JOSE C. ZULUETA, PETITIONER, VS. HON. ANDRES REYES, JUDGE, COURT OF FIRST INSTANCE OF RIZAL, GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) AND PROVINCIAL SHERIFF OF RIZAL, RESPONDE…

This is a petition for certiorari, prohibition, and
injunction with preliminary prohibitory injunction, filed by the petitioner
Jose C. Zulueta, against the Court of First Instance
of Rizal, the Government Service Insurance System
(GSIS), and the provincial sheriff of Rizal.  The petitioner seeks to nullify all the
proceedings had in connection with civil case 5741 before the said respondent
court, and, specifically, the orders a quo of July 13 and August
8 and 23, 1963, in civil case 7078, denying his application for a pre­liminary
injunction and allowing the respondent sheriff to proceed with the
extra-judicial foreclosure of the real estate mortgages constituted on his
properties in favor of the respondent GSIS.

The petitioner applied for and was granted by the respondent GSIS
five real estate loans under four separate mortgage contracts in the total sum
of P3,117,000.  The amounts of the loans,
the dates when the mortgages were contracted, and the monthly amortizations are
stated hereunder:

For the payment of these loans, the
petitioner offered as collaterals a parcel of land located in Pasig, Rizal, known as the
Antonio Subdivision, covered by TCTS Nos. 26105, 37177 and 50356 of the Rizal cadastre, and another parcel of land situat­ed at
1203 A. Mabini St., Ermita,
Manila, covered by TCT No. 42397 of the Manila cadastre, known as the Antonio
Apartments, together with all existing and further improvements thereon.  Some of the uniform pertinent conditions of
the mortgage contracts are the following:

“That if the Mortgagor shall at any time fail or refuse to pay
any of the amortizations on the indebtedness, or the interest when due, * * *,
then all the amortizations and other obligations of the Mortgagor * * *, shall
become due, payable, and defaulted and the Mortgagee may immediately foreclose
this mortgage judicially or extra-judicially * * *.” (Paragraph 4 of
mortgage contracts)

“That all receipts from sale of houses and lots in the Antonio
Subdivision shall be assigned in favor of and made payable to the System, to be
applied in payment of the principal and interest on this loan until the same is
fully liquidated which condition shall be embodied in all contracts to sell
absolutely or otherwise of any of the houses and lots in said subdivision.”
(Condition No. 4, mortgage contracts; Unilateral Agreement executed by
petitioner on August 23, 1957, copy of which is attached as ANNEX I)

“That upon every release the System shall secure fire
insurance on the buildings in the process of construction with the Property
Insurance Fund of the GSIS for an amount equivalent to the sum released * * *,”
and “that the payment of the premiums due on the in­surance of the buildings
shall be borne by the applicant.” (Mortgage contract, April 4, 1957).

The amounts representing the first four loans were fully released
by the GSIS to the petitioner who executed promissory notes in connection
therewith providing that the monthly amortizations thereon shall be payable at
the end of every month until the principal obligation is paid, with interest
thereon at the rate of 7% per annum, and that

“In case of non-payment of any installment of the note and/or
other notes executed by JOSE C. ZULUETA and SOLEDAD D. RAMOS in favor of the
Government Service Insurance System when the same becomes due and payable, then
the unpaid balance of this promissory note shall, at the option of the
Government Service Insurance System, immediately become due and demandable, and
if for the enforcement of the payment there­of the Government Service Insurance
System shall bring an action in court
and/or resort to extra-judicial foreclosure of the mortgage given as a security
for the payment of this obligation, then we, JOSE C. ZULUETA and SOLEDAD D.
RAMOS bind ourselves, JOINTLY, SEVERALLY, and SOLIDARILY, to pay attorney’s
fees as provided for in the mortgage contract in addition to the legal fees and
other incidental expenses incurred thereof.” (see p. 8 of Annex D to
Petition)

Of the fifth loan of P1,398,000, the sum
of P960,439.46 was released to the petitioner; the balance of P437,249.54, the
peti­tioner alleges in his amended complaint, “has not yet been released
to” him (see par. 3 of amended complaint, annex 15 of Answer to Petition;
see also annex D of Petition, p. 2), although the GSIS asserts that said latter
sum was released to the petitioner’s contractor Llorente
O. Yarisantos, pursuant to Resolution No. 2524 of the
respondent GSIS Board of Trustees, adopted on September 25, 1957, which, in its
paragraph 4, states

“4.  That releases on this loan shall be made in
favor of Llorente O. Yarisantos
as payment by the applicant (petitioner) to the former for advances made by him
in payment of cost of labor and materials used in the construction of houses in
the Antonio Subdivision; provided, that upon satisfaction of accounts due and
payable to said Llorente O. Yarisantos,
releases may be made in favor of the applicant;” (Annex 4 of Answer to Pe­tition,
p. 2.)

On October 17, 1958
and thereafter up to March 19, 1962,
the GSIS made repeated demands upon the petitioner for payment of the
arrearages in his real estate loans aforenamed and
called his attention to his failure to remit to it the proceeds of the sale of
units of the Antonio Subdivision.  In the
GSIS notice of October 17, 1958, the petitioner was warned that his failure to
settle his arrearages “will be construed as the right of this office to
proceed immediately with foreclosure proceedings of the mortgage in accordance
with the terms and conditions of the Mortgage Contract executed by you in favor
of the Government Service Insurance System, to satisfy the mortgage
indebtedness, the daily interest thereon, attorney’s fees and all other ex­penses
in connection with the proceedings.” (see annex 5 of Answer to Petition;
see also annexes 5-A, 6, 7, 8, 8-A, 9, 10 (petitioner’s reply), 11, 11-A, 11-B,
11-C, 12, 12-A, 12-B, and 12-C, inclusive.).

On March 19, 1962 the GSIS filed with the office of the
Provincial Sheriff of Rizal a petition for
extra-judicial fore­closure, alleging that the petitioner was in arrears in the
payment of his monthly amortizations of the mortgage indebtedness and that he
has never turned over to it the proceeds of the sale of units in the Antonio
Subdivision, inspite of repeated demands on him.  To forestall the intended foreclosure, the
petitioner requested the GSIS to suspend the foreclosure sale for 15 days and
asked that another accounting of his arrearages be made, which request was
denied.

On April 12, 1962 the petitioner filed a complaint for
“DAMAGES WITH PRELIMINARY INJUNCTION,” in the Court of First Instance
of Rizal, docketed as Civil Case No. 7078,^[1]
against the respondents sheriff and GSIS, alleging among other things, that of
the total amount of P3,117,000 the sum of P417,000 has not yet been released to
him by the GSIS, resulting in the stoppage of the construction of his 153
buildings in the Antonio Subdivision, and compelling him to use P417,000 of his
own funds to complete their construction; that the GSIS released said sum
fraudulently to his contractor L.O. Yarisantos or to
his mate­rial suppliers, contrary to the written agreements he has with the
GSIS not to release any portion of his loan to anybody without his authority,
and inspite of his letter of October 8, 1957
requesting the GSIS not to release said amount to L.O. Yarisan­tos;
that he had repeatedly asked for a statement of his accounts, but the GSIS did
not accede to his request, resulting in uncertainty and doubt as to the exact
amount of his indebtedness and delay in the payment of his amortizations, if
any; that without notice to nor demand made on him, the GSIS advertised in the
newspapers for the sale of his Antonio Subdivision as a step toward
extra-judicial foreclosure thereof; that there having been no demand on him, he
cannot be in default in the payment of his mortgage indebtedness, and hence the
GSIS was without authority to extra-judicially foreclose his said properties;
that if the GSIS had given him the opportunity to examine the status of his
real accounts, such examination would reveal no such arrearages and interests
on his amortizations; that be­cause of the pending extra-judicial foreclosure,
his tenants in the Antonio Subdivision refused to pay their monthly amor­tizations,
causing him to suffer actual damages daily of P1,600 since March 28, 1962, and
moral damages of P200,000; and that the GSIS through the respondent sheriff is
determined to pro­ceed with the auction sale scheduled for April 16, 1962.

On April 13, 1962
the respondent court issued a temporary restraining order directing the
respondent sheriff to hold in abeyance the public auction sale scheduled for April 16, 1962, until after the
application for preliminary injunction shall have been resolved.  After the hearing on the application for
preliminary injunction, because the petitioner raised the question of
accounting in relation to his mortgage indebtedness, the respondent court on
April 25, 1962 issued an order directing the accountants of the parties to sit
together and make an accounting of the petitioner’s obligation and for the
parties to abide by the joint report to be submitted by them.  On June 6, 1962 the petitioner paid the sum
of P276,455.32 in PW bonds, which the GSIS accepted, but the latter manifested
to the respondent court that such payment still left arrearages in the sum of
P1,064,746.11.  On February 15, 1963 the
parties submitted to the respondent court a “Joint Manifestation,”
wherein the GSIS submitted a statement of accounts as of December 31, 1962
(annex 18-B of Answer to Petition), making it appear that the petitioner’s
total arrearages amounted to P1,371,088.15 (annex 18-C of Answer to Petition),
broken down as follows:

The petitioner, in the same “Joint
Manifestation”, questions the correctness of certain items in the amount
of total ar­rearages presented by the respondent GSIS, as follows:

“A.  The GSIS charged interest for partial releases
before full release of each loan, which as of May 21, 1962, amounted to P72,000, more or less;

“B.  The GSIS charged plaintiff alleged arrears on
the last loan of P1,398,000.00 a portion of which (P437,000) is the subject of
a court case in Branch XX of the Court of First Instance of Manila;

“C. Annex B above, includes a bill for P118,313.89
and a surcharge of P17,307.77, allegedly for fire insurance premiums,”

all of which items, the petitioner
claims, “he does not owe the defendant, and hence should not have been
included in the state­ments of GSIS.” The parties agreed “to submit
the case on the issues without presentation of further testimonial and documentary
evidence, except to support their respective memoranda.” In its order of July 13, 1963 the respondent court
denied the petitioner’s application for preliminary injunction.  The petitioner moved to have this order set
aside.  After due hearing, the respondent
court, in its order of August 8, 1963,
de­nied the petitioner’s motion for reconsideration and directed the respondent
sheriff to proceed with the foreclosure proceedings.  This order reads in part:

“* * * It may be noted that the allegations in the complaint
as well as those raised during the pre-trials in chambers and in open Court
show that the only question at issue refers to accounting and that defend­ant’s
right to foreclose insofar as it is based on violation of the mortgage contract
resulting from non-payment of the amortization has not been contested.

“WHEREFORE, after considering the memoran­dum of the parties
it appearing that the defend­ant will suffer more damages if the foreclosure is
stayed and in view of the manifestation of its counsel that the said defendant
is willing to post a bond in the amount of P500,000.00, conditioned to pay the
plaintiff all cost and damages he may suffer by reason of the foreclosure the
motion for reconsideration is hereby denied, and defendant GSIS is directed to
post the said bond in the sum of P600,000.00. 
Upon posting and approval of said bond, the sheriff is directed to
proceed with the foreclosure proceedings.”

The GSIS as required posted a P600,000
bond which the respond­ent court approved in its order of August 23, 1963.

The petitioner is now before us, by virtue of the present
petition, contending that the respondent court abused its dis­cretion in
denying his application for a preliminary injunction and allowing the
extra-judicial foreclosure to proceed, thus depriving him of his day in court
and of his property rights without due process of law.  He argues (1) that the mortgage debt is not
yet due and demandable; (2) that there was never any valid demand by the GSIS
upon him to pay his mortgage debt, without which demand extra-judicial
foreclosure cannot be had; (3) that by effecting the foreclosure sale of his
Antonio Subdivision, the GSIS would be collecting from him a mortgage debt, a
large part of which (P437,000) has not yet been released to him; and (4) that
by resorting to foreclosure, the GSIS would be collecting from him amounts
which he has never contracted for, namely, P72,000 representing interest on
partial releases before full release of each loan, P118,313.89 representing
fire insurance premiums, and P17,307.77 representing surcharges on the fire
insurance premiums.

In support of the first ground, namely, that the mortgage debt is
not yet due and demandable, the petitioner maintains that no accounting has
been had between him and the GSIS up to the present; that it was precisely
because of this that he raised the question during the hearing on his
application for preliminary injunction and in the “Joint
Manifestation” submitted to the respondent court on February 15, 1963; and
that without resolving the issue of accounting, the respondent court
immediately directed the respondent sheriff to proceed with the extra-judicial
foreclosure sale of his Antonio Sub­division.

It is true that the respondent court, in its order of August 8, 1963, pertinent portions of
which were quoted earlier in this decision, made no finding on the petitioner’s
actual mortgage indebtedness, and did not consider or discuss the general
statement of accounts submitted by the petitioner and the respondent GSIS in
their “Joint Manifestation”. 
Neither did the court make a determination of whether in fact all of the
sum of P1,371,088.15 is due and demandable as claimed by the GSIS, or as
claimed by the former, a substantial part thereof, or P644,121.66 of the last
and fifth loan,2
is not yet due and demandable.  But while
this may be so, when the respondent court directed the respondent sheriff to
proceed with the extra-judi­cial foreclosure “based on violation of the
mortgage contract resulting from non-payment of the amortization (which) has
not been contested,” we can infer that the respondent court deemed it
unnecessary to resolve the issue of accounting. 
And we agree.

In the “Joint Manifestation”, the petitioner questions
the correctness of certain items, as follows:

“A.  The GSIS charged interest for partial releases
before full release of each loan, which as of May 21, 1962, amounted to P72,000, more or less;

“B.  The GSIS charged plaintiff alleged arrears on
the last loan of P1,398,000.00 a portion of which (P437,000) is the subject of
a court case in Branch XX of the Court of First Instance of Manila;

“C. Annex B above, includes a bill for P118,313.89
and a surcharge of P17,307.77, allegedly for fire insurance premiums.”

The petitioner claims that item B above should not be included as
a part of his mortgage indebtedness that is due and demandable, because this
sum was released not to him, but to his contractor L.O. Yarisantos
and other persons without his knowledge and consent, in violation of the
agreement he had with, and of the notices he sent to, the GSIS requesting the
latter specifically not to release any part of his mortgage loan to anybody
without his consent.

These alleged unauthorized releases and the treasury warrants
covering them, are correlated below:3

These releases were made by the GSIS
pursuant to Resolution No. 2524 of its Board of Trustees, adopted on September
25, 1957, which approved the last and fifth loan of P1,398,000 and it was among
the conditions of such approval that “releases on this loan shall be made
in favor of Llorente O. Yarisantos
as payment by the applicant (petitioner) to the former for advances made by him
in payment of costs of labor and materials used in the construction of houses
in the Antonio Subdivision; * * *.” (par. 4, annex 4, p. 2).  The petitioner, through his manager A.B.
Martinez, credited these releases in favor of Yarisantos,
as evidenced by a “Statement of Payments to L.O. Yarisantos”
dated January 23, 1959 (annex 3), which, significantly antedated the first
letter of the petitioner of April 23, 1959 to the GSIS (annex A), wherein he
complained about the illegal releases made to L.O. Yarisantos
and informed the GSIS that “I do not consider them as valid obligations
against me in your favor.” And in his answer to the complaint filed by Yarisantos against him and the GSIS with the Court of First
Instance of Manila, in Civil Case No. 39166, for the recovery of a sum of money
which, the complainant alleged, amounts to more than four million pesos, the
petitioner sought to recover from the complainant, as counterclaim, the said
sum allegedly released to the latter which, in effect, the petitioner desired
to set off against whatever amount the complainant might recover from him, and
the former, on his part, admitted that “said amount may be considered as
part of the payment made by the petitioner to him * * *.” (see p. 9,
Answer to Petition).  The said counterclaim
reads as follows:

“That when the construction was in full swing, arrangements
were had with the GSIS under which plaintiff, upon prior authority of defendant
could have materials ordered by him for the project paid from defendant’s loan
credit with the GSIS;

“That plaintiff, without securing the prior authority of
defendants, was able to have paid the amount of P417,638.94 from defendants’
GSIS loan credit bills for materials certified by him to have been used or to
be used in the project, but which he diverted for use in his other projects, or
sold later on at prices more than double their procurement cost;

“That from these unauthorized payments of P417,638.34 he
gained a profit of at least 50% realized from the use by him for his other
projects the materials thus purchased or from the resale of them; thus, he
illegally earned from the use of defendants’ own money the approximate amount
of P208,819.17, which he should account to defendants;

“That the total claim of defendants against plaintiff under
this counterclaim is P626,457.51.” (see GSIS Memorandum, pp. 10-11).

Upon the above undisputed facts, it is our view that the releases
made were above board.  The petitioner
can have no cause for complaint, for the releases were made and paid to
suppliers of materials used in the construction of his 153 houses in the
Antonio Subdivision.  Moreover, having
charged them to the credit of his contractor Yarisantos,
the petitioner must be deemed to have ratified them, and is estopped
from questioning their validity and regularity.

The petitioner further claims that item A above should not be
included as a part of his mortgage indebtedness that is due and demandable, because
the interest computed on the aforesaid fifth mortgage loan should start to run
only after the said loan is finally ascertained, adding that the interest
thereon starts to run only from the time of the last release thereof.  This claim is untenable.

Paragraph 1 of the mortgage contracts executed by the pe­titioner
provides, among other things, that the loan is “repayable by the MORTGAGOR
within ten (10) years, to be released to the MORTGAGOR upon the latter
signing a promis­sory note or notes in favor of the MORTGAGOR.” From
the underlined portion can be inferred that a loan becomes effective
immediately upon the signing of the promissory note by, and release being made
to, the mortgagor, for the peti­tioner was required to sign a promissory note
for every release made on his five loans. 
It is provided in each note that the loan shall earn “interest at
the rate of seven (7%) per annum compounded monthly,” this, aside from
paragraph 13 of each mortgage contract making provisions to the same ef­fect (par.
13, annex E, p. 4.).  Absurd therefore is
the argument of the petitioner that the GSIS cannot charge interest on
releases, and that he should start to pay the principal obligation together
with the interest thereon only after the whole amount of his loan is finally
released.  A release on the mortgage
loans, once made, immediately earns interest, and the mortgagor must pay the
principal and the corresponding interest thereon when these fall due (par. 4,
mortgage contract).

The petitioner further claims that item C above should likewise
not be included as a part of his mortgage indebtedness that is due and
demandable, because the sums therein mentioned are not liquidated, and their
inclusion in the statement of accounts submitted by the GSIS is premature.  There is no merit to this argument.  The amounts in question representing fire
insurance premiums and surcharges thereon were arrived at by the GSIS on the
basis of rates fixed in the fire insu­rance policies and on the face values
thereof which were agreed upon by the petitioner and the GSIS as the proper
equi­valents of the amounts of the mortgage loans released to him (see pars.
9-11, Mortgage Deed, April 4, 1957; par. 5, Mortgage Deed, Oct. 29, 1957; par.
8, Mortgage Deed, Sept. 25, 1956; and par. 9, Mortgage Deed, Feb. 6, 1957), and
the insertions of these provisions in the mortgage contracts is anchored on
section 23, C.A. 186, as amended, providing in part that “the Board * * *
shall also make proper provisions for the insurance of all property which shall
be held by it as security.”

As a final argument, the petitioner maintains that there is
neither basis for nor necessity of proceeding with the ex­tra-judicial
foreclosure sale of his Antonio Subdivision, be­cause among other things, the
GSIS is being paid by way of direct payments made by several subdivision lot
buyers in the Antonio Subdivision; that he had always manifested his willing­ness
to up-date his accounts should arrears be found to be due on the mortgage
indebtedness; and that, as a matter of fact, to show his good faith, he has
offered to assign as many of the mortgaged properties as will be sufficient to
guaranty the full claim of the GSIS if only to allay the fears of the latter,
if the extra-judicial foreclosure sale will not be pursued.  These arguments merit scant consideration

The record shows that as regards the alleged direct payments by
the subdivision lot buyers, as early as October, 1958, until immediately prior
to the filing of the present extra-judicial foreclosure proceedings on March
19, 1962, the petitioner was in arrears in his monthly amortizations and that
he has never turned over to the GSIS the proceeds of the sale of houses and
lots in his Antonio Subdivision, inspite of repeated
demands on him beginning October 17,
1958 (see annexes 5, 5-A, 6, 7, 8, 8-A, 9, 10 (petitioner’s reply),
11, 11-A, 11-B, 11-C, 12, 12-A, 12-B and 12-C). 
Without basis as well is his pretended willingness to up-date his
accounts should arrears be found to be due. 
The numerous unheeded demands for the payment of his mortgage
indebtedness completely refute this manifestation of the petitioner.

There being no real, genuine and substantial controversy as to
the amounts due and demandable under the mortgages in question, and there being
no valid defense that can be interposed against their collection, a restraining
order in the meanwhile to resolve the unnecessary question of accounting will
not serve any purpose.  It will only
delay if not defeat the statutory remedy of extra-judicial foreclosure afforded
to the GSIS by Act No. 3135, as amended by Act 4118.  The issuance of a restraining order will, on
insufficient grounds, interfere with the exercise of the right of
foreclosure.  The mortgagee’s right to
foreclosure will then be subject to the control of the mortgagor’s whims and
caprices.

The right of the GSIS to foreclose extra-judicially the five
separate and independent mortgages is thus unassailable.  For its right to foreclose springs from the
failure of the petitioner to comply with the specific conditions embodied in
the mortgage contracts which had the effect of accelerating the time for the
payment of the entire mortgage indebtedness, and rendering the mortgaged
properties subject to foreclosure and sale (Gov’t. of
P.I. vs. Fernandez, Espejo, 57 Phil., 496, 497-499;
see also Hawaiian Philippine Co. vs. Hernaez, 45
Phil. 746, 749; Bank of P.I. vs. Ty Camco Sobrino, 57 Phil., 801,
804; Vasquez vs. Jocson and Araneta,
62 Phil., 537, 544).

ACCORDINGLY, the petition is dismissed, and the
preliminary injunction heretofore issued by this Court is dissolved, at petitioner’s
cost.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, and
Sanchez, JJ., concur.

*
The first two loans are covered by one mortgage contract.

^[1]
The petitioner filed an amended complaint on April 24, 1962.

2
The amounts of the arrearages on the first four mortgage loans are not
contested by the petitioner.

3
See Annex E, page 15.