G.R. No. 144101 - Tambunting, Jr. vs. Spouses Sumabat

The dispute involves a parcel of land in Caloocan City originally registered in the names of respondents, spouses Emilio Sumabat and Esperanza Baello, covered by TCT No. (87655) 18837.
On May 3, 1973, the respondents mortgaged the property to petitioner Antonio P. Tambunting, Jr. to secure a loan amounting to P7,727.95.

By August 1976, the respondents’ indebtedness increased to P15,000 due to failure to pay the monthly amortizations stipulated under the mortgage.
In May 1977, due to the respondents’ default, petitioner Commercial House of Finance, Inc. (CHFI), acting as the assignee of the mortgage, initiated foreclosure proceedings on the property.
A complaint for injunction was subsequently filed by the respondents in the then Court of First Instance (CFI) of Caloocan City, Branch 33 (now RTC Branch 123) in Civil Case No. C-6329, which restrained the foreclosure; however, the case was dismissed on November 9, 1977, for the parties’ failure to appear at the hearing.

On March 16, 1979, respondents filed an action for declaratory relief in the CFI of Caloocan City, Branch 33 (Civil Case No. C-7496) seeking a declaration regarding the actual extent of their indebtedness.
Petitioners were declared in default for not filing an answer within the reglementary period, and their motion to dismiss the action on the ground of a preexisting breach of the mortgage deed was denied on technical grounds.
On January 8, 1981, the CFI fixed the respondents’ liability at P15,743.83 and ordered them to consign the amount to the court for proper disposition.
In compliance, the respondents consigned the mandated amount on January 9, 1981.

In March 1995, respondents received a notice indicating that CHFI had foreclosed on the mortgage on February 8, 1995 and that an extrajudicial sale was scheduled for March 27, 1995.
On the same day, March 27, 1995, respondents filed Civil Case No. C-16822, a petition for preliminary injunction, damages, and cancellation of the annotation of encumbrance, praying also for a temporary restraining order.
Despite the petition, the public auction went forward, with the property being sold to CHFI as the highest bidder, and the respondents later failed to redeem the property during the redemption period.
Consequently, title to the property was consolidated in favor of CHFI, and a new certificate of title (TCT No. 310191) was issued in its name.
Respondents subsequently amended their complaint into an action for nullification of foreclosure, sheriff’s sale and consolidation of title, reconveyance of the property, and damages.

On February 11, 2000, the RTC of Caloocan City, Branch 120, rendered a decision declaring that the 1981 CFI decision (in Civil Case No. C-7496) had attained finality.
The RTC ruled that the mortgage was extinguished when the respondents consensually paid the indebtedness through consignation.
It further held that the ten-year period for petitioners to foreclose the property had lapsed by prescription, as their right to foreclose accrued in May 1977 and resumed upon the dismissal of the injunction case on November 9, 1977.
As a result, the RTC nullified the foreclosure, extrajudicial sale, and consolidation of title in CHFI’s favor, ordering the Register of Deeds to cancel TCT No. 310191 and reconvey the property to the respondents.
The RTC also imposed liability on the petitioners for moral damages, exemplary damages, and attorney’s fees and denied their subsequent motion for reconsideration.

Petitioners contended that the trial court erroneously upheld the validity of the consignation, arguing that the CFI was barred from taking cognizance of the action for declaratory relief because the breach of the mortgage deed had already occurred prior to the filing of the action.
They maintained that the ensuing CFI decision was void, and hence the consignation made pursuant to it was likewise void.
Additionally, petitioners disputed the trial court’s finding that their right to foreclose was barred by prescription, asserting that the foreclosure was exercised within the proper legal framework.

Whether the CFI had jurisdiction to entertain and render a decision in the action for declaratory relief (Civil Case No. C-7496) given that the breach of the mortgage deed had already occurred before the filing of the action.
Whether the decision of the CFI, rendered while lacking jurisdiction, could have any binding effect or be considered valid in extinguishing the mortgage through consignation.

Whether the petitioners’ right to foreclose under the mortgage had been barred by prescription pursuant to Article 1142 of the Civil Code, considering the ten-year period prescribed for mortgage actions.
Whether the foreclosure proceedings and subsequent extrajudicial sale conducted in 1995 were legally valid given that the period for enforcing the mortgage rights had already expired.

Whether the consignation carried out by the respondents, based on the CFI decision, effectively extinguished the mortgage, notwithstanding the contention that the said decision was void due to lack of jurisdiction.
Whether a void judgment (stemming from the jurisdictional defect) can bar the enforcement of rights under the mortgage or have any res judicata effect.

Whether the trial court correctly nullified the foreclosure, extrajudicial sale, and consolidation of title in light of the lapse of the petitioners’ right to enforce the mortgage.
Whether the remedies granted by the RTC, including the cancellation of the certificate of title and the reconveyance of the property to the respondents, were proper under the circumstances.