EMILIA B. SANTIAGO, PLAINTIFF APPELLANT, VS. PIONEER SAVINGS AND LOAN BANK, ET. AL., DEFENDANTS-APPELLEES.

Santiago versus Pioneer Savings and Loan Bank

The Case

This is an appeal by Emilia Santiago, the registered owner of a parcel of land in Valenzuela, against Pioneer Savings and Loan Bank and the other defendants. She sued to have a real estate mortgage over her land declared void and to stop its extrajudicial foreclosure. The case matters because it teaches when a trial court may look beyond the four corners of the complaint in resolving a motion to dismiss, and it confirms that a mortgage credit may be validly assigned to a third person and foreclosed by that assignee.

Procedural History

Emilia Santiago filed her complaint for declaration of nullity of the real estate mortgage, with an application for a writ of preliminary injunction, before the Regional Trial Court of Valenzuela, Branch CLXXII. The trial court first issued a temporary restraining order, then granted the writ of preliminary injunction upon her posting of a bond of 100,000 pesos. On the bank's motion to dismiss and motion for reconsideration, the trial court reconsidered, dissolved the writ, and dismissed the case for lack of a cause of action. Santiago appealed to the Court of Appeals, which certified the case to the Supreme Court because only a question of law was involved.

Facts

Emilia Santiago owned a parcel of land of about 39,007 square meters, covered by a transfer certificate of title. On 7 April 1983, she executed a Special Power of Attorney in favor of Construction Resources Corporation of the Philippines, authorizing it to borrow money and to mortgage her land, including for the purpose of securing any loan or obligation it might contract with a bank.

On 8 April 1983, Construction Resources executed a Real Estate Mortgage over the land in favor of FINASIA Investment and Finance Corporation to secure a loan of one million pesos. The mortgage provided that upon default the mortgagee could foreclose judicially or extrajudicially. The Special Power of Attorney, the mortgage, and the board resolution authorizing the signing were annotated on the title on 12 April 1983. FINASIA later sold its receivables, including the receivable from Construction Resources, to Pioneer Savings and Loan Bank by an Outright Sale of Receivables without Recourse, and confirmed the assignment, including the mortgage, in a Supplemental Deed of Assignment that was inscribed on the title.

Construction Resources failed to pay, and the bank opted for extrajudicial foreclosure, with the auction set for 16 May 1985. Learning of the sale, Santiago filed her complaint on 13 May 1985 and obtained a restraining order. During the hearing on the injunction, her counsel admitted the due execution of the Special Power of Attorney, the mortgage, the sale of receivables, and the supplemental deed of assignment. The trial court later dissolved the injunction and dismissed the case. The bank then completed the foreclosure, and the property was sold at public auction on 7 January 1986 after re-publication of the notice of sale.

Issues

• Whether or not the trial court erred in dismissing the complaint and lifting the preliminary injunction by relying on the admission by counsel of the documentary exhibits presented by the bank.
• Whether or not the trial court erred in relying on the doctrine of Tan versus Director of Forestry.
• Whether or not the trial court erred in ignoring the doctrines in the cases cited by Santiago in her opposition to the motion to dismiss.
• Whether or not the trial court erred in holding that notice of the scheduled sale sent to the agent, Construction Resources, is also notice to the principal, Santiago, the land owner.

Applicable Provisions

Article 2126 of the Civil Code provides:

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.

This provision grounds the Court's holding that foreclosure is a necessary consequence of non-payment of a mortgage debt.

Article 2128 of the Civil Code provides:

The credit may be assigned to a third person in whole or in part, with the formalities required by law.

This provision supports the validity of the assignment of the mortgage credit from FINASIA to the defendant bank.

Article 1625 of the Civil Code provides:

An assignment of credit shall be valid and effective against third persons only if it appears in a public instrument, or in a private instrument duly recorded in the Registry of Property.

This provision is the measure of the formalities the Court found complied with, since the assignment was made in a public instrument and recorded.

Ruling

On the first issue, the Court held that the trial court committed no reversible error. While the sufficiency of a cause of action is generally limited to the facts alleged in the complaint, a hearing was held and documentary evidence was presented on the application for the writ of preliminary injunction, and counsel for Santiago admitted all of it. The Court quoted with approval the rule that even if the complaint states a valid cause of action, a motion to dismiss will be granted if documentary evidence admitted by stipulation discloses facts sufficient to defeat the claim, enabling the court to go beyond the disclosure in the complaint.

On the second issue, the Court held that although some aspects of this case differ from Tan versus Director of Forestry, the doctrinal ruling therein is squarely applicable. The cases cited by Santiago express only the general rule, which yields where documentary evidence admitted by stipulation is before the court. The Court also stressed that rules of procedure are not to be applied in a very rigid, technical sense, but are used only to help secure substantial justice.

On the third issue, the Court held that the evidence on record sufficiently defeats Santiago's claim. Her Special Power of Attorney specifically included the authority to mortgage the land, and the mortgage expressly authorized foreclosure upon default. Foreclosure is but a necessary consequence of non-payment of a mortgage indebtedness, and the assignee of the mortgagee may extrajudicially foreclose. The assignment of receivables to the bank was valid, since a mortgage credit may be alienated or assigned to a third person with the formalities required by law, and those formalities were complied with.

On the fourth issue, the Court held that while notice may not have been given to Santiago personally, the publication of the notice of sheriff's sale, as required by law, is notice to the whole world. The full-dress hearing she prayed for would not tilt the scales of justice in her favor in the face of incontrovertible documentary evidence. Her recourse is against Construction Resources, especially considering her allegation that it failed to observe their agreement.

Doctrine

A motion to dismiss for failure to state a cause of action is generally resolved on the facts alleged in the complaint alone. But where documentary evidence is admitted by stipulation at a hearing and discloses facts sufficient to defeat the claim, the court may go beyond the complaint and dismiss the case. Procedural rules are tools of substantial justice, not rigid technicalities.

Under Article 2126, a mortgage directly and immediately subjects the mortgaged property to the fulfillment of the secured obligation. Under Articles 2128 and 1625, a mortgage credit may be assigned to a third person in whole or in part, and the assignment is valid against third persons when it appears in a public instrument or is duly recorded in the Registry of Property. The assignee may then foreclose. Publication of the notice of sheriff's sale is notice to the whole world.

Disposition

The Supreme Court affirmed the order appealed from, with costs against Emilia Santiago.

Remember This

Remember the line that a court may go beyond the complaint when documentary evidence admitted by stipulation discloses facts sufficient to defeat the claim. Examiners use this case on motions to dismiss, on the assignability of mortgage credits, and on the binding effect of publication in extrajudicial foreclosure.