CASE BrieF NO. 2008-0006

CASE: Floro Mercene vs. Government Service Insurance System [G.R. No. 192971 January 10, 2018]

PONENTE: Justice Samuel R. Martires

SUBJECT:

  1. Remedial Law:
    i. Rule 68 – Foreclosure of Real Estate Mortgage; Commencement of the prescriptive period for real estate mortgages;
    ii. Cause of Action – Elements
    iii. Pleading – Conclusion of law
  2. Civil Law:
    i. Default

“Prescription of the right to foreclose mortgages is not reckoned from the date of execution of the contract.”


FACTS:        In 1965, Floro Mercene (Mercene) obtained a loan from Government Service Insurance System (GSIS). As security, a real estate mortgage was executed over Mercene’s property registered under Transfer Certificate of Title No. 90535. The mortgage was registered and annotated on the title.

Mercene contracted another loan with GSIS, in 1968. The loan was likewise secured by a real estate mortgage on the same parcel of land. The following day, the loan was registered and duly annotated on the title.

In 2004, Mercene opted to file a complaint for Quieting of Title against GSIS. He alleged that: since 1968 until the time the complaint was filed, GSIS never exercised its rights as a mortgagee; the real estate mortgage over his property constituted a cloud on the title; GSIS’ right to foreclose had prescribed. In its answer, GSIS assailed that the complaint failed to state a cause of action and that prescription does not run against it because it is a government entity.

The RTC granted Mercene’s complaint and ordered the cancellation of the mortgages annotated on the title. The trial court opined that GSIS’ right as a mortgagee had prescribed because more than ten (10) years had lapsed from the time the cause of action had accrued.

Aggrieved, GSIS appealed before the CA.

The CA reversed the RTC decision. The appellate court posited that the trial court erred in declaring that GSIS’ right to foreclose the mortgaged properties had prescribed. It highlighted that Mercene’s complaint neither alleged the maturity date of the loans, nor the fact that a demand for payment was made. The CA explained that prescription commences only upon the accrual of the cause of action, and that a cause of action in a written contract accrues only when there is an actual breach or violation. Thus, the appellate court surmised that no prescription had set in against GSIS because it has not made a demand to Mercene.

Mercene moved for reconsideration, but the same was denied by the CA.

In his petition for review on certiorari to the Supreme Court, Mercene insists that GSIS had judicially admitted that its right to foreclose the mortgage had prescribed. He assails that GSIS failed to specifically deny the allegations in his complaint, particularly paragraphs 11.1 and 11.2 which read:

“11.1. The right of the xxx GSIS, xxx to enforce its right as a mortgagee xxx by filing a complaint for judicial foreclosure of Real Estate Mortgage, with the Regional Trial Court of Quezon City, against the plaintiff, as the mortgagor, pursuant to Rule 68 of the 1997 Rules of Civil Procedures (Rules, for brevity); or by filing a petition for extra-judicial foreclosure of real estate mortgage, under Act. 3135, as amended, with the Sheriff, or with the Notary Public, of the place where the subject property is situated, for the purpose of collecting the loan secured by the said real estate mortgages, or in lieu thereof, for the purpose of consolidating title to the parcel of land xxx in the name of the defendant GSIS, has already prescribed, after ten (10) years from May 15, 1968. More particularly, since May 15, 1968, up to the present, more than thirty-five (35) years have already elapsed, without the mortgagee defendant GSIS, having instituted a mortgage action[s] against the herein plaintiff-mortgagor.

x x x

11.2. Since the defendant GSIS has not brought any action to foreclose either the first or the second real estate mortgage on the subject real property, so as to collect the loan secured by the said real estate mortgages, or in lieu thereof, to consolidate title to the said parcel of land, covered by the documents entitled, first and second real estate mortgages, in the name of the defendant GSIS, notwithstanding the lapse of ten (10) years from the time the cause of action accrued, either then (10) years after May 15, 1968, or after the alleged violation by the plaintiff of the terms and conditions of his real estate mortgages, therefore, the said defendant GSIS, has lost its aforesaid mortgagee’s right, not only by virtue of Article 1142, N.C.C., but also under Article 476, N.C.C., which expressly provides that there may also be an action to quiet title, or remove a cloud therefrom, when the contract, instrument or other obligation has been extinguished or has terminated, or has been barred by extinctive prescription;”

ISSUES:
A.    Whether the GSIS had judicially admitted that its right to foreclose had prescribed.
B.       Whether commencement of the prescriptive period for real estate mortgages is material in determining cause of action.
C.       Whether the complaint of Mercene failed to state a cause of action.
D.      Whether the right of GSIS to foreclose had prescribed.

RULING:

A.       The Court agrees with Mercene that material averments not specifically denied are deemed admitted. Nonetheless, his conclusion that GSIS judicially admitted that its right to foreclose had prescribed is erroneous. It must be remembered that conclusions of fact and law stated in the complaint are not deemed admitted by the failure to make a specific denial. This is true considering that only ultimate facts must be alleged in any pleading and only material allegation of facts need to be specifically denied.

A conclusion of law is a legal inference on a question of law made as a result of a factual showing where no further evidence is required. The allegation of prescription in Mercene’s complaint is a mere conclusion of law.

In classifying an obligation to have prescribed without specifying the circumstances behind it is a mere conclusion of law. The fact that GSIS had not instituted any action within ten (10) years after the loan had been contracted is insufficient to hold that prescription had set in. Thus, even if GSIS’ denial would not be considered as a specific denial, only the fact that GSIS had not commenced any action, would be deemed admitted at the most. This is true considering that the circumstances to establish prescription against GSIS have not been alleged with particularity.

B.       Commencement of the prescriptive period for real estate mortgages is material in determining cause of action.

In order for cause of action to arise, the following elements must be present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of obligation of the defendant to the plaintiff.

In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., (2016)  the Court clarified that prescription runs in mortgage contract from the time the cause of action arose and not from the time of its execution, to wit:

The prescriptive period neither runs from the date of the execution of a contract nor does the prescriptive period necessarily run on the date when the loan becomes due and demandable. Prescriptive period runs from the date of demand, subject to certain exceptions.

In Maybank Philippines, Inc. v. Spouses Tarrosa (2015), the Court explained that the right to foreclose prescribes after ten (10) years from the time a demand for payment is made, or when then loan becomes due and demandable in cases where demand is unnecessary, viz:

An action to enforce a right arising from a mortgage should be enforced within ten (10) years from the time the right of action accrues, i.e., when the mortgagor defaults in the payment of his obligation to the mortgagee; otherwise, it will be barred by prescription and the mortgagee will lose his rights under the mortgage. However, mere delinquency in payment does not necessarily mean delay in the legal concept. To be in default is different from mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its own peculiar effects or results.

In order that the debtor may be in default, it is necessary that: (a) the obligation be demandable and already liquidated; (b) the debtor delays performance; and (c) the creditor requires the performance judicially or extrajudicially, unless demand is not necessary – i.e., when there is an express stipulation to that effect; where the law so provides; when the period is the controlling motive or the principal inducement for the creation of the obligation; and where demand would be useless. Moreover, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the period lapses, default will commence. Thus, it is only when demand to pay is unnecessary in case of the aforementioned circumstances, or when required, such demand is made and subsequently refused that the mortgagor can be considered in default and the mortgagee obtains the right to file an action to collect the debt or foreclose the mortgage.

C.       Applying the pronouncements of the Court regarding prescription on the right to foreclose mortgages, the Court finds that the CA did not err in concluding that Mercene’s complaint failed to state a cause of action. It is undisputed that his complaint merely stated the dates when the loan was contracted and when the mortgages were annotated on the title of the lot used as a security. Conspicuously lacking were allegations concerning: the maturity date of the loan contracted and whether demand was necessary under the terms and conditions of the loan.

D.      GSIS’ right to foreclose had yet to prescribed because the allegations in Mercene’s complaint were insufficient to establish prescription against GSIS. Prescription of the right to foreclose mortgages is not reckoned from the date of execution of the contract. Rather, prescription commences from the time the cause of action accrues; in other words, from the time the obligation becomes due and demandable, or upon demand by the creditor/mortgagor, as the case may be.

Related CASE BrieF:
a) University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., (2016)
b) Maybank Philippines, Inc. v. Spouses Tarrosa (2015)

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THINGS DECIDED:

A) Conclusions of fact and law stated in the complaint are not deemed admitted by the failure to make a specific denial.

B) A conclusion of law is a legal inference on a question of law made as a result of a factual showing where no further evidence is required. The allegation of prescription in a complaint is a mere conclusion of law.

C) In order for cause of action to arise, the following elements must be present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of obligation of the defendant to the plaintiff.

D) In order that the debtor may be in default, it is necessary that: (a) the obligation be demandable and already liquidated; (b) the debtor delays performance; and (c) the creditor requires the performance judicially or extrajudicially, unless demand is not necessary.

E) Prescription of the right to foreclose mortgages is not reckoned from the date of execution of the contract. Rather, prescription commences from the time the cause of action accrues; in other words, from the time the obligation becomes due and demandable, or upon demand by the creditor/mortgagor, as the case may be.

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