Case Summary (G.R. No. 179441)
Relevant Transactions and Property History
Pacifico Chica originally mortgaged the land to DBP in 1965 to secure a loan. After default, DBP foreclosed extrajudicially and secured ownership through auction sale in 1970. In 1980, the Mangubats offered to buy the property; DBP countered and finalized a sale contract in 1981 with a waiver of warranty against eviction included in the deed. However, a government certification later declared the land timberland, thus inalienable and not subject to disposition.
Loan Application and Mortgage
Despite the timberland classification, DBP approved a tree planting loan of P140,000 to the Mangubats, with DBP undertaking to secure land release from the Ministry of Natural Resources. To secure repayment, the Mangubats executed a mortgage over the property, which was registered. After partial loan proceeds disbursed, further releases were withheld due to the unresolved land release.
Trial Court Proceedings
The Mangubats sued DBP seeking annulment of the sale deed on grounds that the property was public domain and DBP had misrepresented ownership and acted fraudulently by including a waiver of warranty against eviction. DBP denied fraud, asserting valid ownership via foreclosure sale and argued the annulment would prejudice it as the loan funds had been released.
Trial Court Decision
The Regional Trial Court annulled the deed of sale, ordered DBP to return the P25,500 purchase price plus interest, reimburse taxes and survey costs, and awarded damages and attorney’s fees to the respondents. DBP appealed.
Court of Appeals Ruling
The Court of Appeals partially modified the decision by deleting the award of damages, attorney’s fees, and litigation expenses, but affirmed the annulment of the deed of sale and the return of the purchase price plus interest and reimbursements. DBP sought reconsideration which was denied.
Issues on Review
DBP raised two principal issues before the Supreme Court: (1) whether the Mangubats should be ordered to pay the outstanding loan obligation secured by the mortgage despite the annulled sale, and (2) whether DBP must reimburse the Mangubats for the purchase price, taxes, and survey expenses.
Supreme Court’s Analysis on Contract Nullity and Restitution
The Court acknowledged the annulment of the deed was final and binding. It emphasized that where a contract is void ab initio, both parties must be restored to their original positions (restitutio in integrum). It found the absence of bad faith on both sides, thus necessitating the return of the purchase price with legal interest. Reliance was placed on Philippine and American jurisprudence affirming that money paid under a contract without valid consideration due to title defects is recoverable.
Reimbursement of Taxes and Survey Expenses
Although the trial court admitted a “list of damages” submitted by the respondents as evidence, the Supreme Court found it insufficient to support reimbursement claims for taxes and survey expenses. The list lacked official receipts or substantiating documents and was considered self-serving. The Court reiterated the rule that actual damage claims must be proven with reasonable certainty and cannot be awarded on mere speculation or inadequate evidence.
Obligation to Pay Loan Amount Despite Annulment of Sale
The Supreme Court clarified that the loan contract was distinct and independent of the deed of sale. The annulment of the sale and, consequently, the mortgage did not affect the liability of the Mangubats to pay the loan principal plus interest agreed upon in the loan agreement. The nullity of the security interest (mortgage) impacts only the right to foreclose on the land but not the existence or enforceability of the loan obligation itself.
Evidentiary Sufficiency of the Loan Contrac
...continue readingCase Syllabus (G.R. No. 179441)
Background and Factual Context
- The Development Bank of the Philippines (DBP) executed a "Deed of Absolute Sale" on July 20, 1981, in favor of respondents Celebrada and Abner Mangubat over an unregistered parcel of land identified as Lot 1, PSU-142380 in Toytoy, Garchitorena, Camarines Sur, measuring approximately 55.5057 hectares.
- The land was originally owned by Presentacion Cordovez, donated to Luciano Sarmiento in 1937, sold to Pacifico Chica in 1964, who subsequently mortgaged it to DBP in 1965 for a loan amount of ₱6,000.00.
- Default on the loan led DBP to foreclose the mortgage extrajudicially; DBP purchased the property at auction on September 9, 1970, and was issued a certificate of sale.
- The certificate of sale was recorded in the Book of Unregistered Property; Chica failed to redeem it, solidifying DBP’s ownership.
- In October 1980, the Mangubats offered to buy the land; after negotiation, sale was agreed at ₱25,500.00, payable within six months.
- The deed of sale included a waiver by the seller of warranty against eviction.
- The Mangubats applied for an industrial tree planting loan at DBP, which required certification from the Bureau of Forest Development to prove that the land was alienable and disposable.
- The Bureau of Forest Development certified the land as timberland, thus part of the public domain and inalienable.
- DBP nonetheless approved a ₱140,000.00 loan on the understanding it would seek to release the land from the Ministry of Natural Resources.
- The Mangubats executed a real estate mortgage over the land as collateral for the loan, which was released in installments totaling ₱118,540.00.
- Due to the unresolved land status with the Ministry of Natural Resources, further loan disbursements were withheld.
Trial Court Proceedings and Findings
- On July 7, 1983, the Mangubats filed suit to annul the deed of absolute sale, alleging that the land was timberland and part of the public domain, making the contract void.
- They claimed DBP acted fraudulently and in bad faith by misrepresenting ownership and including a waiver of warranty against eviction.
- DBP denied bad faith, asserting valid ownership through extrajudicial foreclosure, and argued that the Mangubats were fully informed of its rights.
- DBP also contended that if annulled, refunding the purchase price would prejudice it, especially since it had released substantial loan proceeds.
- The trial court ruled in favor of the Mangubats, annulling the deed of sale, ordering DBP to refund the purchase price plus interest, reimburse taxes and relocation survey costs, and pay damages and attorney’s fees.
Court of Appeals Ruling
- The Court of Appeals modified the trial court’s decision by removing the awards for damages, attorney’s fees, litigation expenses, and costs but affirmed the annul