THIRD DIVISION
G.R. No. 173864, November 23, 2015
BANGKO SENTRAL NG PILIPINAS, Petitioner, v. AGUSTIN LIBO-ON, Respondent.
D E C I S I O N
REYES, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 dated March 21, 2006 and the Resolution2 dated July 18, 2006 of the Court of Appeals-Cebu City in CA-G.R. CV No. 00098.
The facts of the case are as follows:chanRoblesvirtualLawlibrary
On August 29, 19973 and September 17, 1997,4 respondent Agustin Libo-on, together with his wife, Mercedes Libo-on (Spouses Libo-on), secured loans from the Rural Bank of Hinigaran, Inc., in the amounts of P100,000.00 and P300,000.00, respectively. The Spouses Libo-on executed promissory notes payable to. the order of the Rural Bank for a period of 360 days or until August 24, 1998 and September 12, 1998, respectively. As security for the loan, the Spouses Libo-on likewise executed a Deed of Real Estate Mortgage5 over a parcel of land with Transfer Certificate of Title No. T-67129 in favor of the Rural Bank of Hinigaran.
Meanwhile, on September 19, 19976 and October 17, 1997,7 the Rural Bank of Hinigaran, in turn, secured a loan with now petitioner, Bangko Sentral ng Pilipinas (BSP) in the amount of P800,000.00 and P640,000.00, respectively. The Rural Bank of Hinigaran executed a document denominated as "promissory note with trust receipt agreement."8 As a security for the loan, the Rural Bank of Hinigaran pledged and deposited to BSP promissory notes with supporting TCTs, including the promissory note and TCT of the Spouses Libo-ons mortgaged with the former.9
On May 3, 2000, BSP demanded from the Spouses Libo-on the payment of their outstanding loan with the Rural Bank of Hinigaran. Despite BSP's demand, the Spouses Libo-on failed to pay. The loan obligation of the Rural Bank of Hinigaran with BSP likewise fell due and demandable as the former failed to pay its loan from BSP. As a result, BSP filed an application for extrajudicial foreclosure against the mortgage security of the Spouses Libo-on with the Rural Bank of Hinigaran. However, before BSP could complete the auction sale, Agustin Libo-on filed an action against BSP for damages with prayer for the issuance of a temporary restraining order and a writ of preliminary injunction before the RTC of the 6th Judicial Region in Negros Occidental. The case was docketed as Civil Case No. 724 and was raffled to Branch 51 of the same court.10
The Spouses Libo-on contested the extrajudicial foreclosure of their property and the notice of extrajudicial sale pursuant thereto. The Spouses Libo-on argued that there is no privity of contract between him and BSP as the latter was not authorized by the Rural Bank of Hinigaran to .act on its behalf nor was the mortgage assigned to it. They further claimed that the amount sought to be satisfied by the foreclosure is way beyond what they had contracted with Rural Bank.
BSP, however, denied the allegations in the complaint and prayed that the same be dismissed for lack of merit.
On October 25, 2000, the court a quo issued an Order11 granting the Spouses Libo-on's application for issuance of a writ of preliminary injunction.
During pre-trial, both parties agreed that the only principal issue to be resolved by the court a quo is whether or not defendant-appellant BSP has the authority to foreclose the subject mortgage. On February 25, 2004, the court a quo rendered a Decision12 in favor of the Spouses Libo-on, the dispositive portion of which reads as follows:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:a) Declaring the application/petition for an extrajudicial foreclosure of mortgage, dated July 31, 2000, constituted on [L]ot [No.] 21630-A-4-A-1 covered TCT No. T-67129, per amendment of a Real Estate Mortgage, dated October 28, 1997, filed by the defendant BSP, as well as the notice of sale of public auction dated September 30, 2000 by the Clerk of Court and Ex-Officio Provincial Sheriff, to be irregular and unlawful.cralawlawlibrary
b) Making the preliminary injunction issued last October 25, 2000 in this case permanent.
c) "Since the plaintiff was forced to defend his rights, the defendant BSP is hereby ordered to pay the [plaintiff] attorney's fees in the amount of P40,000.00, and P1,000.00 per court appearance of counsel, and an additional litigation expenses in the amount of P10,000.00. Moral damages cannot be awarded to the plaintiff, there being no showing that the BSP acted in reckless, wanton and abusive manner, but in an honest belief, that it has the power to foreclose on the mortgage.13
I
THE ERRONEOUS AND REVERSIBLE DECLARATION BY THE COURT OF APPEALS THAT THE PETITIONER HAS NO RIGHT TO FORECLOSE THE REAL ESTATE MORTGAGE CONSTITUTED- BY RESPONDENT AND HIS WIFE DUE TO THE ABSENCE OF A NOTARIZED DEED OF ASSIGNMENT. SPECIAL POWER OF ATTORNEY, OR ANY DOCUMENT OF TRANSFER OF RIGHTS, EXECUTED BY THE MORTGAGEE RURAL BANK OF HINIGARAN IN FAVOR OF THE PETITIONERII
THE ERRONEOUS DECLARATION BY THE LOWER COURT AND THE COURT OF APPEALS THAT THERE WAS NO PRIVITY OF CONTRACT BETWEEN RESPONDENT AND HIS WIFE ON ONE HAND, AND PETITIONER BSP ON THE OTHER.III
THE ERRONEOUS AND UNWARRANTED ACT OF ORDERING PETITIONER TO'PAY THE RESPONDENT ATTORNEY'S FEES AND LITIGATION EXPENSES WITHOUT LEGAL BASIS."14cralawlawlibrary
He who is-not the owner or proprietor of the property pledged or mortgaged to guarantee the fulfillment of a principal obligation, cannot legally constitute such a guaranty as may validly bind the property in favor of his creditor, and the pledgee or mortgagee in such a case acquires no right whatsoever in the property pledged or mortgaged.21cralawlawlibrary
PROMISSORY NOTE WITH TRUST RECEIPT AGREEMENT
Within three hundred thirty (330) days after date, for value received, the undersigned promises to pay to the order of the Bangko Sentral ng Pilipinas xxx, having deposited with and pledged to the said Bangko Sentral as collateral security for the payment of this note and any other liability or liabilities, whether direct or contingent, of the undersigned to the said Bangko Sentral due or to become due or that may be hereafter contracted, the securities described in the schedule included in the application for loan dated October 13, 1997 accompanying this note. The said Bangko Sentral is hereby given a lien for the payment of this note and any of the said other liabilities upon all the property or securities now or hereafter in the possession of said Bangko Sentral. xxx
The said Bangko Sentral has the right to require to require such additional security as it may deem proper, and, on failure to respond forthwith to such requirement or on nonpayment of this note or on the nonpayment of any other liability or liabilities of the undersigned, the Bangko Sentral or any holder hereof, is given full authority to sell, assign and deliver, or collect the whole or any part of the abovenamed collaterals, or any substitute therefor, or any addition thereto at any public or private sale at any time 'hereafter, without demand, advertisement or notice; and upon such sale, the Bangko Sentral or the holder thereof may become the purchaser of the whole or any part of such collaterals. x x x22cralawlawlibrary
The undersigned acknowledges that the rediscounted notes and all amounts due thereon belong to the Bangko Sentral and, for this purpose, agrees to execute a trust receipt agreement over all amounts due on said notes, whereby the undersigned binds: (a) to collect all amounts due on the rediscounted notes and hold such collections in trust for the Bangko Sentral; and (b) to turn over and remit to the Bangko Sentral all amounts collected on such notes within ten (10) days from date of collection x x x23cralawlawlibrary
Endnotes:
* Designated Acting Member in lieu of Associate Justice Francis H. Jardeleza, per Special Order No. 2289 dated November 16, 2015.
1 Penned by Associate Justice Isaias P. Dicdican, with Associate Justices Ramon M. Bato, Jr. and Apolinario D. Bruselas, Jr., concurring; rollo, pp. 32-40.
2 Rollo, pp. 43-44.
3 Id at 46.
4 Id at 47.
5 Id. at 48-49.
6 Id. at 56.
7 Id. at 57.
8 Id. at 56-57.
9 Id. at 58-59.
10 Id. at 69-73.
11 Id at83-85.
12 Id. at 98-111.
13 Id. at 111.
14 Id. at 11, 18 and 25.
15Serfino v. Far East Bank and Trust Company, Inc., G.R. No. 171845 October 10, 2012, 683 SCRA 380, 388.
16Rollo, p. 83.
17Garcia v. Villar, 680 Phil. 363. 375 (2012).
18 Article 1625 of the Civil Code provides that [a]n assignment of a credit, right or action shall produce no effect as against third person, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.
19Atty. Calihn, Jr. v. Court of Appeals, 403 Phil. 340, 344 (2001).
20 Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:chanRoblesvirtualLawlibrary
x x x x
(2) That the pledgor or mortagagor be the absolute owner of the thing pledged or mortgaged
21Atty. Calibo, Jr. v. Court of Appeals, supra note 19, at 345.
22Rollo, pp. 56 and 57. (Emphasis ours)
23 Id.
24 Id.
25 The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgagee, or dispose of the same. Any stipulation to the contrary is null and void.