepting the signature on the mortgage, the basis for the recommendation of theapproval of the loan are the financial statement of MAOSCA?

A: Yes; among others the signature and TAX Account Number, Residence Certificate appearing on the previloan executed by the spouses CANLAS, I am referring to EXHIBIT 5, mortgage to ATTY. MAGNO, those were mthe basis.

A: That is just the basis of accepting the signature, because at that time the loan have been approved already basis of the financial statement of the client the Bank Statement. Wneh (sic) it was approved we have to base it on Financial statement of the client, the signatures were accepted only for the purpose of signing the mortgage not forapproval, we don't (sic) approve loans on the signature.

ATTY. CLAROS:

Would you agree that as part of ascertaining the identify of the parties particularly the mortgage, you don't considethe signature, the Residence Certificate, the particular address of the parties involved.

A: I think the question defers (sic) from what you asked a while ago.

Q: Among others?

A: We have to accept the signature on the basis of the other signatures given to us it being a public instrumen

ATTY. CARLOS:

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You mean to say the criteria of ascertaining the identity of the mortgagor does not depend so much on the signatureresidence certificate they have presented.

A: We have to accept that.

x x x x x x x x x

A: We accepted the signature on the basis of the mortgage in favor of ATTY. MAGNO duly notarized which been reiterrting (sic) entitled to full faith considering that it is a public instrument.

ATTY. CARLOS:

What other requirement did you take into account in ascertaining the identification of the parties particularly themortgagor in this case.

A: Residence Certificate.

Q: Is that all, is that the only requirement?

A: We requested for others but they could not produce, and because they presented to us the Residence Certiwhich matches on the signature on the Residence Certificate in favor of Atty. Magno.14

Evidently, the efforts exerted by the bank to verify the identity of the couple posing as Osmundo Canlas and AngelCanlas fell short of the responsibility of the bank to observe more than the diligence of a good father of a family. Tnegligence of respondent bank was magnified by the fact that the previous deed of mortgage (which was used as thfor checking the genuineness of the signatures of the supposed Canlas spouses) did not bear the tax account numbespouses,15 as well as the Community Tax Certificate of Angelina Canlas.16 But such fact notwithstanding, the bannot require the impostors to submit additional proof of their true identity.

Under the doctrine of last clear chance, which is applicable here, the respondent bank must suffer the resulting lossessence, the doctrine of last clear chance is to the effect that where both parties are negligent but the negligent act ois appreciably later in point of time than that of the other, or where it is impossible to determine whose fault or neg brought about the occurrence of the incident, the one who had the last clear opportunity to avoid the impending harfailed to do so, is chargeable with the consequences arising therefrom. Stated differently, the rule is that the antecenegligence of a person does not preclude recovery of damages caused by the supervening negligence of the latter, whad the last fair chance to prevent the impending harm by the exercise of due diligence.17

Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the opportunity to perpetrate the fraud, bentrusting to latter the owner's copy of the transfer certificates of title of subject parcels of land, it cannot be deniedthe bank had the last clear chance to prevent the fraud, by the simple expedient of faithfully complying with therequirements for banks to ascertain the identity of the persons transacting with them.

For not observing the degree of diligence required of banking institutions, whose business is impressed with publicinterest, respondent Asian Savings Bank has to bear the loss sued upon.

In ruling for respondent bank, the Court of Appeals concluded that the petitioner Osmundo Canlas was a party to thfraudulent scheme of Maosca and therefore, estopped from impugning the validity of subject deed of mortgage;ratiocinating thus:

x x x x x x x x x

Thus, armed with the titles and the special power of attorney, Maosca went to the defendant bank and applied for And when Maosca came over to the bank to submit additional documents pertinent to his loan application, OsmunCanlas was with him, together with a certain Rogelio Viray. At that time, Osmundo Canlas was introduced to the b personnel as "Leonardo Rey".

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When he was introduced as "Leonardo Rey" for the first time Osmundo should have corrected Maosca right awayhe did not. Instead, he even allowed Maosca to avail of his (Osmundo's) membership privileges at the Metropolitwhen Maosca invited two officers of the defendant bank to a luncheon meeting which Osmundo also attended. Anduring that meeting, Osmundo did not say who he really is, but even let Maosca introduced him again as "LeonarRey", which all the more indicates that he connived with Maosca in deceiving the defendant bank.

Finally after the loan was finally approved, Osmundo accompanied Maosca to the bank when the loan was releasthat time, a manger's check for P200,000.00 was issued in the name of Oscar Motorworks, which Osmundo admitsowns and operates.

Collectively, the foregoing circumstances cannot but conjure to a single conclusion that Osmundo active participatthe loan application of defendant Asian Savings Bank, which culminated in his receiving a portion of the processthereof:18

A meticulous and painstaking scrutiny of the Records on hand, reveals, however, that the findings arrived at by theof Appeals are barren of any sustainable basis. For instance, the execution of the deeds of mortgages constituted byMaosca on subject pieces of property of petitioners were made possible not by the Special Power of Attorney exe by Osmundo Canlas in favor of Maosca but through the use of impostors who misrepresented themselves as the sAngelina Canlas and Osmundo Canlas. It cannot be said therefore, that the petitioners authorized Vicente Maoscaconstitute the mortgage on their parcels of land.

What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente Maosca, only on the occasion of thluncheon meeting at the Metropolitan Club.19 Thereat, the failure of Osmundo Canlas to rectify Maosca'smisrepresentations could not be taken as a fraudulent act. As well explained by the former, he just did not want toembarrass Maosca, so that he waited for the end of the meeting to correct Maosca.20

Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they did not talk about the security ocollateral for the loan of Maosca with ASB.21 So also, Mrs. Josefina Rojo, who was the Account Officer of AsiaSavings Bank when Maosca applied for subject loan, corroborated the testimony of Osmundo Canlas, she testifie

x x x x x x x x x

QUESTION: Now could you please describe out the lunch conference at the Metro Club in Makati?

ANSWER: Mr. Mangubat, Mr. Maosca and I did not discuss with respect to the loan application and discus primarily his business.

x x x x x x x x x

QUESTION: So, what is the main topic of your discussion during the meeting?

ANSWER: The main topic war then, about his business although, Mr. Leonardo Rey, who actually turned ouMr. Canlas, supplier of Mr. Maosca.

QUESTION: I see . . . other than the business of Mr. Maosca, were there any other topic discussed?

ANSWER: YES.

QUESTION: And what was the topic:

ANSWER: General Economy then.

x x x x x x x x x22

Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining thus why he (Osmundo) did no bother to correct what Maosca misrepresented and to assert ownership over the two parcels of land in question.

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Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when the latter submitted the documneeded for his loan application, and when the check of P200,000.00 was released, the former did not know that thecollateral used by Maosca for the said loan were their (Canlas spouses') properties. Osmundo happened to be withMaosca at the time because he wanted to make sure that Maosca would make good his promise to pay the balanthe purchase price of the said lots out of the proceeds of the loan.23

The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop him from assailing the validithe mortgage because the said amount was in payment of the parcels of land he sold to Maosca.24

What is decisively clear on record is that Maosca managed to keep Osmundo Canlas uninformed of his (Maoscaintention to use the parcels of land of the Canlas spouses as security for the loan obtained from Asian Savings BanVicente Maosca showed Osmundo Canlas several certificates of title of lots which, according to Maosca were thcollaterals, Osmundo Canlas was confident that their (Canlases') parcels of land were not involved in the loan transwith the Asian Savings Bank.25 Under the attendant facts and circumstances, Osmundo Canlas was undoubtedlynegligent, which negligence made them (petitioners) undeserving of an award of attorney's fees.

Settled is the rule that a contract of mortgage must be constituted only by the absolute owner on the propertymortgaged;26 a mortgage, constituted by an impostor is void.27 Considering that it was established indubitably thacontract of mortgage sued upon was entered into and signed by impostors who misrepresented themselves as the spOsmundo Canlas and Angelina Canlas, the Court is of the ineluctible conclusion and finding that subject contract omortgage is a complete nullity.

WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals, dated September 30, 1993, inG.R. CV No. 25242 SET ASIDE. The Decision of Branch 59 of the Regional Trial Court of Makati City in Civil CM-028 is hereby REINSTATED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 129471 April 28, 2000

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,vs.COURT OF APPEALS and CARLOS CAJES, respondents.

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MENDOZA, J.:

This is a petition for certiorari seeking to reverse the decision1 and resolution2 of the Court of Appeals dated Augu1996 and April 23, 1997, respectively, declaring private respondent Carlos Cajes the owner of 19.4 hectares of lanembraced in TCT No. 10101 and ordering the segregation and reconveyance of said portion to him.

The antecedent facts are as follows:

The land in dispute, consisting of 19.4 hectares located in San Miguel, Province of Bohol, was originally owned byUlpiano Mumar, whose ownership since 1917 was evidenced by Tax Declaration No. 3840.3 In 1950,4 Mumar solland to private respondent who was issued Tax Declaration No. R-1475 that same year.5 The tax declaration was lasuperseded by Tax Declaration Nos. R-799 issued in 19616 and D-2247 issued in 1974.7 Private respondent occupcultivated the said land,8 planting cassava and camote in certain portions of the land.9

In 1969, unknown to private respondent, Jose Alvarez succeeded in obtaining the registration of a parcel of land warea of 1,512,468.00 square meters, 10 in his name for which he was issued OCT No. 546 on June 16,1969. 11 The parcel of land included the 19.4 hectares occupied by private respondent. Alvarez never occupied nointroduced improvements on saidland. 12

In 1972, Alvarez sold the land to the spouses Gaudencio and Rosario Beduya to whom TCT No. 10101 was issuedThat same year, the spouses Beduya obtained a loan from petitioner Development Bank of the Philippines for P526,000.00 and, as security, mortgaged the land covered by TCT No. 10101 to the bank. 14 In 1978, the SAADInvestment Corp., and the SAAD Agro-Industries, Inc., represented by Gaudencio Beduya, and the spouses Beduy personally executed another mortgage over the land in favor of petitioner to secure a loan of P1,430,000.00. 15

The spouses Beduya later failed to pay their loans, as a result of which, the mortgage on the property was forecloseIn the resulting foreclosure sale held on January 31, 1985, petitioner was the highest bidder. 17 As the spouses Bedfailed to redeem the property, petitioner consolidated its ownership. 18

It appears that private respondent had also applied for a loan from petitioner in 1978, offering his 19.4 hectare propunder Tax Declaration No. D-2247 as security for the loan. As part of the processing of the application, a represent petitioner, Patton R. Olano, inspected the land and appraised its value.

Private respondent's loan application was later approved by petitioner. 19 However after releasing the amount of thto private respondent, petitioner found that the land mortgaged by private respondent was included in the land coveTCT No. 10101 in the name of the spouses Beduya. Petitioner, therefore, cancelled the loan and demanded immed payment of theamount. 20 Private respondent paid the loan to petitioner for which the former was issued a Cancellation of Mortgdated March 18, 1981, releasing the property in question from encumbrance. 21

Sometime in April of 1986, more than a year after the foreclosure sale, a re-appraisal of the property covered by T10101 was conducted by petitioner's representatives. It was then discovered that private respondent was occupying portion of said land. Private respondent was informed that petitioner had become the owner of the land he was occand he was asked to vacate the property. As private respondent refused to do so, 22 petitioner filed a complaint for recovery of possession with damages against him. The case was assigned to Branch 1 of the Regional Trial Court,Tagbilaran City, 23 which after trial, rendered a decision, dated August 22, 1989, declaring petitioner the lawful owthe entire land covered by TCT No. 10101 on the ground that the decree of registration was binding upon the land.dispositive portion of the decision reads:

WHEREFORE, foregoing considered, the court renders judgment:

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1 Declaring plaintiff bank Development Bank of the Philippines the true and legal owner of the land in questcovered by TCT No. 10101 farm of Gaudencio Beduya;

2 Dismissing defendant's counterclaim;

3 Ordering defendant to vacate from the land in question; the portion of which he claims to belong to him forwithout basis in fact and law;

4 Ordering defendant, his agents or any person representing him or those who may claim substantial rights onland to vacate therefrom, cease and desist from disturbing, molesting and interfering plaintiff's possession of the laquestion, and from committing any such act as would tend to mitigate, deny or deprive plaintiff of its ownership an possession over said land.

SO ORDERED.

On appeal, the Court of Appeals reversed and gave judgment for private respondent, declaring him the owner of thhectares of land erroneously included in TCT No. 10101. The dispositive portion of the appellate court's decision r

WHEREFORE, the appealed decision is hereby REVERSED AND SET ASIDE. A new decision is hereby rendere

1. Dismissing the complaint.

2. Declaring the disputed 19.4000 hectares of land embraced in TCT 10101 as exclusively belonging to defenappellant, ordering its segregation from plaintiff-appellee's title and its reconveyance to appellant.

No pronouncement as to costs.

SO ORDERED. 25

Petitioner moved for a reconsideration but its motion was denied in a resolution dated April 23, 1997. 26 Hence th petition.

Petitioner contends that:

I. THE DECISION OF THE RESPONDENT COURT IS NOT IN ACCORD WITH THE APPLICABLEPROVISIONS OF LAW (Sections 38 and 46 of ACT 496) AND THE APPLICABLE DECISIONS OF THE SUPRCOURT, PARTICULARLY IN THE CASE OF BENIN VS. TUASON, 57 SCRA 531.

II. THE RESPONDENT COURT OVERLOOKED THE ISSUES ABOUT THE DBP BEING AN INNOCENMORTGAGEE FOR VALUE OF THE LAND IN QUESTION AND OF HAVING PURCHASED LATER THE SDURING A PUBLIC AUCTION SALE.

III. THE RESPONDENT COURT'S RULING DECLARING DBP IN ESTOPPEL IS ILLOGICAL. 27

First. Petitioner invokes the ruling of this Court in Benin v. Tuason 28 in support of its claim that its predecessor-ininterest, Jose Alvarez, became the owner of the land by virtue of the decree of registration issued in his name. In Bthree sets of plaintiffs filed separate complaints against Mariano Severo Tuason and J.M. Tuason & Co., Inc., praythe cancellation of OCT No. 735 covering two parcels of land called the Sta. Mesa Estate, or Parcel 1, with an area8,798,617.00 square meters, and the Diliman Estate, or Parcel 2, with an area of 15,961,246.00 square meters. Thethat they be declared the owners and lawful possessors of said lands.

Benin is distinguished from this case. In the first place, Benin involved vast tracts of lands which had already beensubdivided and bought by innocent purchasers for value and in good faith at the time the claimants obtained registrSecondly, when the claimants' ancestors occupied the lands in question and declared them for tax purposes in 1944lands were already covered by the tax declarations in the name of J. M. Tuason & Co., Inc. In 1914, OCT No. 735issued in the name of Tuason so that, from that time on, no possession could defeat the title of the registered owner

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land. Thirdly, the validity of OCT No. 735 had already been recognized by this Court in several cases 29 and, as a thereof, the transfer certificates of title acquired by the innocent purchasers for value were also declared valid. It wthat neither could the claimants file an action to annul these titles for not only had these actions prescribed, but the was that the claimants were also barred from doing so by laches, having filed the complaint only in 1955, or 41 yethe issuance of OCT No. 735 to J.M. Tuason & Co., Inc. Thus, it was not solely the decree of registration which wconsidered in resolving the Benin case. What was considered decisive was the valid title or right of ownership of JTuason & Co., Inc. and that of the other innocent purchasers for value and in good faith compared to the failure of claimants to show their right to own or possess the questioned properties.1wphi1.nt

Petitioner maintains that the possession by private respondent and his predecessor-in-interest of the 19.4 hectares ofor more than 30 years cannot overcome the decree of registration issued in favor of its predecessor-in-interest JoseAlvarez. Petitioner quotes the following statement in the Benin case:

It follows also that the allegation of prescriptive title in favor of plaintiffs does not suffice to establish a cause of acsuch prescription was completed before the registration of the land in favor of the Tuasons, the resulting prescriptivwas cut off and extinguished by the decree of registration. If, on the contrary, the prescription was either begun or completed after the decree of registration, it conferred no title because, by express provision of law, prescription caoperate against the registered owner (Act 496). 30

Petitioner would thus insist that, by virtue of the decree of registration, Jose Alvarez and those claiming title from (i.e., the spouses Beduya) acquired ownership of the 19.4 hectares of land, despite the fact that they neither possessoccupied these lands.

This view is mistaken. A consideration of the cases shows that a decree of registration cut off or extinguished a rigacquired by a person when such right refers to a lien or encumbrance on the land not to the right of ownership t which was not annotated on the certificate of title issued thereon. Thus, Act No. 496 provides:

Sec. 39.Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of allencumbrances except those noted on said certificate, and any of the following encumbrances which may be subsistnamely:

First. Liens, claims, or rights arising or existing under the laws of Constitution of the United States or of the PhilipIslands which the statutes of the Philippine Islands cannot require to appear of record in the Registry.

Second. Taxes within two years after the same became due and payable.

Third. Any public highway, way, private way established by law, or any Government irrigation canal or lateral therwhere the certificate of title does not state that the boundaries of such highway, way, or irrigation canal or lateral thhave been determined.

But if there are easements or other rights appurtenant to a parcel of registered land which for any reason have faileregistered, such easements or rights shall remain so appurtenant notwithstanding such failure, and shall be held to pwith the land until cut off or extinguished by the registration of the servient estate, or in any other manner.

Hence, in Cid v. Javier, 31 it was held:

. . . Consequently, even conceding arguendo that such an easement has been acquired, it had been cut off and extin by the registration of the servient estate under the Torrens system without the easement being annotated on thecorresponding certificate of title, pursuant to Section 39 of the Land Registration Act.

This principle was reiterated in Purugganan v. Paredes 32 which also involved an easement of light and view that wannotated on the certificate of title of the servient estate.

But to make this principle applicable to a situation wherein title acquired by a person through acquisitive prescriptiwould be considered cut off and extinguished by a decree of registration would run counter to established jurisprud

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before and after the ruling in Benin. Indeed, registration has never been a mode of acquiring ownership over immo property. As early as 1911, in the case of City of Manila v. Lack, 33 the Court already ruled on the purpose of regisof lands, viz.:

The Court of Land Registration was created for a single purpose. The Act is entitled "An Act to provide for theadjudication and registration of titles to lands in the Philippine Islands." The sole purpose of the Legislature in its cwas to bring the land titles of the Philippine Islands under one comprehensive and harmonious system, the cardinalfeatures of which are indefeasibility of title and the intervention of the State as a prerequisite to the creation and traof titles and interest, with the resultant increase in the use of land as a business asset by reason of the greater certaisecurity of title. It does not create a title nor vest one. It simply confirms a title already created and already vested,rendering it forever indefeasible. . .

Again, in the case of Angeles v. Samia 34 where land was erroneously registered in favor of persons who neither possessed nor occupied the same, to the prejudice of the actual occupant, the Court held:

. . . The purpose of the Land Registration Act, as this court has had occasion to so state more than once, is not to crvest title, but to confirm and register title already created and already vested, and of course, said original certificate No. 8995 could not have vested in the defendant more title than what was rightfully due her and her coowners. Itappearing that said certificate granted her much more than she expected, naturally to the prejudice of another, it is that the error, which gave rise to said anomaly, be corrected (City of Manila vs. Lack, 19 Phil., 324). The defendanher coowners knew or, at least, came to know that it was through error that the original certificate of title in questioissued by the court which heard cadastral case No. 11 of Bacolor, not only in or prior to March, 1933, but from thesaid certificate was issued in their favor, that is, from December 15, 1921. This is evidenced by the fact that, ever sthey remained passive without even attempting to make the least showing of ownership over the land in question uafter the lapse of more than eleven years. The Land Registration Act as well as the Cadastral Act protects only the of a title in good faith and does not permit its provisions to be used as a shield for the commission of fraud, or that should enrich himself at the expense of another (Gustilo vs. Maravilla, 48 Phil., 442; Angelo vs. Director of LandsPhil., 838). The above-stated Acts do not give anybody, who resorts to the provisions thereof, a better title than he and lawfully has. If he happened to obtain it by mistake or to secure, to the prejudice of his neighbor, more land threally owns, with or without bad faith on his part, the certificate of title, which may have been issued to him under circumstances, may and should be cancelled or corrected (Legarda and Prieto vs. Saleeby, 31 Phil., 590). This is pe by section 112 of Act No. 496, which is applicable to the Cadastral Act because it is so provided expressly by the provisions of section 11 of the latter Act. It cannot be otherwise because, as stated in the case of Domingo vs. SantOngsiako, Lim y Cia. (55 Phil., 361), errors in the plans of lands sought to be registered in the registry and reproduthe certificate of title issued later, do not annul the decree of registration on the ground that it is not the plan but theitself which is registered in the registry. In other words, if the plan of an applicant for registration or claimant in acadastral case alleges that the land referred to in said plan is 100 or 1,000 hectares, and the land which he really owdesires to register in the registry is only 80 ares, he cannot claim to be the owner of the existing difference if afterwis issued a certificate of title granting him said area of 100 or 1,000 hectares. 35

The principle laid down in this 1938 case remains the prevailing doctrine, its latest application being in the case ofv. Court of Appeals 36 wherein we ruled that the fact that a party was able to secure a title in his favor did not opervest ownership upon her of the property.

In the present case, private respondent has been in actual, open, peaceful and continuous possession of the property1950. This fact was corroborated by the testimony of Eleuterio Cambangay who personally knew that Ulpiano Mutransferred the land covered by Tax Declaration No.3840 37 in favor of private respondent in 1950. 38 Private respondent's claim based on actual occupation of the lan bolstered by Tax Declaration Nos. R-1475, R-799 and D-2247 39 which were issued in his name in 1950, 1961 andrespectively. Together with his actual possession of the land, these tax declarations constitute strong evidence of ownership of the land occupied by him. As we said in the case of Republic vs. Court of Appeals: 40

Although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheleare good indicia of possession in the concept of owner for no one in his right mind would be paying taxes for a prothat is not in his actual or at least constructive possession. They constitute at least proof that the holder has a claim over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only one's si

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and honest desire to obtain title to the property and announces his adverse claim against the State and all other inte parties, but also the intention to contribute needed revenues to the Government. Such an act strengthens one's bonaclaim of acquisition of ownership.

More importantly, it was established that private respondent, having been in possession of the land since 1950, wasowner of the property when it was registered by Jose Alvarez in 1969, his possession tacked to that of his predecesinterest, Ulpiano Mumar, which dates back to 1917. 41 Clearly, more than 30 years had elapsed before a decree of registration was issued in favor of Jose Alvarez. This uninterrupted adverse possession of the land for more than 30could only ripen into ownership of the land through acquisitive prescription which is a mode of acquiring ownershother real rights over immovable property. Prescription requires public, peaceful, uninterrupted and adverse possesthe property in the concept of an owner for ten (10) years, in case the possession is in good faith and with a just titl prescription is called ordinary prescription, as distinguished from extraordinary prescription which requires posses30 years in case possession is without just title or is not in good faith. 42

In contrast to private respondent, it has been shown that neither Jose Alvarez nor the spouses Beduya were at any t possession of the property in question. In fact, despite knowledge by Gaudencio Beduya that private respondent octhis 19.4 hectares included in the area covered by TCT No. 10101, 43 he never instituted any action to eject or reco possession from the latter. Hence, it can be concluded that neither Jose Alvarez nor the spouses Beduya ever exercany right of ownership over the land. The fact of registration in their favor never vested in them the ownership of tin dispute. "If a person obtains a title under the Torrens system, which includes by mistake or oversight land whichlonger be registered under the system, he does not, by virtue of the said certificate alone, become the owner of the illegally included." 44

Considering the circumstances pertaining in this case, therefore, we hold that ownership of the 19.4 hectares of lan presently occupied by private respondent was already vested in him and that its inclusion in OCT No. 546 and,subsequently, in TCT No. 10101, was erroneous. Accordingly, the land in question must be reconveyed in favor ofrespondent, the true and actual owner thereof, reconveyance being clearly the proper remedy in this case.

The true owner may bring an action to have the ownership or title to the land judicially settled and the Court in theexercise of its equity jurisdiction, without ordering the cancellation of the Torrens title issued upon the patent, maythe defendants, the registered owner to reconvey the parcel of land to the plaintiff who has been found to be the truowner thereof." (Vital vs. Amore, 90 Phil. 955) "The reconveyance is just and proper in order to terminate the intoanomaly that the patentees should have a torrens title for the land which they and their predecessors never possessewhich has been possessed by Novo in the concept of owner." (Bustarga v. Novo, 129 SCRA 125). 45

Second. Generally, an action for reconveyance based on an implied or constructive trust, such as the instant case, prescribes in 10 years from the date of issuance of decree of registration. 46 However, this rule does not apply whe plaintiff is in actual possession of the land. Thus, it has been held:

. . . [A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years, point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over property, but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the prosince if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in thinstant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. Treason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule beinghis undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determinature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one win possession. 47

Having been the sole occupant of the land in question, private respondent may seek reconveyance of his property dthe lapse of more than 10 years.

Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true that the indefeasibility oftitles cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed b petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 1

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on which petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamouncollateral attack. However, it should not be overlooked that private respondent filed a counterclaim against petitionclaiming ownership over the land and seeking damages. Hence, we could rule on the question of the validity of TC10101 for the counterclaim can be considered a direct attack on the same. "A counterclaim is considered a complaithis time, it is the original defendant who becomes the plaintiff. . . . It stands on the same footing and is to be testedsame rules as if it were an independentaction." 48 In an analogous case, 49 we ruled on the validity of a certificate of title despite the fact that the originalinstituted before the lower court was a case for recovery of possession. The Court reasoned that since all the facts ocase are before it, to direct the party to institute cancellation proceedings would be needlessly circuitous and wouldunnecessarily delay the termination of the controversy which has already dragged on for 20 years.

Third. Petitioner nonetheless contends that an action for reconveyance does not lie against it, because it is an innoc purchaser for value in the foreclosure sale held in 1985.

This contention has no merit. Sec. 38 of Act No. 496, the Land Registration Act, provides:

If the court after hearing finds that the applicant or adverse claimant has title as stated in his application or adverseand proper for registration, a decree of confirmation and registration shall be entered. Every decree of registration bind the land, and quiet title thereto, subject only to the exceptions stated in the following section. It shall be conclupon and against all persons, including the Insular Government and all the branches thereof, whether mentioned byin the application, notice, or citation, or included in the general description "To all whom it may concern." Such deshall not be opened by reason of the absence, infancy, or other disability of any person affected thereby, nor by any proceeding in any court for reversing judgments or decrees; subject, however, to the right of any person deprived oor of any estate or interest therein by decree of registration obtained by fraud to file in the competent Court of FirstInstance a petition for review within one year after entry of the decree, provided no innocent purchaser for value haacquired an interest. Upon the expiration of said term of one year, every decree or certificate of title issued in accowith this section shall be incontrovertible. If there is any such purchaser, the decree of registration shall not be opeshall remain in full force and effect forever, subject only to the right of appeal hereinbefore provided: Provided, hoThat no decree or certificate of title issued to persons not parties to the appeal shall be cancelled or annulled. But a person aggrieved by such decree in any case may pursue his remedy by action for damages against the applicant orother person for fraud in procuring the decree. Whenever the phrase "innocent purchaser for value" or an equivalen phrase occurs in this Act, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for v(As amended by Sec. 3, Act 3621; and Sec. 1, Act No. 3630.)

Succinctly put, 38 provides that a certificate of title is conclusive and binding upon the whole world. Consequentl buyer need not look behind the certificate of title in order to determine who is the actual owner of the land. Howevis subject to the right of a person deprived of land through fraud to bring an action for reconveyance, provided thatnot prejudice the rights of an innocent purchaser for value and in good faith. "It is a condition sine qua non for an afor reconveyance to prosper that the property should not have passed to the hands of an innocent purchaser for valuThe same rule applies to mortgagees, like petitioner. Thus, we held:

Where the certificate of title is in the name of the mortgagor when the land is mortgaged, the innocent mortgagee fvalue has the right to rely on what appears on the certificate of title. In the absence of anything to excite suspicion,mortgagee is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearingface of said certificate. Although Article 2085 of the Civil Code provides that absolute ownership of the mortgaged property by the mortgagor is essential, the subsequent declaration of a title as null and void is not a ground for nullthe mortgage right of a mortgagee in good faith. 51

The evidence before us, however, indicates that petitioner is not a mortgagee in good faith. To be sure, an innocentmortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor's title. Nonetheleespecially in the case of a banking institution, a mortgagee must exercise due diligence before entering into said coJudicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the prof the land offered as collateral and to investigate who are the real owners thereof. Banks, their business being impwith public interest, are expected to exercise more care and prudence than private individuals in their dealings, eveinvolving registeredlands. 52

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In this case, petitioner's representative, Patton R. Olano, admitted that he came to know of the property for the first1979 when he inspected it to determine whether the portion occupied by private respondent and mortgaged by the l petitioner was included in TCT No. 10101. This means that when the land was mortgaged by the spouses Beduya ino investigation had been made by petitioner. It is clear, therefore, that petitioner failed to exercise due care and diin establishing the condition of the land as regards its actual owners and possessors before it entered into the mortgcontract in 1972 with the Beduyas. Had it done so, it would not have failed to discover that private respondent wasoccupying the disputed portion of 19.4 hectares. For this reason, petitioner cannot be considered an innocent purchvalue when it bought the land covered by TCT No. 10101 in 1985 at the foreclosure sale.

Indeed, two circumstances negate petitioner's claim that it was an innocent purchaser for value when it bought the question, including the portion occupied by private respondent: (1) petitioner was already informed by Gaudencio that private respondent occupied a portion of the property covered by TCT No. 10101; and (2) petitioner's represenconducted an investigation of the property in 1979 to ascertain whether the land mortgaged by private respondent wincluded in TCT No. 10101. In other words, petitioner was already aware that a person other than the registered owwas in actual possession of the land when it bought the same at the foreclosure sale. A person who deliberately ignsignificant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for valua well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guardthen claim that he acted in good faith under the belief that there was no defect in the title of the vendor." 53

Petitioner deliberately disregarded both the fact that private respondent already occupied the property and that he wclaiming ownership over the same. It cannot feign ignorance of private respondent's claim to the land since the lattmortgaged the same land to petitioner as security for the loan he contracted in 1978 on the strength of the tax declaissued under his name. Instead of inquiring into private respondent's occupation over the land, petitioner simply prowith the foreclosure sale, pretending that no doubts surround the ownership of the land covered by TCT No. 10101Considering these circumstances, petitioner cannot be deemed an innocent mortgagee/purchaser for value. As we r

The failure of appellees to take the ordinary precautions which a prudent man would have taken under the circumsspecially in buying a piece of land in the actual, visible and public possession of another person, other than the venconstitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold is in the possession of a person other thvendor, the purchaser is required to go beyond the certificates of title and ma[k]e inquiries concerning the rights ofactual possessor. (Citations omitted.)

xxx xxx xxx

One who purchases real property which is in the actual possession of another should, at least, make some inquiryconcerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as agsuch possessors. 54

Fourth. From the foregoing, we find that the resolution of the issue of estoppel will not affect the outcome of this cPetitioner claims that the fact that it approved a loan in favor of private respondent and executed a mortgage contracovering the 19.4 hectares covered by tax declarations issued under private respondent's name does not mean that iestopped from questioning the latter's title. Petitioner accuses private respondent of having made misrepresentationwhich led it to believe in his valid title and ownership.

The claim has no basis. Private respondent made no misrepresentation with regard to the land occupied by him as hactually the real owner thereof. Moreover, when private respondent entered into a mortgage contract with petitioneclaim of ownership was supported not only by the tax declarations but also by a certification of the Clerk of Court Court of First Instance of Bohol that no civil, land registration or cadastral case has been filed or instituted before tcourt affecting the validity of Tax Declaration No. D-2247 covering the land located in Bugang, San Miguel, Bohodeclared in the name of Carlos Cajes. 55 These documents were relied upon by private respondent in support of hiof ownership. We cannot consider the submission of these documents as misrepresentations by private respondent

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the actual ownership of the land. Rather, private respondent believed in good faith and with good reason that he waowner of the 19.4 hectares occupied by him.

As to the question of estoppel, we do not find petitioner to be estopped from questioning private respondent's title."Estoppel in pais arises when one, by his acts, representations or admission, or by his own silence when he ought tout, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rigrelies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such 56 In the case at bar, upon learning that the land occupied by private respondent was also covered by TCT No. 101 petitioner immediately demanded full payment of the loan and thereafter cancelled the mortgage contract, a fact thadmitted by private respondent himself. 57 Indeed, nothing in record indicates that petitioner impliedly acquiescedvalidity of private respondent's title when it found out that the latter was occupying a portion of the land covered by No. 10101.1wphi1.nt

However, for reasons aforestated, we uphold private respondent's ownership of 19.4 hectares occupied by him. As necessary consequence thereof, such portion of land included in TCT No. 10101 must be segregated and reconveyehis favor.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto.

SO ORDERED.

G.R. No. 123031 October 12, 1999

CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,vs.COURT OF APPEALS, VICENTE ALEGRE, respondents.

QUISUMBING, J.:

This petition for review on certiorari assails respondent appellate court's Decision, 1 dated December 8, 1995, in CCV No. 44085, which affirmed the ruling of the Regional Trial Court of Makati, Branch 132. The dispositive portithe trial court's decision reads:

WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to pay plaintiff [herein privaterespondent]:

(1) the principal sum of P514,390.94 with legal interest thereon computed from August 6, 1991 until fully paid

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(2) the costs of suit.

SO ORDERED. 2

Based on the records, the following are the pertinent facts of the case:

Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money market operation

On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand (P500,000.00) in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for five hundred sixteen thousanhundred thirty-eight pesos and sixty-seven centavos (P516,238.67) covered private respondent's placement plus inttwenty and a half (20.5%) percent for thirty-two (32) days.

On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred fourteen thousanthree hundred ninety pesos and ninety-four centavos (P514,390.94) in favor of the private respondent as proceeds omatured investment plus interest. The CHECK was drawn from petitioner's current account number 0011-0803-59maintained with the Bank of the Philippine Islands (BPI), main branch at Makati City.1wphi1.nt

On June 17, 1991, private respondent's wife deposited the CHECK with Rizal Commercial Banking Corp. (RCBCPuerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of anInvestigation." BPI took custody of the CHECK pending an investigation of several counterfeit checks drawn agaiCIFC's aforestated checking account. BPI used the check to trace the perpetrators of the forgery.

Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, th paid in cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private respondent, through counsel, made a formal demand for the payment omoney market placement. In turn, CIFC promised to replace the CHECK but required an impossible condition thatoriginal must first be surrendered.

On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a sum of money against the pwith the Regional Trial Court of Makati (RTC-Makati), Branch 132.

On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate civil action 4 forcollection of a sum of money with the RTC-Makati, Branch 147. The collection suit alleged that BPI unlawfully defrom CIFC's checking account, counterfeit checks amounting to one million, seven hundred twenty-four thousand,hundred sixty-four pesos and fifty-eight centavos (P1,724,364.58). The action included the prayer to collect the amthe CHECK paid to Vicente Alegre but dishonored by BPI.

Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion for leave of coufile a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and indemwith respect to Alegre's claim. CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid andsufficiently funded.

On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the third-party complaintground of pendency of another action with RTC-Makati, Branch 147. Acting on the motion, the trial court dismissethird-party complaint on November 4, 1992, after finding that the third party complaint filed by CIFC against BPI similar to its ancillary claim against the bank, filed with RTC-Makati Branch 147.

Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito Arieta, BankManager of BPI, testified that the bank, indeed, dishonored the CHECK, retained the original copy and forwarded certified true copy to RCBC. When Arieta was recalled on July 20, 1993, he testified that on July 16, 1993, BPI enand deducted the said amount from the account of CIFC, but the proceeds, as well as the CHECK remained in BPIcustody. The bank's move was in accordance with the Compromise Agreement 5 it entered with CIFC to end the liin RTC-Makati, Branch 147. The compromise agreement, which was submitted for the approval of the said court, provided that:

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1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of P1,724,364.58 plus P20,000 litigation expefull and final settlement of all of plaintiff's claims as contained in the Amended Complaint dated September 10, 19aforementioned amount shall be credited to plaintiff's current account No. 0011-0803-59 maintained at defendant'sBranch upon execution of this Compromise Agreement.

2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current account representing payment/discharge of BPI Check No. 513397 payable to Vicente Alegre.

3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishof BPI Check No. 513397, plaintiff cannot go after the defendant: otherwise stated, the defendant shall not be liabl plaintiff. Plaintiff [CIFC] may however set-up the defense of payment/discharge stipulated in par. 2 above. 6

On July 27, 1993, BPI filed a separate collection suit 7 against Vicente Alegre with the RTC-Makati, Branch 62. Tcomplaint alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A. Anda and forged several cheBPI's client, CIFC. The total amount of counterfeit checks was P1,724,364.58. BPI prevented the encashment of sochecks amounting to two hundred ninety five thousand, seven hundred seventy-five pesos and seven centavos(P295,775.07). BPI admitted that the CHECK, payable to Vicente Alegre for P514,390.94, was deducted from BPIclaim, hence, the balance of the loss incurred by BPI was nine hundred fourteen thousand, one hundred ninety-eighand fifty-seven centavos (P914,198.57), plus costs of suit for twenty thousand (P20,000.00) pesos. The records areon the outcome of this case.

On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.

CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the decision of the trial

Hence this appeal, 8 in which petitioner interposes the following assignments of errors:

1. The Honorable Court of Appeals erred in affirming the finding of the Honorable Trial Court holding that petitioner was not discharged from the liability of paying the value of the subject check to private respondent after has debited the value thereof against petitioner's current account.

2. The Honorable Court of Appeals erred in applying the provisions of paragraph 2 of Article 1249 of the Civin the instant case. The applicable law being the Negotiable Instruments Law.

3. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's findings that the petitioner guilty of negligence and delay in the performance of its obligation to the private respondent.

4. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's decision ordering petitionelegal interest and the cost of suit.

5. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's dismissal of petitioner's thi party complaint against BPI.

These issues may be synthesized into three:

1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE PRESENT CASE

2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY DISCHARGED; and

3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY COMPLAINT OF PETITIONER AGABPI BY REASON OF LIS PENDENS WAS PROPER?

On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are the pertinento govern its money market transaction with private respondent, and not paragraph 2 of Article 1249 of the Civil CPetitioner stresses that it had already been discharged from the liability of paying the value of the CHECK due to thfollowing circumstances:

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1) There was "ACCEPTANCE" of the subject check by BPI, the drawee bank, as defined under the NegotiablInstruments Law, and therefore, BPI, the drawee bank, became primarily liable for the payment of the check, andconsequently, the drawer, herein petitioner, was discharged from its liability thereon;

2) Moreover, BPI, the drawee bank, has not validly DISHONORED the subject check; and,

3) The act of BPI, the drawee bank of debiting/deducting the value of the check from petitioner's account amoto and/or constituted a discharge of the drawer's (petitioner's) liability under the instrument/subject check. 9

Petitioner cites Section 137 of the Negotiable Instruments Law, which states:

Liability of drawee retaining or destroying bill Where a drawee to whom a bill is delivered for acceptance destrsame, or refuses within twenty-four hours after such delivery or such other period as the holder may allow, to retur bill accepted or non-accepted to the Holder, he will be deemed to have accepted the same.

Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the payment of theCHECK. Consequently, when BPI offset the value of CHECK against the losses from the forged checks allegedlycommitted by the private respondent, the check was deemed paid.

Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the min the "payment of debts." It provides that:

The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such cuthen in the currency, which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produceffect of payment only when they have been cashed, or when through the fault of the creditor they have been impa

In the meantime, the action derived from the original obligation shall be held in abeyance.

Considering the nature of a money market transaction, the above-quoted provision should be applied in the presentcontroversy. As held in Perez vs. Court of Appeals, 10 a "money market is a market dealing in standardized short-tcredit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his mone borrower through a middleman or dealer. 11

In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature oloan. The private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he presentedRCBC for encashment, as early as June 17, 1991, the same was dishonored by non-acceptance, with BPI's annotat"Check (is) subject of an investigation." These facts were testified to by BPI's manager. Under these circumstancesafter the notice of dishonor, 12 the holder has an immediate right of recourse against the drawer, 13 and consequencould immediately file an action for the recovery of the value of the check.

In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tenderthe use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In the casPhilippine Airlines, Inc. vs. Court of Appeals, 14 this Court held:

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument doe by itself, operate as payment (citation omitted). A check, whether a manager's check or ordinary check, is not legaland an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the oblcreditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguand remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par.

Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFC's current accountdid not ipso facto operate as a discharge or payment of the instrument. Although the value of the CHECK was dedu

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from the funds of CIFC, it was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount against tlosses it incurred from forgeries of CIFC checks, allegedly committed by Alegre. The confiscation of the value of tcheck was agreed upon by CIFC and BPI. The parties intended to amicably settle the collection suit filed by CIFC the RTC-Makati, Branch 147, by entering into a compromise agreement, which reads:

xxx xxx xxx

2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current account representing payment/discharge of BPI Check No. 513397 payable to Vicente Alegre.

3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishof BPI Check No. 513397, plaintiff cannot go after the defendant; otherwise stated, the defendant shall not be liabl plaintiff. Plaintiff however (sic) set-up the defense of payment/discharge stipulated in par. 2above. 16

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an endalready commenced. 17 It is an agreement between two or more persons who, for preventing or putting an end to alawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of themin the hope of gaining, balanced by the danger of losing. 18 The compromise agreement could not bind a party whnot sign the compromise agreement nor avail of its benefits. 19 Thus, the stipulations in the compromise agreemenunenforceable against Vicente Alegre, not a party thereto. His money could not be the subject of an agreement betwCIFC and BPI. Although Alegre's money was in custody of the bank, the bank's possession of it was not in the conan owner. BPI cannot validly appropriate the money as its own. The codal admonition on this issue is clear:

Art. 1317

No one may contract in the name of another without being authorized by the latter, or unless he has by law a right represent him.

A Contract entered into in the name of another by one who has no authority or legal representation, or who has act beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behhas been executed, before it is revoked by the other contracting party. 20

BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a valid proceedingcourt. Garnishment is an attachment by means of which the plaintiff seeks to subject to his claim the property of thdefendant in the hands of a third person or money owed to such third person or a garnishee to the defendant. 21 Thgarnishment procedure must be upon proper order of RTC-Makati, Branch 62, the court who had jurisdiction over collection suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its obligation to private respondent. Tender of payment involves a positive and unconditional act by the obligor of offering legal tencurrency as payment to the obligee for the former's obligation and demanding that the latter accept the same. 22 Te payment cannot be presumed by a mere inference from surrounding circumstances.

With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the following requisimust concur: (a) identity of parties or at least such as to represent the same interest in both actions; (b) identity of rasserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases shouldsuch that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the other. 23

The trial court's ruling as adopted by the respondent court states, thus:

A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International Finance Corporation vs. Bank ofPhilippine Islands now pending before Branch 147 of this Court and the Third Party Complaint in the instant case wreadily show that the parties are not only identical but also the cause of action being asserted, which is the recoveryvalue of BPI Check No. 513397 is the same. In Civil Case No. 92-1940 and in the Third Party Complaint the rightasserted and relief prayed for, the reliefs being founded on the facts, are identical.

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xxx xxx xxx

WHEREFORE, the motion to dismiss is granted and consequently, the Third Party Complaint is hereby ordered dion ground of lis pendens. 24

We agree with the observation of the respondent court that, as between the third party claim filed by the petitioner BPI in Civil Case No. 92-515 and petitioner's ancillary claim against the bank in Civil Case No. 92-1940, there is iof parties as well as identity of rights asserted, and that any judgment that may be rendered in one case will amoun judicata in another.

The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is adjudged liablVicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff (CIcannot go after the defendant (BPI); otherwise stated, the defendant shall not be liable to the plaintiff." 25 Clearly, stipulation expressed that CIFC had already abandoned any further claim against BPI with respect to the value of BCheck No. 513397. To ask this Court to allow BPI to be a party in the case at bar, would amount to res judicata anviolate terms of the compromise agreement between CIFC and BPI. The general rule is that a compromise has upo parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implfrom its terms should be deemed to have been included therein. 26 This holds true even if the agreement has not be judicially approved. 27

WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.is AFFIRMED. Costs against petitioner.1wphi1.nt

SO ORDERED.

G.R. No. L-20240 December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,vs.JOSE GRIJALDO, defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.Isabelo P. Samson for defendant-appellant.

ZALDIVAR, J.:

In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in BCity, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans aevidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 19P200.00, all notes without due dates, but because the loans were due one year after they were incurred. To secure t payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 knoHacienda Campugas in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading wiEnemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government oUnited States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loan

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question, were subsequently transferred to the Republic of the Philippines by the Government of the United States Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under theadministration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, andaccordance with Republic Acts Nos. 8 and 477 and other pertinent laws.

On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. Threcord shows that the appellant had actually received the written demand for payment, but he failed to pay.

The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of valuesthe time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annumcompounded quarterly, computed as of December 31, 1959 was P2,377.23.

On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidencollect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after hearing, dismthe case on the ground that the action had prescribed. The appellee appealed to the Court of First Instance of NegroOccidental and on March 26, 1962 the court a quo rendered a decision ordering the appellant to pay the appellee thof P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the dthe filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent of the amount due as attorney's fees and costs.

The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died. Umotion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto LaRuben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted as appein accordance with Section 17 of Rule 3 of the Rules of Court.

In the present appeal the appellant contends: (1) that the appellee has no cause of action against the appellant; (2) ththe appellee has a cause of action at all, that action had prescribed; and (3) that the lower court erred in ordering thappellant to pay the amount of P2,377.23.

In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with tappellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so that the appellee,Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligatioinvolved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original cand the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However, pursuanTrading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting O No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was declared to be un jurisdiction of the enemy country (Japan), were vested in the United States Government and the Republic of thePhilippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the Philippinessuccessive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United StatesGovernment, and from the United States Government to the government of the Republic of the Philippines, made tRepublic of the Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of c between the appellee and the appellant. In defining the word "privy" this Court, in a case, said:

The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated to it, etc. will privies; in short, he who by succession is placed in the position of one of those who contracted the judicial relationexecuted the private document and appears to be substituting him in the personal rights and obligation is a privy (Avs. Perez, 38 Phil. 785, 790).

The United States of America acting as a belligerent sovereign power seized the assets of the Bank of Taiwan, Ltd belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary act and sanctioned by international law, the United States succeeded to the rights and interests of said Bank of Taiwanover the assets of said bank. As successor in interest in, and transferee of, the property rights of the United States oAmerica over the loans in question, the Republic of the Philippines had thereby become a privy to the original conloan between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines legal right to bring the present action against the appellant Jose Grijaldo.

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The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that becauseloans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost odestroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is untenabterms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan,not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to delivdeterminate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvestedhis land. Rather, his obligation was to pay a generic thing the amount of money representing the total sum of thloans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contrasimple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or oconsumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 19Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to value thereof; that is, to deliver a sum of money a clear case of an obligation to deliver, a generic thing. Article the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish obligation.

The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appeobligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, bthe account could still be paid from other sources aside from the mortgaged crops.

In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The appell points out that the loans became due on June 1, 1944; and when the complaint was filed on January 17,1961 a perimore than 16 years had already elapsed far beyond the period of ten years when an action based on a written coshould be brought to court.

This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the present case brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign functions, to pthe interests of the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code prescription, bacquisitive and extinctive, does not run against the State. This Court has held that the statute of limitations does noagainst the right of action of the Government of the Philippines (Government of the Philippine Islands vs. Monte dPiedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the action to collect the loan fappellant was interrupted by the moratorium laws (Executive Orders No. 25, dated November 18, 1944; Executive No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in question, as evi by the five promissory notes, were incurred in the year 1943, or during the period of Japanese occupation of thePhilippines. This case is squarely covered by Executive Order No. 25, which became effective on November 18, 1 providing for the suspension of payments of debts incurred after December 31, 1941. The period of prescription watherefore, suspended beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708, May 1893 Phil. 68), declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 anare unconstitutional; but in that case this Court ruled that the moratorium laws had suspended the prescriptive perioMay 18, 1953. This ruling was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-93August 16, 1956. It follows, therefore, that the prescriptive period in the case now before US was suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were declared unconstitutional by this Court. Computeaccordingly, the prescriptive period was suspended for 8 years and 6 months. By the appellant's own admission, theof action on the five promissory notes in question arose on June 1, 1944. The complaint in the present case was fileJanuary 17, 1961, or after a period of 16 years, 6 months and 16 days when the cause of action arose. If the prescri period was not interrupted by the moratorium laws, the action would have prescribed already; but, as We have state prescriptive period was suspended by the moratorium laws for a period of 8 years and 6 months. If we deduct the pof suspension (8 years and 6 months) from the period that elapsed from the time the cause of action arose to the timthe complaint was filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16 days. In other wthe prescriptive period ran for only 8 years and 16 days. There still remained a period of one year, 11 months and 1of the prescriptive period when the complaint was filed.

In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the amounP2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply the Ballantyne Sca

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values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what should beto evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due, and that was in JuneThis contention of the appellant is also without merit.

The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus inrate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the five obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under thBallantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is equivalenP889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of the five lothe amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the principal sumP889.64 compounded quarterly from the time the obligations were incurred in 1943.

It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the obligation wasincurred, and that was in June 1943. This stand of the appellee was upheld by the lower court; and the decision of tlower court is supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 3046 O.G. 5472), which states:

... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after the libto the extent of the just obligation of the contracting parties and, as said notes have become worthless, in order thatmay be done and the party entitled to be paid can recover their actual value in Philippine Currency, what the debtodefendant bank should return or pay is the value of the Japanese military notes in relation to the peso in PhilippineCurrency obtaining on the date when and at the place where the obligation was incurred unless the parties had agreotherwise. ... . (italics supplied)

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant. Inasmuthe appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in the execution of the judgment in the present case.

REPUBLIC ACT No. 3765

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH EXTENSIONCREDIT.

Section 1. This Act shall be known as the "Truth in Lending Act."

Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lackawareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing tuninformed use of credit to the detriment of the national economy.

Section 3. As used in this Act, the term

(1) "Board" means the Monetary Board of the Central Bank of the Philippines.

(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any consell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all o price is payable subsequent to the making of such sale or contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim against,the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obof claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose oeffect.

(3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extencredit as the Board may be regulation prescribe.

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(4) "Creditor" means any person engaged in the business of extending credit (including any person who as a regula business practice make loans or sells or rents property or services on a time, credit, or installment basis, either as por as agent) who requires as an incident to the extension of credit, the payment of a finance charge.

(5) "Person" means any individual, corporation, partnership, association, or other organized group of persons, or thsuccessor or representative of the foregoing, and includes the Philippine Government or any agenc

Documents

Credit Trans Assignment