J.A.B. Bulao & Associates

LEGAL NOTE 0109: WHAT IS ORDINARY ACQUISITIVE PRESCRIPTION AND WHAT IS EXTRA-ORDINARY ACQUISITIVE PRESCRIPTION?

SOURCE: JAIME ABALOS AND SPOUSES FELIX SALAZAR AND CONSUELO SALAZAR, GLICERIO ABALOS, HEIRS OF AQUILINO ABALOS, NAMELY: SEGUNDA BAUTISTA, ROGELIO ABALOS, DOLORES A. ROSARIO, FELICIDAD ABALOS, ROBERTO ABALOS, JUANITO ABALOS, TITA ABALOS, LITA A. DELA CRUZ AND HEIRS OF AQUILINA ABALOS, NAMELY: ARTURO BRAVO, PURITA B. MENDOZA, LOURDES B. AGANON, CONSUELO B. SALAZAR, PRIMA B. DELOS SANTOS, THELMA APOSTOL AND GLECERIO ABALOS VS. HEIRS OF VICENTE TORIO, NAMELY: PUBLIO TORIO, LIBORIO TORIO, VICTORINA TORIO, ANGEL TORIO, LADISLAO TORIO, PRIMO TORIO AND NORBERTO TORIO (G.R. NO. 175444, 14 DECEMBER 2011, PERALTA, J.) SUBJECT/S: ORDINARY AND EXTRAORDINARY ACQUISITIVE PRESCRIPTION; EFFECT OF NOTARIZATION; WHEN SC CAN REVIEW FINDINGS OF FACT. (BRIEF TITLE: ABALOS VS. HEIRS OF TORIO).

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SUBJECT/DOCTRINE/DIGEST:

WHAT ARE THE 2 KINDS OF ACQUISITIVE PRESCRIPTION?

ORDINARY AND EXTRAORDINARY.

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WHAT IS ORDINARY ACQUISITIVE PRESCRIPTION?

ORDINARY  ACQUISITIVE PRESCRIPTION REQUIRES;

1. 1.     POSSESSION IN GOOD FAITH AND

1. 2.     WITH JUST TITLE FOR TEN (10) YEARS.¹⁷

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WHAT IS EXTRAORDINARY ACQUISITIVE PRESCRIPTION?

IT REQUIRES:

1. 1.               WITHOUT GOOD FAITH;

1. 2.               WITHOUT JUST TITLE;

1. 3.               UNINTERRUPTED ADVERSE POSSESSION FOR 30 YEARS.

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.¹⁶ Ordinary acquisitive prescription requires possession in good faith and with just title for ten (10) years.¹⁷ Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years.¹⁸

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WHAT IS POSSESSION IN GOOD FAITH?

IT CONSISTS IN THE REASONABLE BELIEF THAT THE PERSON FROM WHOM THE THING IS RECEIVED HAS BEEN THE OWNER THEREOF, AND COULD TRANSMIT HIS OWNERSHIP.¹⁹

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WHEN IS THERE JUST TITLE?

WHEN AN ADVERSE CLAIMANT CAME INTO POSSESSION OF THE PROPERTY THROUGH ONE OF THE MODES RECOGNIZED BY LAW FOR THE ACQUISITION OF OWNERSHIP OR OTHER REAL RIGHTS, BUT THE GRANTOR WAS NOT THE OWNER OR COULD NOT TRANSMIT ANY RIGHT.²⁰

Possession “in good faith” consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership.¹⁹ There is “just title” when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.²⁰

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IS PETITIONER THE OWNER OF SUBJECT LAND BY ORDINARY ACQUISITIVE PRESCRIPTION?

NO, BECAUSE HE ACKNOWLEDGED THAT THE OWNER WAS ANOTHER PERSON WHO MERELY TOLERATED HIS OCCUPATION OF THE THE PROPERTY.

ACTS OF POSSESSORY CHARACTER EXECUTED DUE TO LICENSE OR BY MERE TOLERANCE OF THE OWNER ARE INADEQUATE FOR PURPOSES OF ACQUISITIVE PRESCRIPTION.²²

POSSESSION, TO CONSTITUTE THE FOUNDATION OF A PRESCRIPTIVE RIGHT, MUST BE EN CONCEPTO DE DUEÑO, OR, TO USE THE COMMON LAW EQUIVALENT OF THE TERM, THAT POSSESSION SHOULD BE ADVERSE, IF NOT, SUCH POSSESSORY ACTS, NO MATTER HOW LONG, DO NOT START THE RUNNING OF THE PERIOD OF PRESCRIPTION.²³

In the instant case, it is clear that during their possession of the property in question, petitioners acknowledged ownership thereof by the immediate predecessor-in-interest of respondents. This is clearly shown by the Tax Declaration in the name of Jaime for the year 1984 wherein it contains a statement admitting that Jaime’s house was built on the landof Vicente, respondents’ immediate predecessor-in-interest.²¹ Petitioners never disputed such an acknowledgment. Thus, having knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners’ possession could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. In this respect, the Court agrees with the CA that petitioners’ possession of the lot in question was by mere tolerance of respondents and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription.²² Possession, to constitute the foundation of a prescriptive right, must be en concepto de dueño, or, to use the common law equivalent of the term, that possession should be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription.²³

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CAN PETITIONERS’ POSSESSION OF  SUBJECT PROPERTY BE CONSIDERED EXTRAORDINARY ACQUISITIVE PRESCRIPTION?

NO. BECAUSE THEIR EARLIEST TAX DECLARATION WAS IN 1974. FROM SUCH DATE THE 30 YEAR PERIOD ENDS IN 2004. BUT THE CASE WAS FILED IN 1996.

Moreover, the CA correctly held that even if the character of petitioners’ possession of the subject property had become adverse, as evidenced by their declaration of the same for tax purposes under the names of their predecessors-in-interest, their possession still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription. Records show that the earliest Tax Declaration in the name of petitioners was in 1974. Reckoned from such date, the thirty-year period was completed in 2004. However, herein respondents’ complaint was filed in 1996, effectively interrupting petitioners’ possession upon service of summons on them.²⁴ Thus, petitioners’ possession also did not ripen into ownership, because they failed to meet the required statutory period of extraordinary prescription.

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WHAT EVIDENCE IS REQUIRED IN ESTABLISHING PRESCRIPTION?

CLEAR, COMPLETE AND CONCLUSIVE.

This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear, complete and conclusive in order to establish the prescription.²⁵ In the present case, the Court finds no error on the part of the CA in holding that petitioners failed to present competent evidence to prove their alleged good faith in neither possessing the subject lot nor their adverse claim thereon. Instead, the records would show that petitioners’ possession was by mere tolerance of respondents and their predecessors-in-interest.

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PETITIONERS ATTACKED THE DUE EXECUTION AND AUTHENTICITY OF THE DEED OF SALE OF RESPONDENTS IN THEIR COMMENT TO RESPONDENTS’ PETITION FOR REVIEW FILED AT CA. IS THIS PROPER.

NO. POINTS OF LAW, THEORIES, ISSUES, AND ARGUMENTS NOT ADEQUATELY BROUGHT TO THE ATTENTION OF THE TRIAL COURT NEED NOT BE, AND ORDINARILY WILL NOT BE, CONSIDERED BY A REVIEWING COURT.²⁶ THEY CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL.

Finally, as to the issue of whether the due execution and authenticity of the deed of sale upon which respondents anchor their ownership were not proven, the Court notes that petitioners did not raise this matter in their Answer as well as in their Pre-Trial Brief. It was only in their Comment to respondents’ Petition for Review filed with the CA that they raised this issue. Settled is the rule that points of law, theories, issues, and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court.²⁶ They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair play, justice and due process.²⁷

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SUPPOSE THE ISSUE OF DUE EXECUTION AND AUTHENTICITY OF THE SUBJECT DEED OF SALE WAS PROPERLY RAISED, WILL THE FINDINGS OF THE C.A. BE REVERSED?

NO. BECAUSE THE DEED OF SALE WAS NOTARIZED.

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WHAT IS THE EFFECT OF THE NOTARIZATION OF THE DEED OF SALE?

A NOTARIZED DOCUMENT HAS IN ITS FAVOR THE PRESUMPTION OF REGULARITY, AND TO OVERCOME THE SAME, THERE MUST BE EVIDENCE THAT IS CLEAR, CONVINCING AND MORE THAN MERELY PREPONDERANT; OTHERWISE, THE DOCUMENT SHOULD BE UPHELD.²⁹

Even granting that the issue of due execution and authenticity was properly raised, the Court finds no cogent reason to depart from the findings of the CA, to wit:

x x x x

Based on the foregoing, respondents [Jaime Abalos and the Spouses Felix and Consuelo Salazar] have not inherited the disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned the same to his son Vicente, the father of petitioners [herein respondents]. A valid sale was amply established and the said validity subsists because the deed evidencing the same was duly notarized.

There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.²⁸

Indeed, settled is the rule in our jurisdiction that a notarized document has in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise, the document should be upheld.²⁹ In the instant case, petitioners’ bare denials will not suffice to overcome the presumption of regularity of the assailed deed of sale.

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THE  THE ISSUE OF WHETHER PETITIONERS POSSESS THE SUBJECT PROPERTY AS OWNERS, OR WHETHER THEY OCCUPY THE SAME BY MERE TOLERANCE OF RESPONDENTS, IS A QUESTION OF FACT. IS CA RULING ON THIS REVIEWABLE BY THE SUPREME COURT?

ORDINARILY NO. BUT THERE ARE EXCEPTIONS AS FOLLOWS:

(a) When the findings are grounded entirely on speculation, surmises, or conjectures;

(b) When the inference made is manifestly mistaken, absurd, or impossible;

(c) When there is grave abuse of discretion;

(d) When the judgment is based on a misapprehension of facts;

(e) When the findings of facts are conflicting;

(f) When in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee;

(g) When the CA’s findings are contrary to those by the trial court;

(h) When the findings are conclusions without citation of specific evidence on which they are based;

(i) When the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent;

(j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or

(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.¹⁵

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Republic of thePhilippines

Supreme Court

Manila

THIRD DIVISION

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D E C I S I O N

PERALTA, J.:

Before the Court is a petition for review on certiorari seeking to set aside the Decision¹ dated June 30, 2006 and Resolution² dated November 13, 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 91887. The assailed Decision reversed and set aside the Decision³ dated June 14, 2005 of the Regional Trial Court (RTC) of Lingayen, Pangasinan, Branch 69, while the questioned Resolution denied petitioners’ Motion for Reconsideration.

The factual and procedural antecedents of the case are as follows:

On July 24, 1996, herein respondents filed a Complaint for Recovery of Possession and Damages with the Municipal Trial Court (MTC) of Binmaley, Pangasinan against Jaime Abalos (Jaime) and the spouses Felix and Consuelo Salazar. Respondents contended that: they are the children and heirs of one Vicente Torio (Vicente) who died intestate on September 11, 1973; at the time of the death of Vicente, he left behind a parcel of land measuring 2,950 square meters, more or less, which is located at San Isidro Norte, Binmaley, Pangasinan; during the lifetime of Vicente and through his tolerance, Jaime and the Spouses Salazar were allowed to stay and build their respective houses on the subject parcel of land; even after the death of Vicente, herein respondents allowed Jaime and the Spouses Salazar to remain on the disputed lot; however, in 1985, respondents asked Jaime and the Spouses Salazar to vacate the subject lot, but they refused to heed the demand of respondents forcing respondents to file the complaint.⁴

Jaime and the Spouses Salazar filed their Answer with Counterclaim, denying the material allegations in the Complaint and asserting in their Special and Affirmative Defenses that: respondents’ cause of action is barred by acquisitive prescription; the court a quo has no jurisdiction over the nature of the action and the persons of the defendants; the absolute and exclusive owners and possessors of the disputed lot are the deceased predecessors of defendants; defendants and their predecessors-in-interest had been in actual, continuous and peaceful possession of the subject lot as owners since time immemorial; defendants are faithfully and religiously paying real property taxes on the disputed lot as evidenced by Real Property Tax Receipts; they have continuously introduced improvements on the said land, such as houses, trees and other kinds of ornamental plants which are in existence up to the time of the filing of their Answer.⁵

On the same date as the filing of defendants’ Answer with Counterclaim, herein petitioners filed their Answer in Intervention with Counterclaim. Like the defendants, herein petitioners claimed that their predecessors-in-interest were the absolute and exclusive owners of the land in question; that petitioners and their predecessors had been in possession of the subject lot since time immemorial up to the present; they have paid real property taxes and introduced improvements thereon.⁶

After the issues were joined, trial ensued.

On December 10, 2003, the MTC issued a Decision, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing consideration[s], the Court adjudged the case in favor of the plaintiffs and against the defendants and defendants-intervenors are ordered to turn over the land in question to the plaintiffs (Lot Nos. 869 and 870, Cad. 467-D. Binmaley Cadastre located in Brgy. San Isidro Norte, Binmaley, Pangasinan with an area of 2,950 sq. m., more or less, bounded and described in paragraph 3 of the Complaint[)]; ordering the defendants and defendants-intervenors to remove their respective houses standing on the land in dispute; further ordering the defendants and defendants-intervenors, either singly or jointly to pay the plaintiffs land rent in the amount of P12,000.00 per year to be reckoned starting the year 1996 until defendants and defendants-intervenors will finally vacate the premises; furthermore, defendants and defendants-intervenors are also ordered to pay, either singly or jointly, the amount of P10,000.00 as and by way of attorney’s fees and costs of suit.

SO ORDERED.⁷

Jaime and the Spouses Salazar appealed the Decision of the MTC with the RTC of Lingayen, Pangasinan.⁸ Herein petitioners, who were intervenors, did not file an appeal.

In its Decision dated June 14, 2005, the RTC ruled in favor of Jaime and the Spouses Salazar, holding that they have acquired the subject property through prescription. Accordingly, the RTC dismissed herein respondents’ complaint.

Aggrieved, herein respondents filed a petition for review with the CA assailing the Decision of the RTC.

On June 30, 2006, the CA promulgated its questioned Decision, the dispositive portion of which reads, thus:

WHEREFORE, the petition is GRANTED. The Decision dated June 14, 2005 of the Regional Trial Court, Branch 69, Lingayen, Pangasinan is hereby REVERSED and SET ASIDE. In its stead, a new one is entered reinstating the Decision dated December 10, 2003 of the Municipal Trial Court of Binmaley, Pangasinan.

SO ORDERED.⁹

Jaime and the Spouses Salazar filed a Motion for Reconsideration, but the same was denied by the CA in its Resolution dated November 13, 2006.

Hence, the instant petition based on a sole assignment of error, to wit:

THE COURT OF APPEALS ERRED IN NOT APPRECIATING THAT THE PETITIONERS HEREIN ARE NOW THE ABSOLUTE AND EXCLUSIVE OWNERS OF THE LAND IN QUESTION BY VIRTUE OF ACQUISITIVE PRESCRIPTION.¹⁰

The main issue raised by petitioners is whether they and their predecessors-in-interest possessed the disputed lot in the concept of an owner, or whether their possession is by mere tolerance of respondents and their predecessors-in-interest. Corollarily, petitioners claim that the due execution and authenticity of the deed of sale upon which respondents’ predecessors-in-interest derived their ownership were not proven during trial.

The petition lacks merit.

Preliminarily, the Court agrees with the observation of respondents that some of the petitioners in the instant petition were the intervenors¹¹ when the case was filed with the MTC. Records would show that they did not appeal the Decision of the MTC.¹² The settled rule is that failure to perfect an appeal renders the judgment final and executory.¹³ Hence, insofar as the intervenors in the MTC are concerned, the judgment of the MTC had already become final and executory.

It also bears to point out that the main issue raised in the instant petition, which is the character or nature of petitioners’ possession of the subject parcel of land, is factual in nature.

Settled is the rule that questions of fact are not reviewable in petitions for review on certiorari under Rule 45 of the Rules of Court.¹⁴ Section 1 of Rule 45 states that petitions for review on certiorari “shall raise only questions of law which must be distinctly set forth.”

Doubtless, the issue of whether petitioners possess the subject property as owners, or whether they occupy the same by mere tolerance of respondents, is a question of fact. Thus, it is not reviewable.

Nonetheless, the Court has, at times, allowed exceptions from the abovementioned restriction. Among the recognized exceptions are the following:

(a) When the findings are grounded entirely on speculation, surmises, or conjectures;

(b) When the inference made is manifestly mistaken, absurd, or impossible;

(c) When there is grave abuse of discretion;

(d) When the judgment is based on a misapprehension of facts;

(e) When the findings of facts are conflicting;

(f) When in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee;

(g) When the CA’s findings are contrary to those by the trial court;

(h) When the findings are conclusions without citation of specific evidence on which they are based;

(i) When the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent;

(j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or

(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.¹⁵

In the present case, the findings of fact of the MTC and the CA are in conflict with those of the RTC.

After a review of the records, however, the Court finds that the petition must fail as it finds no error in the findings of fact and conclusions of law of the CA and the MTC.

Petitioners claim that they have acquired ownership over the disputed lot through ordinary acquisitive prescription.

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.¹⁶ Ordinary acquisitive prescription requires possession in good faith and with just title for ten (10) years.¹⁷ Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years.¹⁸

Possession “in good faith” consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership.¹⁹ There is “just title” when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.²⁰

In the instant case, it is clear that during their possession of the property in question, petitioners acknowledged ownership thereof by the immediate predecessor-in-interest of respondents. This is clearly shown by the Tax Declaration in the name of Jaime for the year 1984 wherein it contains a statement admitting that Jaime’s house was built on the landof Vicente, respondents’ immediate predecessor-in-interest.²¹ Petitioners never disputed such an acknowledgment. Thus, having knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners’ possession could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. In this respect, the Court agrees with the CA that petitioners’ possession of the lot in question was by mere tolerance of respondents and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription.²² Possession, to constitute the foundation of a prescriptive right, must be en concepto de dueño, or, to use the common law equivalent of the term, that possession should be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription.²³

Moreover, the CA correctly held that even if the character of petitioners’ possession of the subject property had become adverse, as evidenced by their declaration of the same for tax purposes under the names of their predecessors-in-interest, their possession still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription. Records show that the earliest Tax Declaration in the name of petitioners was in 1974. Reckoned from such date, the thirty-year period was completed in 2004. However, herein respondents’ complaint was filed in 1996, effectively interrupting petitioners’ possession upon service of summons on them.²⁴ Thus, petitioners’ possession also did not ripen into ownership, because they failed to meet the required statutory period of extraordinary prescription.

This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear, complete and conclusive in order to establish the prescription.²⁵ In the present case, the Court finds no error on the part of the CA in holding that petitioners failed to present competent evidence to prove their alleged good faith in neither possessing the subject lot nor their adverse claim thereon. Instead, the records would show that petitioners’ possession was by mere tolerance of respondents and their predecessors-in-interest.

Finally, as to the issue of whether the due execution and authenticity of the deed of sale upon which respondents anchor their ownership were not proven, the Court notes that petitioners did not raise this matter in their Answer as well as in their Pre-Trial Brief. It was only in their Comment to respondents’ Petition for Review filed with the CA that they raised this issue. Settled is the rule that points of law, theories, issues, and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court.²⁶ They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair play, justice and due process.²⁷

Even granting that the issue of due execution and authenticity was properly raised, the Court finds no cogent reason to depart from the findings of the CA, to wit:

x x x x

Based on the foregoing, respondents [Jaime Abalos and the Spouses Felix and Consuelo Salazar] have not inherited the disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned the same to his son Vicente, the father of petitioners [herein respondents]. A valid sale was amply established and the said validity subsists because the deed evidencing the same was duly notarized.

There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.²⁸

Indeed, settled is the rule in our jurisdiction that a notarized document has in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise, the document should be upheld.²⁹ In the instant case, petitioners’ bare denials will not suffice to overcome the presumption of regularity of the assailed deed of sale.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 91887 are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson

ROBERTO A. ABAD JOSE CATRAL MENDOZA

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice

Third Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

1Penned by Associate Justice Magdangal M. de Leon, with Associate Justices Godardo A. Jacinto and Rosalinda Asuncion-Vicente, concurring ; Annex “J” to Petition, rollo, pp. 87-98.

2Penned by Associate Justice Magdangal M. de Leon, with Associate Justices Asuncion-Vicente and Vicente S.E. Veloso, concurring; Annex “L” to Petition, id. at 107-109.

3Records, pp. 316-324.

4Id. at 1-3.

5Id. at 34-39.

6Id. at 10-16.

7Id. at 273.

8See Notice of Appeal, id. at 274.

9CA rollo, p. 94

10Rollo, p. 8.

11Except for Jaime Abalos and the spouses Felix and Consuelo Salazar, all petitioners in the instant petition were intervenors in the case filed with the MTC.

12See Notice of Appeal, records, p. 274.

13Province of Camarines Sur v. Heirs of Agustin Pato, G.R. No. 151084, July 2, 2010, 622 SCRA 644, 652, citing M.A. Santander Construction, Inc. v. Villanueva, G.R. No. 136477, November 10, 2004, 441 SCRA 525, 530.

14Heirs of Felicidad Vda. de Dela Cruz v. Heirs of Pedro T. Fajardo, G.R. No. 184966, May 30, 2011, 649 SCRA 463, 470.

15Spouses. Andrada v. Pilhino Sales Corporation, G.R. No. 156448, February 23, 2011, 644 SCRA 1, 10.

16Civil Code, Art. 1117.

17Civil Code, Art. 1134.

18Civil Code, Art. 1137; Tan v. Ramirez, G.R. No. 158929, August 3, 2010, 626 SCRA 327, 336; Aguirre v. Heirs of Lucas Villanueva, G.R. No. 169898, October 27, 2006, 505 SCRA 855, 860.

19Villanueva v. Branoco, G.R. No. 172804, January 24, 2011, 640 SCRA 308, 320; Imuan v. Cereno, G.R. No. 167995, September 11, 2009, 599 SCRA 423, 433.

20Id.

21Exhibit “K,” records, p. 264.

22Lamsis v. Donge-e, G.R. No. 173021, October 20, 2010, 634 SCRA 154, 172.

23Esguerra v. Manantan, G.R. No. 158328, February 23, 2007, 516 SCRA 561, 573; Marcelo v. Court of Appeals, G.R. No. 131803, April 14, 1999, 305 SCRA 800, 807-808.

24Article 1120 of the Civil Code provides that “[p]ossession is interrupted for the purposes of prescription, naturally or civilly.” Article 1123 of the same Code further provides that “[c]ivil interruption is produced by judicial summons to the possessor.”

25Heirs of Juanita Padilla v. Magdua, G.R. No. 176858, September 15, 2010, 630 SCRA 573, 584.

26American Home Insurance Co. of New York v. F.F. Cruz & Co., Inc., G.R. No. 174926, August 10, 2011.

27Id.

28CA rollo, pp. 91-92.

29Spouses Palada v. Solidbank Corporation, G.R. No. 172227, June 29, 2011; Emilio v. Rapal, G.R. No. 181855, March 30, 2010, 617 SCRA 199, 202-203; Heirs of the Deceased Spouses Vicente S. Arcilla and Josefa Asuncion Arcilla v. Teodoro, G.R. No. 162886, August 11, 2008, 561 SCRA 545, 564.

LEGAL NOTE 0108: WHAT IS A DRAGNET CLAUSE OR BLANKET CLAUSE IN A CONTRACT? IS IT VALID?

SOURCE: RAMONA RAMOS and THE ESTATE OF LUIS T. RAMOS VS. PHILIPPINE NATIONAL BANK, OPAL PORTFOLIO INVESTMENTS (SPV-AMC), INC. and GOLDEN DRAGON STAR EQUITIES, INC. (G.R. NO. 178218, 14 DECEMBER 2011, LEONARDO – DE CASTRO, J.) SUBJECT: BLANKET OR DRAGNET CLAUSE IN MORTGAGE; INTENTION OF PARTIES IN A CONTRACT; RAISING ISSUE FOR THE FIRST TIME ON APPEAL, EXCEPTIONS.  (BRIEF TITLE: RAMOS VS. PNB)

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WHAT DOES THE REAL ESTATE MORTGAGE PROVIDE?

THAT IT SHALL STAND AS SECURITY FOR ANY “SUBSEQUENT PROMISSORY NOTE OR NOTES EITHER AS A RENEWAL OF THE FORMER NOTE, AS AN EXTENSION THEREOF, OR AS A NEW LOAN, OR IS GIVEN ANY OTHER KIND OF ACCOMMODATIONS SUCH AS OVERDRAFTS, LETTERS OF CREDIT, ACCEPTANCES AND BILLS OF EXCHANGE, RELEASES OF IMPORT SHIPMENTS ON TRUST RECEIPTS, ETC.”  THE SAME REAL ESTATE MORTGAGE LIKEWISE EXPRESSLY COVERED “ANY AND ALL OTHER OBLIGATIONS OF THE MORTGAGOR TO THE MORTGAGEE OF WHATEVER KIND AND NATURE WHETHER SUCH OBLIGATIONS HAVE BEEN CONTRACTED BEFORE, DURING OR AFTER THE CONSTITUTION OF THIS MORTGAGE.”

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IS SUGAR QUEDAN LOANS COVERED BY THE MORTGAGE?

YES. BECAUSE THE CONTRACT PLAINLY STATES THAT ALL SUBSEQUENT LOANS SHALL BE CONVERED BY THE REAL ESTATE MORTGAGE. THE CONTRACT IS CLEAR AND THE COURT MUST APPLY  IT LITERALLY. ONLY WHEN THE CONTRACT IS VAGUE WHEN THE COURT MUST INTERPRET IT.

Even if the Court were willing to overlook petitioners’ procedural misstep on appeal, their belatedly proffered theory still fails to convince us that the Court of Appeals committed any reversible error in its resolution of the present case.

According to petitioners, their case requires an application of Article 1371 of the Civil Code, which provides that “in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.”  To their mind, the mere fact that the 1989 credit line agreement, the promissory notes and the contracts of pledge executed in relation to the sugar quedan financing loan contained no reference to the real estate mortgage is sufficient proof that the parties did not intend the real estate mortgage to secure the sugar quedan financing loan, but only the agricultural crop loans. The Court finds that it cannot uphold this proposition.

In Prisma Construction & Development Corporation v. Menchavez,^[1][40] we discussed the settled principles that:

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.  In such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court’s duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain.  It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties’ intent.^[2][41]

Here, it cannot be denied that the real estate mortgage executed by the parties provided that it shall stand as security for any “subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc.”  The same real estate mortgage likewise expressly covered “any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage.”  Thus, from the clear and unambiguous terms of the mortgage contract, the same has application even to future loans and obligations of the mortgagor of any kind, not only agricultural crop loans.

====================

 SUCH CLAUSE IN THE MORTGAGE (THAT IT SHALL  STAND AS SECURITY FOR ANY SUBSEQUENT LOAN) IS A “BLANKET CLAUSE” OR “DRAGNET CLAUSE”. IS SUCH CLAUSE VALID?

YES. A DRAGNET CLASUE  IS RECOGNIZED IN OUR JURISPRUDENCE.

Such a “blanket clause” or “dragnet clause” in mortgage contracts has long been recognized in our jurisprudence.  Thus, in another case, we held:

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. This stipulation is valid and binding between the parties and is known as the “blanket mortgage clause” (also known as the “dragnet clause).”

In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for “such other loans or advances already obtained, or still to be obtained.” The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well.^[3][42]  (Emphases supplied.)

XXXXXXXXXXXXXXXXXXXXXXXXX

SUPPOSE THERE IS A DRAGNET CLAUSE STATING THAT ALL SUBSEQUENT LOANS WILL BE COVERED BY THE REAL ESTATE MORTGAGE. A SUBSEQUENT LOAN WAS AVAILED. BUT A SPECIAL SECURITY WAS GIVEN FOR SUCH LOAN. WILL THE DRAGNET CLAUSE STILL APPLY?

YES ACCORDING TO THE PRUDENTIAL BANK CASE STATED BELOW. BUT THE SPECIAL SECURITY MUST BE APPLIED FIRST. IF DEFICIENT THEN THE REAL ESTATE MORTGAGE SHALL APPLY.

Moreover, petitioners’ reliance on Prudential Bank v. Alviar^[4][43] is sorely misplaced.  In Prudential, the fact that another security was given for subsequent loans did not remove such loans from the ambit of the dragnet clause in a previous real estate mortgage contract.  However, it was held in Prudential that the special security for subsequent loans must first be exhausted before the creditor may foreclose on the real estate mortgage.  In other words, the creditor is allowed to hold on to the previous security (the real estate mortgage) in case of deficiency after resort to the special security given for the subsequent loans.  Verily, even under the Prudential ruling cited by petitioners, they are not entitled to the release of the real estate mortgage and the titles to the properties mentioned therein.

XXXXXXXXXXXXX

================

Republic of the Philippines

Supreme Court

Manila

FIRST DIVISION

x- – – – – – – – – – – – – – – – – – – – – – – – – – – – –  – – – – – – – – – – – – – – – – – – – – – -x

D E C I S I O N

LEONARDO – DE CASTRO, J.:

Assailed in this Petition for Review on Certiorari^[5][1] under Rule 45 of the Rules of Court are the Decision^[6][2] dated November 8, 2006 and the Resolution^[7][3] dated May 28, 2007 of the Court of Appeals in CA-G.R. CV No. 64360.

From the records of the case, the following facts emerge:

The Real Estate Mortgage

In 1973, Luis Ramos obtained a credit line under an agricultural loan account from the Philippine National Bank (PNB), Balayan Branch, for P83,000.00.^[8][4]  To secure the loan, the parties executed a Real Estate Mortgage^[9][5] on October 23, 1973, the relevant provisions of which stated:

That for and in consideration of certain loans, overdrafts and other credit accommodations obtained from the Mortgagee, which is hereby fixed at P83,000.00 Philippine Currency and to secure the payment of the same and those others that the Mortgagee may extend to the Mortgagor, including interest and expenses, and other obligations owing by the Mortgagor to the Mortgagee, whether direct or indirect principal or secondary, as appear in the accounts, books and records  of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted at the back of this document, or in a supplementary list attached hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon and all easements, sugar quotas, agricultural or land indemnities, aids or subsidies, including all other rights or benefits annexed to or inherent therein now existing or which may hereafter exist, and also other assets acquired with the proceeds of the loan hereby secured all of which the mortgagor declares that he is the absolute owner free from all liens and encumbrances.  In case the Mortgagor executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof.  This mortgage shall also stand as security for said obligations and any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage.  However, if the Mortgagor shall pay to the Mortgagee, its successors or assigns the obligations secured by this mortgage, together with interests, cost and other expenses, on or before the date they are due, and shall keep and perform all the covenants and agreements herein contained for the Mortgagor to keep and perform, then this mortgage shall be null and void, otherwise, it shall remain in full force and effect.^[10][6]

The properties included in the mortgage were the parcels of land covered under Transfer Certificate of Title (TCT) Nos. 17217, (T-262) RT-644, 259, (T-265) RT-646, (T-261) RT-643^[11][7] of the Registry of Deeds of Batangas.  From the year 1973, Luis Ramos would renew the loan every year after paying the amounts falling due therein.^[12][8]

The Sugar Quedan Financing Loans

On March 31, 1989, Luis Ramos and PNB entered into a Credit Line Agreement^[13][9] in the amount of P50,000,000.00 under the bank’s sugar quedan financing program.  The agreement pertinently provided thus:

For and in consideration of the Bank agreeing to extend to the Borrower a Revolving Credit Line (the “Line”) in an amount not to exceed PESOS: FIFTY MILLION ONLY (P50,000,000.00), under the Bank’s Sugar Quedan Financing Program for Crop Year 88/89, the parties hereto hereby agree as follows:

SECTION 1. TERMS OF THE LINE

1.01  Amount and Purpose of the Line.  The Line shall be available to the Borrower in an aggregate amount not to exceed FIFTY MILLION ONLY Pesos (P50,000,000.00).  x x x Availments on the Line shall be used by the Borrower exclusively for additional capital in sugar quedan financing. 

1.02  Availability Period; Availments.  (a) Subject to the terms and conditions hereof, the Line shall be available to the Borrower in several availments (individually an “Availment” and collectively the “Availments”) on any Banking Day x x x during the period commencing on the Effectivity Date x x x and terminating on the earliest of (i) August 31, 19__, or (ii) the date the Bank revokes the Line, or (iii) the date the Borrower ceases to be entitled to avail of the Line under the terms hereof.

x x x x

1.03  Promissory Notes.  Availments on the Line shall be evidenced by promissory notes (individually a “Note” and collectively the “Notes”) issued by the Borrower in favor of the Bank in the form and substance acceptable to the Bank.  Each Note shall be (i) dated the date of Availment, (ii) in the principal amount of such Availment, with interest thereon at the rate as provided in Section 1.04 hereof, and (iii) payable on the date occurring sixty (60) days from date of the availment, but in no case later than August 31, 19__ (the “Initial Repayment Date”).

x x x x

SECTION 3. SECURITY

3.01 Security Document.  The full payment of any and all sums payable by the Borrower hereunder and under the Notes, the Renewal Notes and the other documents contemplated hereby and the performance of all obligations of the Borrower hereunder and under the Notes, the Renewal Notes and such other documents shall be secured by a pledge (the “Pledge”) on the Borrower’s quedans for crop year ­­­____, as more particularly described in and subject to the terms and conditions of that Contract of Pledge to be executed by the Borrower in favor of the Bank, which Contract shall in any event be in form and substance acceptable to the Bank (the “Security Document”).^[14][10] (Emphases ours.)

Pursuant to the above agreement, Luis Ramos obtained an availment of P7,800,000.00, which was evidenced by a promissory note dated April 3, 1989.^[15][11]  Accordingly, Luis Ramos executed a Contract of Pledge^[16][12] in favor of PNB on April 6, 1989.  Pledged as security for the availment were two official warehouse receipts (quedans) for refined sugar issued by Noah’s Ark Sugar Refinery (Noah’s Ark), which bore the serial numbers NASR RS-18080 and NASR RS-18081.^[17][13]  The said quedans were duly indorsed to PNB.

On June 6, 1989, Luis Ramos procured another availment of P7,800,000.00 that was likewise contained in a promissory note^[18][14] and for which he executed another Contract of Pledge^[19][15] on the aforementioned quedans on even date.

Thereafter, Luis Ramos was granted a renewal on the promissory notes dated April 3, 1989 and June 6, 1989.  Hence, he executed in favor of PNB the promissory notes dated October 3, 1989 and October 9, 1989.^[20][16]

Luis Ramos eventually failed to settle his sugar quedan financing loans amounting to P15,600,000.00.  On December 28, 1989, he issued an Authorization^[21][17] in favor of PNB, stating as follows:

AUTHORIZATION

KNOW ALL MEN BY THESE PRESENTS:

In consideration of my Sugar Quedan Financing line granted by Philippine National Bank, Balayan Branch in the amount of P50.0 Million, as evidenced by Credit Agreement dated March 31, 1989, the undersigned, as borrower, authorizes the Philippine National Bank, Balayan Branch, or any of its duly authorized officer, to dispose and sell all the Quedan Receipts (Warehouse Receipts) pledged to said bank, after maturity date of the Sugar Quedan Financing line.

The Sugar Quedan Receipts are hereunder specifically enumerated:

Official Warehouse Receipt (Quedan) Serial Nos.:

1)  NASR RS – 18081 Crop Year 1988-89 (16,129.03 – 50 kilo bags)

2)  NASR RS – 18080 Crop Year 1988-89 (16,393.44 – 50 kilo bags)

Incidentally, the above-mentioned sugar quedans became the subject of three other cases between PNB and Noah’s Ark, which cases have since reached this Court.^[22][18]

The Agricultural Crop Loan

Meanwhile, on August 7, 1989, the spouses Luis Ramos and Ramona Ramos (spouses Ramos) also obtained an agricultural loan of P160,000.00 from PNB.  Said loan was evidenced by a promissory note^[23][19] issued by the spouses on even date.  The said loan was secured by the real estate mortgage previously executed by the parties on October 23, 1973.

On November 2, 1990, the spouses Ramos fully settled the agricultural loan of P160,000.00.^[24][20]  They then demanded from PNB the release of the real estate mortgage.  PNB, however, refused to heed the spouses’ demand.^[25][21]

On February 28, 1996, the spouses Ramos filed a complaint for Specific Performance^[26][22] against the PNB, Balayan Branch, which was docketed as Civil Case No. 3241 in the Regional Trial Court (RTC) of Balayan, Batangas.  The spouses claimed that the actions of PNB impaired their rights in the properties included in the real estate mortgage.  They alleged that they lost business opportunities since they could not raise enough capital, which they could have acquired by mortgaging or disposing of the said properties.  The spouses Ramos prayed for the trial court to order PNB to release the real estate mortgage on their properties and to return to the spouses the TCTs of the properties subject of the mortgage.

In its Answer,^[27][23] PNB countered that the spouses Ramos had no cause of action against it since the latter knew that the real estate mortgage secured not only their P160,000.00 agricultural loan but also the other loans the spouses obtained from the bank.  Specifically, PNB alleged that the spouses’ sugar quedan financing loan of P15,600,000.00 remained unpaid as the quedans were dishonored by the warehouseman Noah’s Ark.  PNB averred that it filed a civil action for specific performance against Noah’s Ark involving the quedans and the case was still pending at that time.  As PNB was still unable to collect on the quedans, it claimed that the spouses Ramos’ loan obligations were yet to be fully satisfied.  Thus, PNB argued that it could not release the real estate mortgage in favor of the spouses.

On March 26, 1999, the RTC rendered a Decision^[28][24] in favor of the spouses Ramos, holding that:

A careful analysis of the evidence on record clearly shows that there is merit to the [spouses Ramos’] complaint that their obligation with [PNB] has long been paid and satisfied.

As the records show, PNB admitted that [Luis Ramos] has already paid his sugar crop loan in the amount of P160,000.00 x x x.  The reason why it refused to release the certificates of titles to the [spouses Ramos] was allegedly because the said titles were also mortgaged to secure the other obligations of Luis Ramos, particularly the sugar crop loan in the amount of P15.6 Million.  However, even assuming that its argument is correct that the said certificates of titles were also security for the said sugar financing loan, the same is of no consequence since the [spouses Ramos] have likewise fully paid the sugar loan when they effectively transferred the sugar quedans to [PNB] by issuing a letter authority, authorizing it to dispose and sell all the Quedan Receipts (Warehouse Receipts) of the [spouses Ramos] which they pledged to the bank on December 29, 1989 x x x.  [Luis Ramos] executed the said letter of authority to the PNB when he could not anymore afford to pay his loan which became due.  There is no doubt that [PNB] accepted the said quedans with the understanding that the same shall be treated as payment of [spouses Ramos’] obligation, considering that it did not hesitate to proceed to demand from Noah’s Ark Sugar Refinery, the delivery of the sugar stocks to them as new owners thereof.  It is, therefore, very clear that the authorization issued by [Luis Ramos] in favor of [PNB], giving the latter the right to dispose and sell the pledged warehouse receipts/quedans totally terminated the contract of pledge between the [spouses Ramos] and [PNB].  In effect there was a novation of their agreement and dation in payment set in between the parties thereby extinguishing the loan obligation of the [spouses Ramos], as provided in Article 1245 of the Civil Code.

Article 1245 of the Civil Code provides that dation in payment is a special form of payment whereby property is alienated by the debtor to the creditor in satisfaction of a debt in money.  As stated differently by the noted commentator Manresa, dacion en pago is the transfer of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation.  This was what precisely plaintiff Luis Ramos did in this case.  He alienated the ownership of the sugar quedans and the goods covered by said quedans to [PNB] in satisfaction of his loan obligation with [PNB].

x x x x

WHEREFORE, the defendant Philippine National Bank, Balayan Branch is hereby ORDERED to RELEASE the real estate mortgage on the properties of the [spouses Ramos] and to return to them all the transfer certificates of titles which were pledged as security for the agricultural loan which had long been paid and satisfied and to pay the costs.^[29][25] (Emphasis ours.)

PNB filed a Notice of Appeal^[30][26] involving the above decision, which was given due course by the RTC in an Order dated May 11, 1999.  The records of the case were then forwarded to the Court of Appeals where the case was docketed as CA-G.R. CV No. 64360.

Before the appellate court, PNB contested the ruling of the RTC that the spouses Ramos have already settled their sugar quedan financing loan with PNB when they issued a letter of authority, which authorized PNB to sell the quedan receipts of the spouses Ramos.  PNB also contended that the real estate mortgage executed by the spouses Ramos in its favor secured not only the spouses Ramos’ agricultural crop loan in the amount of P160,000.00, but also their 1989 sugar quedan financing loan.^[31][27]

On the other hand, the spouses Ramos averred that the authorization issued by Luis Ramos in favor of PNB, authorizing the latter to dispose and sell the pledged sugar quedans terminated the contract of pledge between the spouses Ramos and PNB.  There was in effect a novation of the contract of pledge and, thereafter, dation in payment set in between the parties.^[32][28]  The spouses Ramos also claimed that the condition in the parties’ real estate mortgage, which stated that the “mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of mortgage[,]” was essentially a contract of adhesion and violated the doctrine of mutuality of contract.^[33][29]

On November 8, 2006, the Court of Appeals promulgated its assailed decision, reversing the judgment of the RTC.  The appellate court elucidated thus:

In the instant appeal, the trial court ruled that the issuance of [the] authorization letter by [spouses Ramos] in favor of [PNB] terminated the contract of pledge between the parties and in effect dation in payment sets-in.

We do not agree.  First, the authorization letter did not provide that ownership of the goods pledged would pass to [PNB] for failure of [spouses Ramos] to pay the loan on time.  This is contrary to the concept of Dacion en pago as the “delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.”  Second, the authorization merely provided for the appointment of [PNB] as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by [spouses Ramos], and to apply the proceeds to the payment of the loan.  This provision is a standard condition in pledge contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the pledgee to foreclose the pledge and alienate the pledged property for the payment of the principal obligation.  Lastly, there was no meeting of the minds between [spouses Ramos] and [PNB] that the loan would be extinguished by dation in payment.

Article 1245 of the Civil Code provides that the law on sales shall govern an agreement of dacion en pago.  A contract of sale is perfected at the moment there is a meeting of the minds of the parties thereto upon the thing which is the object of the contract and upon the price.  x x x.

x x x x

In this case, there was no meeting of the mind between the parties that would lead us to conclude that dation in payment has set-in.  The trial court based its decision that there was dation in payment solely on the authorization letter, which we do not agree.  This is because the authorization letter merely authorizes “the Philippine National Bank, Balayan Branch, or any of its duly authorized officer, to dispose and sell all the Quedan Receipts (Warehouse Receipts) pledge to said bank, after maturity date of the Sugar Quedan Financing Loan.”

Moreover, in case of doubt as to whether a transaction is a pledge or dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interest.

x x x x

WHEREFORE, the appeal is hereby GRANTED.  ACCORDINGLY, the Decision dated March 26, 1999 of the Regional Trial Court of Balayan, Batangas, Branch 9, is hereby REVERSED and a new one is entered ordering [PNB] to hold the release of all the transfer certificates of titles which were pledged as security for the agricultural loan of [spouses Ramos].^[34][30]

On November 30, 2006, the spouses Ramos filed a Motion for Reconsideration^[35][31] of the Court of Appeals decision.  The spouses then asserted that it was unclear whether the parties intended that the real estate mortgage would also secure the sugar quedan financing loan, which was specifically secured by the pledge on the quedans.  They alleged that the sugar quedan financing loan, the contract of pledge and the promissory notes did not even make any reference to the real estate mortgage.  PNB apparently violated its implied duty of good faith by wrongfully retaining the spouses Ramos’ collateral and improperly invoking the obscure terms of the real estate mortgage it prepared.

Subsequently, the spouses Ramos filed a Motion for Leave to File Supplemental Argument.^[36][32]  They added that PNB could not have acquired a security interest on the real estate mortgage for the purpose of the sugar quedan financing loan because when the real estate mortgage was constituted, the credit line from whence the sugar quedan financing loan was sourced did not yet exist.  The spouses Ramos also argued that PNB was in bad faith in retaining the collateral of their real estate mortgage as it knew or should have known that the said security was already void given that the agricultural crop loan secured by the mortgage was already fully paid.

In the assailed Resolution dated May 28, 2007, the Court of Appeals denied the spouses Ramos’ motion for reconsideration as it found no compelling reason to reverse its Decision dated November 8, 2006.

On June 18, 2007, the counsel for the spouses Ramos notified the Court of Appeals that Luis Ramos had passed away and that the latter’s wife, Ramona Ramos, acted as the legal representative of Luis’ estate.

Thereafter, Ramona Ramos and the estate of Luis Ramos (petitioners) filed the instant petition in a final bid to have the real estate mortgage declared null and void as regards their sugar quedan financing loan, as well as to compel PNB to return the TCTs of the properties included in the said mortgage.

On September 10, 2007, PNB filed a Motion for Substitution of Party,^[37][33] alleging that it has sold to Golden Dragon Star Equities, Inc.     all of its rights, titles and interests in and all obligations arising out of or in connection with several cases, including the instant case.  Afterwards, Golden Dragon Star Equities, Inc. assigned to Opal Portfolio Investments (SPV-AMC) Inc. all of its rights and obligations as a purchaser under the contract of sale with PNB.  Thus, PNB prayed that it be substituted by Opal Portfolio Investments (SPV-AMC) Inc. as party respondent in the petition.

In the Resolution^[38][34] dated October 10, 2007, the Court denied the above motion of PNB and instead ordered that Opal Portfolio Investments (SPV-AMC) Inc. and Golden Dragon Star Equities, Inc. be included as respondents in addition to PNB.  The said corporations were then required to file their comment on the petition within ten days from notice.^[39][35]  On January 25, 2008, Opal Portfolio Investments (SPV-AMC) Inc. and Golden Dragon Star Equities, Inc. manifested that they were adopting as their own the comment filed by PNB.^[40][36]

The Issues

Petitioners raise the following issues:

1.

IS THE MEANING OF THE GENERAL TERMS OF THE REAL ESTATE MORTGAGE CLEAR AND LEAVE NO DOUBT THAT THERE IS NO NEED TO DETERMINE WHETHER THE PARTIES INTENDED TO CREATE AND PROVIDE SECURITY INTEREST ON THE REAL ESTATE COLLATERAL OF BORROWER LUIS T. RAMOS FOR THE SUGAR QUEDAN FINANCING LOAN GRANTED TO HIM BY LENDER PNB, IN ADDITION TO THE AGRICULTURAL CROP LOAN THAT WAS UNDISPUTEDLY AGREED UPON BY THEM TO BE COVERED BY THE COLLATERAL?

2.

SHOULD THE GENERAL TERMS OF THE REAL ESTATE MORTGAGE EXECUTED BY BORROWER LUIS T. RAMOS IN FAVOR OF LENDER PNB BE UNDERSTOOD TO INCLUDE IN ITS COVERAGE THE BORROWER’S SUGAR QUEDAN FINANCING LOAN THAT IS DIFFERENT FROM HIS AGRICULTURAL CROP LOAN UNDISPUTEDLY AGREED UPON BY THE PARTIES TO BE COVERED BY THE COLLATERAL?

3.

SHOULD THE REAL ESTATE MORTGAGE EXECUTED IN 1973 BE CONSIDERED VALID AND EXISTING SECURITY DEVICE AGREEMENT FOR SUGAR QUEDAN FINANCING LOAN OBTAINED PURSUANT TO CREDIT LINE AGREEMENT EXECUTED ONLY IN 1989?^[41][37]

Petitioners principally argue that the scope and coverage of the real estate mortgage excluded the sugar quedan financing loan.  Petitioners assert that the mortgage contained a blanket mortgage clause or a dragnet clause, which stated that the mortgage would secure not only the loans already obtained but also any other amount that Luis Ramos may loan from PNB.  Petitioners posit that a dragnet clause will cover and secure a subsequent loan only if said loan is made in reliance on the original security containing the dragnet clause.  Petitioners state that said condition did not exist in the instant case, as the sugar quedan financing loan was not obtained in reliance on the previously executed real estate mortgage.  Such fact was supposedly apparent from the documents pertaining to the sugar quedan financing loans, i.e., the credit line agreement, the various promissory notes and the contracts of pledge.

PNB responded that the issue of whether the parties intended for the real estate mortgage to secure the sugar quedan financing loan was never raised in the RTC or in the Court of Appeals.  Therefore, the same cannot be raised for the first time in the motion for reconsideration of the Court of Appeals decision and in the instant petition.  Likewise, PNB asserts that the spouses Ramos consented to the terms of the real estate mortgage that the real properties subject thereof should be used to secure future and subsequent loans of the mortgagor.  Since the spouses never contested the validity and enforceability of the real estate mortgage, the same must be respected and should govern the relations of the parties therein.

PNB also avers that the Court of Appeals did not err in ruling that there was no dacion en pago and/or novation under the circumstances prevailing in the instant case.  The Authorization issued by Luis Ramos in favor of PNB did not terminate the contract of pledge between the parties as PNB was merely authorized to dispose and sell the sugar quedans to be applied as payment to the obligation.  Hence, no transfer of ownership occurred.  Article 2103 of the Civil Code expressly states that “unless the thing pledged is expropriated, the debtor continues to be the owner thereof.”          PNB argued that when it accepted the Authorization, it recognized that it was merely being authorized by Luis Ramos to dispose of the quedans.  Therefore, until the spouses Ramos fully settle their loans from PNB, the latter believes that it has every right to retain possession of the properties offered as collateral thereto.

After due consideration of the issues raised, we are compelled to deny the petition.

To begin with, we note that, indeed, petitioners are presently raising issues that were neither invoked nor discussed before the RTC and the main proceedings before the Court of Appeals.  The very issues laid down by petitioners for our consideration were first brought up only in their motion for reconsideration of the Court of Appeals Decision dated November 8, 2006.

In their complaint before the RTC and in their reply to PNB’s appeal to the Court of Appeals, petitioners relied on the theory that they have already settled all of their loan obligations with PNB, including their sugar quedan financing loan, such that they were entitled to the release of the real estate mortgage that secured the said obligations.  When the Court of Appeals rendered the assailed decision, petitioners foisted a new argument in their motion for reconsideration that the parties did not intend for the sugar quedan financing loan to be covered by the real estate mortgage.  Before this Court, petitioners are now reiterating and expounding on their argument that their sugar quedan financing loan was beyond the ambit of the previously executed real estate mortgage.  We rule that such a change in petitioners’ theory may not be allowed at such late a stage in the case.

The general rule is that issues raised for the first time on appeal and not raised in the proceedings in the lower court are barred by estoppel.  Points of law, theories, issues, and arguments not brought to the attention of the trial court ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal.  To consider the alleged facts and arguments raised belatedly would amount to trampling on the basic principles of fair play, justice, and due process.^[42][38]

Jurisprudence, nonetheless, provides for certain exceptions to the above rule.  First, it is a settled rule that the issue of jurisdiction may be raised at any time, even on appeal, provided that its application does not result in a mockery of the tenets of fair play.  Second, as held in Lianga Lumber Company v. Lianga Timber Co., Inc.,^[43][39] in the interest of justice and within the sound discretion of the appellate court, a party may change his legal theory on appeal only when the factual bases thereof would not require presentation of any further evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory.

None of the above exceptions, however, applies to the instant case.  As regards the first exception, the issue of jurisdiction was never raised at any point in this case.  Anent the second exception, the Court finds that the application of the same in the case would be improper, as further evidence is needed in order to answer and/or refute the issue raised in petitioners’ new theory.

To recapitulate, petitioners are now claiming that the sugar quedan financing loan it availed from PNB was not obtained in reliance on the real estate mortgage.  Petitioners even insist that the credit line agreement, the promissory notes and the contracts of pledge entered into by the parties were silent as to the applicability thereto of the real estate mortgage.  Otherwise stated, petitioners are harping on the intention of the parties vis-à-vis the security arrangement for the credit line agreement and the availments thereof constituting the sugar quedan financing loan.  The impropriety of the petitioners’ posturing is further confounded by the fact that the credit line agreement under PNB’s sugar quedan financing program and the availments thereto were entered into by Luis Ramos and PNB as far back as the year 1989.  Petitioners’ new theory, on the other hand, was only raised much later on the spouses’ motion for reconsideration of the Court of Appeals decision dated November 8, 2006, or after a period of more or less seventeen years since the execution of the credit line agreement.  The Court, therefore, finds itself unable to give credit to the new theory proffered by petitioners since to do so would gravely offend the rights of PNB to due process.

Even if the Court were willing to overlook petitioners’ procedural misstep on appeal, their belatedly proffered theory still fails to convince us that the Court of Appeals committed any reversible error in its resolution of the present case.

According to petitioners, their case requires an application of Article 1371 of the Civil Code, which provides that “in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.”  To their mind, the mere fact that the 1989 credit line agreement, the promissory notes and the contracts of pledge executed in relation to the sugar quedan financing loan contained no reference to the real estate mortgage is sufficient proof that the parties did not intend the real estate mortgage to secure the sugar quedan financing loan, but only the agricultural crop loans. The Court finds that it cannot uphold this proposition.

In Prisma Construction & Development Corporation v. Menchavez,^[44][40] we discussed the settled principles that:

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.  In such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court’s duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain.  It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties’ intent.^[45][41]

Here, it cannot be denied that the real estate mortgage executed by the parties provided that it shall stand as security for any “subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc.”  The same real estate mortgage likewise expressly covered “any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage.”  Thus, from the clear and unambiguous terms of the mortgage contract, the same has application even to future loans and obligations of the mortgagor of any kind, not only agricultural crop loans.

Such a “blanket clause” or “dragnet clause” in mortgage contracts has long been recognized in our jurisprudence.  Thus, in another case, we held:

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. This stipulation is valid and binding between the parties and is known as the “blanket mortgage clause” (also known as the “dragnet clause).”

In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for “such other loans or advances already obtained, or still to be obtained.” The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well.^[46][42]  (Emphases supplied.)

Moreover, petitioners’ reliance on Prudential Bank v. Alviar^[47][43] is sorely misplaced.  In Prudential, the fact that another security was given for subsequent loans did not remove such loans from the ambit of the dragnet clause in a previous real estate mortgage contract.  However, it was held in Prudential that the special security for subsequent loans must first be exhausted before the creditor may foreclose on the real estate mortgage.  In other words, the creditor is allowed to hold on to the previous security (the real estate mortgage) in case of deficiency after resort to the special security given for the subsequent loans.  Verily, even under the Prudential ruling cited by petitioners, they are not entitled to the release of the real estate mortgage and the titles to the properties mentioned therein.

Ultimately, we likewise find no reason to overturn the assailed ruling of the Court of Appeals that the contract of pledge between petitioners and PNB was not terminated by the Authorization letter issued by Luis Ramos in favor of PNB.  The status of PNB as a pledgee of the sugar quedans involved in this case had long been confirmed by the Court in its Decision dated July 9, 1998 in Philippine National Bank v. Sayo, Jr.^[48][44] and the same is neither disputed in the instant case.  We reiterate our ruling in Sayo that:

The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge.  Any stipulation to the contrary, termed pactum commissorio, is null and void.  The law requires foreclosure in order to allow a transfer of title of the good given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods. x x x.^[49][45]

A close reading of the Authorization executed by Luis Ramos reveals that it was nothing more than a letter that gave PNB the authority to dispose of and sell the sugar quedans after the maturity date thereof.  As held by the Court of Appeals, the said grant of authority on the part of PNB is a standard condition in a contract of pledge, in accordance with the provisions of Article 2087 of the Civil Code that “it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.”  More importantly, Article 2115 of the Civil Code expressly provides that the sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case.  As we adverted to in Sayo, it is the foreclosure of the thing pledged that results in the satisfaction of the loan liabilities to the pledgee of the pledgors.  Thus, prior to the actual foreclosure of the thing pleged, the sugar quedan financing loan in this case is yet to be settled.

As matters stand, with more reason that PNB cannot be compelled to release the real estate mortgage and the titles involved therein since the issue of whether the sugar quedan financing loan will be fully paid through the pledged sugar receipts remains the subject of pending litigation.

WHEREFORE, the petition is DENIED.  The Decision dated November 8, 2006 and the Resolution dated May 28, 2007 of the Court of Appeals in CA-G.R. CV No. 64360 are hereby AFFIRMED.  Costs against petitioners.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

  Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

LEGAL NOTE 0107: DISGRACEFUL AND IMMORAL CONDUCT IN GOVERNMENT SERVICE.

SOURCE: EVILINA C. BANAAG VS. OLIVIA C. ESPELETA, INTERPRETER III, BRANCH 82, REGIONAL TRIAL COURT, QUEZON CITY (A.M. NO. P-11-3011, 16 DECEMBER 2011, PERLAS-BERNABE, J.) SUBJECT: DISGRACEFUL AND IMMORAL CONDUCT; SUBSTANTIAL EVIDENCE; (BRIEF TITLE: BANAAN VS. ESPELITA)

======================

SUBJECT/DOCTRINE/DIGEST

ESPELITA, A COURT INTERPRETER  MAINTAINED AN ILLICIT RELATIONSHIP WITH A CERTAIN MR. BANAAG EVIDENCED BY BANK DEPOSIT SLIPS MADE BY THE LATTER IN FAVOR OF ESPELITA. WHAT OFFENSE DID ESPELITA COMMIT?

DISGRACEFUL AND IMMORAL CONDUCT.

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WHAT IS THE OFFENSE OF DISGRACEFUL AND IMMORAL CONDUCT?

IT IS  “AN ACT WHICH VIOLATES THE BASIC NORM OF DECENCY, MORALITY AND DECORUM ABHORRED AND CONDEMNED BY THE SOCIETY” AND “CONDUCT WHICH IS WILLFUL, FLAGRANT OR SHAMELESS, AND WHICH SHOWS A MORAL INDIFFERENCE TO THE OPINIONS OF THE GOOD AND RESPECTABLE MEMBERS OF THE COMMUNITY.”

After a careful evaluation of the records of the instant case, the Court finds respondent Olivia C. Espeleta guilty of Disgraceful and Immoral Conduct under Section 46(b)(5), Chapter 7, Subtitle A, Title I, Book V of the Administrative Code of 1987 which, as defined in Section 1 of CSC Resolution No. 100912 dated May 17, 2010 (Revised Rules on the Administrative Offense of Disgraceful and Immoral Conduct), is “an act which violates the basic norm of decency, morality and decorum abhorred and condemned by the society” and “conduct which is willful, flagrant or shameless, and which shows a moral indifference to the opinions of the good and respectable members of the community.”

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WHAT IS THE DEGREE OF SUCH OFFENSE?

GRAVE.

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WHAT IS THE PENALTY?

SUSPENSION FROM THE SERVICE FOR SIX (6) MONTHS AND ONE (1) DAY TO ONE (1) YEAR FOR THE FIRST OFFENSE, AND DISMISSAL FOR THE SECOND OFFENSE.²⁷

Respondent’s act of maintaining an illicit relationship with a married man comes within the purview of disgraceful and immoral conduct,²⁶ which is classified as a grave offense punishable with suspension from the service for six (6) months and one (1) day to one (1) year for the first offense, and dismissal for the second offense.²⁷

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ARE THERE PRECEDENTS?

YES. SOME PRECEDENTS ARE AS FOLLOWS:

In Sealana-Abbu vs. Laurenciana-Huraño²⁸ (2007), where two court stenographers engaged in an illicit affair were suspended for one (1) year, the Court emphasized that “(i)t is morally reprehensible for a married man or woman to maintain intimate relations with another person of the opposite sex other than his or her spouse.” In Elape vs. Elape²⁹ (2008), a process server of the RTC was suspended for six (6) months and one (1) day for cohabiting with his mistress, abandoning his family and depriving them of financial support. Another process server was suspended for the same period in Regir vs. Regir³⁰ (2009) for carrying on an illicit relationship with a woman not his wife, with whom he begot a child. Recently, in Babante-Caples vs. Caples³¹ (2010), a utility worker in the MTC, who had resigned, was nonetheless ordered to pay a fine for maintaining an illicit relationship with a woman not his wife.

As in Babante-Caples, respondent herein was given the opportunity to be heard and refute the charges against her; yet, she chose not to file any comment. Instead, as aptly pointed out by the OCA, respondent rather hastily tendered her resignation on June 11, 2009, just a few days after receipt on June 2, 2009³² of the 1^st Indorsement specifically requiring her to answer the letter-complaint. That respondent fully intended to run away from accountability for her indiscretions is betrayed by her perfectly-timed departure for theUnited States of America shortly after her resignation. Respondent’s actuations when confronted with the charges against her are, thus, strongly indicative of guilt on her part.

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HOW DID THE COURT EVALUATE THE EVIDENCE AGAINST ESPELITA?

IN THIS WISE:

The deposit slips indicating various amounts credited both directly and indirectly to respondent’s account indubitably prove the allegation that she had been receiving substantial amounts of money from complainant’s husband, in callous disregard of the heartache and financial dislocation of the latter’s family. There could thus not be any serious doubt that respondent was indeed in an intimate relationship with Avelino, a married man.

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WHAT IS THE DEGREE OF EVIDENCE APPLIED BY THE COURT?

SUBSTANTIAL EVIDENCE.

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WHAT IS SUBSTANTIAL EVIDENCE?

THAT AMOUNT OF RELEVANT EVIDENCE THAT A REASONABLE MIND MIGHT ACCEPT AS ADEQUATE TO SUPPORT A CONCLUSION, IS REQUIRED.³³

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WHEN IS THE STANDARD OF SUBSTANTIAL EVIDENCE SATISFIED?

WHEN THERE IS REASONABLE GROUND TO BELIEVE THAT RESPONDENT IS RESPONSIBLE FOR THE MISCONDUCT COMPLAINED OF, EVEN IF SUCH EVIDENCE MIGHT NOT BE OVERWHELMING OR EVEN PREPONDERANT.³⁴

In administrative proceedings, only substantial evidence, i.e., that amount of relevant evidence that a reasonable mind might accept as adequate to support a conclusion, is required.³³ The standard of substantial evidence is satisfied when there is reasonable ground to believe that respondent is responsible for the misconduct complained of, even if such evidence might not be overwhelming or even preponderant.³⁴

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WHY SHOULD IMMORAL CONDUCT BE PENALIZED STRICTLY?

BECAUSE THE IMAGE OF A COURT OF JUSTICE IS MIRRORED IN THE CONDUCT, OFFICIAL AND OTHERWISE, OF THE PERSONNEL WHO WORK THEREAT, FROM THE JUDGE TO THE LOWEST OF ITS PERSONNEL. COURT EMPLOYEES HAVE BEEN ENJOINED TO ADHERE TO THE EXACTING STANDARDS OF MORALITY AND DECENCY IN THEIR PROFESSIONAL AND PRIVATE CONDUCT IN ORDER TO PRESERVE THE GOOD NAME AND INTEGRITY OF COURTS OF JUSTICE.”³⁵

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BUT ESPELITA HAS ALREADY RESIGNED. WILL SHE STILL BE SANCTIONED?

YES, BY PAYING FINE  OF P50,000.00.. RESIGNATION SHOULD NOT BE USED EITHER AS AN ESCAPE OR AS AN EASY WAY OUT TO EVADE AN ADMINISTRATIVE SANCTION.

“It cannot be overstressed that the image of a court of justice is mirrored in the conduct, official and otherwise, of the personnel who work thereat, from the judge to the lowest of its personnel. Court employees have been enjoined to adhere to the exacting standards of morality and decency in their professional and private conduct in order to preserve the good name and integrity of courts of justice.”³⁵ This Court has thus consistently penalized court personnel who had been found wanting of such standards, even if they have precipitately resigned from their positions. Resignation should not be used either as an escape or as an easy way out to evade an administrative liability or an administrative sanction.³⁶

Had respondent not resigned from the service, she would have been suspended for six months and one day in accordance with the prescribed penalty in the Uniform Rules on Administrative Cases in the Civil Service³⁷, this being her first offense involving immorality. Instead, the Court adopts the OCA’s recommended fine in the amount of P50,000.00 not exceeding respondent’s six months’ salary, which may be deducted from her accrued leave credits, if sufficient.

==========================

EN BANC

x—————————————————————————————–x

DECISION

PERLAS-BERNABE, J.:

“Can a man scoop fire into his lap without his clothes being burned? Can a man walk on hot coals without his feet being scorched?” So goes an early admonition against immorality from the Holy Book that is as valuable today as it was thousands of years ago. In the judiciary, “moral integrity is more than a virtue; it is a necessity”.¹ A court employee who has fallen short of the exacting standards of morality and decency has to face the consequences, even after the embers have died and the scars have faded.

The Facts

The present administrative case originated from a letter-complaint² dated May 3, 2009 filed by complainant Evelina C. Banaag before the Office of the Court Administrator (OCA) charging respondent Olivia C. Espeleta with Gross Immorality and Conduct Prejudicial to the Best Interest of the Service for engaging in an illicit and immoral relationship with her husband, Avelino C. Banaag.

Evelina met Olivia for the first time in October 2005 when the latter accompanied Gloria Tubtub to her house at JB Crystal Building, Quirino Highway, Lagro, Quezon City, to request for encashment of a check in the amount of P11,000.00. It turned out that the check, which Evelina encashed out of pity for Gloria who was her “sister” in a Marriage Encounter group and who told her that she needed money for her grandchild who was supposedly hospitalized, actually belonged to Olivia. According to Gloria, she did not intend to deceive her friend but only wanted to help Olivia, who gave her a “small token” for the transaction.³

At the same meeting, Olivia introduced herself as a court interpreter in the Regional Trial Court (RTC) ofQuezon City, Branch 82. Believing that Olivia could assist her and her husband in their pending cases before the court, Evelina introduced Olivia to her husband who, after learning that they both hail from Batangas, asked for Olivia’s cellphone number. Little did Evelina know that said casual meeting would eventually blossom into an amorous relationship between Olivia and her husband.

Evelina claimed that she learned about the affair the following year, 2006, when her husband asked to withdraw P180,000.00 from their joint bank account to lend to his brother, Reynaldo, who was then confined in the hospital. She later found out from the latter’s wife, Ana Fe, that Avelino gave him (Reynaldo) only P80,000.00. Ana Fe cautioned Evelina against releasing more money to her husband who has a mistress working at the City Hall.

Upon investigation, Evelina learned that on two separate occasions in 2006, her husband had gone to Olivia’s house in San Jose Del Monte, Bulacan, accompanied by his friend, Engr. Pacifico “Jun” R. Sabigan. On both occasions, according to Sabigan, they had some drinks, and Olivia danced. Avelino, already tipsy, danced with her. Although Sabigan did not witness any compromising exchanges between the two, nonetheless, Avelino had confided to him that he and Olivia were seeing each other, and that he had been giving Olivia P5,000.00 for her groceries.⁴

Evelina confronted her husband right away. He was tight-lipped at first, but he eventually admitted his romantic involvement with Olivia. Worse, Evelina discovered that her husband, using their conjugal funds, had been depositing substantial amounts of money to Olivia’s Landbank account⁵ for three years spanning 2006 to 2009, as well as to the Metrobank account⁶ of the latter’s daughter, Ana Kharmela E. Rules. He also made deposits to the Landbank accounts of Olivia’s co-employees, Pacencia Rodriguez⁷ and Olga Abesamis⁸. When confronted, Olga allegedly confirmed that the deposits to her account were for the benefit of Olivia who, at that time, had no ATM card.

Evelina claimed that more than P3 Million had been deposited to Olivia’s account but she was able to retain in her possession deposit slips amounting only to P1.429 Million, having lost the others in a scuffle with her husband, who tore them to pieces and flushed them in the toilet. For a long time, Avelino was the administrator of the family-owned JB Crystal Building, which earned rentals that he himself collected in cash. This, Evelina surmised, enabled her husband to support Olivia financially.

To bolster her claims, Evelina attached to her letter-complaint (1) photocopies⁹ of cash deposit slips evidencing Avelino’s deposits to Olivia’s account wherein he indicated his relationship to the latter as a “cousin”, as well as to the accounts of Olivia’s daughter and co-employees; and (2) summaries¹⁰ of unremitted rentals from their commercial building and unauthorized withdrawals made by Avelino from their bank account. She likewise submitted in evidence the affidavits executed by Gloria Tubtub¹¹ and Engr. Sabigan¹² confirming the illicit relationship.

The Action and Recommendation of the OCA

The OCA directed respondent Olivia to comment on the letter-complaint within ten (10) days from receipt of its 1^st Indorsement¹³ dated May 18, 2009. However, Olivia failed to comply therewith. A similar notice¹⁴ was subsequently issued by the OCA on August 19, 2009, to no avail. On January 21, 2010, the OCA reported¹⁵ the matter to this Court recommending that Olivia be directed for the last time to submit her comment otherwise the case against her shall be resolved on the basis of the record on file. Accordingly, the First Division issued the pertinent Resolution¹⁶ dated April 28, 2010, which was, however, returned unserved with the notation “No occupant at given address”. It was served anew per Resolution¹⁷ dated August 16, 2010, but was likewise returned unserved for the reason “RTS-Moved”.¹⁸ The Court thereafter sent the case back to the OCA for evaluation, report and recommendation.¹⁹

Upon verification with the Office of Administrative Services (OAS), it was found that Olivia had filed a letter²⁰ of resignation dated June 11, 2009, which was favorably endorsed²¹ both by the Presiding Judge of Branch 82 and the Executive Judge of the RTC. In a subsequent letter²² dated August 12, 2009, Presiding Judge Severino B. De Castro, Jr. informed the OCA that Olivia had gone to the United States, and that it was not known whether she intended to return to the country. Hence, upon the recommendation²³ of the OCA, the resignation was accepted by this Court on February 26, 2010 without prejudice to the outcome of the instant administrative case.

On August 11, 2011, the OCA reported its findings²⁴ on the case and recommended that:

1. The instant administrative matter be RE-DOCKETED as a regular administrative complaint against Olivia C. Espeleta, former Interpreter III. Regional Trial Court, Branch 82,Quezon City; and

2. Respondent Olivia C. Espeleta be found GUILTY of Gross Immoral Conduct, and be ORDERED to pay a FINE in the amount of P50,000.00, which may be deducted from whatever sums that are due her, as accrued leave credits, if sufficient.²⁵

The Issue

The only issue to be resolved is whether respondent Olivia C. Espeleta is guilty of immoral conduct.

The Ruling of the Court

After a careful evaluation of the records of the instant case, the Court finds respondent Olivia C. Espeleta guilty of Disgraceful and Immoral Conduct under Section 46(b)(5), Chapter 7, Subtitle A, Title I, Book V of the Administrative Code of 1987 which, as defined in Section 1 of CSC Resolution No. 100912 dated May 17, 2010 (Revised Rules on the Administrative Offense of Disgraceful and Immoral Conduct), is “an act which violates the basic norm of decency, morality and decorum abhorred and condemned by the society” and “conduct which is willful, flagrant or shameless, and which shows a moral indifference to the opinions of the good and respectable members of the community.”

Respondent’s act of maintaining an illicit relationship with a married man comes within the purview of disgraceful and immoral conduct,²⁶ which is classified as a grave offense punishable with suspension from the service for six (6) months and one (1) day to one (1) year for the first offense, and dismissal for the second offense.²⁷

In Sealana-Abbu vs. Laurenciana-Huraño²⁸ (2007), where two court stenographers engaged in an illicit affair were suspended for one (1) year, the Court emphasized that “(i)t is morally reprehensible for a married man or woman to maintain intimate relations with another person of the opposite sex other than his or her spouse.” In Elape vs. Elape²⁹ (2008), a process server of the RTC was suspended for six (6) months and one (1) day for cohabiting with his mistress, abandoning his family and depriving them of financial support. Another process server was suspended for the same period in Regir vs. Regir³⁰ (2009) for carrying on an illicit relationship with a woman not his wife, with whom he begot a child. Recently, in Babante-Caples vs. Caples³¹ (2010), a utility worker in the MTC, who had resigned, was nonetheless ordered to pay a fine for maintaining an illicit relationship with a woman not his wife.

As in Babante-Caples, respondent herein was given the opportunity to be heard and refute the charges against her; yet, she chose not to file any comment. Instead, as aptly pointed out by the OCA, respondent rather hastily tendered her resignation on June 11, 2009, just a few days after receipt on June 2, 2009³² of the 1^st Indorsement specifically requiring her to answer the letter-complaint. That respondent fully intended to run away from accountability for her indiscretions is betrayed by her perfectly-timed departure for theUnited States of America shortly after her resignation. Respondent’s actuations when confronted with the charges against her are, thus, strongly indicative of guilt on her part.

The deposit slips indicating various amounts credited both directly and indirectly to respondent’s account indubitably prove the allegation that she had been receiving substantial amounts of money from complainant’s husband, in callous disregard of the heartache and financial dislocation of the latter’s family. There could thus not be any serious doubt that respondent was indeed in an intimate relationship with Avelino, a married man.

In administrative proceedings, only substantial evidence, i.e., that amount of relevant evidence that a reasonable mind might accept as adequate to support a conclusion, is required.³³ The standard of substantial evidence is satisfied when there is reasonable ground to believe that respondent is responsible for the misconduct complained of, even if such evidence might not be overwhelming or even preponderant.³⁴

“It cannot be overstressed that the image of a court of justice is mirrored in the conduct, official and otherwise, of the personnel who work thereat, from the judge to the lowest of its personnel. Court employees have been enjoined to adhere to the exacting standards of morality and decency in their professional and private conduct in order to preserve the good name and integrity of courts of justice.”³⁵ This Court has thus consistently penalized court personnel who had been found wanting of such standards, even if they have precipitately resigned from their positions. Resignation should not be used either as an escape or as an easy way out to evade an administrative liability or an administrative sanction.³⁶

Had respondent not resigned from the service, she would have been suspended for six months and one day in accordance with the prescribed penalty in the Uniform Rules on Administrative Cases in the Civil Service³⁷, this being her first offense involving immorality. Instead, the Court adopts the OCA’s recommended fine in the amount of P50,000.00 not exceeding respondent’s six months’ salary, which may be deducted from her accrued leave credits, if sufficient.

WHEREFORE, respondent OLIVIA C. ESPELETA is found GUILTY of Disgraceful and Immoral Conduct. In view of her resignation, a FINE in the amount of P50,000.00 is imposed on respondent, to be deducted from her accrued leave credits, if sufficient; otherwise, she is ORDERED to pay the amount of the fine directly to this Court.

The Employees Leave Division, Office of Administrative Services of the Office of the Court Administrator, is DIRECTED to compute respondent’s accrued leave credits, if any, and deduct therefrom the amount representing the payment of the fine.

Let a copy of this Decision be filed in the personal record of respondent.

SO ORDERED.

ESTELA M. PERLAS-BERNABE

Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

ANTONIO T. CARPIO PRESBITERO J. VELASCO JR.

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION

Associate Justice Associate Justice

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIANO C. DEL CASTILLO ROBERTO A. ABAD

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

JOSE CATRAL MENDOZA MARIA LOURDES P. A. SERENO

Associate Justice Associate Justice

BIENVENIDO L. REYES

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

1 Lledo vs. Lledo, A.M. No. P-95-1167, December 21, 1998, 300 SCRA 310.

2 Rollo, pp. 1-5.

3 See Affidavit of Gloria Tubtub dated June 10, 2009, id. , p. 102.

4 See Affidavit of Engr. Pacifico R. Sabigan dated June 10, 2009, id., p. 104.

5 As evidenced by deposit slips, id., pp. 27-76.

6 Id., pp. 83-86.

7 Id., p. 81.

8 Id., pp. 78-80.

9 Id., pp. 27-86.

10 Id., pp. 90-101.

11 Id., p.102.

12 Id., p. 104.

13 Id., p. 107.

14 1st Tracer dated August 19, 2009, id., p. 109.

15 Id., pp. 316-317.

16 Id., pp. 319-320.

17 Id., p. 327.

18 Per Resolution dated March 23, 2011, id., p. 328.

19 Per Resolution dated June 1, 2011, id., p. 329.

20 Id., p. 330.

21 Id., pp. 332 and 333.

22 Id., p. 336.

23 See Memorandum dated February 17, 2010, id., pp. 340-341.

24 Id., pp. 343-350.

25 Id., p. 350.

26 Babante-Caples vs. Caples, A.M. No. HOJ-10-03 (Formerly A.M. OCA IPI No. 09-04-HOJ), November 15, 2010, 634 SCRA 498.

27 Section 52(A)(15), Rule IV of CSC Resolution No. 99-1936 dated August 31, 1999 (Revised Uniform Rules on Administrative Cases in the Civil Service).

28 A.M. No. P-05-2091, August 28, 2007, 531 SCRA 289.

29 A.M. No. P-08-2431, (formerly OCA IPI No. 03-1682-P), April 16, 2008, 551 SCRA 403.

30 A.M. No. P-06-2282, August 7, 2009, 595 SCRA 455.

31 Supra, note 26.

32 See Registry Return Receipt, 1^st Indorsement dated May 18, 2009, Rollo, p. 107 (dorsal portion).

33 Supra, note 26.

34 Re: Complaint of Mrs. Corazon S. Salvador against Spouses Noel and Amelia Serafico, A.M. No. 2008-20-SC, March 15, 2010.

35 Gibas, Jr. vs. Gibas, A.M. No. P-09-2651, March 23, 2011, citing Bucatcat vs. Bucatcat, 380 Phil. 555, 567 (2000).

36 Cajot vs. Cledera, A.M. No. O-98-1262, February 12, 1998, 286 SCRA 238.

37 Supra, note 27.