G.R. No. 110053 - Development Bank of the Philippines vs. Court of Appeals

Case Summary (G.R. No. 110053)

Factual Background

The parcel at issue, Lot 1, PSU-142380, in Toytoy, Garchitorena, Camarines Sur, originated in private ownership and passed by donation in 1937 from Presentacion Cordovez to Luciano Sarmiento, who sold to Pacifico Chica in 1964. Chica mortgaged the land to Development Bank of the Philippines on April 27, 1965 to secure a P6,000.00 loan, defaulted, and the property was sold at extrajudicial foreclosure where DBP purchased it at auction in September 1970. On October 14, 1980 respondents offered to buy; DBP countered and the parties executed a Deed of Absolute Sale on July 20, 1981 that included a waiver of the seller’s warranty against eviction. Subsequent to the sale, the Bureau of Forest Development certified the land as timberland on October 29, 1981. Respondents nevertheless obtained an industrial tree planting loan from DBP for P140,000.00, secured by a real estate mortgage executed March 17, 1982 and registered pursuant to Act No. 3344, and DBP released P118,540.00 in installments.

Trial Court Proceedings

Respondents filed suit to annul the Deed of Absolute Sale on July 7, 1983, alleging that the subject property formed part of the public domain and that DBP misrepresented its title and acted in bad faith by including a waiver of warranty against eviction. The Regional Trial Court, Branch 22, Naga City, rendered judgment on May 25, 1990 annulling the deed, ordering DBP to return the P25,500.00 purchase price with interest, reimbursing respondents for taxes and relocation survey costs, awarding incidental damages of P50,000.00, attorney’s fees and litigation expenses of P10,000.00, and costs of suit.

Court of Appeals Decision

The Court of Appeals, in CA-G.R. CV No. 28311, modified the trial court judgment by deleting the awards for damages, attorney’s fees, litigation expenses and costs, while affirming the annulment of the deed and the order to return the purchase price and related reliefs otherwise. The Court of Appeals denied DBP’s motion for reconsideration on April 7, 1993.

Issues on Review

In its petition for review on certiorari the Development Bank of the Philippines advanced two principal questions: whether respondents should be ordered to pay the outstanding loan obligation of P118,540.00; and whether DBP should reimburse respondents the purchase price and P11,980.00 claimed for taxes and relocation survey expenses. The parties did not contest the annulment of the sale, so the Supreme Court confined its review to the legal effects of that nullification.

Legal Principles on Nullity and Restitution

The Court reiterated the settled rule that a contract void ab initio produces the legal consequence of restoring the parties to their status prior to the transaction. The Court relied on local authorities and foreign precedents, including Leather Manufacturers National Bank v. Merchants National Bank, for the equitable principle that money paid under a transaction lacking consideration because of defective title may be recovered by the payer with interest. The Court stated that when both parties are without fault, restitution of what each gave to the other is in order, and that where the contract must be set aside for mutual mistake as to identity or quantity of the land, the purchaser is ordinarily entitled to recover the purchase money with interest.

Application to Taxes and Survey Reimbursement

The Court examined the proof offered by respondents for reimbursement of land taxes and relocation survey expenses and found it legally insufficient. Although the trial court admitted an extrajudially prepared list of damages, marked as Exhibit P, the Court held that such a list without supporting official receipts or other competent evidence is self-serving and cannot sustain an award. Relying on the principle that actual damages must be proven with reasonable certainty and cannot be presumed, the Court deleted the award of P11,980.00 for taxes and relocation survey expenses.

Loan Obligation, Mortgage, and Enforceability

The Court analyzed the legal relationship between the annulled sale, the mortgage and the separate loan obligation and concluded that the contract of loan is a distinct and independent obligation that survives the annulment of the sale and the invalidity of the mortgage as security. Citing Article 1953, Civil Code, and authorities on the effect of invalid mortgages, the Court held that invalidity of a mortgage affects only the special remedy

Case Syllabus (G.R. No. 110053)

Parties and Procedural Posture

Development Bank of the Philippines was the petitioner in this certiorari appeal from the judgment of the Court of Appeals in CA-G.R. CV No. 28311.
Celebrada Mangubat and Abner Mangubat were the private respondents and original plaintiffs in Civil Case No. RTC 83-152, Regional Trial Court, Branch 22, Naga City.
The trial court rendered judgment on May 25, 1990 annulling the deed of absolute sale and awarding various monetary reliefs to the Mangubats.
The Court of Appeals promulgated its decision on September 9, 1992 and denied petitioner’s motion for reconsideration on April 7, 1993.
The instant petition for review on certiorari raised limited legal issues concerning reimbursement and the enforceability of a loan obligation.

Key Factual Allegations

The subject property was originally owned by Presentacion Cordovez and was donated to Luciano Sarmiento on February 9, 1937.
Luciano Sarmiento sold the property to Pacifico Chica on June 8, 1964, and Chica mortgaged it to DBP on April 27, 1965 to secure a P6,000 loan.
Following default, DBP purchased the property at extrajudicial foreclosure auction on September 9, 1970 and received a sheriff’s certificate of sale entered in the Book of Unregistered Property.
Celebrada and Abner Mangubat offered to buy the land on October 14, 1980 and accepted DBP’s counter-offer of P25,500; a Deed of Absolute Sale with a waiver of seller’s warranty against eviction was executed on July 20, 1981.
On October 29, 1981 the Bureau of Forest Development certified the land as timberland and therefore non-disposable.
Despite the timberland certification, DBP approved an industrial tree-planting loan of P140,000 to the Mangubats and took a real estate mortgage registered pursuant to Act No. 3344 on March 17, 1982.
DBP released P118,540.00 of the loan in installments, and the Mangubats later filed suit on July 7, 1983 seeking annulment of the sale and damages alleging the land was inalienable and that DBP acted in bad faith.

Trial and Appellate Rulings

The trial court annulled the Deed of Absolute Sale and ordered DBP to return the P25,500 purchase price with interest and to reimburse P11,980 for taxes and relocation survey, and awarded P50,000 incidental damages, P10,000 attorney’s fees and costs.
The Court of Appeals modified the trial court’s judgment by deleting the awards for damages, attorney’s fees, litigation expenses and costs, while affirming the annulment and other monetary awards.
The Supreme Court reviewed only the effects of the final annulment and the specific monetary reliefs contested by DBP.

Issues Presented

Whether Celebrada and Abner Mangubat should be ordered to pay DBP their loan obligation of P118,540.00.
Whether DBP should reimburse the Mangubats the purchase price and the P11,980.00 claimed for taxes and relocation survey.

Court's Reasoning on Nullity and Restitution

The Court recognized the annulment of the deed as final and applied the general rule that a contract void ab initio restores parties to status quo ante.
The Court relied on domestic and American author