ASG Law

Tag: Demand for Payment

  • Mortgage Foreclosure Rights: Accrual of Action and Prescription Clarified

    In a case concerning real estate mortgages, the Supreme Court clarified when the right to foreclose on a mortgage prescribes. The Court ruled that the prescriptive period for foreclosure begins not from the date the mortgage was executed, but from the date the cause of action accrues. This means the countdown starts when the obligation becomes due and demandable, or upon demand by the creditor/mortgagee, depending on the loan’s specific terms, thereby protecting the rights of the mortgagee until a clear breach occurs.

    When Does the Clock Start Ticking? Unpacking Mortgage Prescription

    The case of Floro Mercene v. Government Service Insurance System (GSIS) originated from a complaint filed by Mercene to quiet the title of his property, arguing that GSIS’s right to foreclose on two mortgages had prescribed. These mortgages secured loans he had obtained from GSIS in 1965 and 1968. Mercene claimed that since 1968, GSIS had not exercised its rights as a mortgagee, creating a cloud on his title and implying that the right to foreclose had lapsed. The Regional Trial Court (RTC) initially ruled in favor of Mercene, ordering the cancellation of the mortgages, but GSIS appealed to the Court of Appeals (CA), which reversed the RTC’s decision.

    The central legal question was whether GSIS’s right to foreclose on the mortgages had indeed prescribed, thereby entitling Mercene to have the mortgages removed from his property title. Prescription, in legal terms, refers to the period within which a legal action must be brought; failing to do so results in the loss of the right to pursue that action. The resolution of this issue hinged on determining when the prescriptive period for a mortgage foreclosure begins.

    The Supreme Court addressed several key issues, starting with Mercene’s assertion that the CA had erred by considering issues not raised in the trial court. Mercene also argued that GSIS had made a judicial admission that its right to foreclose had prescribed. The Court clarified that the CA’s focus was on whether a cause of action had accrued, not on the issue of nonpayment, which Mercene claimed was raised for the first time on appeal. The court emphasized that GSIS had consistently argued that Mercene’s complaint failed to state a cause of action.

    Regarding the alleged judicial admission, the Supreme Court clarified that while material averments not specifically denied are deemed admitted, this does not extend to conclusions of fact and law. The Court stated:

    …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.

    The allegation of prescription in Mercene’s complaint was considered a conclusion of law, not a statement of fact. Therefore, GSIS’s failure to specifically deny this allegation did not constitute an admission that its right to foreclose had prescribed. The Court cited Abad v. Court of First Instance of Pangasinan, emphasizing that labeling an obligation as prescribed without specifying the underlying circumstances is merely a conclusion of law.

    The Court then delved into the critical issue of when the prescriptive period for real estate mortgages commences. It reiterated the essential elements of a cause of action: (1) a right in favor of the plaintiff; (2) an obligation on the part of the defendant to respect that right; and (3) an act or omission by the defendant that violates the plaintiff’s right. The determination of when this cause of action accrues is pivotal in establishing whether prescription has set in.

    Drawing from University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., the Court clarified that the prescriptive period does not necessarily run from the date of the execution of the contract, nor does it automatically start when the loan becomes due and demandable. Instead, it runs from the date of demand, subject to certain exceptions. The Supreme Court stated:

    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.

    Thus, a considerable gap may exist between the execution of a mortgage contract and the commencement of the prescriptive period, depending on the specifics of the loan agreement and whether a demand for payment is necessary. Building on this principle, the Court referenced Maybank Philippines, Inc. v. Spouses Tarrosa, where it was explained that an action to enforce a mortgage right must be brought within ten years from the accrual of the right of action, i.e., when the mortgagor defaults on their obligation.

    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 automatically equate to legal default. Default requires that the obligation be demandable and liquidated, that the debtor delays performance, and that the creditor judicially or extrajudicially requires performance, unless demand is unnecessary. Only when demand is unnecessary or, if required, is made and subsequently refused, can the mortgagor be considered in default, and the mortgagee’s right to foreclose arises.

    Applying these principles to the Mercene case, the Supreme Court found that Mercene’s complaint was deficient because it lacked critical allegations about the maturity date of the loans and whether demand was necessary. The complaint only stated the dates of the loan execution and the annotation of the mortgages. Since these details were missing, the RTC erred in ruling that GSIS’s right to foreclose had prescribed.

    The Supreme Court emphasized that the prescriptive period is not calculated from the date of the loan’s execution but from when the cause of action accrues—specifically, when the obligation becomes due and demandable or upon demand by the creditor/mortgagor. Without these details, there was no basis to conclude that GSIS had lost its right to foreclose. Therefore, the CA correctly determined that Mercene’s complaint failed to state a cause of action, and there was no judicial admission by GSIS regarding prescription, as treating the obligation as prescribed was merely a conclusion of law.

    In summary, the Supreme Court upheld the CA’s decision, reinforcing the principle that the right to foreclose prescribes ten years from the date the cause of action accrues, typically upon demand or when the debt becomes due, not merely from the mortgage’s execution date. This clarifies the timing for prescription in mortgage contracts, highlighting the necessity of proving default or demand refusal to claim mortgage rights have prescribed.

    FAQs

    What was the key issue in this case? The key issue was determining when the prescriptive period for a mortgagee to foreclose on a property begins, specifically whether it runs from the execution of the mortgage or from the accrual of the cause of action.
    When does the prescriptive period for mortgage foreclosure start? The prescriptive period starts when the cause of action accrues, meaning when the obligation becomes due and demandable, or upon demand by the creditor/mortgagee. It does not necessarily start from the date the mortgage was executed.
    What constitutes a cause of action in mortgage foreclosure? A cause of action exists when there is a right in favor of the mortgagee, an obligation on the part of the mortgagor to respect that right, and an act or omission by the mortgagor that violates the right of the mortgagee, such as defaulting on payments after a demand.
    What is the significance of a demand for payment? A demand for payment is significant because, in many cases, it marks the point at which the obligation becomes due and demandable, triggering the start of the prescriptive period for foreclosure. However, demand is not necessary if the obligation or the law expressly states otherwise.
    What happens if a complaint fails to state a cause of action? If a complaint fails to state a cause of action, the court may dismiss the case. In this case, the Supreme Court found that Mercene’s complaint lacked critical allegations necessary to establish prescription, such as the loan’s maturity date and whether demand was necessary.
    What is the difference between a conclusion of law and a material averment in a pleading? A material averment is a statement of fact that is essential to the claim or defense, while a conclusion of law is a legal inference or interpretation based on those facts. Only material averments not specifically denied are deemed admitted.
    How does this ruling affect mortgagors? This ruling clarifies that mortgagors cannot simply wait ten years after the mortgage execution to claim prescription; they must prove that the mortgagee failed to act within ten years of the obligation becoming due and demandable or from the date of demand, if applicable.
    How does this ruling affect mortgagees like GSIS? This ruling protects mortgagees by clarifying that their right to foreclose does not prescribe merely because ten years have passed since the mortgage’s execution; the prescriptive period only starts when the mortgagor defaults or fails to comply with a demand for payment.

    This decision serves as a crucial reminder of the importance of understanding the nuances of prescription in mortgage contracts. It underscores that the mere passage of time is insufficient to extinguish a mortgagee’s right to foreclose; the specific terms of the loan agreement and the actions of both parties must be carefully considered to determine when the prescriptive period begins.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: FLORO MERCENE v. GOVERNMENT SERVICE INSURANCE SYSTEM, G.R. No. 192971, January 10, 2018

  • Debt Recovery: Waiver of Demand and Overlevy in Property Execution Sales

    In Villarin v. Munasque, the Supreme Court clarified the rules concerning the execution of money judgments, specifically focusing on the requirements for demand of payment and levy on properties. The Court held that while a sheriff must generally demand immediate payment before levying property, this requirement can be waived by the judgment debtor. Additionally, the Court emphasized that allegations of overlevy must be supported by substantial evidence to be considered valid, highlighting the importance of proper documentation and proof in challenging execution sales. This ruling affects judgment debtors facing property levies and creditors seeking to enforce judgments.

    Sheriff’s Duty and Debtor’s Right: Balancing Enforcement and Protection in Debt Recovery

    This case revolves around a debt collection dispute between Coronado P. Munasque (the respondent) and Pablito T. Villarin along with P.R. Builders Developers & Managers, Inc. (the petitioners). After failing to fully satisfy a compromise agreement to pay P15 million, the respondent sought a writ of execution against the petitioners’ properties. The petitioners contested the execution, claiming procedural lapses by the deputy sheriff and alleging overlevy of their properties. This legal battle reached the Supreme Court, focusing on the sheriff’s duties during execution and the debtor’s rights to protect their assets.

    The central legal question concerned whether the deputy sheriff’s failure to demand immediate payment before levying the petitioners’ real properties invalidated the levy and subsequent execution sale. Section 9, Rule 39 of the Rules of Court mandates that the sheriff must first demand immediate payment of the judgment debt. The provision explicitly states:

    SEC. 9. Execution of judgments for money, how enforced. –(a) Immediate payment on demand.–The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees.

    Furthermore, the rule grants the judgment obligor the option to choose which property to levy upon. However, the Court acknowledged that strict adherence to these procedures might be relaxed in certain situations.

    The Supreme Court found that while Deputy Sheriff Mendoza did not demand immediate cash payment, the petitioners, through their counsel, had effectively waived this requirement. It was established that petitioners’ counsel admitted they lacked funds to pay even a month’s interest and agreed to the levy if the auction sale was scheduled later. This admission, coupled with their subsequent letter indicating which properties they preferred to be levied, demonstrated a waiver of the prior demand requirement. The Court emphasized that since the petitioners had already indicated their inability to pay and their preferred properties for levy, demanding payment would have been a pointless exercise.

    Building on this principle, the Court then considered the petitioners’ argument regarding overlevy. They claimed the value of the levied properties far exceeded the debt, rendering the execution unfair. However, the Supreme Court sided with the Court of Appeals in disregarding the petitioners’ evidence on the fair market value of the levied properties, highlighting the lack of credible and sufficient proof to support this claim. Allegations of overlevy must be substantiated by solid evidence, which was lacking in this case. In essence, it must be proven that the levied properties had a significantly higher value than the judgment debt. In this instance, mere photocopies of appraisal reports, without proper authentication or clear identification of the properties, were deemed insufficient.

    In summary, the Supreme Court ruled that Deputy Sheriff Mendoza’s failure to demand immediate payment in cash did not nullify the levy on petitioners’ real properties. The Court emphasized that the procedural lapses were rendered moot when the judgment debtors gave the go-signal to proceed with the levy of real properties and exercised their right to choose their property for the execution through their counsel’s written representation. As the petitioners failed to submit adequate proof of their claims, the overlevy question was denied due to failure to meet the evidentiary burden. The decision underscores the importance of procedural compliance in execution sales while also acknowledging the possibility of waiver by the judgment debtor.

    FAQs

    What was the key issue in this case? The main issue was whether the failure of the deputy sheriff to demand immediate payment before levying properties invalidated the levy and subsequent execution sale. The Court also considered the allegation of overlevy of properties.
    Can a judgment debtor waive the requirement of prior demand for payment? Yes, the Supreme Court ruled that the requirement of prior demand for payment can be waived by the judgment debtor, either expressly or impliedly, through their actions or representations.
    What is required to prove a claim of overlevy in an execution sale? To prove overlevy, the judgment debtor must present credible and sufficient evidence showing that the value of the levied properties far exceeds the judgment debt. The evidence should include authenticated appraisals and clear identification of the properties.
    What kind of evidence is considered sufficient to prove the value of levied properties? Sufficient evidence would generally include original appraisal reports, updated tax declarations, and other official documents that clearly identify and value the properties in question. Photocopies without authentication are usually insufficient.
    Does the sheriff have an obligation to levy on personal properties before real properties? Yes, under Section 9, Rule 39 of the Rules of Court, if the judgment obligor does not exercise their option to choose the properties to be levied, the sheriff should first levy on personal properties, if any, before levying on real properties.
    What happens if the judgment debtor does not choose which properties to be levied? If the judgment debtor does not exercise the option to choose the properties, the right is waived and the sheriff has discretion on which properties to levy first. However, that choice is governed by the requirement to prioritize personal properties.
    Is it required that a prior personal demand is done on the judgment debtor? Yes, the law mandates that the judgment obligor be immediately payment of the amount due as stated in the writ of execution. However, there are circumstances where the judgment creditor can forego such payment as discussed and upheld in this case.
    Was there a discussion in this case regarding a waiver to question the compliance on procedural lapses? Yes, through the acts made by the previous lawyer of the judgment debtors, the Court found such action as a form of waiver to raise any complaint to the action of the judgment creditor.

    The case of Villarin v. Munasque serves as a reminder of the delicate balance between a creditor’s right to enforce a judgment and a debtor’s right to protect their assets. Debtors facing execution should be proactive in asserting their rights and providing solid evidence to support their claims, while creditors must ensure compliance with procedural requirements to avoid challenges to the execution sale.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Villarin v. Munasque, G.R. No. 169444, September 17, 2008

  • Bouncing Checks Law: Knowledge of Insufficient Funds and the Necessity of Demand

    In Jesse Young v. Court of Appeals, the Supreme Court affirmed the conviction of Jesse Young for violating Batas Pambansa (BP) Blg. 22, also known as the Bouncing Checks Law. The Court clarified that while notice of dishonor is crucial for establishing a prima facie presumption of knowledge of insufficient funds, the absence of such notice does not automatically absolve the issuer if the prosecution can prove actual knowledge. This decision underscores the importance of proving the issuer’s awareness of insufficient funds when the check was issued, highlighting the nuances of liability under BP Blg. 22.

    The Case of the Bouncing Check: Demand or No Demand?

    The case revolves around a check issued by Jesse Young to Ines Uy. Uy claimed Young, along with his mother and sister, asked her to encash three checks, including one for P20,000.00. When Uy deposited the check, it was dishonored due to a stop payment order and insufficient funds. Young, however, argued that the check was part of a replacement for previous checks and that Uy was told not to deposit them without prior notice. The central legal question is whether a prior demand for payment is necessary for a conviction under BP Blg. 22, especially when the issuer claims no notice of dishonor was received.

    The Regional Trial Court (RTC) found Young guilty, and the Court of Appeals (CA) affirmed this decision. Young then appealed to the Supreme Court, arguing that his conviction was improper due to the absence of a prior demand for payment. He contended that without such demand, the prosecution failed to establish the essential elements of the offense under BP Blg. 22.

    The Supreme Court dissected the elements of the offense under Section 1 of BP Blg. 22, which penalizes two distinct acts. The first is issuing a check knowing there are insufficient funds at the time of issuance. The second is failing to maintain sufficient funds to cover the check within ninety days of its date, leading to dishonor. The Court emphasized that Young was charged and convicted under the first act, which requires proving that he knew of the insufficiency of funds when the check was issued.

    The Court then addressed the role of Section 2 of BP Blg. 22, which pertains to the evidence of knowledge of insufficient funds. This section states that the dishonor of a check due to insufficient funds creates a prima facie presumption of such knowledge, unless the issuer pays the amount due or makes arrangements for payment within five banking days after receiving notice of dishonor. However, the Court clarified that while notice of dishonor is crucial for establishing this prima facie presumption, it is not an indispensable element of the offense itself.

    Building on this principle, the Court cited King vs. People, where it was held that it is not enough to simply establish that a check was dishonored; it must also be shown that the issuer knew at the time of issue that he did not have sufficient funds. The prima facie presumption arises upon the issuance of the check, but the law allows the issuer to avert prosecution by satisfying the amount within five banking days after receiving notice of dishonor. This opportunity to make amends mitigates the harshness of the law, but it is contingent on the issuer receiving notice of dishonor.

    In Young’s case, the Court found that the prosecution had sufficiently established the prima facie presumption that Young knew he had insufficient funds when he issued the check. The private complainant testified that her lawyer sent Young a demand letter, which he refused to receive. This refusal, coupled with Young’s failure to make good on the check within five banking days, supported the presumption of knowledge. Moreover, Young himself admitted that he did not have sufficient funds at the time he issued the check and that he had ordered the bank to stop payment for no apparent reason.

    The Supreme Court addressed Young’s argument that he had informed the private complainant of his lack of funds at the time of issuance, which he claimed should absolve him of liability. The Court acknowledged that in some cases, such notification might indeed operate to absolve the drawer from liability under BP Blg. 22. However, it distinguished those cases, such as Magno vs. Court of Appeals and Idos vs. Court of Appeals, where the checks were issued in good faith and without intention to apply them for account or for value. In those cases, the checks served purposes such as warranty deposits or evidence of partnership shares, not as direct payment for value received.

    This approach contrasts with Young’s situation, where the check was issued in exchange for cash given to him, his mother, and his sister by the private complainant. Here, the check was clearly intended to apply for account or for value, thus distinguishing it from the cases cited by Young. Therefore, the Court concluded that all three elements of the offense under Section 1 of BP Blg. 22 were present: the making and issuance of the check for value, the knowledge of insufficient funds at the time of issuance, and the subsequent dishonor of the check.

    Building on this analysis, the Court found no error in the Court of Appeals’ affirmation of the trial court’s decision convicting Young of violating BP Blg. 22. The Court, however, modified the penalty imposed, citing Supreme Court Administrative Circular No. 12-2000, as clarified by Administrative Circular No. 13-2001. Considering that there was no proof or allegation that Young was a repeat offender, the Court deemed it proper to impose a fine instead of imprisonment. This modification aimed to enable Young to settle his civil obligations to the private complainant, in addition to the fine imposed.

    The legal interest was also specified. The Court added that the complainant is entitled to legal interest of six percent per annum from the filing of the Information until the finality of the decision. The total amount, including interest, would then be subject to twelve percent interest until fully paid. This interest component further addresses the financial impact on the aggrieved party.

    FAQs

    What was the key issue in this case? The key issue was whether the absence of a prior demand for payment absolves the issuer of a bouncing check from liability under BP Blg. 22, particularly when the issuer claims no notice of dishonor was received.
    What are the elements of the offense under BP Blg. 22? The elements are: (1) issuance of a check for account or value; (2) knowledge of insufficient funds at the time of issuance; and (3) subsequent dishonor of the check due to insufficient funds or a stop payment order without valid reason.
    Is notice of dishonor always required for a conviction under BP Blg. 22? No, while notice of dishonor creates a prima facie presumption of knowledge of insufficient funds, it is not required if the prosecution can prove the issuer had actual knowledge of the insufficiency at the time of issuance.
    What is the significance of a stop payment order? A stop payment order without valid reason can be considered as evidence of the issuer’s knowledge of insufficient funds, especially if issued shortly before the check’s due date.
    How did the Court distinguish this case from Magno and Idos? The Court distinguished this case because, unlike Magno and Idos, the check was issued directly in exchange for cash, indicating it was intended for account or value, rather than as a mere security or evidence of a partnership share.
    What was the final ruling in this case? The Supreme Court affirmed the conviction of Jesse Young but modified the penalty to a fine of P40,000.00 instead of imprisonment, along with an order to indemnify the private complainant with legal interest.
    What happens if the issuer cannot pay the fine? If the issuer is insolvent and cannot pay the fine, they will serve a subsidiary imprisonment not exceeding six months, as per Article 39 of the Revised Penal Code.
    What is the legal interest applied in this case? The private complainant is entitled to 6% legal interest per annum from the filing of the Information until the finality of the decision, and thereafter, a 12% interest until fully paid.

    In conclusion, Jesse Young v. Court of Appeals clarifies the application of BP Blg. 22, particularly regarding the necessity of demand and the evidence required to prove knowledge of insufficient funds. The ruling emphasizes that while notice of dishonor is important, it is not the sole determinant of guilt; the prosecution can still secure a conviction by proving the issuer’s actual knowledge of insufficient funds at the time of issuance. This decision serves as a reminder to those issuing checks to ensure they have sufficient funds and to promptly address any dishonor to avoid legal repercussions.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: JESSE YOUNG v. COURT OF APPEALS and PEOPLE, G.R. No. 140425, March 10, 2005