July 2012 Philippine Supreme Court Decisions on Civil Law

Here are select July 2012 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contracts; reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. For one party to demand the performance of the obligation of the other party, the former must also perform its own obligation. Accordingly, petitioner, not having provided the services that would require the payment of service fees as stipulated in the Lease Development Agreement, is not entitled to collect the same. Subic Bay Metropolitan Authority vs. Honorable Court of Appeals and Subic International Hotel Corporation; G.R. No. 192885, July 4, 2012.

Contracts; contract of sale vs. contract to sell. The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent.  It is the absence of the first element which distinguishes a contract of sale from that of a contract to sell.

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. The vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded. Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc., G.R. No. 194785, July 11, 2012.

Contracts; contract of sale; delivery. Among the terms and conditions of the proposal to which MOELCI agreed, it was stated:

2. Delivery – Ninety (90) working days upon receipt of your purchase order and downpayment.  C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the account of MOELCI II.

On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the freight, handling, insurance, custom duties, and incidental expenses shall be shouldered by it.

On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable. It provides:

Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears. (Emphasis supplied)

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed to be a delivery to MOELCI.  David was authorized to send the power transformer to the buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to a delivery to MOELCI.

Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco  it was pointed out that a specification in a contract relative to the payment of freight can be taken to indicate the intention of the parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in this case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at the point of shipment. In other words, the title to the goods transfers to the buyer upon shipment or delivery to the carrier.

Of course, Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should have presented evidence to the contrary. The burden of proof was shifted to MOELCI, who had to show that the rule under Article 1523 was not applicable. In this regard, however, MOELCI failed. Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.; G.R. No. 194785, July 11, 2012.

Contracts; interpretation. The rule is that it is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties. Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.; G.R. No. 194785, July 11, 2012.

Contracts; statute of frauds. There being delivery and release, said fact constitutes partial performance which takes the case out of the protection of the Statute of Frauds. It is elementary that the partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and are clearly established to be present. Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.; G.R. No. 194785, July 11, 2012.

Damages; attorney’s fees. David was compelled to file an action against MOELCI but this reason alone will not warrant an award of attorney’s fees. It is settled that the award of attorney’s fees is the exception rather than the rule. Counsel’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney’s fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney’s fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney’s fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code which demands factual, legal, and equitable justification. Its basis cannot be left to speculation or conjecture. In this regard, none was proven. Moreover, in the absence of stipulation, a winning party may be awarded attorney’s fees only in case plaintiffs action or defendant’s stand is so untenable as to amount to gross and evident bad faith. MOELCI’s case cannot be similarly classified. Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.;G.R. No. 194785, July 11, 2012.

Damages; moral damages. A breach of contract may give rise to an award of moral damages only if the party guilty of the breach acted fraudulently or in bad faith. Likewise, a breach of contract may give rise to exemplary damages if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

The CIAC awarded moral and exemplary damages in favor of petitioners on the basis of respondent’s failure to make payments on time and in full. The CIAC gave merit to the allegations of petitioners that the delayed and staggered payments drained them financially and emotionally, compelled them to apply for additional loans, affected their reputation and credit standing adversely, made them suffer mental anguish, serious anxiety and sleepless nights, and prevented them from participating in the bidding of other projects because of their financial problems.

However, as already explained above, with the exception of the down payment, petitioners agreed to a staggered payment of the progress billings; hence, they cannot now claim that they were adversely affected by respondent’s payments in

installment. Also, with respect to the down payment, there was no showing that respondent’s failure to pay the same on time and in full was attended by fraud or bad faith or was in wanton or oppressive disregard of petitioners’ rights.

More importantly, an award of moral damages must be anchored on a clear showing that the party entitled thereto actually experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings, or similar injury. Here, while petitioners alleged that their finances were adversely affected, they did not present any evidence thereof, such as documents evidencing the loans they were supposedly compelled to obtain.

In the same manner, respondent also failed to present sufficient evidence of their entitlement to moral and exemplary damages. The alleged besmirched reputation it allegedly suffered as a result of the building not having been finished on time was not supported by any evidence other than respondent’s bare allegation.

Absent any showing that the parties are entitled to moral and exemplary damages, their respective claims therefor must be disallowed. Engr. Emelyne P. Cayetano, et al. vs. Colegio De San Juan De Letran-Calamba; G.R. No. 179545, July 11, 2012.

Human relations; unjust enrichment.  To allow the petitioner to leave the company before it has fulfilled the reasonable expectation of service on his part will amount to unjust enrichment. Pertinently, Article 22 of the New Civil Code states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains the money or property of another against the fundamental principles of justice, equity and good conscience. Two conditions must concur: (1) a person is unjustly benefited; and (2) such benefit is derived at the expense of or with damages to another. The main objective of the principle of unjust enrichment is to prevent one from enriching oneself at the expense of another. It is commonly accepted that this doctrine simply means that a person shall not be allowed to profit or enrich himself inequitably at another’s expense. The enrichment may consist of a patrimonial, physical, or moral advantage, so long as it is appreciable in money. It must have a correlative prejudice, disadvantage or injury to the plaintiff which may consist, not only of the loss of the property or the deprivation of its enjoyment, but also of the non-payment of compensation for a prestation or service rendered to the defendant without intent to donate on the part of the plaintiff, or the failure to acquire something what the latter would have obtained.

As can be gathered from the facts, PAL invested a considerable amount of money in sending the petitioner abroad to undergo training to prepare him for his new appointment as B747-400 Captain. In the process, the petitioner acquired new knowledge and skills which effectively enriched his technical know-how. As all other investors, PAL expects a return on investment in the form of service by the petitioner for a period of 3 years, which is the estimated length of time within which the costs of the latter’s training can be fully recovered. The petitioner is, thus, expected to work for PAL and utilize whatever knowledge he had learned from the training for the benefit of the company. However, after only one (1) year of service, the petitioner opted to retire from service, leaving PAL stripped of a necessary manpower. Bibiano C. Elegir vs. Philippine Airlines, Inc.; G.R. No. 181995, July 16, 2012.

Interest; rate of stipulated interest. The Court now comes to David’s prayer that MOELCI be made to pay the total sum of ₱5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the complaint. Although the Court agrees that MOELCI should pay interest, the stipulated rate is, however, unconscionable and should be equitably reduced. While there is no question that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable may still be reduced to a reasonable and fair level. There is nothing in the said circular which grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Accordingly, the excessive interest of 24% per annum stipulated in

the sales invoice should be reduced to 12% per annum. Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.;G.R. No. 194785, July 11, 2012.

Legal separation; application of Family Code provisions to marriage entered into prior to the Family Code’s enactment; what’s a vested right?; definition of net profits. This case was actually decided based on procedural law. The decision being questioned had actually become final (in the words of the Court, “immutable”), so the rest, which the tribunal set out after “discussing lengthily [its adverb, not mine] the immutability of the Decision” is for “the enlightenment of the parties and the public at large.”

Essentially, the Court noted that even if you got married before the Family Code was enacted, how your property is divvied up can still be governed by the Family Code because of the latter’s provisions allowing retroactive effect provided there is no prejudice to any vested right (see Article 256 of the Family Code). Here, the husband was divested of his share in the net profits of the conjugal partnership pursuant to Article 129 in relation to Article 63(2) of the Family Code. The husband argued that he already had a vested right in the net profits. The Court said that you can impair a vested right provided the holder of the right was afforded due process, which took place in this case, and besides, he is the guilt party and finally, the decision is IMMUTABLE. Then the Court, in defining net profits, went into a discussion of the differences between the absolute community regime and the conjugal partnership of gains. Again, in my view, the discussion is obiter, but if you want to slog through it, you are welcome. Brigido B. Quia vs. Rita C. Quiao, et al.; G.R. No. 176556, July 4, 2012.

Mortgage; validity of blanket or dragnet clauses. As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.

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

The stipulation extending the coverage of a mortgage to advances or loans other than those already obtained or specified in the contract is valid and has been commonly referred to as a “blanket mortgage” or “dragnet” clause. In Prudential Bank v. Alviar, this Court elucidated on the nature and purpose of such a clause as follows:

A “blanket mortgage clause,” also known as a “dragnet clause” in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are “carefully scrutinized and strictly construed.” Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A “dragnet clause” operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. xxx.

A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty and constitutes an exception to the rule than an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract. Its validity is anchored on Article 2053 of the Civil Code and is not limited to a single transaction, but contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other words, a continuing guaranty is one that covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. Philippine Charity Sweepstakes Office (PCSO) vs. New Dagupan Metro Gas Corporation, et al.; G.R. No. 173171, July 11, 2012.

Property; property belonging to the State. The subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila Bay. As such, these lands remain public lands and form part of the public domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation,

the Court held that foreshore and submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands open to disposition and further declared no longer needed for public service. The fact that alienable lands of the public domain were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEA’s name did not automatically make such lands private. This Court also held therein that reclaimed lands retained their inherent potential as areas for public use or public service. Republic of the Philippines, represented by the Philippine Reclamation Authority (PRA) vs. City of Parañaque;  G.R. No. 191109, July 18, 2012.

Special Laws

Administrative Code of 1997; definition of a GOCC. A GOCC must have been organized as a stock or non-stock corporation.  The Philippine Reclamation Authority is neither. It is not a GOCC. Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated government instrumentality, it is exempt from payment of real property tax. Republic of the Philippines, represented by the Philippine Reclamation Authority (PRA) vs. City of Parañaque; G.R. No. 191109, July 18, 2012.

Administrative Code; real property owned by Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax. Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national government. This happens when the title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption, unless “the beneficial use thereof has been granted, for consideration or otherwise, to a

taxable person.” Republic of the Philippines, represented by the Philippine Reclamation Authority (PRA) vs. City of Parañaque; G.R. No. 191109, July 18, 2012.

Interim rules on corporate rehabilitation; effect of stay order on foreclosure. A Stay Order cannot suspend the foreclosure of accommodation mortgages, because the Stay Order may only cover the suspension of the enforcement of all claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor the enforcement of the mortgage lien cannot be considered as a claim against a guarantor or a surety not solidarily liable with the debtor corporations. While spouses Chua executed Continuing Guaranty and Comprehensive Surety undertakings in favor of Allied Bank, the bank did not proceed against them as individual guarantors or sureties. Rather, by initiating extrajudicial foreclosure proceedings, the bank was directly proceeding against the property mortgaged to them by the spouses as security. The Civil Code provides that the property upon which a mortgage is imposed directly and immediately subjected to the fulfillment of the obligation for whose security the mortgage was constituted. As such, a real estate mortgage is a lien on the property itself, inseparable from the property upon which it was constituted. In this case, we find that the undertaking of spouses Chua with respect to the loans of petitioner corporations is the sale at public auction of certain real properties belonging to them to satisfy the indebtedness of petitioner corporations in case of a default by the latter. This undertaking is properly that of a third-party mortgagor or an accommodation mortgagor, whereby one mortgages one’s property to stand as security for the indebtedness of another. Situs Development Corporation, et al. vs. Asiatrust Bank, et al.; G.R. No. 180036, July 25, 2012.

P.D. No. 1529; cancellation or discharge of mortgage. Section 62 of Presidential Decree (P.D.) No. 1529 appears to require the execution of an instrument in order for a mortgage to be cancelled or discharged. However, this rule presupposes that there has been a prior registration of the mortgage lien prior to its discharge. In this case, the subject mortgage had already been cancelled or terminated upon Galang’s full payment before PCSO availed of registration in 1992. As the subject mortgage was not annotated on TCT No. 52135 at the time it was terminated, there was no need for Peralta to secure a deed of cancellation in order for such discharge to be fully effective and duly reflected on the face of her title. Philippine Charity Sweepstakes Office (PCSO) vs. New Dagupan Metro Gas Corporation, et al.; G.R. No. 173171, July 11, 2012.

P.D. No. 1529; confirmation of imperfect title.  The Supreme Court held that the respondent could not have acquired title over the property through prescription because the lands were of public dominion.

That properties of the public dominion are not susceptible to prescription and that only properties of the State that are no longer earmarked for public use, otherwise known as patrimonial, may be acquired by prescription are fundamental, even elementary, principles in this jurisdiction. In Heirs of Mario Malabanan v. Republic, the Supreme Court, in observance of the foregoing, clarified the import of Section 14(2) and made the following declarations: (a) the prescriptive period for purposes of acquiring an imperfect title over a property of the State shall commence to run from the date an official declaration is issued that such property is no longer intended for public service or the development of national wealth; and (b) prescription will not run as against the State even if the property has been previously classified as alienable and disposable as it is that official declaration that converts the property to patrimonial. Republic of the Philippines vs. Metro Index Realty and Development Corporation; G.R. No. 198585, July 2, 2012.

P.D. No. 1529; purchase of land; innocent purchaser.  Soquillo was not a purchaser in good faith. He and the heirs of Coloso, Jr. who were his predecessors-in-interest, knew about the sale made to Tortola and the possession of the disputed property by Villaflores. Besides, Tortola registered the sale, albeit with much delay, in 2002. As of the time Tortola’s complaint was titled, no registration was effected by Soquillo. Santiago V. Soquillo vs. Jorge P. Tortola; G.R. No. 192450, July 23, 2012.

P.D. No. 1529; registration of imperfect title; elements. Section 14(1) of Presidential Decree No. 1529 refers to the original registration of “imperfect” titles to public land acquired under Section 11(4) in relation to Section 48(b) of Commonwealth Act No. 141, or the Public Land Act, as amended. Section 14(1) of  Presidential Decree No. 1529 and Section 48(b) of Commonwealth Act No. 141 specify identical requirements for the judicial confirmation of “imperfect” titles, to wit:

1. That the subject land forms part of the alienable and disposable lands of the public domain;

2. That the applicants, by themselves or through their predecessors-in-interest, have been in open, continuous, exclusive and notorious possession and occupation of the subject land under a bona fide claim of ownership, and;

3. That such possession and occupation must be since June 12, 1945 or earlier. Republic of the Philippines vs. Michael C. Santos, et al., etc.; G.R. No. 180027, July 18, 2012.

P.D. No. 1529; registration of title to land acquired by prescription. Section 14(2) of Presidential Decree No. 1529 sanctions the original registration of lands acquired by prescription “under the provisions of existing law.” In the seminal case of Heirs of Mario Malabanan v. Republic, this Court clarified that the “existing law” mentioned in the subject provision refers to no other than Republic Act No. 386, or the Civil Code of the Philippines. Malabanan acknowledged that only lands of the public domain that are “patrimonial in character” are “susceptible to acquisitive presecription” and, hence, eligible for registration under Section 14(2) of Presidential Decree No. 1529. Applying the pertinent provisions of the Civil Code,52 Malabanan further elucidated that in order for public land to be considered as patrimonial “there must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial.”

Until then, the period of acquisitive prescription against the State will not commence to run. The requirement of an “express declaration” contemplated by Malabanan is separate and distinct from the mere classification of public land as alienable and disposable. On this point, Malabanan was reiterated by the recent case of Republic v. Rizalvo, Jr.

In this case, the respondents were not able to present any “express declaration” from the State, attesting to the patrimonial character of Lot 3. To put it bluntly, the respondents were not able to prove that acquisitive prescription has begun to run against the State, much less that they have acquired title to Lot 3 by virtue thereof. As jurisprudence tells us, a mere certification or report classifying the subject land as alienable and disposable is not sufficient. Republic of the Philippines vs. Michael C. Santos, et al., etc.; G.R. No. 180027, July 18, 2012.

P.D. No. 1529; value of registration; innocent purchaser. Construing the foregoing conjunctively, as to third persons, a property registered under the Torrens system is, for all legal purposes, unencumbered or remains to be the property of the person in whose name it is registered, notwithstanding the execution of any conveyance, mortgage, lease, lien, order or judgment unless the corresponding deed is registered. The law does not require a person dealing with the owner of registered land to go beyond the certificate of title as he may rely on the notices of the encumbrances on the property annotated on the certificate of title or absence of any annotation. Registration affords legal protection such that the claim of an innocent purchaser for value is recognized as valid despite a defect in the title of the vendor.

A purchaser in good faith and for value is one who buys property of another, without notice that some other person has a right to, or interest in, such property, and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other person in the property.39 Good faith is the opposite of fraud and of bad faith, and its non-existence must be established by competent proof. Sans such proof, a buyer is deemed to be in good faith and his interest in the subject property will not be disturbed. A purchaser of a registered property can rely on the guarantee afforded by pertinent laws on registration that he can take and hold it free from any and all prior liens and claims except those set forth in or preserved against the certificate of title.

This Court cannot give credence to PCSO’s claim to the contrary. PCSO did not present evidence, showing that New Dagupan had knowledge of the mortgage despite its being unregistered at the time the subject sale was entered into. Peralta, in the compromise agreement, even admitted that she did not inform New Dagupan of the subject mortgage. PCSO’s only basis for claiming that New Dagupan was a buyer in bad faith was the latter’s reliance on a mere photocopy of TCT No. 52135. However, apart from the fact that the facsimile bore no annotation of a lien or encumbrance, PCSO failed to refute the testimony of Cuña that his verification of TCT No. 52135 with the Register of Deeds of Dagupan City confirmed Peralta’s claim of a clean title.

Since PCSO had notice of New Dagupan’s adverse claim prior to the registration of its mortgage lien, it is bound thereby and thus legally compelled to respect the proceedings on the validity of such adverse claim. It is therefore of no moment if PCSO’s foreclosure of the subject mortgage and purchase of the subject property at the auction sale took place prior to New Dagupan’s acquisition of title as decreed in the Decision dated January 21, 1994 of RTC Branch 43. The effects of a foreclosure sale retroact to the date the mortgage was registered.43 Hence, while PCSO may be deemed to have acquired title over the subject property on May 20, 1992, such title is rendered inferior by New Dagupan’s adverse claim, the validity of which was confirmed per the Decision dated January 21, 1994 of RTC Branch 43. Philippine Charity Sweepstakes Office (PCSO) vs. New Dagupan Metro Gas Corporation, et al.; G.R. No. 173171, July 11, 2012.

SPV Act;  extinguishment of credit . Petitioners cannot take refuge in the provisions of the SPV Act of 2004 in conjunction with Art. 1634 of the Civil Code. For the debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634, the following requisites must concur:

(a) there must be a credit or other incorporeal right;

(b) the credit or other incorporeal right must be in litigation;

(c) the credit or other incorporeal right must be sold to an assignee pending litigation;

(d) the assignee must have demanded payment from the debtor;

(e) the debtor must reimburse the assignee for the price paid by the latter, the judicial costs incurred by the latter and the interest on the price from the day on which the same was paid; and

(f) the reimbursement must be done within 30 days from the date of the assignee’s demand.

In this case, the credit owed by petitioner corporations to Metrobank had already been extinguished when the bank foreclosed upon the parcel of land mortgaged to it by the spouses Chua as security for petitioners’ debts, in full satisfaction of the loan the bank had extended. Therefore, during the pendency of these proceedings, what was transferred by Metrobank to Cameron was ownership over the foreclosed property, subject only to the right of redemption by the proper party within one year reckoned from the date of registration of the Certificate of Sale.

Moreover, the provisions of the Civil Code on subrogation and assignment of credits are only applicable to NPLs, defined in the SPV Act of 2002 as follows:

“Non-Performing Loans or NPLs” refers to loans and receivables such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges, and antichresis, whose principal and/or interest have remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred.

What is involved in this case is more properly a real property acquired by a financial institution in settlement of a loan (ROPOA). Under the law, ROPOAs are defined in this manner:

“ROPOAs” refers to real and other properties owned or acquired by an [financial institution] in settlement of loans and receivables, including real properties, shares of stocks, and chattels formerly constituting collaterals for secured loans which have been acquired by way of dation in payment (dacion en pago) or judicial or extra-judicial foreclosure or execution of judgment.

May the subject property be considered as one acquired by Metrobank pursuant to an extrajudicial foreclosure sale?

The Implementing Rules and Regulations of the SPV Act of 2002 provide that, in case of extrajudicial foreclosure, a property is deemed acquired by a financial institution on the date of notarization of the Sheriff’s Certificate. In this case, a Certificate of Sale has not been executed in favor of Metrobank in deference to the Stay Order issued by the rehabilitation court. However, we reiterate that the rehabilitation court has no jurisdiction to suspend foreclosure proceedings over a third-party mortgage. Much less can it restrain the issuance of a Certificate of Sale after the subject properties have been sold at public auction more than a year before the Petition for Rehabilitation was filed. The property foreclosed by Metrobank was clearly beyond the ambit of the Stay Order. Consequently, there was no valid ground for the Sheriff to withhold the issuance and execution of the Certificate of Sale.

The parcel of land mortgaged to Metrobank and subsequently transferred to Cameron should be treated as a ROPOA as provided for by law. Hence, the application of Art. 1634 finds no basis in law. Situs Development Corporation, et al. vs. Asiatrust Bank, et al.; G.R. No. 180036, July 25, 2012.