G.R. No. 242570 - Philippine National Bank vs. Abello

Case Summary (G.R. No. 242570)

Facts: Titles, Mortgages and Annotations

The subject titles are registered in the names of the Spouses Abello. TCT No. T-127632 bears successive entries of real estate mortgages in favor of PNB (annotations dated between 1963 and 1974 reflecting mortgages and amendments). TCT Nos. T-82974 and T-58311 bear a real estate mortgage executed October 30, 1975 for P227,000.00, inscribed as Entry No. 80024 on November 4, 1975. No further entries in favor of PNB appear on the titles after the annotations listed in the complaint.

Death, Heirship and Procedural History in Trial Court

Manuel Abello died October 14, 1998; his heirs executed a Declaration of Heirship in 2003 authorizing Elenita to act as administrator. The respondents alleged in their complaint that PNB took no action to enforce the mortgages since 1975, asserting that the right to foreclose had already prescribed and demanding cancellation of the encumbrances. After trial, the RTC rendered judgment on August 26, 2014 ordering cancellation of the annotated memoranda of encumbrance on the three TCTs and dismissing PNB’s counterclaim.

RTC’s Rationale on Prescription

The RTC accepted the respondents’ prescription defense and calculated the prescriptive periods reckoning from the dates of inscription on the TCTs. The RTC concluded that the right to foreclose the mortgage on TCT No. T-127632 accrued on March 19, 1984, and that for TCT Nos. T-82974 and T-58311 it accrued on November 5, 1985—dates from which the RTC found prescription had already run by the time of the complaint.

CA Disposition and Reasoning

On appeal, the Court of Appeals denied the petition and affirmed the RTC in toto. The CA deemed the allegations of the complaint sufficient to establish a cause of action and held that detailed allegations regarding the type of credit, loan terms and conditions, and the loan’s maturity were not material and therefore not required. The CA also relied on an accounting notice sent by PNB and concluded that prescription began to run when Manuel Abello stopped paying the mortgage debt (identified as December 31, 1985), whereas PNB only sent a demand on January 8, 2002—supporting the CA’s finding that the institution of a mortgage action had prescribed.

Issues Presented to the Supreme Court

The central issue before the Supreme Court was whether the CA and the RTC erred in ordering cancellation of the encumbrances. PNB argued that the complaint should have been dismissed for failure to state a cause of action and that the respondents’ admissions of liability amounted to a waiver of prescription as a defense. The respondents maintained that PNB’s own admissions and the absence of further bank entries after 1975 sufficed to establish prescription.

Legal Distinction: Failure to State a Cause of Action vs. Lack of Cause of Action

The Supreme Court emphasized the settled distinction between dismissal for failure to state a cause of action (procedural, based on insufficiency of allegations in the pleading; generally raised early by a Rule 16 motion) and dismissal for lack of cause of action (substantive, based on insufficiency of evidence to prove the elements of the cause; typically decided after trial). The Court reiterated the three essential elements required in a complaint (right in favor of plaintiff, obligation of defendant, and act/omission violating that right) and stressed that the test for failure to state a cause of action is whether, accepting the complaint’s allegations as true, the court may validly grant the relief demanded.

Prescription in REM Cases and the Need to Plead Maturity/Demand

Relying on Mercene v. GSIS and other precedent, the Court explained that prescription for actions on real estate mortgages (REMs) does not run from the mortgage’s execution or inscription but from the time the principal loan becomes due and demandable (or from the date of demand where appropriate). A REM is accessory to the principal obligation; therefore, enforcement of the mortgage depends on a breach of the principal loan obligation. Accordingly, allegations and proof regarding the date the loan matured (or the date of demand) are crucial to establish when prescription began to run. Absent such allegations or proof, a mortgagor cannot establish entitlement to cancellation of the mortgage annotation, because cancellation presupposes that the mortgage-enforcement action has prescribed.

Evaluation of the Complaint’s Allegations and Trial Evidence

The Court observed that the respondents’ complaint failed to allege the terms and conditions of the mortgage or the date of maturity of the underlying loan; it only alleged the dates of entries or annotations on the titles (up to 1975). The Court noted that the date of annotation is irrelevant to the question of prescription. Although PNB raised failure to state a cause of action in its pleadings, the parties proceeded to trial—thereby passing the procedural opportunity to seek dismissal on that ground. Nonetheless, after trial the respondents still failed to adduce evidence establishing when the loan became due or when demand was made, and they did not produce the written contracts evidencing the loan and mortgage as required when an action is based on a document (Rule 8, Section 7).

Rules on Evidence and Tender of Excluded Documents

Case Syllabus (G.R. No. 242570)

Case Caption and Nature of Proceeding

G.R. No. 242570; Third Division; Decision promulgated September 18, 2019; penned by Justice Reyes, A., Jr., J.
Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by Philippine National Bank (petitioner).
Relief sought: annulment and setting aside of the Court of Appeals (CA) Decision dated January 31, 2018 in CA-G.R. CV No. 05501 and the CA Resolution dated September 4, 2018 denying reconsideration.
CA had affirmed the Regional Trial Court (RTC), Branch 49, Bacolod City Decision dated August 26, 2014 in Civil Case No. 08-13309, which ordered cancellation of memorandum of encumbrances annotated on Transfer Certificates of Title Nos. T-127632, T-82974 and T-58311.

Antecedent Facts (Complaint, Properties, Mortgages)

Complaint style and filing: A Complaint for Cancellation/Discharge of Mortgage/Mortgage Liens was filed by Elenita V. Abello, Ma. Elena Elizabeth A. Fider, Jonathan V. Abello, Manuel V. Abello and Vincent Edward B. Abello (collectively, the respondents). The source states the filing date as November 21, 2008.
Properties and registered owners:
- TCT No. T-127632 — registered under Manuel and Elenita Abello (Spouses Abello).
- TCT Nos. T-82974 and T-58311 — likewise registered to the Spouses Abello; all located in Bacolod City (and one reference to Binalbagan, Negros Occidental for T-127632 in the Complaint allegations).
Inscribed encumbrances on TCT No. T-127632 (all in favor of petitioner) as pleaded in the Complaint:
- Deed of Real Estate Mortgage dated September 18, 1963 to secure P5,890.00 — inscribed August 9, 1968 (Entry No. 91194 as indicated in the RTC decision).
- Mortgage dated February 21, 1968 for P6,600.00 — inscribed February 22, 1968 (Entry No. 131237).
- Mortgage dated August 14, 1973 for P50,000.00 — inscribed August 23, 1973 (Entry No. 181203).
- Amendment dated October 8, 1973 (amendment to August 14, 1973) increasing P50,000.00 to P94,200.00 — inscribed October 11, 1973 (Entry No. 182910).
- Deed of Agreement dated March 18, 1974 increasing credit limit accommodations of Manuel Abello to P75,000 — inscribed March 18, 1974 (Entry No. 188486).
Inscribed encumbrance covering TCT Nos. T-82974 and T-58311:
- Real Estate Mortgage (REM) executed October 30, 1975 to secure P227,000.00; Entry No. 80024 made on November 4, 1975 (appearing on the back of both TCT Nos. T-82974 and T-58311).
Events affecting titleholders:
- Manuel Abello died on October 14, 1998.
- Respondents (his heirs) executed a Declaration of Heirship on June 5, 2003 authorizing Elenita to act as administrator of the estate.
Respondents’ substantive claim:
- They sought cancellation of the inscriptions on the TCTs, arguing prescription because the petitioner allegedly took no action since 1975; they asserted they should be discharged as a matter of right and the encumbrances cancelled.

RTC Proceedings and Decision (August 26, 2014)

Trial was conducted in RTC, Branch 49, Bacolod City in Civil Case No. 08-13309.
Dispositive portion of the RTC Decision dated August 26, 2014:
- Directed the Register of Deeds of the Province of Negros Occidental to cancel memorandum of encumbrances (Real Estate Mortgage) on TCT No. T-127632 as Entry Nos. 91194, 131237, 181203, 182910 and 188486.
- Directed the Register of Deeds of Bacolod City to cancel the memorandum of encumbrance (Real Estate Mortgage) appearing at the back of TCT Nos. T-82974 and T-58311 as Entry No. 80024.
- Ordered dismissal of the Counterclaim of the defendant PNB.
- Ordered no costs.
RTC’s reasoning on prescription:
- The RTC found merit in respondents’ prescription argument and reckoned the period of prescription from the date of inscription on the TCT.
- The RTC explained the right to foreclose the mortgage on TCT No. T-127632 accrued on March 19, 1984.
- For TCT Nos. T-82974 and T-58311, the RTC held the right accrued on November 5, 1985.
Post-RTC: Parties separately filed petitions for certiorari with the Court of Appeals.

Court of Appeals Ruling (January 31, 2018) and Reconsideration (Denied September 4, 2018)

CA Decision dated January 31, 2018 (CA-G.R. CV No. 05501):
- The CA denied the petition and affirmed the RTC Decision dated August 26, 2014 in toto.
CA’s legal findings and rationale:
- The CA held the allegations of the Complaint were sufficient to establish a cause of action.
- It viewed the type of credit, loan terms and condition, and the date of maturity of the principal loan as not material elements that need be alleged.
- On prescription, the CA relied on an accounting notice sent by the petitioner and found the institution of a mortgage action had already prescribed: it reasoned the prescriptive period began to run when Manuel stopped paying the mortgage debt on December 31, 1985, whereas the petitioner sent a demand only on January 8, 2002.
Motion for Reconsideration was filed by petitioner and denied by CA Resolution dated September 4, 2018.

Issues Presented to the Supreme Court (as framed in the petition and pleadings)

Central issue: Whether the CA erred in ordering cancellation of the annotated encumbrances on the subject TCTs.
Petitioner’s principal contentions to the Supreme Court:
- The respondents’ Complaint should have been dismissed for failure to state a cause of action.
- Even if a cause of action existed, respondents, by their admission of liability, effectively waived the defense of prescription.
Respondents’ position (as set out in their Comment):
- The respondents maintained there is no merit in the petition.
- They argued that the petitioner’s own admissions as