Tambunting, Jr. vs. Spouses Sumabat

An action to enforce a right arising from a mortgage prescribes after ten years from accrual of the right of action under Article 1142 of the Civil Code; foreclosure after the prescriptive period is void, as are the resulting auction sale, consolidation of title, and new certificate of title. A court has no jurisdiction over an action for declaratory relief if the contract or statute has already been breached before filing; its judgment is void and cannot interrupt the prescriptive period.

Respondents Spouses Emilio Sumabat and Esperanza Baello owned a parcel of land in Caloocan City covered by TCT No. (87655) 18837. On May 3, 1973, they mortgaged it to petitioner Antonio P. Tambunting, Jr. to secure a ₱7,727.95 loan, and petitioner Commercial House of Finance, Inc. later became assignee of the mortgage. The dispute concerns the enforcement of that mortgage and the title to the property. Article 1142 of the Civil Code supplies the ten-year prescriptive period for mortgage actions.

Respondents Spouses Emilio Sumabat and Esperanza Baello owned a parcel of land in Caloocan City covered by TCT No. (87655) 18837. On May 3, 1973, they mortgaged the property to petitioner Antonio P. Tambunting, Jr. to secure payment of a ₱7,727.95 loan. Petitioner Commercial House of Finance, Inc. (CHFI) later became the assignee of the mortgage.

In August 1976, respondents were informed that their indebtedness had ballooned to ₱15,000 because they failed to pay the monthly amortizations. In May 1977, after respondents defaulted in their obligation, CHFI, as assignee of the mortgage, initiated foreclosure proceedings, but the foreclosure did not push through. The then Court of First Instance (CFI) of Caloocan City, Branch 33, restrained it in Civil Case No. C-6329, a complaint for injunction filed by respondents against petitioners. That case was subsequently dismissed on November 9, 1977 for failure of the parties to appear at the hearing.

On March 16, 1979, respondents filed an action for declaratory relief with the CFI of Caloocan City, Branch 33, docketed as Civil Case No. C-7496, seeking a declaration of the extent of their actual indebtedness. Petitioners were declared in default for failure to file an answer within the reglementary period. They moved to dismiss the action on the ground that its subject, the mortgage deed, had already been breached prior to the filing of the action; the motion was denied for having been filed out of time and because petitioners had already been declared in default. On January 8, 1981, the CFI rendered its decision fixing respondents' liability at ₱15,743.83 and authorizing them to consign the amount to the court for proper disposition. Respondents consigned the required amount on January 9, 1981.

In March 1995, respondents received a notice of sheriff's sale indicating that the mortgage had been foreclosed by CHFI on February 8, 1995 and that an extrajudicial sale of the property would be held on March 27, 1995. On March 27, 1995, respondents instituted Civil Case No. C-16822, a petition for preliminary injunction, damages and cancellation of annotation of encumbrance with prayer for a temporary restraining order, with the RTC of Caloocan City, Branch 120. The public auction nevertheless proceeded that same day, and the property was sold to CHFI as the highest bidder. Respondents failed to redeem the property during the redemption period; title was consolidated in CHFI's favor and a new certificate of title, TCT No. 310191, was issued in its name. Respondents amended their complaint to an action for nullification of foreclosure, sheriff's sale and consolidation of title, reconveyance and damages.

The RTC found that the 1981 CFI decision had long attained finality, that the mortgage was extinguished when respondents consigned the amount, that the ten-year period to foreclose had prescribed, and that petitioners abused their right to foreclose and acted in bad faith.

• Validity of Consignation: Petitioners argued that the trial court erred in affirming the validity of the consignation.
• Jurisdiction over Declaratory Relief: Petitioners maintained that the CFI was barred from taking cognizance of the action for declaratory relief because they were already in default in their loan amortizations and the mortgage deed had been violated before the action was instituted; hence the CFI could not have rendered a valid judgment in Civil Case No. C-7496, and the consignation made pursuant to a void judgment was likewise void.
• Prescription of Foreclosure: Petitioners faulted the trial court for holding that their right to foreclose the property had already prescribed.

• Jurisdiction over Declaratory Relief: Whether the CFI had jurisdiction over Civil Case No. C-7496 for declaratory relief when the mortgage terms had already been breached before its filing.
• Finality of the 1981 CFI Decision: Whether the trial court erred in ruling that the 1981 CFI decision had already attained finality.
• Effect of Void Judgment and Consignation: Whether the consignation made pursuant to the void 1981 CFI decision extinguished the mortgage or interrupted the ten-year prescriptive period.
• Prescription of Mortgage Action: Whether petitioners' right to foreclose the mortgage had prescribed under Article 1142 of the Civil Code.
• Validity of Foreclosure and Subsequent Acts: Whether the February 8, 1995 foreclosure, the March 27, 1995 public auction, the consolidation of title in CHFI's favor, and the issuance of TCT No. 310191 were void.

• Jurisdiction over Declaratory Relief: No. The CFI lacked jurisdiction because an action for declaratory relief must be filed before breach or violation of the contract; the mortgage had already been breached before Civil Case No. C-7496.
• Finality of the 1981 CFI Decision: Yes, the trial court erred. The 1981 CFI decision was void for lack of jurisdiction and could not attain finality.
• Effect of Void Judgment and Consignation: No. The void CFI decision and all proceedings in Civil Case No. C-7496, including the consignation, were without legal effect and did not interrupt the prescriptive period.
• Prescription of Mortgage Action: Yes. Under Article 1142 of the Civil Code, a mortgage action prescribes after ten years; petitioners' right accrued in May 1977, resumed after November 9, 1977, and expired on November 7, 1987.
• Validity of Foreclosure and Subsequent Acts: No. The 1995 foreclosure, auction, consolidation, and issuance of TCT No. 310191 were void, having been made after the prescriptive period.

• Jurisdiction over Declaratory Relief: An action for declaratory relief must be filed by a person interested under a deed, will, contract, or other written instrument whose rights are affected by a statute, executive order, regulation, or ordinance before breach or violation thereof. Its purpose is to secure an authoritative statement of the parties' rights and obligations for guidance in enforcement or compliance, not to settle issues arising from an alleged breach. It may be entertained only before the breach or violation of the statute, deed, or contract to which it refers. Where the law or contract has already been contravened before the filing, the court can no longer assume jurisdiction; a cause of action has already accrued, and there is nothing for the court to explain or clarify short of a judgment or final order. Here, an infraction of the mortgage terms had already taken place before Civil Case No. C-7496 was filed. Thus, the CFI lacked jurisdiction when it took cognizance of the case in 1979, and its decision was void and without legal effect.
• Finality of the 1981 CFI Decision: The trial court ruled that the 1981 CFI decision had long attained finality. That was error. Because the CFI lacked jurisdiction over Civil Case No. C-7496, its decision was void and without legal effect. A void judgment is in legal effect no judgment; it divests no rights, cannot become executory, and cannot bar another case by res judicata. Thus, it could not attain finality. The Court cited Arevalo vs. Benedicto for the rule that want of jurisdiction over the subject matter renders a judgment void and a mere nullity.
• Effect of Void Judgment and Consignation: Because the CFI lacked jurisdiction over Civil Case No. C-7496, all proceedings therein were without legal effect. The 1981 CFI decision fixing respondents' liability at ₱15,743.83 and authorizing consignation was void. The consignation made pursuant to that void judgment could not extinguish the mortgage or otherwise produce legal effect. Consequently, the institution of Civil Case No. C-7496 on March 16, 1979 did not interrupt the running of the ten-year prescriptive period for the mortgage action.
• Prescription of Mortgage Action: Article 1142 of the Civil Code provides that a mortgage action prescribes after ten years. An action to enforce a right arising from a mortgage must be enforced within ten years from the time the right of action accrues; otherwise, it is barred by prescription and the mortgage creditor loses the rights under the mortgage. Petitioners' right of action accrued in May 1977 when respondents defaulted in their obligation to pay the loan amortizations. The ten-year period was interrupted when respondents filed Civil Case No. C-6329 sometime after May 1977 and the CFI restrained the intended foreclosure. The period commenced to run again on November 9, 1977, when Civil Case No. C-6329 was dismissed. The filing of Civil Case No. C-7496 on March 16, 1979 did not interrupt the period because the court lacked jurisdiction over that action. Thus, petitioners could have enforced their right under the mortgage, including foreclosure, only until November 7, 1987, the tenth year from the dismissal of Civil Case No. C-6329. Thereafter, the right was barred by prescription.
• Validity of Foreclosure and Subsequent Acts: The foreclosure held on February 8, 1995 was some seven years too late. The same was true of the public auction held on March 27, 1995, the consolidation of title in CHFI's favor, and the issuance of TCT No. 310191 in its name. Because these acts were undertaken after the mortgage action had prescribed, they were all void and did not exist in the eyes of the law. The petition was accordingly denied, even though the trial court had erred in ruling that the 1981 CFI decision was already final and executory.

• Declaratory Relief Before Breach — An action for declaratory relief may be entertained only before the breach or violation of the statute, deed, contract, or other written instrument whose construction or validity is sought to be determined. Its purpose is to secure an authoritative statement of the parties' rights and obligations for guidance in enforcement or compliance, not to settle issues arising from an alleged breach. Where the contract or law has already been contravened before the action is filed, the court has no jurisdiction, because a cause of action has already accrued and there is nothing to clarify short of a judgment. In this case, the mortgage had already been breached before Civil Case No. C-7496 was filed, so the CFI lacked jurisdiction and its 1981 decision was void.
• Void Judgment for Lack of Jurisdiction — A judgment rendered by a court without jurisdiction over the subject matter is void and a mere nullity. It divests no rights, cannot become executory, and cannot bar another case by res judicata. The Court applied this doctrine to the 1981 CFI decision in Civil Case No. C-7496, holding that all proceedings therein, including the consignation, were without legal effect and did not interrupt the prescriptive period.
• Ten-Year Prescriptive Period for Mortgage Actions — Under Article 1142 of the Civil Code, a mortgage action prescribes after ten years from the time the right of action accrues. If not enforced within that period, the mortgage creditor loses the rights under the mortgage. The Court applied the rule by counting from respondents' default in May 1977, noting interruption by Civil Case No. C-6329 and resumption on November 9, 1977, and holding that the right expired on November 7, 1987.
• Void Foreclosure After Prescription — A foreclosure conducted after the mortgage action has prescribed is void, as are the resulting public auction, consolidation of title, and issuance of a new certificate of title. Such acts do not exist in the eyes of the law. The Court applied this to the February 8, 1995 foreclosure, the March 27, 1995 auction, the consolidation in CHFI's favor, and TCT No. 310191.

• "An action for declaratory relief should be filed by a person interested under a deed, will, contract or other written instrument, and whose rights are affected by a statute, executive order, regulation or ordinance before breach or violation thereof." — States the pre-breach requirement for declaratory relief, which supplied the basis for holding that the CFI lacked jurisdiction over Civil Case No. C-7496.
• "Where the law or contract has already been contravened prior to the filing of an action for declaratory relief, the court can no longer assume jurisdiction over the action." — Canonical formulation of the jurisdictional bar applied to the 1979 declaratory relief action because the mortgage had already been breached.
• "Article 1142 of the Civil Code is clear. A mortgage action prescribes after ten years." — States the controlling prescriptive rule that barred petitioners' 1995 foreclosure.
• "The foreclosure held on February 8, 1995 was therefore some seven years too late. The same thing can be said about the public auction held on March 27, 1995, the consolidation of title in CHFI’s favor and the issuance of TCT No. 310191 in its name. They were all void and did not exist in the eyes of the law." — Applies the prescriptive period to the facts and declares the foreclosure and all subsequent acts void.

• Arevalo vs. Benedicto, 157 Phil. 175 (1974) — Cited for the rule that want of jurisdiction over the subject matter renders a judgment void and a mere nullity; a void judgment divests no rights, cannot become executory, and cannot bar another case by res judicata. The Court used it to support the voidness of the 1981 CFI decision.
• Velarde vs. Social Justice Society, G.R. No. 159357, 28 April 2004, 428 SCRA 283 — Cited for the requirement that an action for declaratory relief be filed before breach or violation of the instrument or law.
• Manila Electric Company vs. Philippine Consumers Foundation, Inc., 425 Phil. 65 (2002) — Cited for the purpose of declaratory relief: to secure an authoritative statement of the parties' rights and obligations for guidance in enforcement or compliance, not to settle issues arising from an alleged breach; also for the rule that it may be entertained only before breach.
• Magtibay vs. Hon. Alikpala, 116 Phil. 993 (1962) — Cited for the rule that where the law or contract has already been contravened before the filing of an action for declaratory relief, the court can no longer assume jurisdiction.
• Quirino Gonzales Logging Concessionaire vs. Court of Appeals, 450 Phil. 218 (2003) — Cited for the rule that an action to enforce a right arising from a mortgage should be enforced within ten years from the time the right of action accrues.

• Article 1142, Civil Code — Provides that a mortgage action prescribes after ten years. The Court applied it by holding that petitioners' right to foreclose accrued in May 1977, was interrupted by Civil Case No. C-6329, resumed on November 9, 1977, and expired on November 7, 1987; the 1995 foreclosure was therefore barred.
• Rule 45, Rules of Court — Governs the petition for review on certiorari filed by petitioners. The Court entertained the petition under this rule and denied it.

Artemio V. Panganiban (Chairman), Angelina Sandoval-Gutierrez, Conchita Carpio Morales, and Cancio C. Garcia.