FIRST DIVISION
DEVELOPMENT BANK
OF THE PHILIPPINES,
Petitioner,
G.R.
No.
125838
June 10, 2003
-versus-
COURT OF
APPEALS
AND EMERALD RESORT
HOTEL CORPORATION,
Respondents.
D
E C
I S I O N
CARPIO,
J.:chanroblesvirtuallawlibrary
The Case
This Petition for
Review
on Certiorari[1]
seeks to reverse the joint decision[2]
of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31
January
1996 and the Resolution dated 30 July 1996 denying the motion for
reconsideration.
The Court of Appeals affirmed the decision[3]
of the Regional Trial Court of Iriga City, Branch 36, declaring the
foreclosure
of the mortgaged properties void for failure to comply with the
statutory
requisites.chanrobles virtual law library
The Facts
Private respondent
Emerald
Resort Hotel Corporation ("ERHC") obtained a loan from petitioner
Development
Bank of the Philippines ("DBP"). DBP released the loan of
P3,500,000.00
in three installments: P2,000,000.00 on 27 September 1975,
P1,000,000.00
on 14 June 1976 and P500,000.00 on 14 September 1976. To secure
the
loan, ERHC mortgaged its personal and real properties to DBP.
On 18 March 1981,
DBP
approved a restructuring of ERHC’s loan subject to certain conditions.[4]
On 25 August 1981, DBP allegedly cancelled the restructuring agreement
for ERHC’s failure to comply with some of the material conditions[5]
of the agreement.
Subsequently, ERHC
delivered
to DBP three stock certificates of ERHC aggregating 3,477,052 shares
with
a par value of P1.00 per share. ERHC first delivered to DBP on 20
October
1981 Stock Certificate No. 30 covering 1,862,148 shares. Then
ERHC
delivered on 3 November 1981 Stock Certificate No. 31 covering 691,052
shares, and on 27 November 1981 Stock Certificate No. 32 covering
923,852
shares.
On 5 June 1986,
alleging
that ERHC failed to pay its loan, DBP filed with the Office of the
Sheriff,
Regional Trial Court of Iriga City, an Application for Extra-judicial
Foreclosure
of Real Estate and Chattel Mortgages.chanrobles virtual law library
Deputy Provincial
Sheriffs
Abel Ramos and Ruperto Galeon issued the required notices of public
auction
sale of the personal and real properties. However, Sheriffs Ramos and
Galeon
failed to execute the corresponding certificates of posting of the
notices.
On 10 July 1986, the auction sale of the personal properties proceeded.
The Office of the
Sheriff
scheduled on 12 August 1986 the public auction sale of the real
properties.
The Bicol Tribune published on 18 July 1986, 25 July 1986 and 1 August
1986 the notice of auction sale of the real properties. However,
the Office of the Sheriff postponed the auction sale on 12 August 1986
to 11 September 1986 at the request of ERHC. DBP did not
republish
the notice of the rescheduled auction sale because DBP and ERHC signed
an agreement to postpone the 12 August 1986 auction sale.[6]
ERHC, however, disputes the authority of Jaime Nuevas who signed the
agreement
for ERHC.
In a letter dated 24
November 1986, ERHC informed DBP of its intention to lease the
foreclosed
properties.[7]
On 22 December 1986,
ERHC filed with the Regional Trial Court of Iriga City a complaint for
annulment of the foreclosure sale of the personal and real
properties.
Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged
that
the foreclosure was void mainly because (1) DBP failed to comply with
the
procedural requirements prescribed by law; and (2) the foreclosure was
premature. ERHC maintained that the loan was not yet due and
demandable
because the DBP had restructured the loan.
DBP moved to dismiss
the complaint because it stated no cause of action and ERHC had waived
the alleged procedural defenses. The trial court denied the
motion
to dismiss. Consequently, DBP filed its answer, claiming that it
complied with the legal requirements for a valid foreclosure. DBP
further
claimed that it cancelled the conditional restructuring of ERHC’s loan
because ERHC failed to comply with some material conditions of the
restructuring
agreement.
Meanwhile, acting on
ERHC’s application for the issuance of a writ of preliminary
injunction,
the trial court granted the writ on 20 August 1990. Accordingly,
the trial court enjoined DBP from enforcing the legal effects of the
foreclosure
of both the chattel and real estate mortgages.
Thereafter, trial on
the merits ensued. After the parties presented their evidence,
the
trial court rendered a decision[8]
dated 28 January 1992, the dispositive portion of which reads:
WHEREFORE,
premises considered, judgment is hereby rendered in favor of the
plaintiff
corporation and against the defendants:
1. Declaring as
null
and void the foreclosure and auction sale of the personal properties of
plaintiff corporation held on July 10, 1986;
2. Declaring as
null
and void the foreclosure and auction sale of the real properties of
plaintiff
corporation covered by TCT No. RT-1075 (19980); TCT No. RT-1076
(19981);
TCT No. RT-1077 (22367) and TCT No. 10244 of the Register of Deeds of
Camarines
Sur (now Iriga City) in the auction sale thereof held on September 11,
1986, and all the improvements therein;chanrobles virtual law library
3. Ordering the
Register
of Deeds of Camarines Sur (now Iriga City) to cancel the annotations of
the Sheriff’s Certificate of Sale on the aforestated titles as null and
void and without any legal effect;
4. Ordering the
defendant
Development Bank of the Philippines to comply with the restructuring of
plaintiff corporation’s loans retroactively as though the foreclosure
had
not taken place in the interest of justice and equity; and
5. Ordering the
defendant
DBP to pay plaintiff corporation moral damages in the amount of
P500,000.00
for initiating what was a clearly illegal foreclosure and causing the
said
plaintiff corporation to suffer needlessly anguish, opprobrium and
disrepute
as a consequence thereto.
SO ORDERED.
Both ERHC and DBP
appealed
the trial court’s decision to the Court of Appeals. ERHC anchored
its appeal on the insufficiency of the moral damages awarded by the
trial
court and the absence of any award of temperate, nominal or exemplary
damages.
DBP’s appeal, on the other hand, assailed the decision as well as the
order
dismissing its petition for a writ of possession.
The Court of
Appeals,
which consolidated the appeals, affirmed the decision of the trial
court.[9]
DBP filed a Motion for Reconsideration which the Court of Appeals
denied.[10]
Hence, this petition.
The Ruling of the
Court of Appeals
The Court of Appeals
sustained the trial court’s ruling that the foreclosure was void.
The Court of Appeals affirmed the trial court’s finding that DBP failed
to comply with the posting and publication requirements under the
applicable
laws. The Court of Appeals held that the non-execution of the
certificate
of posting of the notices of auction sale and the non-republication of
the notice of the rescheduled 11 September 1986 auction sale
invalidated
the foreclosure.chanrobles virtual law library
The Court of Appeals
also found that the parties perfected the restructuring agreement and
that
ERHC substantially complied with its conditions based on the following
"circumstances":
(a) The
transmittal
letter dated October 20, 1981 which relates to the progress of the
restructuring
of the mortgage account of Emerald Resort Hotel Corporation and that
the
same has been approved by the SEC (Exh. "D")
(b) The
transfer
of shares of stocks to appellant DBP, the value of which are broken as
follows:
1. Stock certificate
No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. "D" and "D-1");
2. Stock certificate
No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F" and "F-1");
3. Stock certificate
No. 031, for 691,052 shares worth P691,052.00 (Exhs. "M" and "M-5").
(c) The
acceptance
of the foregoing by the DBP without raising the fact of delay as
embodied
in condition no. 7 of Exh. "B".
(d) No
rejection
was made by the defendant-appellant DBP at the time the shares of
stocks
were being held by the latter.
(e) The
belated
rejection of the shares of stocks was interposed only at the time the
instant
suit was filed which was long after the expiration of the 90-day period
extended by DBP to Emerald.chanrobles virtual law library
(f) No rejection was
also made when plaintiff corporation did not avail of the additional
loan
which was allegedly part of the package accommodation.[11]
The Court of Appeals
also affirmed the trial court’s award of moral damages but denied
ERHC’s
claim for temperate and exemplary damages. The Court of Appeals
found
that DBP’s intrusion, assisted by sheriffs and several armed men, into
Hotel Ibalon and the sheriffs’ inventory of the hotel’s furniture and
fixtures
caused fear and anxiety to the hotel owner, staff and guests.
These
acts, according to the Court of Appeals, debased the hotel’s goodwill
and
undermined its viability warranting the award of moral damages.
Finding the
foreclosure
void, the Court of Appeals also denied DBP’s petition for a deficiency
claim and a writ of possession.
The Issues
DBP presents the
following
issues for resolution:
1.
Whether
DBP complied with the posting and publication requirements under
applicable
laws for a valid foreclosure.chanrobles virtual law library
2. Whether
the
restructuring agreement between DBP and ERHC was perfected and
implemented
by the parties before the foreclosure.
3. Whether
ERHC’s
offer to lease the foreclosed properties constitutes a waiver of its
right
to question the validity of the foreclosure.
4. Whether
the
award of moral damages to ERHC, a juridical person, is proper. The Court’s
Ruling
The petition is
partly
meritorious.
First
Issue:
Compliance with the posting and publication requirements under
applicable
laws
Posting
requirement
under Acts Nos. 3135 and 1508
In alleging that the
foreclosure was valid, DBP maintains that it complied with the
mandatory
posting requirement under applicable laws.[12]
DBP insists that the non-execution of the certificate of posting of the
auction sale notices did not invalidate the foreclosure.
We agree.
This Court ruled in
Cristobal v. Court of Appeals[13]
that a certificate of posting is not required, much less considered
indispensable
for the validity of an extrajudicial foreclosure sale of real property
under Act No. 3135. Cristobal merely reiterated the doctrine laid down
in Bohanan v. Court of Appeals.[14]
In the present case, the foreclosing sheriffs failed to execute the
certificate
of posting of the auction sale notices. However, this fact alone does
not
prove that the sheriffs failed to post the required notices. As held in
Bohanan, "the fact alone that there is no certificate of posting
attached
to the sheriff's records is not sufficient to prove the lack of
posting."[15]
Based on the
records,
DBP presented sufficient evidence to prove that the sheriffs posted the
notices of the extrajudicial sale. The trial and appellate courts
glaringly
erred and gravely abused its discretion in disregarding the sheriffs’
partial
report and the sheriffs’ certificate of sale executed after the auction
sale. A careful examination of these two documents clearly shows that
the
foreclosing sheriffs posted the required notices of sale.chanrobles virtual law library
The partial report
dated
10 July 1986 signed by both Sheriff Abel Ramos and Deputy Sheriff
Ruperto
Galeon states in part:
That on July 1,
1986,
the undersigned sheriffs posted the notice of public auction sale of
chattel
mortgage in the conspicuous places, and at the Iriga City Hall Bulletin
Board, including Ibalon Hotel, Iriga City x x x.[16]
(Emphasis supplied)
Similarly, the
certificate
of sale of the real properties signed by both Sheriff Ramos and Deputy
Sheriff Galeon on 11 September 1986 states in part:
I, FURTHERMORE
CERTIFY
that the Notice of Sale was published in BICOL TRIBUNE, a newspaper of
general circulation in the province of Camarines Sur, for three (3)
consecutive
weeks and three (3) copies of the notices of sale were posted in three
(3) public places of the City where the properties are located for no
less
than twenty (20) days before the sale.[17]
(Emphasis supplied)
Deputy Sheriff
Galeon
also testified that he, together with Sheriff Ramos,[18]
actually posted the notices of sale.[19]
Indisputably, there is clear and convincing evidence of the posting of
the notices of sale. What the law requires is the posting of the notice
of sale, which is present in this case, and not the execution of the
certificate
of posting.
Moreover, ERHC bore
the burden of presenting evidence that the sheriffs failed to post the
notices of sale.[20]
In the absence of contrary evidence, as in this case, the presumption
prevails
that the sheriffs performed their official duty of posting the notices
of sale. Consequently, we hold that the non-execution of the
certificate
of posting cannot nullify the foreclosure of the chattel and real
estate
mortgages in the instant case.chanrobles virtual law library
Publication
requirement
under Act No. 3135
Having shown that
there
was posting of the notices of auction sale, we shall now resolve
whether
there was publication of the notice of sale of the real properties in
compliance
with Act No. 3135.[21]
There is no question
that DBP published the notice of auction sale scheduled on 12 August
1986.
However, no auction sale took place on 12 August 1986 because DBP, at
the
instance of ERHC, agreed to postpone the same to 11 September 1986. DBP
contends that the agreement to postpone dispensed with the need to
publish
again the notice of auction sale. Thus, DBP did not anymore
publish
the notice of the 11 September 1986 auction sale. DBP insists
that
the law does not require republication of the notice of a rescheduled
auction
sale. Consequently, DBP argues vigorously that the extrajudicial
foreclosure of the real estate mortgage is valid.
We do not agree.
The Court held
recently
in Ouano v. Court of Appeals[22]
that republication in the manner prescribed by Act No. 3135 is
necessary
for the validity of a postponed extrajudicial foreclosure sale. Another
publication is required in case the auction sale is rescheduled, and
the
absence of such republication invalidates the foreclosure sale.
The Court also ruled
in Ouano that the parties have no right to waive the publication
requirement
in Act No. 3135. The Court declared thus:
Petitioner further
contends
that republication may be waived voluntarily by the parties.
This argument has no
basis in law. The issue of whether republication may be waived is
not novel, as we have passed upon the same query in Philippine National
Bank v. Nepomuceno Productions Inc. Petitioner therein sought
extrajudicial
foreclosure of respondent’s mortgaged properties with the Sheriff’s
Office
of Pasig, Rizal. Initially scheduled on August 12, 1976, the
auction
sale was rescheduled several times without republication of the notice
of sale, as stipulated in their Agreements to Postpone Sale.
Finally,
the auction sale proceeded on December 20, 1976, with petitioner as the
highest bidder. Aggrieved, respondents sued to nullify the
foreclosure
sale. The trial court declared the sale void for non-compliance
with
Act No. 3135. This decision was affirmed in toto by the Court of
Appeals. Upholding the conclusions of the trial and appellate
courts,
we held:
chan robles
Petitioner and
respondents
have absolutely no right to waive the posting and publication
requirements
of Act No. 3135.
x
x x
Publication,
therefore,
is required to give the foreclosure sale a reasonably wide publicity
such
that those interested might attend the public sale. To allow the
parties to waive this jurisdictional requirement would result in
converting
into a private sale what ought to be a public auction.
DBP further asserts
that Section 24, Rule 39 of the Rules of Court, which allows
adjournment
of execution sales by agreement of the parties, applies to the present
case. Section 24 of Rule 39 provides:
Sec. 24.
Adjournment
of Sale - By written consent of debtor and creditor, the
officer
may adjourn any sale upon execution to any date agreed upon in writing
by the parties. Without such agreement, he may adjourn the sale
from
day to day, if it becomes necessary to do so for lack of time to
complete
the sale on the day fixed in the notice.
The Court ruled in
Ouano
that Section 24 of Rule 39 does not apply to extrajudicial foreclosure
sales, thus:
Petitioner submits
that
the language of the abovecited provision[23]
implies that the written request of the parties suffices to authorize
the
sheriff to reset the sale without republication or reposting.
At the outset,
distinction
should be made of the three different kinds of sales under the law,
namely:
an ordinary execution sale, a judicial foreclosure sale, and an
extrajudicial
foreclosure sale. An ordinary execution sale is governed by the
pertinent
provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules
of Court applies in cases of judicial foreclosure sale. On the
other
hand, Act No. 3135, as amended by Act No. 4118 otherwise known as "An
Act
to Regulate the Sale of Property under Special Powers Inserted in or
Annexed
to Real Estate Mortgages" applies in cases of extrajudicial foreclosure
sale. A different set of law applies to each class of sale
mentioned.
The cited provision in the Rules of Court hence does not apply to an
extrajudicial
foreclosure sale. (Emphasis supplied)
DBP also maintains
that
ERHC’s act of requesting postponement of the 12 August 1986 auction
sale
estops ERHC from challenging the absence of publication of the notice
of
the rescheduled auction sale.
We do not agree.chanrobles virtual law library
ERHC indeed
requested
postponement of the auction sale scheduled on 12 August 1986.[24]
However, the records are bereft of any evidence that ERHC requested the
postponement without need of republication of the notice of sale.
In Philippine National Bank v. Nepomuceno Productions Inc.,[25]
the Court held that:
x
x
x To request postponement of the sale is one thing; to request it
without
need of compliance with the statutory requirements is another.
Respondents,
therefore, did not commit any act that would have estopped them from
questioning
the validity of the foreclosure sale for non-compliance with Act No.
3135.
x x x
The form of the
notice
of extrajudicial sale is now prescribed in Circular No. 7-2002[26]
issued by the Office of the Court Administrator on 22 January
2002.
Section 4(a) of Circular No. 7-2002 provides that:
Sec. 4. The
Sheriff
to whom the application for extra-judicial foreclosure of mortgage was
raffled shall do the following:
a.
Prepare a Notice of Extra-judicial Sale using the following form:
"NOTICE OF
EXTRA-JUDICIAL
SALE"
"Upon extra-judicial
petition for sale under Act 3135/1508 filed _________ against (name and
address of Mortgagor/s) to satisfy the mortgage indebtedness which as
of
___________ amounts to P __________ excluding penalties, charges,
attorney’s
fees and expenses of foreclosure, the undersigned or his duly
authorized
deputy will sell at public auction on (date of sale) ________ at 10:00
A.M. or soon thereafter at the main entrance of the ________ (place of
sale) to the highest bidder, for cash or manager’s check and in
Philippine
Currency, the following property with all its improvements, to wit:
"(Description of
Property")
"All sealed bids
must
be submitted to the undersigned on the above stated time and date."
"In the event the
public
auction should not take place on the said date, it shall be held on
___________,______
without further notice."
__________ (date)
"SHERIFF"
(Emphasis
supplied)chanrobles virtual law library
The last paragraph
of
the prescribed notice of sale allows the holding of a rescheduled
auction
sale without reposting or republication of the notice. However,
the
rescheduled auction sale will only be valid if the rescheduled date of
auction is clearly specified in the prior notice of sale. The
absence
of this information in the prior notice of sale will render the
rescheduled
auction sale void for lack of reposting or republication. If the
notice of auction sale contains this particular information, whether or
not the parties agreed to such rescheduled date, there is no more need
for the reposting or republication of the notice of the rescheduled
auction
sale.
The Office of the
Court
Administrator issued Circular No. 7-2002 pursuant to the 14 December
1999
Resolution of this Court in A.M. No. 99-10-05-0, as amended by the
Resolutions
of 30 January 2001 and 7 August 2001. The Court issued these
Resolutions
for two reasons.
First, the Court
seeks
to minimize the expenses which the mortgagee incurs in publishing the
notice
of extrajudicial sale. With the added information in the notice
of
sale, the mortgagee need not cause the reposting and republication of
the
notice of the rescheduled auction sale. There is no violation of
the notice requirements under Acts Nos. 3135 and 1508 precisely because
the interested parties as well as the public are informed of the
schedule
of the next auction sale, if the first auction sale does not proceed.
Therefore,
the purpose of a notice of sale, which is to notify the mortgagor and
the
public of the foreclosure sale, is satisfied.
Second, the Court
hopes
to deter the practice of some mortgagors in requesting postponement of
the auction sale of real properties, then later attacking the validity
of the foreclosure for lack of republication. This practice will
only force mortgagees to deny outright requests for postponement by
mortgagors
since it will only mean added publication expense on the part of
mortgagees.
Such development will eventually work against mortgagors because
mortgagees
will hesitate to grant postponements to mortgagors.
In the instant case,
there is no information in the notice of auction sale of any date of a
rescheduled auction sale. Even if such information were stated in
the notice of sale, the reposting and republication of the notice of
sale
would still be necessary because Circular No. 7-2002 took effect only
on
22 April 2002. There were no such guidelines in effect during the
questioned foreclosure.chanrobles virtual law library
Clearly, DBP failed
to comply with the publication requirement under Act No. 3135.
There
was no publication of the notice of the rescheduled auction sale of the
real properties. Therefore, the extrajudicial foreclosure of the
real estate mortgage is void.
DBP, however,
complied
with the mandatory posting of the notices of the auction sale of the
personal
properties. Under the Chattel Mortgage Law,[27]
the only requirement is posting of the notice of auction sale. There
was
no postponement of the auction sale of the personal properties and the
foreclosure took place as scheduled. Thus, the extrajudicial
foreclosure
of the chattel mortgage in the instant case suffers from no procedural
infirmity.
Second
Issue:
Perfection and implementation of the restructuring agreement between
DBP
and ERHC
ERHC consistently
argues
that its restructuring agreement with DBP was perfected and even
implemented
by the parties. ERHC maintains that the delivery of its certificates of
stocks to DBP was part of its compliance with the conditions of the
restructuring
agreement.
We do not agree.
Contrary to ERHC’s
allegations
and the Court of Appeals’ findings, the restructuring agreement was
never
perfected. ERHC failed to comply with the material conditions for
the perfection of the restructuring agreement. As specified
in DBP Resolution No. 956 dated 19 March 1981[28]
approving the restructuring agreement, the following are the conditions
for the restructuring agreement:
RESOLUTION NO.
956.
Emerald Resort Hotel Corporation (Hotel Ibalon) -
Conversion
Into Common and/or Preferred Shares of P2,786,000.00 Representing 40%
of
the Total Outstanding Obligations; a Third Additional Loan of
P679,000.00
and Restructuring of the Account.
x
x
x
In view thereof and
as favorably recommended by the Manager of the Industrial Projects
Department
III in her memorandum dated February 24, 1981, the Board, upon motion
made
and duly seconded, APPROVED in favor of Emerald Resort Hotel
Corporation
(Hotel Ibalon) the following:
1.
Immediate conversion into common and/or preferred shares at borrower’s
option, of P2,786,000.00 representing 40% of the total outstanding
obligation
as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of
outstanding principal balance of P3,500,000.00 and total arrearages on
interest and other charges of P3,465,000.00, the conversion price to be
equal to the par value of the shares;
2.
A third additional loan of Six Hundred Seventy-Nine Thousand Pesos
(P679,000.00),
payable quarterly under the same restructured terms of the original and
two (2) additional loans, at 18% interest per annum; andchanrobles virtual law library
3.
Restructuring of the firm’s total outstanding principal obligation of
P3,500,000.00
in the form of extension of grace period on principal repayment from
two
(2) years to nine (9) years to make a maximum loan term of nineteen
(19)
years, regular amortizations to commence three (3) months after the end
of the extended grace period on October 31, 1985 and payable quarterly
at the following interest rates:
Original
Loan
-
P1,425,800
at 16% interest per annum
-
574,200 at 18% interest per annum
1st Additional
Loan
- 1,000,000 at 18% interest per annum
- __
500,000
at 18% interest per annum
Total
- P3,500,000
subject to the
following
terms and conditions:
A. For the
P679,000.00
Additional Loanchanrobles virtual law library
a. That
subject-firm
shall first pay the amount of P473.00 to reduce its total arrearages on
interest and other charges of P3,465,473.00 as of May 15, 1980 to
P3,465,000.00;
and
b.
That the proceeds of this additional loan shall be applied to
subject-firm’s
accrued interest and other charges due DBP as of May 15, 1980 not
otherwise
covered by the proposed equity conversion of P2,786,000.00.
B. For Both
Additional
Loan and Restructuring
a.
That a quasi-reorganization shall first be undertaken for the purpose
of
eliminating existing deficits, which should be formally authorized by
the
stockholders of the corporation, should comply with legal requirements,
and should be approved by the Securities and Exchange Commission which
sees to it that the rights of creditors are not prejudiced.
x
x
x
e.
That subject-firm shall apply with SEC for an amendment of its
authorized
capitalization to include preferred shares in case immediate conversion
into equity of 40% of the total outstanding obligation as of May 15,
1980
will include preferred shares.chanrobles virtual law library
x
x
x Emphasis supplied)
A careful review of
the facts and the evidence presented by the parties discloses that ERHC
failed to comply with the terms and conditions set forth in DBP
Resolution
No. 956.
First, ERHC failed
to
comply with the important condition of converting into equity 40
percent
of its outstanding debt to DBP. ERHC did not present any evidence
to show that it complied with this particular requirement. While it is
true that ERHC delivered to DBP certificates of stocks, it was to
comply
with ERHC’s commitment under the original mortgage contracts.[29]
ERHC committed to pledge or assign to DBP at least 67 percent of its
outstanding
shares to secure the original loan accommodation. The original
mortgage
contracts contain the following condition:
x
x x
c.
By an assignment to the Mortgagee of not less than 67% of the total
subscribed
and outstanding voting shares of the company. The said
percentages
of shares assigned shall be maintained at all times and the said
assignment
to subsist for as long as the Assignee may deem necessary during the
existence
of the Mortgagee’s approved accommodation. x x
x[30]
On 17 April 1985,
DBP
informed ERHC that it had not complied with the condition in the
original
mortgage contract on the assignment of 67 percent of its outstanding
shares
to DBP. The letter of DBP states in part:
2.
The condition requiring ERHC to assign in favor of DBP at least 67% of
the subscribed and outstanding voting shares of company has not been
met.
Of the 4,917,500
outstanding
voting shares as of December 31, 1982, only 911,800 shares have been
assigned
instead of 3,294,725 (67% of 4,917,000), more of the outstanding voting
shares have increased.[31]
The deficiency of
2,382,925
shares (3,294,725 - 911,800) may however be covered by the 2,786,000
shares
you transferred in the name of DBP as an alternative compliance with
65%
requirement. (Emphasis supplied)chanrobles virtual law library
In its reply letter
dated 11 June 1985 to DBP, ERHC signified its readiness to assign 67
percent
of its outstanding shares to DBP. Thus, ERHC’s reply letter,
signed
by its President Atty. Jose C. Reyes, states in part:
With reference to
your
letter dated 17 April 1985 which could not be seasonably acted upon on
account of my absence from the country for medical reasons, I am
pleased
to inform your goodself of the action taken on the various items
thereon
enumerated, to wit:
1.
x
x x
2. Assignment
of 67% of outstanding voting shares.chanrobles virtual law library
We are ready to
bring
up the assigned shares in favor of DBP to 67% of the corporation’s
outstanding
voting shares of 4,917,500 as of December 31, 1982 or total of
3,294,725
shares.
The corporation will
maintain its previous assignment of 911,800 shares.
Moreover, the
corporation
is agreeable that Stock Certificate No. 030 for 1,862,148 shares which
had been transferred to DBP be considered as an alternative compliance
to the raising of DBP’s assigned shares to the full 67% or 3,294,725
shares.
Your formal conformity to this arrangement is likewise requested.
Finally, the
corporation
will further assign to DBP another 520,777 shares in exchange of Stock
Certificate No. 032 for 923,852 shares which was transferred to DBP
conditionally.
This Stock Certificate has to be surrendered to the corporation for
cancellation
before we can issue by way of further assignment the 520,777
shares.
In short, the 3 blocks of shares mentioned above would result as
follows:
1.
911,800 shares
2. 1,862,148
shares
3.
520,777 shares
________
Total -
3,294,725 shares of 67% outstandingchanrobles virtual law library
voting shares
x
x x.[32]
Clearly, when ERHC
delivered
the certificates of stocks, it was to comply with ERHC’s commitment
under
the original mortgage contracts, not the restructuring agreement.
Besides, there is a
vast difference between an assignment of shares to DBP by existing
stockholders
and conversion of DBP’s loan into equity of ERHC. In the first,
the
paid-up capital of ERHC remains the same. In the latter, the
paid-up
capital of ERHC, as well as its liabilities, changes in that the
liabilities
are transferred to the capital account to the extent of the
conversion.
The latter case, which is the conversion of debt into equity required
under
the restructuring agreement, never happened. The delivery to DBP
of stock certificates representing 3,294,725 ERHC shares did not reduce
the liabilities of ERHC. The reason for the requirement to
convert
P2,786,000.00 in liabilities of ERHC into equity was to reduce ERHC’s
debt
to equity ratio, which the assignment and delivery of the stock
certificates
did not and could not have achieved.
Second, ERHC did not
avail of the P679,000.00 additional loan, despite this being a material
condition of the restructuring agreement. ERHC could not simply
refuse
to avail of the additional loan because the proceeds of this loan were
to pay the balance of ERHC’s accrued interest and other charges due DBP
as of 15 May 1980. Clearly, ERHC’s refusal to avail of the
additional
loan, intended to up-date ERHC’s loan account, prevented the perfection
of the restructuring agreement.
Lastly, ERHC failed
to comply with the quasi-reorganization requirement, as clearly
admitted
in ERHC’s letter dated 3 November 1982 to DBP, thus:
3.
On July 31, 1981, we once more communicated with your Naga Branch
advising
of the Emerald Resort Hotel Corporation’s Stockholders Resolution
approving
the quasi-reorganization and the Petition filed with the Securities and
Exchange Commission requesting approval of the corporation’s resolution
on quasi-reorganization and the transfer of 1,862,148 shares in favor
of
the DBP, copy whereof is attached as Annex "C";chanrobles virtual law library
4.
On September 7, 1981, we received by personal delivery a letter from
Manager
Mario C. Leaño, copy whereof is attached as Annex "D". In
our conversation had on this occasion, I reiterated our request in our
letter dated 19 June 1981 that in view of the circumstances affecting
our
papers in the Securities and Exchange Commission there was need to
extend
our period of compliance.
x
x x
It will thus be
noted
from the foregoing communications that we have exerted our utmost best
to comply with the conditions for the re-structuring of our loan
accounts
and all have been complied, with the exception of the
quasi-reorganization,
for reasons beyond our legal control since it is the SEC that passes
upon
the question as to whether or not we meet the SEC guidelines for a
quasi-reorganization.
Unfortunately, for the reasons stated in Annex "H" and the enclosures
thereto,
the SEC felt that ERHC was not within their guidelines for a
quasi-reorganization.[33]
(Emphasis supplied)
The
quasi-reorganization
is required specifically to eliminate ERHC’s existing deficits.
However,
the SEC must first approve the quasi-reorganization which approval ERHC
admittedly failed to secure. Through no fault of DBP, SEC disapproved
ERHC’s
application for quasi-reorganization.
Considering that
ERHC
failed to comply with the material conditions of the restructuring
agreement,
the agreement was never implemented or even perfected. The
perfection
and implementation of the restructuring agreement were expressly
subject
to the following conditions embodied in DBP Resolution No. 956 and in
DBP’s
notice of approval to ERHC, respectively:
t. x x x
Implementation
of the restructuring scheme as approved shall take effect upon
compliance
with the terms and conditions and with all the legal and documentation
requirements;[34]
x x
x
x x
x
x x x
7. All documents for
this loan approval shall be executed and perfected within 90 days from
the date of this notice; otherwise, this accommodation shall be
automatically
cancelled.[35]chanrobles virtual law library
The trial and
appellate
courts gravely misapprehended the facts and made manifestly mistaken
inferences
in finding that the parties had perfected the restructuring agreement.
Consequently, when DBP filed the application for extrajudicial
foreclosure
of the chattel and real estate mortgages, ERHC was already in default
in
paying its debt to DBP.
Third Issue:
ERHC’s
offer to lease the foreclosed properties
ERHC offered to
lease
from DBP the foreclosed properties after the auction sale. DBP
argues
that when ERHC offered to lease from DBP the foreclosed properties,
ERHC
waived its right to question the validity of the foreclosure.
We do not agree.
To constitute a
waiver,
the intent to waive must be shown clearly and convincingly.[36]
A mere offer to lease the foreclosed properties cannot constitute a
waiver
of ERHC’s right to contest the validity of the foreclosure on the
ground
of non-compliance with the statutory requisites. ERHC’s offer to lease
does not relinquish ERHC’s right to challenge the validity of the
foreclosure.
The offer to lease the foreclosed properties cannot validate or ratify
a void foreclosure. ERHC’s intention to lease the foreclosed
properties
cannot simply outweigh DBP’s failure to comply with the statutory
requisite
for a valid extrajudicial foreclosure. As the Court of Appeals
correctly
ruled, "there can be no waiver of the posting and publication
requirements
in foreclosure proceedings because the same is contrary to law and
public
order."chanrobles virtual law library
Fourth Issue:
Award of moral damages
DBP maintains that
ERHC,
a juridical person, is not entitled to moral damages. ERHC
counters
that its reputation was debased when the sheriffs and several armed men
intruded into Hotel Ibalon’s premises and inventoried the furniture and
fixtures in the hotel.
The Court of Appeals
erred in awarding moral damages to ERHC. The Court of Appeals’ sole
basis
for its ruling is a quoted portion of the testimony of ERHC’s
President,
Atty. Jose Reyes. The testimony was not even offered to prove the
justification and amount of damages which ERHC claims against DBP. In
other
words, ERHC failed to present evidence to warrant the award of moral
damages.
In a long line of decisions, this Court has held that the claimant for
moral damages must present concrete proof to justify its award, thus:
xxx while no proof
of
pecuniary loss is necessary in order that moral damages may be awarded,
the amount of indemnity being left to the discretion of the court (Art.
2216), it is, nevertheless, essential that the claimant satisfactorily
prove the existence of the factual basis of the damage (Art. 2217) and
its causal relation to defendant’s acts. This is so because moral
damages, though incapable of pecuniary estimation, are in the category
of an award designed to compensate the claimant for actual injury
suffered
and not to impose a penalty on the wrongdoer.[37]
(Emphasis supplied)chanrobles virtual law library
In the body of its
decision,
the trial court gave no basis to justify the award of moral
damages.
The trial court simply awarded moral damages in the dispositive portion
of its decision.[38]
Moreover, as a
general
rule, moral damages are not awarded to a corporation, thus:
The award of moral
damages
cannot be granted in favor of a corporation because, being an
artificial
person and having existence only in legal contemplation, it has no
feelings,
no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only be one
having
a nervous system. The statement in People v. Manero and Mambulao
Lumber Co. v. PNB that a corporation may recover moral damages if it
"has
a good reputation that is debased, resulting in social humiliation" is
an obiter dictum. On this score alone the award for damages must
be set aside, since RBS is a corporation.[39]
WHEREFORE, the Joint
Decision of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 is
AFFIRMED with MODIFICATION. The extrajudicial foreclosure of the
chattel mortgage is valid whereas the extrajudicial foreclosure of the
real estate mortgage is void. The award of moral damages is
deleted
for lack of basis. No costs.
SO ORDERED.
Davide, Jr., C.J.,
(Chairman),
Vitug, Ynares-Santiago, and Azcuna, JJ.,
concur.
____________________________
Endnotes:
[1]
Under Rule 45 of the Rules of Court.chanrobles virtual law library
[2]
Penned by Associate Justice Celia Lipana-Reyes and concurred in by
Associate
Justices Alfredo L. Benipayo and Corona Ibay-Somera.
[3]
Penned by Judge Ulysses V. Salvador.chanrobles virtual law library
[4]
Exhibit "15," Records.
[5]
Rollo, p. 193.
[6]
Exhibit "35," Records.
[7]
Exhibit "21," ibid.
[8]
Rollo, pp. 62-73.
[9]
Ibid., pp. 9-23.
[10]
Ibid., p. 25.
[11]
Ibid., p. 18.chanrobles virtual law library
[12]
Act No. 3135 is entitled "An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate Mortgages."
Act No. 1508 is entitled "An Act Providing for the Mortgaging of
Personal
Property and for the Registration of the Mortgages so Executed."
Section
3 of Act No. 3135 provides as follows: "Notice shall be given by
posting notices of the sale for not less than 20 days in at least three
public places of the municipality or city where the property is
situated,
and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive
weeks
in a newspaper of general circulation in the municipality or city."
Section
14 of Act No. 1508 provides as follows: "(1) Notices shall
be posted at least ten (10) days in at least two public places in the
municipality
where the mortgaged property is sold, designating the time, place and
purpose
of the sale. xxx"chanrobles virtual law library
[13]
G.R. No. 124372, 16 March 2000, 328 SCRA 256.
[14]
G.R. No. 111654, 18 April 1996, 256 SCRA 355.chanrobles virtual law library
[15]
See also Francisco v. Cruz, A. M. No. P-93-990 and A.M. No. P-94-1042,
8 September 2000, 340 SCRA 76.
[16]
Exhibit "33-C," Records.chanrobles virtual law library
[17]
Exhibit "38-A," ibid.chanrobles virtual law library
[18]
Sheriff Abel Ramos did not testify because he died before the
trial.
Rollo, p. 210.
[19]
TSN, 7 November 1989, pp. 24-25; TSN, 5 February 1990, pp. 15-16.
[20]
Olizon v. Court of Appeals, G.R. No. 107075, 1 September 1994, 236 SCRA
148.
[21]
An Act to Regulate the Sale of Property under Special Powers Inserted
in
or Annexed to Real Estate Mortgages.
[22]
G.R. No. 129279, 4 March 2003 citing Tambunting v. Court of Appeals,
G.R.
No. L-48278, 8 November 1988, 167 SCRA 16, and Philippine National Bank
v. Nepomuceno Productions Inc., G.R. No. 139479, 27 March 2002.chanrobles virtual law library
[23]
Refers to Section 24, Rule 39 of the Rules of Court.chanrobles virtual law library
[24]
Exhibits "34" and "35," Records; TSN, 29 October 1991, pp. 17-18,
[25]
G.R. No. 139479, 27 March 2002.chanrobles virtual law library
[26]
Guidelines for the Enforcement of Supreme Court Resolution of 14
December
1999 in Administrative Matter No. 99-10-05-0 (Re: Procedure in
Extra-Judicial
Foreclosure of Mortgage), As Amended by the Resolutions Dated 30
January
2001 and 7 August 2001.
[27]
Act No. 1508, as amended.chanrobles virtual law library
[28]
Supra, see note 4.chanrobles virtual law library
[29]
Exhibits "12," "13," "14" and "K-2," Records.
[30]
Exhibits "13" and "14," ibid.chanrobles virtual law library
[31]
Exhibit "7," ibid.chanrobles virtual law library
[32]
Exhibit "6," ibid.chanrobles virtual law library
[33]
Exhibit "M," Records.
[34]
Paragraph B of Exhibit "15," ibid.
[35]
Exhibit "1-E," ibid.chanrobles virtual law library
[36]
Thomson v. Court of Appeals, 358 Phil. 761 (1998); Lang v. Acting
Provincial
Sheriff of Surigao, 93 Phil. 661 (1953).
[37]
Enervida v. De la Torre, 154 Phil. 301 (1974) citing Algarra v.
Sandejas,
27 Phil. 284 (1914).
[38]
Supra, see note 8.chanrobles virtual law library
[39]
ABS-CBN Broadcasting Corp. v. Court of Appeals, 361 Phil. 499 (1999);
Napocor
v. Philipp Brothers Oceanic, Inc., G.R. No. 126204, 20 November 2001. |