PNB-Republic Bank vs. Sian-Limsiaco

An agent specially authorized to encumber property through mortgage is implicitly authorized to file an action to cancel such mortgage, and an action for cancellation of a real estate mortgage is a personal action that does not require joinder of the mortgagor-principals as real parties in interest, provided the principal loan obligation has already prescribed.

Remedios Sian-Limsiaco obtained a series of sugar crop loans from Maybank (formerly PNB-Republic Bank) in 1979, 1982, and 1984, each payable within one year and each secured by real estate mortgages over parcels of land owned by third parties—Sian Agricultural Corporation, Spouses Sebastian and Marina de la Pena, and Spouses Jerome Gonzales and Perla Sian-Gonzales. These mortgages were executed through special powers of attorney granted to Remedios and her son Roy Sian-Limsiaco by the respective property owners. Maybank subsequently assigned its assets and liabilities, including receivables, to the Philippine National Bank, and the receivables were later transferred to the Bangko Sentral ng Pilipinas.

Sometime in 1979, Remedios Sian-Limsiaco obtained a ₱142,500.00 sugar crop loan from Maybank, payable within one year. Through a special power of attorney, she executed a real estate mortgage on two parcels of land: Lot 8, covered by TCT No. T-74488 and owned by Sian Agricultural Corporation, and Lot 1, covered by TCT No. 55619 and owned by Spouses Sebastian and Marina de la Pena. Subsequently, in 1982, Remedios and her son Roy obtained another sugar crop loan for ₱307,700.00, likewise due after one year. Through another special power of attorney, Roy executed a real estate mortgage on four parcels of land owned by Spouses Jerome Gonzales and Perla Sian-Gonzales: Lot 214 (TCT No. T-121539), Lot 215 (TCT No. T-121540), Lot 213-B (TCT No. T-121541), and Lot 96 (TCT No. T-80515). In 1984, Remedios obtained yet another sugar crop loan for ₱110,000.00, again secured by a real estate mortgage on Lot 8 owned by Sian Agricultural Corporation.

Despite the loans becoming due and demandable within one year of their respective execution, Maybank never demanded payment, filed any collection case, or initiated foreclosure proceedings against any of the mortgaged properties. Maybank later referred the case to the Philippine National Bank, to which it had assigned its assets and liabilities including its receivables, by virtue of a Deed of Assignment dated July 20, 1998. Maybank argued that PNB should be treated as a substitute respondent, but the RTC denied the Motion for Substitution after PNB failed to provide additional documents to justify the substitution. The receivables were subsequently transferred to the Bangko Sentral ng Pilipinas.

On June 29, 2001, or after a lapse of 17 years from the maturity of the latest loan, Remedios and Roy filed a petition before the RTC of Himamaylan, Negros Occidental, Branch 56, to cancel the liens annotated on the titles of the mortgaged properties on grounds of prescription and extinction of their loan obligation. Throughout the proceedings, Maybank never denied that it failed to exercise its right to collect on the subject sugar crop loans for almost 16 years after the latest loan's due date, nor did it present any proof that demand was made within the prescriptive period. The RTC granted the petition on June 24, 2003, declaring the mortgage contracts unenforceable due to prescription and directing the cancellation of the annotated entries on the respective titles. The CA affirmed the RTC's order in toto on April 30, 2010, and denied Maybank's Motion for Reconsideration on March 16, 2011.

• Real Parties in Interest: Petitioner argued that the registered owners of the mortgaged properties were the real parties in interest and should have been impleaded; since they were not, any judgment was null and void.
• Cause of Action: Petitioner maintained that respondent had no cause of action against it, as respondent was not the owner of the mortgaged properties.
• Legal Capacity to Sue: Petitioner argued that respondents lacked authority to institute the suit, hence lacking legal capacity to sue.
• Indispensable Party: Petitioner contended that the Bangko Sentral ng Pilipinas, as assignee of the receivable assets, was an indispensable party whose non-inclusion rendered the proceedings defective.

• Nature of the Petition: Respondent countered that the petition must be dismissed for not raising questions of law, positing that the questions regarding "who are the real parties in interest and who are the indispensable parties" are questions of fact outside the scope of a Rule 45 petition for review on certiorari.

• Real Parties in Interest: Whether the CA erred in affirming the RTC judgment despite respondent not being the real party in interest and having no cause of action against petitioner.
• Legal Capacity to Sue: Whether the CA erred in affirming the RTC judgment despite respondents lacking authority to institute the suit.
• Indispensable Party: Whether the CA erred in affirming the RTC judgment cancelling the mortgage liens despite the non-inclusion of BSP as an indispensable party.

• Real Parties in Interest: No. Respondent acted on behalf of the mortgagor-principals as their agent, and the action to cancel a real estate mortgage is a personal action that does not require joinder of the principals, the mortgage contracts being merely accessory to the prescribed loan obligations.
• Legal Capacity to Sue: No. The authority to encumber property through mortgage implicitly includes the authority to disencumber it, and the mortgagor-principals ratified respondent's act by never questioning her authority throughout the proceedings.
• Indispensable Party: Disregarded as a question of fact. The issue of whether BSP is an indispensable party hinges on the probative value of the Deed of Assignment, which is a factual matter not reviewable under Rule 45.

• Real Parties in Interest: Section 2, Rule 3 of the Rules of Court defines a real party in interest as the party who stands to be benefited or injured by the judgment. Section 3 of the same Rule allows representatives to bring actions for principals in their own name without joining the principals, provided the contract does not involve things belonging to the principal. While the mortgage contracts appeared to involve real property of the principals, the Court clarified that a mortgage contract does not involve real property itself but merely the right to foreclose upon such property upon default. Citing Hernandez vs. Rural Bank of Lucena, Inc., the Court held that an action to cancel a real estate mortgage is a personal action, not a real action—only foreclosure falls under the rule on real actions. Applying the maxim exclusio unius est inclusio alterius, the cancellation action falls under the catch-all provision on personal actions. Furthermore, since the principal loan contracts had already prescribed, the accessory mortgage contracts were rendered unenforceable, making joinder of the mortgagor-principals unnecessary and moot. Petitioner also failed to raise this issue before the trial court, raising it only on appeal, which would normally preclude consideration under the rule against issues raised for the first time on appeal.

• Legal Capacity to Sue: Article 1882 of the Civil Code provides that the limits of an agent's authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified. Since the mortgagor-principals had given respondent special authority to encumber their titles with the mortgage contracts, it was implicit that she was also authorized to perform all necessary acts to release them from such encumbrance. Disencumbering the titles was obviously advantageous to the principals. Moreover, the registered owners never questioned respondent's authority throughout the proceedings, effectively ratifying her act of filing the cancellation action. The Court also noted that the mortgage properties do not come into the picture until there is default on the loan, as the mortgage's purpose is merely to secure the loan.

• Indispensable Party: The question of whether BSP is an indispensable party was determined to be a question of fact, not a question of law. Petitioner's assertion rested on the Deed of Assignment dated July 20, 1998, and both the CA and the RTC found nothing of probative value in that document. Weighing the probative value of evidence is a factual matter that cannot be reviewed in a Rule 45 petition. The Court also noted that, upon perusal of the Deed of Assignment, it was not even clear whether the sugar crop loans had indeed been assigned to BSP, as no further evidence was presented. Moreover, at the time of assignment, the loans were already unenforceable since petitioner never denied failing to demand payment.

• Real Party in Interest and Representatives as Parties — Under Sections 2 and 3, Rule 3 of the Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgment. An agent may sue in his own name without joining the principal, except when the contract involves things belonging to the principal. The Court applied this by holding that a mortgage contract does not involve the principal's real property but merely the right to foreclose, so the agent could sue without joining the mortgagor-principals.

• Cancellation of Real Estate Mortgage as a Personal Action — An action to cancel a real estate mortgage is a personal action, not a real action; only foreclosure of a real estate mortgage falls under the rule on real actions. By the maxim exclusio unius est inclusio alterius, cancellation falls under the catch-all provision on personal actions. No transfer or disposition of real property rights occurs in a cancellation action, unlike in foreclosure.

• Authority to Encumber Includes Authority to Disencumber — Pursuant to Article 1882 of the Civil Code, an agent's authority is not exceeded when the act is performed in a manner more advantageous to the principal. Special authority to mortgage property implicitly includes the authority to release the property from the mortgage, since disencumbering is advantageous to the principal.

• Prescription of Principal Loan Extinguishes Accessory Mortgage — When the principal loan obligation has prescribed, the accessory mortgage contract is rendered functus officio, unenforceable, and of no force and effect. The right to foreclose on the mortgage likewise prescribes with the principal obligation.

• Section 112, Land Registration Act — Exceptions — A land registration court may order cancellation of mortgage annotations without a separate ordinary action when there is unanimity among the parties or no adverse claim or serious objection from any party in interest, or when the alteration does not impair rights recorded in the decree or is consented to by all parties. The Court applied this exception since petitioner never refuted the allegation of prescription.

• Substantial Justice Over Procedural Technicalities — Rules of procedure are designed to facilitate the attainment of justice, and their rigid application resulting in technicalities that frustrate rather than promote substantial justice must be avoided. When due process has been substantially complied with, technical infirmities should not warrant remand of a long-standing dispute.

• "To clarify, the mortgage contract itself does not involve real property, but merely the right to foreclose upon such real property should the necessary legal pre-conditions are met, such as a breach in the principal contract to which the mortgage is merely an accessory of." — This passage articulates the critical distinction between a mortgage contract and the underlying real property, forming the basis for the Court's holding that cancellation of a mortgage is a personal action.

• "Since the lifting of this encumbrance is a benefit that would free the owners of the risk of losing their properties, it is only a matter of course that the special power to mortgage includes the authority to discharge it from the burden." — This passage, quoting the CA with approval, defines the doctrine that authority to encumber implicitly includes authority to disencumber, grounded in Article 1882 of the Civil Code.

• "Given that the subject mortgage contracts are mere accessory contracts to the said loan contracts, then it follows that the action to foreclose on these mortgage contracts had also already prescribed." — This passage states the ratio decidendi on the extinguishment of accessory mortgage contracts upon prescription of the principal loan obligations.

• "Indeed, it would be the height of injustice for us to remand a roughly two-decades-old dispute to the trial court just to unnecessarily thresh out matters that were not even issues in the first place, based on a mere technicality." — This passage encapsulates the Court's refusal to elevate procedural technicalities over substantial justice where due process was observed.

• Tongonan Holdings and Development Corporation vs. Escano, Jr., 672 Phil. 747 (2011) — Cited for the distinction between a question of law and a question of fact; a question of law arises when there is doubt as to what the law provides on a given set of circumstances, while a question of fact involves doubt as to the truth or falsity of the alleged facts.
• Salcedo vs. People, 400 Phil. 1302 (2000) — Cited for the enumerated exceptions to the general rule that only questions of law are reviewable in a Rule 45 petition.
• Gatan vs. Vinarao, 820 Phil. 257 (2017) — Cited for the parameter that reexamination of factual findings is outside the province of a Rule 45 petition for review on certiorari.
• Hernandez vs. Rural Bank of Lucena, Inc., 171 Phil. 70 (1978) — Controlling precedent followed for the proposition that an action to cancel a real estate mortgage is a personal action, not a real action, and that the rule on real actions mentions only foreclosure.
• Rehabilitation Finance Corporation vs. Alto Surety & Insurance Co., Inc., 107 Phil. 386 (1960) — Cited for the rule that a land registration court lacks jurisdiction to adjudicate validity or cancellation of a mortgage, and for the recognized exceptions under Section 112 of the Land Registration Act allowing cancellation when there is no adverse claim or serious objection.
• Ben Line Agencies Phils., Inc. vs. Madson, 823 Phil. 261 (2018) — Cited for the doctrine that procedural rules are designed to facilitate justice and their rigid application resulting in technicalities must be avoided.

• Section 1, Rule 45, Rules of Court — Provides that only questions of law may be raised in a petition for review on certiorari. Applied to determine that the issues regarding real parties in interest and legal capacity to sue were questions of law properly raised, while the BSP indispensable party issue was a question of fact outside the petition's scope.
• Section 2, Rule 3, Rules of Court — Defines a real party in interest as the party who stands to be benefited or injured by the judgment. Applied to determine that respondent, as agent acting for the mortgagor-principals, could properly institute the action.
• Section 3, Rule 3, Rules of Court — Allows representatives to bring actions for principals without joining them, except when the contract involves things belonging to the principal. Applied to hold that since a mortgage contract involves only the right to foreclose and not the real property itself, the agent could sue without joining the principals.
• Article 1882, Civil Code — Provides that the limits of an agent's authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal. Applied to hold that the authority to encumber includes the authority to disencumber, the latter being advantageous to the principal.
• Section 112, Land Registration Act — Authorizes alterations to certificates of title, including cancellation of annotations, when there is unanimity among the parties or no adverse claim or serious objection. Applied as an exception allowing the RTC, acting as a cadastral court, to order cancellation of the mortgage liens since petitioner never refuted the allegation of prescription.

Leonen (Chairperson), Lazaro-Javier, Delos Santos, and Lopez, JJ., concurred.