MACDONALDO LICLICAN, PLAINTIFF-APPELLANT, VS. HEIRS OF MANUEL MAGNO, DEFENDANTS-APPELLEES.
MENDOZA, J.:
“WHEREFORE, premises considered, the Court hereby orders the dismissal of the two (2) cases for lack of merit. The counterclaims of defendants are likewise DISMISSED. Without pronouncement as to costs.
SO ORDERED.”[2]
The nature of the cases as well as the factual and procedural antecedents appears in the subject decision as follows:
“It appears that on December 28, 1990, Liclican filed a case against Vasquez for a Sum of Money with prayer for the issuance of writ of preliminary attachment and damages. In said case, wherein the latter acknowledged his indebtedness with Liclican in the sum of P400,000.00, Liclican and Vasquez signed a Compromise Agreement (Exhibit ‘A’) which was approved by another branch of this Court on September 11, 1991. On March 20, 1992, the Court issued an Order (Exh. ‘K’) for the issuance of the writ of execution to enforce the judgment. Enriquito Violeta levied the parcel of land covered by TCT No. 186582 (Exh. ‘1’) owned by Vasquez. The levy was annotated in TCT No. 186582 under Entry No. 5848 (Exh. ‘A-2-A’) on July 29, 1992. The land was subsequently sold at public auction with Liclican as the highest bidder for the sum of P200,000.00.
As Vasquez did not redeem the property within the one (1) year redemption from date of registration of the Sheriff’s Certificate of Sale, it is now Liclican’s contention that title to the land may now be consolidated to him (Liclican) subject to the Real Estate Mortgage (Exh. ‘C’) executed by Vasquez in favor of Magno, as security to the former loan from the latter in the sum of P275,000.00. The aforesaid mortgage was annotated in TCT No. 186582 on May 26, 1989 as Entry No. 1738 (Exh. ‘1-A). Liclican is willing to pay the amount of P275,000.00 to Magno but was unduly refused insisting that the total mortgage obligation of Vasquez amounted to P1,239,121.00 (Exh. ‘E’). Magno in his letter of November 20, 1993, demanded that Liclican remit the said amount, otherwise, he would be constrained to institute foreclosure proceedings.
Liclican failed to remit the said amount. Neither did Vasquez pay his indebtedness to Magno, prompting the latter to initiate the extra-judicial proceedings and public auction sale wherein Magno emerged as the sole and winning bidder. On May 3, 1994, a Certificate of Sale was issued by the Sheriff’s Office in favor of Magno for P1,482,461.00 inclusive of interest. The sale was annotated in TCT No. 186582 under Entry No. 6962 (Exh. ‘A-2-b’) on May 5, 1994. Liclican now seeks to declare the foreclosure proceedings and the Sheriff’s Sale in favor of Magno null and void; to compel the defendant to accept the amount of P275,000.00 from Liclican; to order Magno to surrender the TCT No. 186582 to Liclican and to order Magno to execute a discharge of Real Estate Mortgage in Civil Case No. 94-69096. During the pendency of the case, Magno died. Pursuant to Sec. 16, Rule 3, of the Revised Rules of Court, he was substituted by his heirs namely: Rogelia, Benjamin, Ramon, Maria, Lourdes and Regino all surnamed Magno.
It is the contention of Magno that after the execution of the Real Estate Mortgage executed by Spouses Vasquez in his favor, the former secured additional loan from him (Magno) with the undertaking that the existing real estate mortgage shall also secure the additional loan amounting to P1,239,121.00. As mortgagee, he holds a preferred lien over the property and can not be divested of his lien over the property as registered mortgagee, that the tender of payment did not constitute a valid tender of payment because it did not satisfy the essential requirements of a legal tender of payment; that the Court has no jurisdiction over the subject matter of the case as he had already foreclosed the mortgage extra-judicially in order to satisfy the mortgage credit against the lot covered by TCT No. 186582.
Civil Case No. 94-70530 was filed by Vasquez against Liclican, Violeta as Sheriff of RTC Branch 50, Manila and Register of Deeds Manila with prayer for the cancellation of the attachment of and annotation of the Certificate of Sale and Final Deed of Sale issued by Violeta in favor of Liclican and to declare the land exempt from execution with damages; that on account of the illegal arbitrary and unjustified levy and execution sale of plaintiff’s house and lot, he is claiming for moral damages in the sum of P60,000.00; P50,000.00 exemplary damages, attorney’s fees of P30,000.00 and P10,000.00 litigation expenses, plus costs of the suit.
In the answer with counterclaim and Special/Alternative defenses, defendants Violeta and Liclican moved for the dismissal of the complaint and alleged that plaintiff Vasquez has no cause of action against defendants; that the Court has no jurisdiction to amend and/or modify final orders and judgment of a co-equal court; that the house constructed on the lot covered by TCT No. 186582 was not legally constituted as a family home of the plaintiff; that plaintiff has, by laches, waived in law and equity the provisions of Art. 155 of the Family Code; that plaintiff is estopped to question the writs of attachment and execution on TCT No. 186582, for his failure to reasonably question and raise objections to the final order and writ issued by the RTC, Branch 50, Manila; that plaintiff Vasquez voluntarily agreed to secure his undertaking and obligation under the compromise agreement which was the subject of attachment issued in the said case. Defendants posted a counterclaim in the sum of P100,000.00 as and for attorney’s fees and P25,000.00 as litigation expenses.”[3]
On August 30, 1999, the trial court rendered the challenged decision. Pertinently, the said decision reads:
“In Civil Case No. 94-69096, when defendant Magno had the real estate mortgage annotated at TCT No. 186582, it became a lien inseparable from the mortgaged property. It is right in rem effective against third persons. Until discharged, it follows the property. All subsequent purchases of the property, therefore, must respect the mortgage whether the transfer to them be with or without the consent of the mortgagee. (PNB vs. Mallorca 21 SCRA 694).
The Court rejects Liclican’s contention that Magno acted in gross bad faith when he (Magno) foreclosed the mortgage upon filing of his Complaint against the other because he was already warned in the letter of November 20, 1993 (Exh. ‘E’) addressed to his (Liclican) lawyer that unless he tender payment of the full amount of his (Magno’s) claim, foreclosure proceedings would be instituted which he did.
The foreclosure of the mortgage initiated by Magno as mortgagor is an exercise of his right in case of non-payment of debt secured by the mortgage pursuant to the following ruling of the Supreme Court:
‘The only right of a mortgagee in case of non-payment of a debt secured by a mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. (Guanzon vs. Angel, 33 SCRA 474).’
The Court therefore pronounces no recourse of Annulment of Foreclosure proceedings and Sheriff’s Sale in favor of defendant Magno and neither any award for damages.
In Civil Case No. 94-7053, as plaintiff Vasquez did not present evidence to prove his allegations in the complaint, the Court has no other recourse but to dismiss the same.”
Not in conformity with the above decision, plaintiff-appellant Macdonaldo Liclican interposed the instant appeal presenting the following—
“ASSIGNMENT OF ERRORS
1. The Lower Court erred in not finding that the Plaintiff-Appellant MACDONALDO LICLICAN, as Junior Encumbrancer of TCT 186582 is entitled to discharge the Real Estate Mortgage for the sum of P275,000.00 under the express terms and conditions of the Real Estate Mortgage dated 25 May 1989, and in not ordering Defendant MANUEL MAGNO or his heirs to accept the said amount of P275,000.00 to discharge his Real Estate Mortgage;11. The Lower Court erred in not finding that MANUEL MAGNO has failed to show and prove by sufficient evidence that the P1,239,121.00 is secured by the Real Estate Mortgage, or that it is the legal and actual sum owed to him by Rodolfo Vasquez secured by Mortgage;
111. The Lower Court erred in not finding and in not ordering that the Foreclosure Sale by MANUEL MAGNO of TCT 186582 is NULL AND VOID, the consideration and amount of the sale being in excess and unreasonably over the actual and legal sum secured by the Real Estate Mortgage.”[4]
Did the RTC err in dismissing Civil Case No. 94-69096, an action for Specific Performance, Consignation and Damages filed by Macdonaldo Liclican (plaintiff-appellant) against Manuel R. Magno (defendant-appellee)?
We resolve the issue in the negative.
Plaintiff-appellant’s position clashes with principles well-entrenched in law and jurisprudence.
Preliminarily, plaintiff-appellant insists that since the Real Estate Mortgage[5] did not stipulate as to the interest, he is bound to pay only P275,000.00, the amount reflected on the Real Mortgage Contract.[6]
We do not agree. Plaintiff-appellant, may have forgotten the fact that a Real Estate Mortgage executed on May 24, 1989 then by spouses Vasquez in favor of Magno is merely an accessory contract covering the security of their loan with Magno amounting to P275,000.00. The principal contract is the Promissory Note dated May 24, 1989.[7] It is not correct to say, therefore, that the basis of the liability of spouses Vasquez’s (now plaintiff-appellant’s) is that amount reflected on the Real Estate Mortgage only.
The said Promissory Note, in part, provides:
“PROMISSORY NOTE
P275,000.00For value received, we promise to pay MANUEL R. MAGNO, or Order, the sum of TWO HUNDRED SEVENTY FIVE THOUSAND PESOS (P275,000.00), Philippine Currency, on or before June 24, 1989.
Should we fail to pay this obligation in full when due, we agree to pay interest at the rate of Five Percent (5%) per month, said interest to be paid on or before the maturity of this note and every month thereafter until fully paid, to be based on the amount in arrears. If said interest is not paid on the stipulated date, we likewise agree to pay an additional One Percent (1%) per month as penalty.
x x x x x x x x x
Manila; May 24, 1989.
(SGD.) RODOLFO E. VASQUEZ
(SGD.)AMELIA ORE-VASQUEZ”[8]
We scrutinize the above promissory note as the same is material in the determination of the total mortgage debt.
It bears stressing that the consolidation of ownership in plaintiff-appellant’s favor pursuant to the auction sale took place after Spouses Vasquez’s mortgage to Magno had been registered. As such, under Article 2126 of the Civil Code, a real right or lien in favor of Magno had already been established, subsisting over the property covered by TCT 186582.[9]
Article 2126 of the Civil Code explicitly provides:
“ART. 2126. The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.”
In Paderes v. Court of Appeals,[10] citing the case of Philippine National Bank v. Mallorca,[11] the Supreme Court emphasized:
“x x x. Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily bound to acknowledge and respect the encumbrance to which is subjected the purchased thing and which is at the disposal of the creditor ‘in order that he, under the terms of the contract, may recover the amount of his credit therefrom.’ For, a recorded real estate mortgage is a right in rem, a lien on the property whoever its owner may be. Because the personality of the owner is disregarded; the mortgage subsists notwithstanding changes of ownership; the last transferee is just as much of a debtor as the first one; and this, independent of whether the transferee knows or not the person of the mortgagee. So it is, that a mortgage lien is inseparable from the property mortgaged. All subsequent purchasers thereof must respect the mortgage, whether the transfer to them be with or without the consent of the mortgagee. For, the mortgage, until discharge, follows the property.”
In an earlier case, Philippine National Bank v. RBL Enterprises, Inc.,[12] the High Court stated that:
“Article 2126 of the Civil Code describes the real nature of a mortgage: it is a real right following the property, such that in subsequent transfers by the mortgagor, the transferee must respect the mortgage. A registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem. The mortgage creates a real right or a lien which, after being recorded, follows the chattel wherever it goes. Under Article 2129 of the same Code, the mortgage on the property may still be foreclosed despite the transfer.”[13]
In this case, plaintiff-appellant, as transferee of then mortgagors Vasquez, merely stepped into the shoes of spouses Vasquez and is necessarily bound to acknowledge and respect the mortgage the spouses Vasquez had earlier executed in favor of Magno. Plaintiff-appellant cannot argue that Magno acted in bad faith in foreclosing the mortgage as it is his right to do so should his debtor failed to make good his monetary obligation.
It is axiomatic that the debtor in extrajudicial foreclosures under Act 3135, or his successor-in-interest, has, one (1) year from the date of the registration of the Certificate of Sale with the Registry of Deeds, a right to redeem the foreclosed mortgage.[14] In the instant case, plaintiff-appellant, as successor-in-interest of Vasquez spouses (mortgagors/debtors), had one (1) year from the registration of the Certificate of Sale on May 5, 1994 for the purpose.[15] There is no showing that plaintiff-appellant did redeem the property within the period of redemption. This being the case, ownership of the subject property was already consolidated in favor of Magno on May 5, 1995. He becomes the absolute owner of the subject property as buyer in the foreclosure sale.[16]
We cannot annul the foreclosure sale on the ground that Magno, as mortgagee, acted in bad faith in asserting a seemingly bloated P1,239,121,00 debt and in proceeding with the foreclosure of the mortgage, instead of accepting the tender of payment made by plaintiff-appellant in the amount of P275,000.00, free from any interest and/or charges. The amount demanded by Magno at that time may have been blown up but plaintiff-appellant himself is remiss of paying the amount due. Thus, Magno cannot be compelled to accept the tender of P275,000.00 by plaintiff-appellant and, thereafter, release the mortgage.
On the third assigned error, We agree with the appellant that the interest and other charges added to the principal loan was unreasonably excessive. As enunciated in the case of Solangon v. Salazar,[17] “ x x x. While the Usury Law ceiling on interest rates was already lifted by Central Bank (C.B.) Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will enslave their borrowers or lead to a hemorrhaging of their assets.” In Medel v. Court of Appeals,[18] while decreeing that the interest rate of 5.5% a month on a loan amounting to P500,000.00 was not usurious, the Supreme Court held that the same must be equitably reduced for being iniquitous, unconscionable and exorbitant.
It is readily apparent from the quoted promissory note that Rodolfo Vasquez and Amelia Ore-Vasquez stood on a worse circumstance as they were required to pay the stipulated interest rate of 6% per month or 72% per annum for a loan of P275,000.00. This interest rate is undoubtedly excessive and unreasonable. Justice dictates that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.[19] Thus, plaintiff-appellant has a right to share in the excess proceeds of the foreclosure sale under applicable rules and jurisprudence.
Notably, We no longer considered the alleged additional loan of P10,000.00 as this was not covered by the subject Real Estate Mortgage. The said amount may have been obtained by spouses Vasquez but the same should not be included in this action.
All told, We find no reversible error committed by the RTC in dismissing Civil Case No. 94-69096.
WHEREFORE, the August 30, 1999 Decision of the Regional Trial Court, Branch 21, Manila, is hereby AFFIRMED in all respects except that the rate of interest should only be 12% per annum.
SO ORDERED.
Asuncion, (Chairman) and Tayag, JJ., concur.
[1] Records, 371-375
[2] Records, 375
[3] Records, 372-374
[4] Rollo, 44
[5] Exh. “C”; Exh. “7”
[6] Rollo, 45-46
[7] Records, 60
[8] Emphasis supplied
[9] See Exh. “A”
[10] 463 SCRA 504 (2005)
[11] 21 SCRA 694 (1967)
[12] 430 SCRA 299 (2004)
[13] Emphasis supplied
[14] Paderes v. Court of Appeals, supra citing Sta. Ignacia Rural Bank v. Court of Appeals, 230 SCRA 513, 519 (1994)
[15] See Exh. “A”
[16] Paderes v. Court of Appeals, supra citing F. David Enterprises v. Insular bank of Asia and America, 191 SCRA 516 (1990)
[17] 360 SCRA 379 (2001)
[18] 299 SCRA 481 (1998)
[19] See relevant case of Solangon v. Salazar, supra