SECOND DIVISION
G.R. No. 226272, September 16, 2020
PANACAN LUMBER CO., ANTONIO B. GO, MA. TERESA C. GO AND DOROTEA B. GO, PETITIONERS, V. SOLIDBANK CORP., (NOW METROPOLITAN BANK & TRUST COMPANY),1 RESPONDENT.
D E C I S I O N
HERNANDO, J.:
Challenged in this Petition2 is the July 31, 2015 Decision3 and August 12, 2016 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 99342 which reversed and set aside the February 13, 2012 Decision5 of the Regional Trial Court (RTC), Branch 42 of Manila in Civil Case No. 99-95722. The CA affirmed the following obligations of petitioner Panacan Lumber Co. (PLC), Antonio B. Go (Antonio), Ma. Teresa C. Go (Teresa) and Dorotea B. Go (Dorotea) in favor of respondent Solidbank Corp. (Solidbank), now Metropolitan Bank & Trust Company (MBTC): (a) PLC's remaining loan obligation under the Foreign Letter of Credit (FLC) in the amount of US$108,000.00 subject to 6% interest rate per annum from May 1997 untl the date of foreclosure sale in October 1999; and (b) PLC's loan obligation of P700,000.00 under renewal promissory note (PN) subject to 6% interest rate per annum from November 1997 until the date of foreclosure sale in October 1999.
The appellate court further 1) declared the title over the mortgaged property consolidated in the name of Solidbank as null and void for having been issued in violation of the writ of preliminary injunction issued by the trial court; 2) granted to mortgagors, petitioners PLC, Antonio, Teresa and Dorotea, a period of one (1) year from the finality of the decision within which to redeem the subject property by paying the redemption price plus one percent (1%) interest per month from the time of foreclosure until the actual redemption; 3) deleted the award of temperate damages of P400,000.00 and attorney's fees of P100,000.00 for lack of sufficient basis and merit; and 4) affirmed the dismissal of MBTC's counterclaims for lack of merit.
WHEREFORE, premises considered, the instant appeal is PARTIALLY GRANTED.
The Decision dated February 13, 2012, of Branch 42 of the Regional Trial Court of Manila in Civil Case No. 99-95722 is REVERSED and SET ASIDE. Judgement is hereby rendered as follows:
(I) Affirming the remaining balance of loan obligation under the letter of credit in the amount of US$108,000.00 subject to 6% interest per annum from May 1997 until the date of the foreclosure sale in October 1999 and applying the current exchange rate at the time payment is to be made;
(II) Affirming the loan obligation of P700,000.00 under renewal promissory note subject to 6% interest per annum from November 1997 until the date of the foreclosure sale, October 1999;
(III) Declaring the consolidation of title over the mortgaged property now in the name of defendant-appellant Metropolitan Bank & Trust Company, as null and void, for being in violation of the writ of preliminary injunction issued by the trial court and granting to the mortgagors, plaintiffs-appellees herein, a period of one (1) year from the finality of this Decision within which to redeem the subject property by paying the redemption price, following the computation in paragraphs I and II hereof, plus one percent (1%) interest per month thereon, from the time of foreclosure up to the time of the actual redemption, pursuant to Section 28, Rule 39 of the 1997 Rules of Civil Procedure.
(IV) Deleting the award of temperate damages of P400,000.00 for the claim of unrealized profits and attorney's fees of P100,000.00 for lack of sufficient basis and for lack of merit.
(V) Affirming the dismissal of defendant-appellant Solidbank Corporation's (now Metropolitan Bank & Trust Company) counterclaims for lack of merit.
No pronouncement as to costs.
SO ORDERED.27cralawlawlibrary
- Whether or not the extra-judicial foreclosure of the [REM] is null and void due to the lack of personal notice to petitioners of the two amended petitions for extra-judicial foreclosure filed by Solidbank.
- Whether or not the PCIB's [DLC] was issued for the purpose of securing the transaction covered by the [FLC].
- Whether or not the mortgage contract includes PLC's other loan obligations.
- Whether or not Solidbank committed a breach of contract when it amended the petition for foreclosure of [REM] to include PLC's other loan obligations.
- Whether or not the appellate court erred when it granted Solidbank's counterclaim despite its failure to adduce evidence and when it adjudicated matters not litigated nor raised by the parties in their pleadings.
14. All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notification of any judicial or extrajudicial action, shall be sent to the Mortgagor at above address or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee. x x x35cralawlawlibrary
20. – That, the filing of said amended petition and Second Amended Petition for Foreclosure, was done in evident bad faith and constituted another breach of contract committed by defendant Bank, because:
x x x x
(B) Further, in wanton disregard to the rights of plaintiffs, Defendant Bank did not [notify] nor [furnish] plaintiffs copy of said Amended Petition as well as the Second Amended Petition for Foreclosure.41cralawlawlibrary
However, plaintiffs discovered that defendant bank without notice, filed on February 25, 1999 an amended verified petition for Extra-Judicial Foreclosure increasing its claim from the original amount to P700,000.00 to P1,140,245.10.
Subsequently, defendant bank again filed a Verified Second Amended Petition for Extra-Judicial Foreclosure without giving notice thereof to plaintiff spouses. In utter bad faith, it included therein, the dollar account in said foreclosure proceedings thereby increasing its claim to P9,151,667.89.
Plaintiffs maintain that the wrongful inclusion by defendant bank of the dollar account in its Second Amended Petition for foreclosure dated June 15, 1999 as well as the latter's failure to give notice thereof constitutes a breach of contract which justifies the annulment of the Sheriffs Certificate of Sale dated October 19, 1999 in favor of defendant bank.
x x x x42
Thereafter, appellees discovered that appellant bank without notice, filed on February 25, 1999 an amended verified petition for Extra-Judicial Foreclosure, increasing its claim from the original amount of P700,000.00 to P1,140,245.10.
Subsequently, appellant bank filed a Verified Second Amended Petition for Extra-Judicial-Foreclosure, again, without giving notice thereof to appellee spouses. In utter bad faith it included therein the dollar account thereby increasing its claim to P9,151,667.89.
Appellees have proven that the malicious and wrongful inclusion by the appellant bank of the dollar account in its second amended petition which in consequence ballooned appellees' indebtedness to almost P10Million justifies the annulment of the foreclosure sale.44cralawlawlibrary
That, for and in consideration of certain loans, and other credit accommodations obtained from the Mortgagee, and to secure the payment of the same and those that may hereafter be obtained, the principal of all of which is hereby fixed at TWO MILLION ONLY (PhP 2,000,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor/Debtor, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors, or assigns, the parcels of land which are described at the back of this document, and/or appended hereto, together with all the buildings, improvements, or machineries now existing or which may hereafter be erected, constructed thereon or attached thereto, of which the Mortgagor declares that he/it is the absolute owner free from all liens and encumbrances. However, if the Mortgagor/Debtor shall pay to the Mortgagee, its successors or assigns, the obligation/s secured by this mortgage when due, together with interest, and shall keep and perform all and singular the covenants and agreements herein contained for the Mortgagor/Debtor to keep and perform, then this mortgage shall be void; otherwise, it shall remain in full force and effect.45 (sic) [Emphasis and underscoring ours.]
As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.
Alternatively, while a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be specifically described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage contract.
The stipulation extending the coverage of a mortgage to advances or loans other than those already obtained or specified in the contract is valid and has been commonly referred to as a "blanket mortgage" or "dragnet" clause. In Prudential Bank v. Alviar, this Court elucidated on the nature and purpose of such a clause as follows:
A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." x x x.
A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty and constitutes an exception to the rule [that] an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract, x x x.47 [Emphasis and underscoring ours; citations omitted]
5. The loans and other credit facilities herein granted or which may hereafter be granted are further evidenced by other documents or promissory notes or such documents which may hereafter be executed, the terms and conditions of which shall be considered as an integral part of this mortgage agreement; that any violation of the terms and conditions of the promissory note or notes or documents executed by virtue of this mortgage or default in the payment thereof, shall be considered as a violation of the terms and conditions of this mortgage. This mortgage shall likewise stand as security for any extension(s) or renewal(s) of the loan or credit accommodation granted to the DEBTOR or MORTGAGOR.48 [Emphasis and underscoring ours.]
This MORTGAGE made and executed by Antonio Go and Ma. Teresa Go, both of legal age, Filipino citizens and residents of Davao City, Philippines, in order to secure and guarantee, jointly and severally, the loan or credit accommodation which has been granted or may hereafter be granted to PANACAN LUMBER, CO., xxx49 [Emphasis and underscoring ours.]
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents or documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires the said documents and control over the goods only after reimbursing the bank.
What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not.
There would at least be three (3) parties: (a) the buyer, who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipt of the documents of title; (b) the bank issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surrender the documents to the buyer upon reimbursement; and, (c) the seller, who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment."52cralawlawlibrary
18. Events and Consequences of Default
If the undersigned fails at any time to maintain a margin security with you, or upon the non performance of any of the promises to pay hereinabove set forth, or upon the non-payment of any of the other obligations or liabilities above mentioned; or upon the failure of the undersigned forthwith, with or without notice, to furnish satisfactory additional collateral or to make payments on account as hereinabove agreed; or to perform or comply with any of the other terms or provisions of this Agreement; x x x then and at any time the happening of such event, any or all of the aforesaid obligations and/or liabilities of the undersigned shall, at your option, become due and payable immediately, without demand or notice, and you may proceed against the undersigned judicially or otherwise to enforce payment or demand additional collaterals from the undersigned that shall protect you from any proceedings by the beneficiary, x x x54cralawlawlibrary
The foregoing stipulation clearly gives Solidbank the right to enforce payment on the obligation of PLC under the FLC. Solidbank has the option to demand payment directly from PLC upon the latter's default and is not obliged to first go after the collateral security. In addition, Solidbank is not obliged under the agreement to surrender the documents of title before PLC's payment of its obligation under the FLC. The collateral security does not guarantee the release of documents of title to PLC, but rather the reimbursement of US$168,000.00 as agreed upon by parties. Even so, PCIB's DLC, which was allegedly issued to secure Solidbank's FLC, pertains to a different transaction. This, furthermore justified the withholding by Solidbank of the documents of title before payment of the total loan obligation by the PLC.
In conclusion, petitioners have no right to demand payment of damages from Solidbank on the ground of substantial losses in its lumber importation caused by Solidbank's refusal to release the documents of title. However, in view of PLC's partial payment in the amount of US$60,000.00, its remaining loan obligation under the FLC is reduced to US$108,000.00. The rate of exchange should be that prevailing at the time of payment.55 However, We delete the appellate court's award of compensatory interest at the rate six percent (6%) per annum from May 1997 until the date of the foreclosure sale in October 1999 in view of the absence of express stipulation of the parties as to the payment of interest on the FLC. Instead, PLC shall be liable to pay compensatory interest of 12% per annum from the date of judicial demand, i.e. the filing of its Answer with Compulsory Counterclaim in January 7, 2000 until June 30, 2013 and 6% per annum from July 1, 2013 until the finality of this Decision, in the absence of extra-judicial demand and express stipulation as to rate of compensatory interest.56 In addition, the monetary award shall earn interest at the rate of 6% per annum from date of finality of this judgment until fully paid.57
Moreover, We deem it proper to discuss the propriety of interest due on the renewal PN No. 96000251 even if the same was not assigned as an error in this petition in order to arrive at a just and complete resolution of this case. Besides, PLC raised in its complaint the issue of the propriety of interests and other charges, thus, it is crucial to finally settle PLC's total obligation secured by the Deed of REM especially when there is sufficient evidence on which to base a ruling.
Contrary to the findings of the appellate court, the monetary interest rate agreed upon by the parties on the renewal PN No. 96000251 is not 28.6889% per month, but 28.6889%) per annum. The parties agreed to an interest rate of 28.6889%) per annum to be repriced every 30 days and payable monthly in advance within 180 days from October 24, 1997 or until April 22, 1998. Based on existing jurisprudence,58 an interest of three percent (3%) per month or higher is considered as excessive or unconscionable. Hence, We do not find the monetary interest of 28.6889% per annum or 2.39% per month as excessive or unconscionable.
In addition, in case of default, PLC agreed to pay a penalty or a compensatory interest of two percent (2%) per month based on the total amount due from the time of default until full payment as well as ten percent (10%) as attorney's fees on the total amount due. We likewise find this as not excessive or unconscionable and in conformity with prevailing jurisprudence as well.
In sum, PLC is liable to pay monetary interest of 28.6889% per annum on P700,000.00 under renewal PN No. 96000251 from October 24, 1997 until April 22, 1998. In addition, PLC is liable to pay compensatory interest on the total amount due including monetary interest of 2% interest per month from the time of default, that is, the filing of Answer with Compulsory Counterclaim on January 7, 2000 in the absence of evidence of extrajudicial demand, until finality of this Decision. Also, PLC is liable to pay 10% of the total amount due including monetary and compensatory interests as attorney's fees. All these monetary awards shall earn interest at the rate of 6% per annum from date of finality of this judgment until fully paid.59
Finally, We affirm the declaration of nullity of the consolidation of title over the mortgaged property in the name of MBTC for being in violation of the writ of preliminary injunction issued by the trial court. Consequently, we delete the appellate court's grant of one (1) year period of redemption in favor of mortgagors Antonio and Ma. Teresa in view of the nullity of the whole foreclosure proceedings.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed July 31, 2015 Decision and August 12, 2016 Resolution of the Court of Appeals in CA-G.R. CV No. 99342 are hereby AFFIRMED with MODIFICATIONS:
a) Petitioner Panacan Lumber Co. is hereby ORDERED to pay Solidbank US$108,000.00 under the foreign letter of credit at the rate of exchange prevailing at the time of payment subject to twelve percent (12%) interest per annum from January 7, 2000 until June 30, 2013 and six percent (6%) interest per annum from July 1, 2013 until finality of judgment. The total monetary award shall be subject to six percent (6%) interest rate per annum from the date of finality of this Decision until fully paid;
b) Petitioner Panacan Lumber Co. is hereby ORDERED to pay Solidbank: (1) P700,000.00 under renewal Promissory Note No. 96000251; (2) monetary interest of 28.6889% per annum from October 24, 1997 until April 22, 1998; (3) compensatory interest of two percent (2%) per month on the total amount due, i.e. P700,000.00 plus monetary interest, from the time of judicial demand on January 7, 2000 until finality of this Decision; (4) attorney's fees of 10% of the total amount due, i.e. P700,000.00 plus monetary and compensatory interests, under renewal Promissory Note No. 96000251; and (5) six percent (6%) legal interest rate per annum on the total monetary award, i.e. P700,000.00, monetary interest, compensatory interest and attorney's fees, from finality of this Decision until fully paid. In the alternative, Solidbank may secure payment of P700,000.00 under renewal Promissory Note No. 96000251 including the applicable interest and penalty charges by instituting an action for foreclosure of the Deed of Real Estate Mortgage;
c) The foreclosure proceedings as to mortgage indebtedness of P9,151,667.89 is hereby declared null and void in view of the violation of the notice requirement under the Deed of Real Estate Mortgage, without prejudice to Solidbank's right to institute an action for foreclosure of real estate mortgage taking into consideration the rule on proper notice, the amount of loan secured by the Deed of Real Estate Mortgage as stated in the renewal Promissory Note No. 96000251 as well as the applicable interests and penalty charges there under, and other necessary requirements;
d) Consequently, the consolidated title of the mortgaged property registered in the name of Metropolitan Bank & Trust Company is declared null and void as it was made in violation of the writ of preliminary injunction and in view further of the declaration of nullity of the foreclosure proceedings.
SO ORDERED.
Perlas-Bernabe, (Chairperson), Inting, and Delos Santos, JJ., concur.
Baltazar-Padilla, J., on leave.chanrobleslaw
Endnotes:
1 Jesusa Prado-Maningas, Clerk of Court and Ex-Officio Sheriff, and Mario P. Villanueva, Sheriff-in-Charge, were deleted as party-respondents pursuant to Section 4, Rule 45 of the Rules of Court.
2Rollo, pp. 9-53.
3 CA rollo, pp. 180-196; penned by Associate Justice Ma. Luisa C. Quijano-Padilla and concurred in by Associate Justices Normandie B. Pizarro and Agnes Reyes-Carpio.
4Id. at 257-261.
5 Records, Vol. 2, pp. 680-689.
6Id., Vol. 1, pp. 111-115.
7Id. at 117-119.
8Rollo, p. 68.
9 Records, Vol. 1, pp. 120-122.
10Id. at 31
11Id. at 1-21.
12Id. at 84-93.
13Id. at 228-229.
14Id., Vol 2, pp. 6-8.
15Id. at 48-49.
16Id. at 118-119.
17Id. at 142.
18Id. at 164-178.
19Id. at 589-597; penned by Associate Justice Hakim S. Abdulwahid and concurred in by Associate Justices Normandie B. Pizarro and Ruben C. Ayson.
20Id. at 476-477.
21Id. at 490.
22Id. at 506.
23Id. at 575.
24Id. at 587.
25Id. at 680-689.
26 CA rollo, pp. 180-196.
27Id. at 194-195.
28Id. at 257-261.
29Rollo, pp. 9-53.
30 An Act to Regulate the Sale of Property under Special Powers Inserted In or Annexed to Real-Estate Mortgages. Approved: March 6, 1924.
31 An Act to Amend Act Numbered Thirty-One Hundred and Thirty-Five, entitled "An Act to Regulate the Sale of Property under Special Powers Inserted In or Annexed to Real-Estate Mortgages". Approved: December 7, 1933.
32Olizon v. Court of Appeals, 306 Phil. 162, 170 (1994) citing Cortes v. Intermediate Appellate Court, 256 Phil. 979, 984 (1989); Cruz. v. Court of Appeals, 269 Phil. 175, 178-179 (1990); Gravina. v. Court of Appeals, 292-A Phil. 280, 283 (1993).
33Paradigm Development Corp. of the Philippines v. Bank of the Philippine Islands, 810 Phil. 539, 564 (2017), citing Global Holiday Ownership Corporation v. Metropolitan Bank and Trust Company, 607 Phil. 850, 864 (2009).
34 Records, Vol 1, pp. 120-121.
35Id. at 121.
36Id. at 125.
37Id. at 31.
38Id.
39Id. at 1-21.
40Id., Vol. 2, pp. 630-644.
41Id., Vol 1, pp. 10-11.
42Id., Vol 2. at 664.
43 Ca rollo, pp. 103-147.
44Id. at 139-141.
45 Records, Vol. 1, p. 120.
46 690 Phil. 504 (2012).
47Id. at 521-522.
48 Records, Vol. 1, p. 120.
49Id.
50Bangko Sentral ng Pilipinas, Selected Philippine Economic Indicators, 1993-2002, August 12, 2020, Retrieved from http://www.bsp.gov.ph/statistics/speiy_02/uscross_9302.htm.
51 298-A Phil. 326 (1993).
52Id. at 334-337.
53 Records, Vol. 1, pp. 111-114.
54Id. at 113.
55Buenaventura v. Court of Appeals, 260 Phil 206 (1990) Zagala v. Jimenez, 236 Phil. 158 (1987) citing Phoenix Assurance Company vs. Macondray & Co., Inc., G.R. No. L-25048, May 13, 1975.
56Nacar v. Gallery Frames, 716 Phil. 267 (2013).
57Id.
58 See Spouses Mallari v. Prudential Bank, 710 Phil. 490 (2013), Ruiz v. Court of Appeals, 449 Phil. 419 (2013), Chua v. Timan, 584 Phil. 144, 148 (2008).
59Nacar v. Gallery Frames, supra note 56.chanRoblesvirtualLawlibrary