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RIZAL COMMERCIAL BANKING CORPORATION,
Petitioner, - versus
- ROYAL CARGO CORPORATION, Respondent. |
G.R. No. 179756 Present: YNARES-SANTIAGO, * CARPIO
MORALES,** Acting Chairperson, PERALTA,*** ABAD, JJ. Promulgated: October 2, 2009 |
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D E C I S I O N
CARPIO MORALES, J.:
Terrymanila, Inc.[1]
(Terrymanila) filed a petition for voluntary insolvency with the Regional
Trial Court (RTC) of Bataan on P3 Million that was secured by a chattel mortgage executed on
Royal Cargo Corporation
(respondent), another creditor of Terrymanila, filed an action before the RTC
of Manila for collection of sum of money and preliminarily attached
“some” of Terrymanila’s personal properties on P296,662.16, exclusive of interests and attorney’s
fees.[4]
On
On
In the meantime,
petitioner sought in the insolvency proceedings at the Bataan RTC permission to
extrajudicially foreclose the chattel mortgage which was granted by Order of
The provincial sheriff of
P1.5 Million. Eventually, petitioner
sold the properties to Domingo Bondoc and Victoriano See.[8]
Respondent later filed on
Sec. 14. The
mortgagee, his executor, administrator or assign, may, after thirty days, from
the time of condition broken, cause the mortgaged property, or any part
thereof, to be sold at public auction by a public officer at a public place in
the municipality where the mortgagor resides, or where the property is
situated, provided at least ten days notice of the time, place, and purpose of
such sale has been posted at two or more public places in such municipality,
and the mortgagee, his executor,
administrator or assignee shall notify the mortgagor or person holding under
him and the persons holding subsequent mortgages of the time and place of
sale, either by notice in writing directed to him or left at his abode, if
within the municipality, or sent by mail if he does not reside in such
municipality, at least ten days previous to the date. (Emphasis
and underscoring supplied),
it claiming that its
counsel received a notice only on the day of the sale.[10]
Petitioner, alleging that
the annulment of sale case filed by respondent stated no cause of action,
filed on
Petitioner appealed the denial
of the Motion to Dismiss via certiorari
to the Court of Appeals, docketed as CA-G.R.
SP No. 31125. The appellate
court dismissed the petition, by Decision of
Petitioner thereupon filed
before the Manila RTC its Answer Ex
Abundante Cautelam[14]
in the annulment of sale case in which it lodged a Compulsory Counterclaim by seeking
P1 Million for moral damages, P500,000 for exemplary damages, and
P250,000 for attorney’s fees. It thereafter elevated the case to this Court
via petition for review on certiorari, docketed as G.R. 115662. This Court by minute Resolution of
Trial on the merits of the
annulment of sale case thereupon ensued.
By Decision[17]
of
WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered:
1. ORDERING . . .
RCBC to pay plaintiff [heein respondent Royal Cargo] the amount of P296,662.16
and P8,000.00 as reasonable attorney’s fees.
2. No
pronouncement as to costs.
3. DISMISSING the petition as to respondents
Provincial Sheriff of Balanga, Bataan RTC;
SO ORDERED.
Both parties appealed to
the Court of Appeals which, by Decision[18]
of April 17, 2007, denied herein petitioner’s appeal and partly granted herein
respondent’s by increasing to P50,000 the attorney’s fees awarded to it
and additionally awarding it exemplary damages and imposing interest on the principal
amount payable to it. Thus it disposed:
WHEREFORE, the foregoing considered, the appeal instituted
by appellant RCBC is hereby DENIED for lack of merit while the appeal of
appellant Royal Cargo is PARTLY GRANTED in that the amount of attorney’s fees awarded by the RTC is
increased to P50,000.00.
In addition, RCBC is ordered to pay
Royal Cargo the amount of P100,000.00 as exemplary damages. The principal amount of P296,662.18 [sic]
to be paid by RCBC to Royal Cargo shall likewise earn 12% interest per annum from the time the petition was filed
in the court a quo until fully paid. The
rest of the decision is AFFIRMED.
SO ORDERED. (Emphasis and underscoring supplied)
In partly granting
respondent’s appeal from the Decision of Br. 16 of RTC Manila, the appellate court
ratiocinated that respondent had a right to be “timely informed” of the
foreclosure sale.
RCBC’s citations [sic]
of numerous rulings on the matter more than supports the fact that as
mortgagee, it had preferential right over the chattels subject of the
foreclosure sale. This however is not at
issue in this case. What is being
contested is the right of Royal Cargo to be timely
informed of the foreclosure sale as it too had interests over the
mortgagee Terrymanila, Inc.’s assets. We
note that this matter had already
been passed upon by this Court on February 21, 1994 in CA-G.R. SP No. 31125
as well as by the Supreme Court on November 7, 1994 in G.R. No. [1]15662. RCBC, by arguing about its preferential right
as mortgagee in the instant appeal merely reiterates what had already been considered and ruled upon in
earlier proceedings.
x x x x
Moreover, Section 14 of the Chattel Mortgage Law
pertaining to the procedure in the foreclosure of chattel mortgages provides, to
wit:
x x x x
The above-quoted provision clearly requires that the
mortgagee should notify in writing the
mortgagor or person holding under him of
the time and place of the sale by personal delivery of the notice. Thus, RCBC’s failure to comply with this
requirement warranted a ruling against it by the RTC. (Italics in the original; emphasis partly in
the original; underscoring supplied)
Its motion for
reconsideration having been denied by the appellate court,[19]
petitioner lodged the present petition for review which raises the following
issues:
I
WHETHER OR NOT RESPONDENT SHOULD HAVE BEEN GIVEN A
TEN(10)-DAY PRIOR NOTICE OF THE
II
WHETHER OR NOT THE TRIAL COURT AND THE COURT OF APPEALS
GRAVELY ERRED IN DECLARING PETITIONER GUILTY OF CONSTRUCTIVE FRAUD IN FAILING TO PROVIDE RESPONDENT A TEN (10)-DAY PRIOR
NOTICE OF THE FORECLOSURE
III
WHETHER OR NOT THE PETITIONER WAS CORRECTLY HELD LIABLE TO
PAY RESPONDENT P296,662.[16] PLUS INTEREST THEREON,
EXEMPLARY DAMAGES AND ATTORNEY’S FEES.
IV
WHETHER OR NOT PETITIONER IS ENTITLED TO AN AWARD OF
ATTORNEY’S FEES.[20] (Underscoring supplied)
Petitioner faults the
appellate court in applying res judicata by
holding that respondent’s entitlement to notice of the auction sale had already
been settled in its Decision in CA G.R. SP No. 31125 and in this Court’s Decision in G.R. No.
115662. For, so it contends, the
decisions in these cases dealt on interlocutory
issues, viz: the issue of whether respondent’s petition
for annulment of the sale stated a cause of action, and the issue of whether
petitioner’s motion to dismiss was properly denied.[21]
Arguing against
respondent’s position that it was entitled to notice of the auction sale, petitioner
cites the Chattel Mortgage Law which enumerates
who are entitled to be notified under Section 14 thereof. It posits that “[h]ad the law intended to
include in said Section an attaching creditor or a judgment creditor [like
herein respondent], it could have so specifically stated therein, since in the
preceding section, Section 13, it already mentioned that a subsequent attaching
creditor may redeem.”[22]
Petitioner goes on to
fault the appellate court in echoing its ruling in CA-G.R. SP No. 31125 that
Sections 13[23]
and 14 of the Chattel Mortgage Law should be read in tandem since the
right given to the attaching creditor under Section 13 “would not serve its
purpose if we were to exclude the subsequent attaching creditor from those who
under Section 14 need to be notified of the foreclosure sale ten days before it
is held.”[24]
Petitioner likewise posits
that Section 13 permits a subsequent attaching creditor to “redeem” the
mortgage only before the holding of the auction sale, drawing attention
to Paray v. Rodriguez[25] which instructs that no right of
redemption exists over personal property
as the Chattel Mortgage Law is silent thereon.[26]
Even
assuming arguendo, petitioner contends, that there exists an obligation to furnish
respondent a notice of the auction sale 10 days prior thereto, “respondent’s
judgment award of P296,662.16 with interest thereon at the legal rate
from the date of filing of the [c]omplaint and P10,000.00 as reasonable
attorney’s fees is very much less than the P1.5 [m]illion bid of petitioner…”[27]
As for the issue of
constructive fraud-basis of the award of damages to respondent, petitioner maintains
that both the trial and appellate courts erred in concluding that it (petitioner)
was the one which sent the notice of sheriff’s sale to, which was received on
the day of the sale by, the counsel for respondent for, so it contends, it had
absolutely no participation in the preparation and sending of such notice.[28]
In its Comment,[29]
respondent reiterates that the respective decisions of the appellate court and
this Court in CA G.R. SP No. 31125 and G.R. No. 115662 are conclusive between the parties, hence,
“the right of [respondent] to a [ten-day] notice has a binding effect and must
be adopted in any other controversy between the same parties in which the very
same question is raised.”[30]
And respondent maintains
that the obligation to notify the mortgagor or person holding under him and the
persons holding subsequent mortgages falls upon petitioner as the
mortgagee.
The petition is MERITORIOUS.
The respective decisions of
the appellate court in CA G.R. SP No. 31125 and this Court in G.R.
No. 115662 did not conclusively settle the issue on the need to give a
10-day notice to respondent of the holding of the public auction sale of the
chattels.
The
elements of res judicata are: (1) the judgment sought to bar the new
action must be final; (2) the decision must have been rendered by a court
having jurisdiction over the subject matter and the parties; (3) the
disposition of the case must be a judgment on the merits; and (4) there must be
as between the first and second action, identity of parties, subject matter,
and causes of action.[31]
Res
judicata has two concepts: (1) bar
by prior judgment as enunciated in Rule 39, Section 47 (b) of the Rules of
Civil Procedure; and (2) conclusiveness of judgment in Rule 39, Section 47 (c).[32]
There is bar
by prior judgment when, as between the first case where the judgment was
rendered, and the second case that is sought to be barred, there is identity of
parties, subject matter, and causes of action. Where there is identity of
parties and subject matter in the first and second cases, but no identity of causes of action, there
is conclusiveness of judgment.[33] The first judgment is conclusive only as
to those matters actually and directly controverted and determined, not as to matters merely
involved therein.
The
Court of Appeals, in CA G.R. SP No. 31125, resolved only the interlocutory issue of whether the trial
court’s Order of April 12, 1993 denying petitioner’s motion to dismiss respondent’s
petition for annulment was attended by grave abuse of discretion. The appellate court did not rule on the merits of the petition as to establish a
controlling legal rule which has to be subsequently followed by the parties in
the same case. It merely held that respondent’s
petition in the trial court stated a sufficient cause of action. Its determination of respondent’s entitlement
to notice of the public auction sale was at best prima facie. Thus, the appellate
court held:
In view of the above, We are of the considered view that
the private respondent’s petition in the court a quo prima facie states a
sufficient cause of action and that the public respondent in denying the
petitioner’s motion to dismiss, had acted advisedly and well within its powers
and authority. We, therefore, find no cause to annul the challenged order issued by the respondent court
in Civil Case No. 92-62106. (Underscoring
in the original; emphasis and italics supplied)[34]
An
order denying a motion to dismiss is merely interlocutory
and cannot give rise to res judicata, hence, it is subject to amendments until the rendition of the
final judgment.[35]
On respondent’s
contention that petitioner, as mortgagee, had the duty to notify it of the
public auction sale, the Court finds the same immaterial to the case.
Section 13 of the Chattel
Mortgage Law allows the
would-be redemptioner thereunder to redeem the mortgaged property only before
its sale. Consider the following
pronouncement in Paray: [36]
[T]here is no law in our statute books which vests the right of redemption over personal
property. Act No. 1508, or the
Chattel Mortgage Law, ostensibly could have served as the vehicle for any
legislative intent to bestow a right of
redemption over personal property, since that law governs the extrajudicial
sale of mortgaged personal property,
but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of Civil
Procedure, extensively relied upon by the Court of Appeals, starkly utters that
the right of redemption applies to real properties, not personal
properties, sold on execution. (Emphasis, italics and underscoring supplied)
Unmistakably, the redemption cited in Section 13
partakes of an equity of
redemption, which is the right of the mortgagor to redeem the mortgaged
property after his default in the performance of the conditions of the
mortgage but before the sale of the property[37]
to clear it from the encumbrance of the mortgage.[38] It is
not the same as right of redemption which is the right of the mortgagor to
redeem the mortgaged property after registration of the foreclosure sale,[39]
and even after confirmation of the
sale.[40]
While respondent had attached some of Terrymanila’s
assets to secure the satisfaction of a P296,662.16 judgment rendered in another case,
what it effectively attached was Terrymanila’s equity of redemption. That respondent’s claim is much lower than
the P1.5 million actual bid
of petitioner at the auction sale does not defeat respondent’s equity of
redemption. Top
Rate International Services, Inc. v. IAC[41]
enlightens:
It is, therefore, error on the part of the petitioner to
say that since private respondents’ lien is only a total of P343,227.40,
they cannot be entitled to the equity of redemption because the exercise of
such right would require the payment of an amount which cannot be less than P40,000,000.00.
When herein private respondents prayed for the attachment
of the properties to secure their respective claims against Consolidated Mines,
Inc., the properties had already been mortgaged to the consortium of twelve
banks to secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, the respondents’
liens on such properties became inferior to that of banks, which claims in the
event of foreclosure proceedings, must first be satisfied. The appellate court, therefore, was
correct in holding that in reality, what
was attached by the respondents was merely Consolidated Mines’ . . .
equity of redemption. x x x x
x x x x
We, therefore, hold that the appellate court did not commit
any error in ruling that there was no over-levy on the disputed
properties. What was actually attached by respondents was Consolidated Mines’ right
or equity of redemption, an incorporeal and intangible right, the value of
which can neither be quantified nor equated with the actual value of the
properties upon which it may be exercised.[42]
(Emphasis, italics and underscoring supplied)
Having thus attached Terrymanila’s equity of redemption, respondent had to be
informed of the date of sale of the mortgaged assets for it to exercise such equity
of redemption over some of those foreclosed properties, as provided for in Section
13.
Recall, however, that respondent filed a motion to reconsider
the February 3, 1992 Order of the RTC Bataan-insolvency court which granted
leave to petitioner to foreclose the chattel mortgage, which motion was denied. Notably, respondent failed to allege this
incident in his annulment of sale case before the RTC of Manila.
Thus, even prior to receiving, through counsel, a mailed
notice of the auction sale on the date of the auction sale itself on
Despite its window of opportunity to exercise its
equity of redemption, however, respondent chose to be technically shrewd about
its chances, preferring instead to seek annulment of the auction sale, which
was the result of the foreclosure of the mortgage, permission to conduct which it
had early on opposed before the insolvency court. Its negligence or omission to exercise its
equity of redemption within a reasonable time, or even on the day of the
auction sale, warrants a presumption that it had either abandoned it or opted
not to assert it.[43] Equitable considerations thus sway against it.
It is also not lost on the Court that as early as
Parenthetically, respondent has not shown that it
was prejudiced by the auction sale since the insolvency court already
determined that even if the mortgaged properties were foreclosed, there were
still sufficient, unencumbered assets of Terrymanila to cover the obligations
owing to other creditors, including that of respondent’s.[45]
In any event, even if respondent would have participated
in the auction sale and matched petitioner’s bid, the superiority of petitioner’s
lien over the mortgaged assets would preclude respondent from recovering the
chattels.
It has long been settled by this Court that “the right
of those who acquire said properties should not and can not be superior to
that of the creditor who has in his favor an instrument of mortgage executed
with the formalities of the law, in good faith, and without the least
indication of fraud. x x x. In
purchasing it, with full knowledge that such circumstances existed, it should
be presumed that he did so, very much willing to respect the lien existing
thereon, since he should not have expected that with the purchase, he would
acquire a better right than that which the vendor then had. (Emphasis and
underscoring supplied)[46]
It
bears noting that the chattel mortgage in favor of petitioner was registered
more than two years before the issuance of a writ of attachment over
some of Terrymanila’s chattels in favor of respondent. This is significant in
determining who between petitioner and respondent should be given preference
over the subject properties. Since the
registration of a chattel mortgage is an effective and binding notice to other
creditors of its existence and creates a real right or lien that follows the
property wherever it may be,[47]
the right of respondent, as an attaching creditor or as purchaser, had it purchased
the mortgaged chattel at the auction sale, is subordinate to the lien of the
mortgagee who has in his favor a valid chattel mortgage.[48]
Contrary then to the appellate court’s ruling, petitioner
is not liable for constructive fraud for proceeding with the auction sale. Nor for subsequently selling the chattel. For foreclosure suits may be initiated even
during insolvency proceedings, as long as leave must first be obtained from the
insolvency court[49]
as what petitioner did.
The appellate court’s award of exemplary damages
and attorney’s fees for respondent, given petitioner’s good faith, is thus not
warranted.
As
for petitioner’s prayer for attorney’s fees in its Compulsory Counterclaim, the
same is in order, the dismissal of respondent’s Complaint nowithstanding.[50]
Perkin Elmer Singapore v. Dakila Trading,[51] citing Pinga v. Heirs of
German Santiago,[52] enlightens:
It bears to
emphasize that petitioner’s counterclaim against respondent is for damages
and attorney’s fees arising from the unfounded suit. While respondent’s Complaint against
petitioner is already dismissed, petitioner may have very well incurred damages
and litigation expenses such as attorney’s fees since it was forced to
engage legal representation in the
To
the Court, the amount of P250,000 prayed for by petitioner in its
Counterclaim is just and equitable, given the nature and extent of legal
services employed in controverting respondent’s unfounded claim.
WHEREFORE, the petition for review is GRANTED. The challenged
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Civil Case No. 92-62106 lodged before the
Regional Trial Court of Manila, Branch 16, is DISMISSED for lack of merit.
Respondent, Royal Cargo
Corporation, is ORDERED to pay
petitioner, Rizal Commercial Banking Corporation, P250,000 as and for
attorney’s fees.
No costs.
SO ORDERED.
CONCHITA
CARPIO MORALES
Associate
Justice
WE CONCUR:
|
CONSUELO YNARES-SANTIAGO Associate Justice |
DIOSDADO M. PERALTA Associate Justice |
|
MARIANO C. Associate Justice |
ROBERTO A. ABAD 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.
CONCHITA
CARPIO MORALES
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to
Section 13, Article VIII of the Constitution, and the Division Acting
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.
REYNATO S. PUNO
Chief Justice
* Per Special Order No. 706 and additional member per Special Order No. 691.
** Per Special Order No. 690 in lieu of the sabbatical leave of Senior Associate Justice Leonardo A. Quisumbing.
*** Additional member per Special Order No. 711.
[1] At times referred to as Terry Manila, Inc. in the rollo and records.
[2] Records, Vol. I, pp. 2-3.
[3]
[4]
[5] Folder of Exhibits, pp. 7-9.
[6] Records, Vol. I, p. 304.
[7] Folder of Exhibits, p. 48.
[8]
[9]
[10] Records, Vol. I, pp. 2-3.
[11]
[12]
[13]
[14] Records, pp. 87-96.
[15] Entitled RCBC v. Court of Appeals, et al.
[16] Rollo, p. 202.
[17] Records, Vol. II, pp. 752-759.
[18] Rollo, pp. 59-76; Penned by Associate Justice Josefina Guevara-Salonga with Associate Justices Vicente Q. Roxas and Ramon R. Garcia concurring.
[19]
[20]
[21]
[22]
[23] Section 13 of the Chattel Mortgage Law reads: When the condition of a chattel mortgage is broken, a mortgagor or person holding a subsequent mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition before the sale thereof. An attaching creditor who redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it by the terms of this Act. (Emphasis and underscoring supplied)
[24] Rollo, p. 34.
[25] G.R. No. 132287,
[26] Rollo, p. 35.
[27]
[28]
[29]
[30]
[31] Republic v. Court of Appeals, G.R. No. 103412, February 3, 2000, 324 SCRA 560, 565 citing Casil v. Court of Appeals, G.R. No. 121534, January 28, 1998, 285 SCRA 264, 276.
[32] SEC. 47. x x x x.
(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto.
[33] Padillo v. Court of Appeals, G.R. No.
119707,
[34] Records I, pp. 145-146.
[35] Macahilig v. Heirs of Grace Magalit, G.R. No. 141423, 398 Phil. 802, 818 (2000) citing Manila Electric Company v. Artiaga, 50 Phil. 144, 147 (1927).
[36] Supra note 24.
[37] Top Rate International Services, Inc. v.
IAC, G.R. No. 67496,
[38] 55 Am Jur 2d, Mortgages, §866.
[39] Limpin v. Intermediate Appellate Court,
G.R. No. L-70987,
[40] Ibid.
[41] Supra.
[42]
[43] Spouses Alfredo v. Spouses Borras,
G.R. No. 144225,
[44] Art. 2244. With reference to other property, real and personal of the debtor, the following claims or credits shall be preferred in the order named:
x x x x
(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively. (Underscoring supplied)
[45] Vide: De Amuzategui v. Macleod, G.R. No. 10629,
[46] Cabral
v. Evangelista, G.R. No. L-26860,
[47] Allied Banking Corp. v. Salas, G.R.
No. L-49081,
[48] Northern Motors Inc. v. Judge Coquia,
G.R. No. L-40018,
[49] 1 J. VITUG, COMMERCIAL LAWS AND JURISPRUDENCE 549 (2006).
[50] Article 2208 (2) of the Civil Code.
[51] G.R. No. 172242,
[52] G.R. No. 170354,
[53] Perkin
Elmer