G.R. No. L-27365 Case Digest

G.R. No. L-27365, January 30, 1970

Felix Lazo, Mercedes Castro de Lazo and Jose Robles

Vs. Republic Surety and Insurance Co., Inc. represented by Antonio Koh, General Manager and as Attorney-in-fact of plaintiffs, Felix and Mercedes Lazo

Ponente: Makalintal

Facts:

December 12, 1963, plaintiffs spouses Lazo filed a complaint against Republic Surety and Insurance co., and its general manager Antonio Koh, the sheriff of Manila and the Register of Deeds of Manila. The spouses Lazo alleged that they guaranteed a loan between Jose Robles and the Philippine Bank of Commerce amounting to P12, 000.00 executed on August 18, 1953. The loan is executed with a real estate mortgage which was foreclosed extra-judicially on July 1, 1958 and sold to the mortgagee. Antonio Koh pursuant to the mortgage right, executed a deed of absolute sale of the foreclosed property. Because of which, the certificate of title of the spouses Lazo was cancelled and a new one was issued in the name of the company.

In a motion to dismiss filed by the defendants, they raised two issues: (a) that the complaint did not state a cause of action and the claim or demand set forth therein had already prescribed; (b) under the rules of court, an accounting could be demanded only in cases where real property is sold on execution by virtue of a final judgment. In the present case, the defendants maintained the redemption period had already expired when the action was commenced.

Issue: Whether or not the plaintiffs were entitled to the accounting sought by them; whether or not the right of redemption with respect to the foreclosed property was still available; whether the foreclosure is valid or not.

The RTC ruled that the transfer of the loan to the Republic Investment Co., Inc. constituted a novation of the obligation, and that the defendant company was released from its liability as co-debtor because it does not appear to have signed the new promissory note executed by the plaintiffs. Consequently, the court concluded, the real estate mortgage in favor of said defendant was extinguished, and the foreclosure thereof was a nullity.

The actuation of the trial court was not legally permissible especially because the theory on which it proceeded involved factual considerations neither touched upon the pleadings nor made the subject of evidence at the trial. Rule 6, Section 1, is quite explicit in providing that "pleadings are the written allegations of the parties of their respective claims and defenses submitted to the court for trial and judgment."

Held:

(1)    The parties admitted that the mortgage was valid and subsisting, therefore, to establish such premise was unnecessary and uncalled for.

(2)    The actuations of the parties after the mortgage was foreclosed, shows with overwhelming preponderance that the said mortgage had not been extinguished.

(3)    Implicit in the application of these provisions is the premise that the period for redemption of the property sold on execution (on extrajudicial foreclosure of mortgage in the present case) has not yet expired. For if the right to redeem has been lost it stands to reason that there is no redemption price to speak of, to which the rents received by the purchasers are to be applied or credited.

(4)    The plaintiffs' position is that since the sheriff's certificate of sale was recorded in the office of the Register of Deeds for Manila on March 28, 1963, the one-year period of legal redemption had not yet expired when the action was commenced on December 12 of the same year.

(5)    It is clear, in the light of the facts and circumstances above set forth, that the parties had abandoned entirely the concept of legal redemption in this case and converted it into one of conventional redemption, in which the only governing factor was the agreement between them. The registration of the certificate of sale on March 28, 1963 was entirely unnecessary and irrelevant to the question of when the period of redemption agreed upon expired.