Tambunting v. Sumabat
REITERATIONFacts
The Antecedents: Respondents spouses Emilio Sumabat and Esperanza Baello mortgaged a parcel of land to petitioner Antonio Tambunting, Jr. on May 3, 1973, to secure a loan of ₱7,727.95. Respondents failed to pay monthly amortizations, and their indebtedness ballooned to ₱15,000. Petitioner Commercial House of Finance, Inc. (CHFI), as assignee, initiated foreclosure proceedings in May 1977, but these were restrained by the then Court of First Instance (CFI) of Caloocan City in Civil Case No. C-6329, filed by respondents for injunction. This case was dismissed on November 9, 1977, for failure of parties to appear. Procedural History: On March 16, 1979, respondents filed an action for declaratory relief (Civil Case No. C-7496) seeking to determine their actual indebtedness. Petitioners were declared in default. The CFI fixed respondents' liability at ₱15,743.83 and authorized consignation, which respondents complied with on January 9, 1981. In March 1995, respondents received a notice of sheriff's sale, indicating CHFI had foreclosed the mortgage on February 8, 1995. The property was sold at public auction on March 27, 1995, to CHFI. Respondents failed to redeem the property, and title was consolidated in CHFI's name. Respondents then filed Civil Case No. C-16822, seeking nullification of the foreclosure, sale, and consolidation of title, and reconveyance. The RTC ruled that the 1981 CFI decision had attained finality, extinguishing the mortgage upon consignation, and that the right to foreclose had prescribed. It nullified the foreclosure and sale and ordered reconveyance. Petitioners appealed. The Petition: Petitioners claim the RTC erred in affirming the validity of the consignation, arguing the CFI lacked jurisdiction in the declaratory relief action because the mortgage had already been breached. They also contest the finding that their right to foreclose had prescribed.
Issue(s)
Whether the CFI had jurisdiction to render a decision in the action for declaratory relief when the mortgage deed had already been breached prior to the filing of the action. Whether the respondents' consignation of the amount fixed by the CFI was valid. Whether the petitioners' right to foreclose the mortgage had prescribed.
Ruling
The petition is denied. The foreclosure and subsequent sale, consolidation of title, and issuance of a new certificate of title in favor of CHFI are declared void. The Register of Deeds is ordered to cancel TCT No. 310191 and reconvey the property to respondents. Petitioners are held liable for moral damages, exemplary damages, and attorney's fees.
Ratio Decidendi
On the jurisdiction of the CFI in the action for declaratory relief: The Court held that an action for declaratory relief must be filed before breach or violation of the contract. In this case, the respondents had already defaulted in their loan amortizations, constituting a breach of the mortgage terms, before they filed Civil Case No. C-7496 for declaratory relief. Consequently, the CFI lacked jurisdiction over the case, rendering its decision void and without legal effect. The Court cited Arevalo v. Benedicto for the principle that a void judgment is a mere nullity and cannot divest rights or constitute a bar to another case by reason of res judicata. On the validity of the consignation: Since the CFI decision in Civil Case No. C-7496 was void for lack of jurisdiction, the consignation made by the respondents pursuant to that decision was likewise void. Therefore, the mortgage was not extinguished by the consignation, and the respondents' obligation remained outstanding. On the prescription of the right to foreclose: Despite the voidness of the CFI decision and the consignation, the Court found that the petitioners' right to foreclose the mortgage had prescribed. Article 1142 of the Civil Code provides that a mortgage action prescribes after ten years. The right of action accrued in May 1977 when respondents defaulted. This ten-year period was interrupted by Civil Case No. C-6329, which restrained foreclosure, and recommenced on November 9, 1977, when that case was dismissed. The filing of the void declaratory relief action in March 1979 did not interrupt the prescriptive period. Therefore, petitioners could have enforced their right to foreclose only until November 7, 1987. The foreclosure conducted on February 8, 1995, was seven years too late and thus barred by prescription. Consequently, the subsequent public auction, consolidation of title, and issuance of a new title were all void.
Main Doctrine
An action for declaratory relief must be filed before breach or violation of the contract; otherwise, the court lacks jurisdiction, rendering its judgment void. However, a mortgage action prescribes after ten years from the accrual of the right of action, and foreclosure proceedings initiated after such period are barred by prescription.