DEVELOPMENT
BANK G.R. No. 150097
OF
THE PHILIPPINES,
Petitioner,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA* and
GARCIA, JJ.
ALEJANDRO and
ADELAIDA
LICUANAN,
Respondents. Promulgated:
February 26, 2007
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D E C I S I O N
CORONA, J.:
In this petition for review on certiorari,[1]
petitioner Development Bank of the Philippines assails the February 9, 2001
decision[2] and
September 17, 2001 resolution[3] of the
Court of Appeals (CA) in CA-G.R. CV No. 37784.
Respondent spouses Alejandro and Adelaida Licuanan were granted a
piggery loan in the amount of P4,700 by
petitioner, evidenced by a promissory note dated September 20, 1974 and secured
by a real estate mortgage[4] over a
980-square meter parcel of land with a two-storey building. The loan’s maturity
date was September 23, 1979.[5]
Petitioner granted respondents an
additional loan of P12,000 evidenced by a
promissory note dated May 29, 1975 payable on or before the year 1980. This was
secured by a real estate mortgage over four parcels of land situated in Pangasinan covered by TCT Nos. 109825, 109762, 109763 and
109764.[6]
On
October 2, 1975, petitioner granted respondent spouses another loan of P22,000 evidenced by a promissory note maturing on October 3,
1985. This was secured by a real estate
mortgage executed in favor of petitioner over three parcels of land covered by
TCT Nos. 112608, 112607 and 112609, all of the Registry of Deeds of Pangasinan.[7]
On
August 6, 1979, petitioner and respondents restructured the P12,000 loan, extending the maturity date from June 22, 1979 to
June 22, 1982. On the same date,
respondents executed a promissory note for P12,320.73
and another for P6,519.90.[8]
On July 6, 1981, petitioner sent a
letter by registered mail to respondents informing them that, since the
conditions of the mortgage had been breached, petitioner would have the
mortgaged properties sold by the sheriff under Act 3135. The total amount due from the three loans had
by then ballooned to P75,298.32.[9]
On July 20, 1981, petitioner filed an
application for extrajudicial foreclosure.[10] The
mortgaged properties were sold in a public auction on December 16, 1981. Petitioner, as the highest bidder, acquired
them for a total of P16,340. The certificate of
sale was registered on January 25, 1982.[11]
On February 4, 1983, petitioner
consolidated its ownership over the properties.
After more than a year or on October 16, 1984, petitioner wrote
respondents by registered mail, informing them that the properties (now
acquired assets of the bank) would be disposed of by public auction. On November 11, 1984, petitioner published an
advertisement stating that on November 14, 1984, the properties would be sold
by oral bidding. On this date, however,
there were no bidders.[12]
On November 16, 1984, petitioner sent
respondents a letter informing them that the properties could be reacquired by negotiated
sale for cash or installment.[13] Three
days later, however, on November 19, 1984, the properties were sold through
negotiated sale to one Emelita A. Peralta. Respondents were informed of the sale by
petitioner through a letter dated December 6, 1984.
On the same day, petitioner executed
a deed of conditional sale in favor of Peralta.[14] On
December 11, 1984, respondents offered to repurchase the properties from
petitioner but they had already been sold to Peralta.[15]
Respondents then filed a complaint
for recovery of real properties and damages on July 18, 1985 in the Regional
Trial Court (RTC) of Lingayen, Pangasinan,
Branch 39 against petitioner and Peralta. [16] The RTC rendered judgment dated September 17,
1991 in favor of respondents.
The
trial court found that there was no demand for payment prior to the
extrajudicial foreclosure. Thus, the foreclosure proceedings were null and
void. It ordered Peralta to reconvey the properties
to respondents subject to Peralta’s right to be paid by respondents the amount
of P104,000 in consideration of such reconveyance. It also held that petitioner did not deal
fairly with respondents making it liable for nominal and moral damages to the
latter. The RTC further ordered petitioner to pay respondents
attorney’s fees and litigation expenses.
On
appeal, the CA affirmed the RTC but decreased the amount of nominal damages
from P75,000 to P50,000.[17]
Hence
this petition.[18]
The
main issues to be resolved are the following:
1)
whether a demand
for payment of the loans was made before the mortgage was foreclosed;
2)
whether demand is
necessary to make respondents guilty of default;
3)
whether or not
respondents are liable for the deficiency claim of petitioner and
4)
whether or not petitioner is liable for damages.
The issue of whether demand was made
before the foreclosure was effected is essential. If
demand was made and duly received by the respondents and the latter still did
not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the
loans had not yet become due and demandable. This meant that respondents had
not defaulted in their payments and the foreclosure by petitioner was
premature. Foreclosure is valid only when the debtor is in default in the
payment of his obligation.[19]
Whether or not demand was made is a
question of fact. In petitions for
review on certiorari under Rule 45, only questions of law may be raised by the
parties and passed upon by this Court.[20] Factual
findings of the trial court, when adopted and confirmed by the CA, are binding
and conclusive on this Court and will generally not be reviewed on appeal.[21] Inquiry into the veracity of the CA’s factual
findings and conclusions is not the function of the Supreme Court for the Court
is not a trier of facts.[22] Neither
is it our function to re-examine and weigh anew the respective evidence of the
parties.[23] While this Court has recognized several
exceptions to this rule,[24] none of
these exceptions finds application here.
Both
the CA and RTC found that demand was never made. No compelling reason
whatsoever has been shown by petitioner for this Court to review and reverse
the trial court’s findings and conclusions, as affirmed by the CA.
Petitioner asserts that demand was
unnecessary because the maturity dates of all loans were specified, i.e.,
the notes expressly stated the specific dates when the amortizations were to
fall due.[25]
We disagree.
Unless demand is proven, one cannot
be held in default.[26] Petitioner’s cause of action did not accrue
on the maturity dates stated in the promissory notes. It is only when demand to pay is made and
subsequently refused that respondents can be considered in default and
petitioner obtains the right to file an action to collect the debt or foreclose
the mortgage.[27]
As we held in China Banking Corporation v. Court of Appeals:[28]
Well-settled is the rule
that since a cause of action requires, as essential elements, not only a legal
right of the plaintiff and a correlative duty of the defendant but also “an act
or omission of the defendant in violation of said legal right,” the cause
of action does not accrue until the party obligated refuses, expressly or impliedly,
to comply with its duty.
Otherwise stated, a cause of action has three elements, to wit, (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 the obligation of the defendant to
the plaintiff.
It bears stressing that it is only when the last
element occurs that a cause of action arises. Accordingly, a cause of action on
a written contract accrues only when an actual breach or violation thereof
occurs.
Applying the foregoing
principle to the instant case, we rule that private respondent’s cause of
action accrued only on July 20, 1995, when its demand for payment of the Home
Notes was refused by petitioner. It was only at that time, and not before
that, when the written contract was breached and private respondent could
properly file an action in court.
The
cause of action cannot be said to accrue on the uniform maturity date of the
Home Notes as petitioner posits because at that point, the third essential
element of a cause of action, namely, an act or omission on the part of
petitioner violative of the right of private
respondent or constituting a breach of the obligation of petitioner to private
respondent, had not yet occurred.[29] (emphasis
supplied)
The acceleration clause of the promissory notes stated that
“[i]n case of non-payment of this note or any portion
of it on demand, when due, on account of this note, the entire
obligation shall become due and demandable ….”[30] Hence, the maturity dates only indicate when
payment can be demanded. It is the refusal
to pay after demand that gives the creditor a cause of action against the
debtor.
Since demand, which is necessary to
make respondents guilty of default, was never made on respondents, the CA and
RTC correctly ruled that the foreclosure was premature and therefore null and
void.
In arguing that the foreclosure was
valid, petitioner also avers that respondents are estopped
from questioning the validity of the foreclosure sale since they offered to
repurchase the foreclosed properties.[31] We are not persuaded. The reason why respondents offered to
repurchase the properties was clearly stated in their letter to petitioner:
I am very
much interested in repurchasing back these properties because they are the only
properties which my family have and because our house is located inside this
property and for this matter I am willing to pay [for] these properties in cash
which I already told the bank when I went there.[32]
Besides, we have already ruled that
an offer to repurchase should not be construed as a waiver of the right to
question the sale.[33] Instead, it must be taken as an intention to
avoid further litigation and thus is in the nature of an offer to compromise.[34] By
offering to redeem the properties, respondents can attain their ultimate
objective: to pay off their debt and regain ownership of their lands.[35]
Moreover, it was petitioner, in its November 16, 1984
letter, which informed respondents that the properties were available for
sale. Respondents merely took up
petitioner’s offer for them to reacquire their properties.
Petitioner
assigns as error the failure of the CA to rule on its deficiency claim. It alleged that the price the mortgaged
property was sold for (P104,000) was less than
the amount of respondents’ indebtedness (P131,642.33), thus it is
entitled to claim the difference (P27,642.33) with interest. Respondents cannot be held liable for the
deficiency claim. While it is true that
in extrajudicial foreclosure of mortgage, the mortgagee has the right to
recover the deficiency from the debtor,[36] this
presupposes that the foreclosure must first be valid.[37]
The
last issue is whether the award of moral and nominal damages, expenses of
litigation and attorney’s fees is proper. Crucial to the determination of the
propriety of the award of damages are the findings of the RTC, which were
affirmed by the CA, on the matter of bad faith:
Apart from
the precipitate foreclosure proceedings, the Court observes that certain acts
of [petitioner] were most certainly less than fair and less than honest, which
negates the rehabilitation (prior name of the bank) or development aspect or
purpose of [petitioner]. These certainly
caused serious anxiety and wounded feelings to [respondents]. They are: -
FIRST. – [Petitioner] granted a loan of P4,700.00;
then a second loan of P12,000.00 re-structured to P18,840.61; and
a third loan of P22,200.00, or a total of P45,740.61 during the
period from September 1974 to October 2, 1975.
Obviously, these loans were granted because the market value of the
collaterals exceeds P100,000.00 and
[petitioner’s] appraisal value is more or less P80,000.00. However, six (6) years later, when the value
must have appreciated in terms of pesos, the [petitioner] bidded
for a [measly] P16,000.00 and [claimed] a
deficiency. That it was [measly] and
shocking to the conscience was conclusively proven by the fact that [Peralta]
offered and did in fact buy the properties for P104,000.00
barely three (3) years later. To the
mind of the Court, the actuations of the bank must have been revolting to
[respondents] and to honest men, especially considering that [petitioner] is a
government financial institution, capitalized with the money of the people, and
created principally “to assist agricultural producers xxx in developing their
farms xxx to accelerate national progress”, more than to realize profit.
SECOND. –
[Respondents] are simple-minded persons in the country side. It strikes the court as odd and certainly
less than candid WHY on AUGUST 6, 1979, [petitioner] restructured the second
loan which will mature on May 1980, but did not restructure the first
loan which was due to mature on September 23, 1979 or barely one month
hence. It appears that the result lulled [respondents] into a false sense of
security and a feeling of relief that the entire loan accommodation will mature
in 1985. And then like a bolt of
lightning from a clear sky, [respondents] were hit with [foreclosure]
proceedings, causing them to suffer sleepless nights.
THIRD. – A letter dated November 16, 1984 was
addressed to [respondents] informing them practically that they are given the
priority to recover their properties by negotiated sale. And yet before the letter was sent, or on
November 14, 1984 the [petitioner] had already negotiated with [Peralta] for
the latter to buy the assets for P104,000.00 in installment and as a
matter of fact the Contract for Conditional Sale was executed on November 19,
1984 – even before the letter was received by [respondents]. [Heart-rending] was the plea of [respondents]
which we quote: -
“I
am very much interested in repurchasing back these properties because they are
the only properties which my family have and because our house is located
inside this property and for this matter I am willing to pay [for] these
properties in cash which I already told the bank when I went there.” (underscoring
supplied)
Nevertheless,
such supplications fell on deaf ears and did not even merit sympathy from a
heartless [petitioner]. At the very
least, the letter of 16 November 1984 was a very bad joke gleefully made in bad
taste and foisted on the hapless [respondents].
It added insult to injury.
And to top it
all, [petitioner] even has the temerity to allege in paragraph 2 of its
compulsory counterclaim “that as of November 7, 1984 the total obligations of
[respondents] on account of their loans with [petitioner] amounted to P131,642.33” and making a deficiency claim of P27,642.33
plus daily interest of P9.61 beginning November 8, 1984 “which
[respondents] are allegedly still liable to pay the [petitioner]”. This is unconscionable.
Certainly,
there is abundant evidence that the rights of [respondents] have been violated
or invaded with unconcerned ruthlessness by the [petitioner].[38]
Both
the RTC and CA found that there was factual basis for the moral damages
adjudged against petitioner. They found
that petitioner was guilty of bad faith in its actuations against
respondents. Again, this is a factual
matter binding and conclusive on this Court:
It is settled
that bad faith must be duly proved and not merely presumed. The existence of
bad faith, being a factual question, and the Supreme Court not being a trier of facts, the findings thereon of the trial court as
well as of the Court of Appeals shall not be disturbed on appeal and are entitled
to great weight and respect. Said findings are final and conclusive upon the
Supreme Court except, inter alia, where the findings
of the Court of Appeals and the trial court are contrary to each other.[39]
The lower
court also found that respondents’ property rights were invaded or violated,[40] hence
the grant of nominal damages was also proper.
Respondents are likewise entitled to
the award of attorney’s fees and expenses of litigation since the premature
foreclosure by petitioner compelled them to incur expenses to protect their
interest.[41]
WHEREFORE, we hereby AFFIRM the
decision of the Court of Appeals in CA-G.R. CV No. 37784.
SO ORDERED.
Associate Justice
WE CONCUR:
Chief Justice
Chairperson
ANGELINA
SANDOVAL-GUTIERREZ
Associate Justice
|
ADOLFO S. AZCUNA
Associate Justice
|
CANCIO C. GARCIA
Pursuant to Section 13, Article VIII of the
Constitution, I certify that the conclusions in the above decision had been
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO S. PUNO
* On official leave.
[1] Under Rule 45 of the Rules of Court.
[2] Penned by Associate Justice Ramon A. Barcelona (retired) and concurred in by Associate Justices Rodrigo V. Cosico and Alicia L. Santos (retired) of the Eighth Division of the Court of Appeals; rollo, pp. 34-46.
[3] Associate Justice Bienvenido L. Reyes replaced Associate Justice Alicia L. Santos in the Special Former Eighth Division of the Court of Appeals; id., pp. 32-33.
[4] Also dated September 20, 1974.
[5] Rollo, pp. 9-10, 19.
[6] Id.
[7] Id.
[8] Id., p. 162.
[9] Id., p. 19.
[10] Id., p. 20.
[11] Id., pp. 21 and 44.
[12] Id.
[13] Id., pp. 21-22.
[14] Id., pp. 22 and 45.
[15] Id., p. 54.
[16] Docketed as Civil Case No. 16245; rollo, p. 9.
[17] Id., p. 30.
18 The petition is anchored on the following grounds:
I
THE [CA] HAD DECIDED THIS CASE IN A WAY NOT IN ACCORD
WITH AND IN PATENT DISREGARD OF THE PROVISIONS OF SECTION 4, RULE 29, OF THE
REVISED RULES OF COURT, WHEN IT DISREGARDED THE ADMISSIONS OF THE RESPONDENTS
THAT [PETITIONER] MADE VARIOUS DEMANDS FOR PAYMENT.
II
THE [CA] COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
FAILED TO NOTICE THE RELEVANT FACT THAT THE RESPONDENTS OFFERED TO REPURCHASE
THE FORECLOSED PROPERTY WHICH WILL LEAD TO THE LOGICAL CONCLUSION THAT THEY
IMPLIEDLY ADMIT THE OWNERSHIP OF [PETITIONER] OF THE SAME PROPERTY ROOTED ON
THE FORECLOSURE PROCEEDINGS IN QUESTION, AND WITH THIS RESPONDENTS ARE IN
ESTOPPEL TO ASSAIL THE SAME PROCEEDINGS.
III
THE [CA] HAD DECIDED THIS CASE IN A WAY NOT IN ACCORD
WITH AND IN PATENT DISREGARD OF THE PROVISIONS OF ARTICLE 1169 OF THE NEW CIVIL
CODE WHEN IT FAILED TO NOTICE THE RELEVANT FACT THAT THE PROMISSORY NOTES AND
THE MORTGAGE CONTRACT AS WELL AS THE DEED OF RESTRUCTURING EXECUTED BY THE
RESPONDENTS IN FAVOR OF [PETITIONER] EXPRESSLY STIPULATED THE TIME WHEN THE
AMORTIZATIONS WOULD FALL DUE WHICH WILL LEAD TO THE LOGICAL CONCLUSION THAT THE
MORTGAGORS (RESPONDENTS HEREIN) INCURRED DELAY WITHOUT NEED OF FURTHER DEMAND
WHEN THE DUE DATES FELL AND NO PAYMENTS WERE MADE ON THE ACCOUNT.
IV
THE [CA] GRAVELY ERRED AND DECIDED THE CASE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE WHEN IT ANNULLED THE FORECLOSURE PROCEEDINGS
WITHOUT LEGAL AND FACTUAL BASIS AND DENIED [PETITIONER’S] CLAIM FOR DEFICIENCY
OBLIGATION.
V
ASSUMING ARGUENDO THAT THE FORECLOSURE WAS LEGALLY
FLAWED, THE [CA] GRAVELY ERRED AND DECIDED THE CASE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE WHEN IT FAILED TO CONSIDER THAT [PETITIONER] IS ENTITLED, UNDER
THE LAW, TO THE PAYMENT OF THE BALANCE OF THE LOANS OBTAINED, RECEIVED AND USED
BY THE [RESPONDENTS], OR TO DECLARE RESPONDENTS STILL INDEBTED TO CONFORMABLY
WITH THE PROMISSORY NOTES AND LOAN DOCUMENTS THEY EXECUTED IN FAVOR OF
[PETITIONER].
VI
THE [RTC] GRAVELY ERRED AND DECIDED THE CASE NOT IN
ACCORD WITH LAW AND JURISPRUDENCE, WHEN IT FAILED TO CONSIDER THAT [PETITIONER]
WAS IN GOOD FAITH IN SELLING THE PROPERTY AFTER TITLE OF OWNERSHIP THEREON WAS
CONSOLIDATED IN ITS FAVOR, AND FURTHER WHEN IT FAILED TO CONSIDER THAT [PERALTA
IS A BUYER] IN GOOD FAITH OF THE PROPERTY INVOLVED IN THE CASE AND IS THEREFORE
ENTITLED UNDER THE LAW TO RETAIN OWNERSHIP OF THE SAME.
VII
THE [RTC] GRAVELY ERRED AND DECIDED THE CASE NOT IN ACCORD WITH LAW AND JURISPRUDENCE WHEN IT AWARDED DAMAGES IN FAVOR OF RESPONDENTS IN THE ABSENCE OF LEGAL OR FACTUAL BASIS. (Rollo, pp. 49-50.)
[19] State Investment House, Inc. v. Court of Appeals, G.R. No. 99308, 13 November 1992, 215 SCRA 734, 744, citation omitted.
[20] Pleyto v. Lomboy, G.R. No. 148737, 16 June 2004, 432 SCRA 329, 336; Metropolitan Bank and Trust Co. v. Wong, 412 Phil. 207, 216 (2001).
[21] Lazaro v. Court of Appeals, 423 Phil. 554, 558 (2001); Garrido v. Court of Appeals, 421 Phil. 872, 881 (2001); Santos v. Spouses Reyes, 420 Phil. 313, 317 (2001); Yu Bun Guan v. Ong, 419 Phil. 845, 854 (2001); Fernandez v. Fernandez, 416 Phil. 322, 337 (2001); Nagkakaisang Kapisanan Kapitbahayan sa Commonwealth Avenue v. Court of Appeals, 414 Phil. 146, 153-154 (2001).
[22] First Metro Investment Corp. v. Este del Sol Mountain Reserve, Inc., 420 Phil. 902, 914 (2001).
[23] Jose v. People, G.R. No. 148371, 12 August 2004, 436 SCRA 294, 302.
[24] The exceptions are:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings, the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, will justify a different conclusion; Langkaan Realty Development, Inc. v. United Coconut Planters Bank, G.R. No. 139437, 8 December 2000, 347 SCRA 542, 549; Nokom v. National Labor Relations Commission, 390 Phil. 1228, 1242 (2000); CIR v. Embroidery and Garments Industries (Phil.), Inc., 364 Phil. 541, 546-547 (1999); Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283 (1998).
[25] Rollo, pp. 55-57, 239-241.
[26] Nuñez v. GSIS Family Bank (Formerly ComSavings Bank), G.R. No. 163988, 17 November 2005.
[27] Caltex Philippines, Inc. v. Intermediate Appellate Court, G.R. No. 74730, 25 August 1989, 176 SCRA 741, 751.
[28] G.R. No. 153267, 23 June 2005, 461 SCRA 162.
[29] Id., pp. 167-168, citations omitted.
[30] Rollo, pp. 12 and 26, emphasis supplied.
[31] Id., pp. 53-54.
[32] Id., p. 14.
[33] Rosales v. Court of Appeals, G.R. No. 137566, 28 February 2001, 353 SCRA 179, 191.
[34] Id.
[35] Id., pp. 191-192.
[36] Prudential Bank v. Martinez, G.R. No. 51768, 14 September 1990, 189 SCRA 612, 615.
[37] See Delta Motor Sales Corporation v. Mangosing, G.R. No. L-41667, 30 April 1976, 70 SCRA 598, 602.
[38] Rollo, pp. 13-14, citations omitted.
[39] PAL, Inc. v. CA, 326 Phil. 824, 835 (1996), citations omitted.
[40] Art. 2221, Civil Code.
[41] Art. 2208; rollo, p. 29.