October 2009 - Philippine Supreme Court Resolutions
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[G.R. No. 177072 : October 19, 2009] CHINA BANKING CORPORATION V. SPOUSES ELNORA L. TORRES AND AGUSTIN S. TORRES:
[G.R. No. 177072 : October 19, 2009]
CHINA BANKING CORPORATION V. SPOUSES ELNORA L. TORRES AND AGUSTIN S. TORRES
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated 19 October 2009:
G.R. No. 177072 (China Banking Corporation v. Spouses Elnora L. Torres and Agustin S. Torres).
This is a petition for review on certiorari seeking to reverse and set aside the September 27, 2006 Decision[1]of the Court of Appeals in CA-G.R. CV 66780 which affirmed with modifications the May 18, 1999[2] and February 2, 2000[3] Orders[4] of the Regional Trial Court (RTC) of Quezon City, Branch 216, in Civil Case Q-97-31212 declaring as void the mortgage executed by respondent spouses Elnora L. Torres and Agustin S. Torres in favor of petitioner China Banking Corporation.
The facts show that on April 3, 1995 respondents executed a real estate mortgage[5] over a parcel of land to secure the credit facility (not to exceed P1,400,000.00) granted in their favor by petitioner. The first of the promissory notes covered by the credit line was executed by respondent Elnora Torres on April 4, 1995.[6] Respondents, however, defaulted in the payment of their amortizations and failed to pay despite demand, leaving an unpaid obligation in the amount P1,467,234.35. This prompted petitioner to file an application for foreclosure of the mortgage before the notary public who granted the same, setting the auction sale to June 4, 1997. Hence, respondents filed an action for declaration of nullity of real estate mortgage, injunction and damages with application for temporary restraining order (TRO) and writ of preliminary injunction, claiming among others, that petitioner disregarded their remittances and imposed exorbitant interests and penalties; and that the accessory contract of mortgage is void for lack of consideration because at the time of its execution, there was no existing principal loan obligation as the promissory notes were signed only after the execution of the mortgage.[7]:
In its Answer with counterclaim,, petitioner denied disregarding the payments made by respondents and alleged that they sent several demand letters to respondents who were advised to pick up their statements of account but got no response from them. Petitioner said the compounded interest was stipulated in the promissory notes and that to declare the mortgage void on a mere technicality after respondents benefited from it would be contrary to justice and equity.[8]
On June 3, 1995 the trial court granted respondents' application for TRO restraining petitioner from proceeding with the auction sale.
On October 12, 1998, the RTC dismissed respondents"' complaint and petitioner's counterclaim. It was held that (1) respondents defaulted in the payment of their amortizations giving petitioner the right to foreclose the mortgage; (2) petitioner complied with the required notice and publication of the auction sale; and that (3) a notary public is authorized to conduct a sale at public auction.
Respondents filed a motion for reconsideration admitting the existence of their obligation to petitioner and insisting that the issue here is the nullity of the accessory contract of mortgage which lacks consideration at the time of its execution.[9]
Convinced, the RTC issued an Order dated May 18, 1999 reversing its October 12, 1998 decision and holding that the mortgage is void as it was executed ahead of the principal loan obligation. Petitioner was directed to pay respondents P300,000.00 as actual, moral, and exemplary damages, P100,000.00 as attorney's fees, plus P3,000.00 for every appearance in court and the costs of suit On February 2, 2000, the RTC denied petitioner's motion for reconsideration and specified in the dispositive portion of the May 18, 1999 Order that the contract of mortgage is void.
On appeal, the Court of Appeals affirmed the ruling of the RTC that the mortgage is void but deleted the awards of damages.
The sole issue here is whether or not the accessory contract of mortgage is void for lack of consideration having been executed ahead of the principal contract of loan.
This issue had already been answered in Central Bank of the Philippines v. Court of Appeals,[10] where it was held that the execution of the accessory contract of mortgage may be prior to the execution or perfection of the principal contract of loan, as long as the principal obligation creates a binding effect, thus -
One of the requisites of a valid mortgage is that it must be constituted to secure the fulfillment of a principal obligation, which in this case, is a contract of loan. Corollarily, the consideration of the accessory contract of mortgage is the same as that of the principal contract of loan.[11] A loan is a real contract, perfected upon the delivery of the object of the agreement. Here, the contract of mortgage initially existed conditionally, subject to the perfection of the contract of loan, which was fulfilled upon the delivery to respondents of the amounts subject of the promissory notes. This delivery gave birth to a principal loan obligation and created a binding contract on respondents to pay the same.[12] We thus have a valid contract of mortgage constituted to secure a perfected and binding loan contract.
WHEREFORE, the September 27, 2006 Decision of the Court of Appeals in CA-G.R. CV 66780 is REVERSED and SET ASIDE. The complaint for declaration of nullity of real estate mortgage, injunction and damages with application for temporary restraining order and writ of preliminary injunction before the Regional Trial Court of Quezon City, Branch 216, in Civil Case Q-97-31212 is DISMISSED.
WITNESS the Honorable Leonardo A. Quisumbing, Chairperson, Honorable Antonio T. Carpio (designated additional member per S.O. No. 757 in lieu of Del Castillo, J, on leave), Conchita Carpio Morales, Arturo D. Brion and Roberto A. Abad, Members, Second Division, this 19th day of October, 2009.
G.R. No. 177072 (China Banking Corporation v. Spouses Elnora L. Torres and Agustin S. Torres).
This is a petition for review on certiorari seeking to reverse and set aside the September 27, 2006 Decision[1]of the Court of Appeals in CA-G.R. CV 66780 which affirmed with modifications the May 18, 1999[2] and February 2, 2000[3] Orders[4] of the Regional Trial Court (RTC) of Quezon City, Branch 216, in Civil Case Q-97-31212 declaring as void the mortgage executed by respondent spouses Elnora L. Torres and Agustin S. Torres in favor of petitioner China Banking Corporation.
The facts show that on April 3, 1995 respondents executed a real estate mortgage[5] over a parcel of land to secure the credit facility (not to exceed P1,400,000.00) granted in their favor by petitioner. The first of the promissory notes covered by the credit line was executed by respondent Elnora Torres on April 4, 1995.[6] Respondents, however, defaulted in the payment of their amortizations and failed to pay despite demand, leaving an unpaid obligation in the amount P1,467,234.35. This prompted petitioner to file an application for foreclosure of the mortgage before the notary public who granted the same, setting the auction sale to June 4, 1997. Hence, respondents filed an action for declaration of nullity of real estate mortgage, injunction and damages with application for temporary restraining order (TRO) and writ of preliminary injunction, claiming among others, that petitioner disregarded their remittances and imposed exorbitant interests and penalties; and that the accessory contract of mortgage is void for lack of consideration because at the time of its execution, there was no existing principal loan obligation as the promissory notes were signed only after the execution of the mortgage.[7]:
In its Answer with counterclaim,, petitioner denied disregarding the payments made by respondents and alleged that they sent several demand letters to respondents who were advised to pick up their statements of account but got no response from them. Petitioner said the compounded interest was stipulated in the promissory notes and that to declare the mortgage void on a mere technicality after respondents benefited from it would be contrary to justice and equity.[8]
On June 3, 1995 the trial court granted respondents' application for TRO restraining petitioner from proceeding with the auction sale.
On October 12, 1998, the RTC dismissed respondents"' complaint and petitioner's counterclaim. It was held that (1) respondents defaulted in the payment of their amortizations giving petitioner the right to foreclose the mortgage; (2) petitioner complied with the required notice and publication of the auction sale; and that (3) a notary public is authorized to conduct a sale at public auction.
Respondents filed a motion for reconsideration admitting the existence of their obligation to petitioner and insisting that the issue here is the nullity of the accessory contract of mortgage which lacks consideration at the time of its execution.[9]
Convinced, the RTC issued an Order dated May 18, 1999 reversing its October 12, 1998 decision and holding that the mortgage is void as it was executed ahead of the principal loan obligation. Petitioner was directed to pay respondents P300,000.00 as actual, moral, and exemplary damages, P100,000.00 as attorney's fees, plus P3,000.00 for every appearance in court and the costs of suit On February 2, 2000, the RTC denied petitioner's motion for reconsideration and specified in the dispositive portion of the May 18, 1999 Order that the contract of mortgage is void.
On appeal, the Court of Appeals affirmed the ruling of the RTC that the mortgage is void but deleted the awards of damages.
The sole issue here is whether or not the accessory contract of mortgage is void for lack of consideration having been executed ahead of the principal contract of loan.
This issue had already been answered in Central Bank of the Philippines v. Court of Appeals,[10] where it was held that the execution of the accessory contract of mortgage may be prior to the execution or perfection of the principal contract of loan, as long as the principal obligation creates a binding effect, thus -
"The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real estate mortgage (Bonnevie v. CA, 125 SCRA 122 [1983]). It may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay" XXX.
One of the requisites of a valid mortgage is that it must be constituted to secure the fulfillment of a principal obligation, which in this case, is a contract of loan. Corollarily, the consideration of the accessory contract of mortgage is the same as that of the principal contract of loan.[11] A loan is a real contract, perfected upon the delivery of the object of the agreement. Here, the contract of mortgage initially existed conditionally, subject to the perfection of the contract of loan, which was fulfilled upon the delivery to respondents of the amounts subject of the promissory notes. This delivery gave birth to a principal loan obligation and created a binding contract on respondents to pay the same.[12] We thus have a valid contract of mortgage constituted to secure a perfected and binding loan contract.
WHEREFORE, the September 27, 2006 Decision of the Court of Appeals in CA-G.R. CV 66780 is REVERSED and SET ASIDE. The complaint for declaration of nullity of real estate mortgage, injunction and damages with application for temporary restraining order and writ of preliminary injunction before the Regional Trial Court of Quezon City, Branch 216, in Civil Case Q-97-31212 is DISMISSED.
WITNESS the Honorable Leonardo A. Quisumbing, Chairperson, Honorable Antonio T. Carpio (designated additional member per S.O. No. 757 in lieu of Del Castillo, J, on leave), Conchita Carpio Morales, Arturo D. Brion and Roberto A. Abad, Members, Second Division, this 19th day of October, 2009.
Very truly yours,
(Sgd.) MA. LUISA L. LAUREA
Clerk of Court
(Sgd.) MA. LUISA L. LAUREA
Clerk of Court
Endnotes:
[1] Rollo, p. 10; penned by Associate Justice Sesinando E. Villon and concurred in by Associate Justices Elvi John S. Asuncion and Jose Catral Mendoza.
[2] Id. at 32.
[3] Id. at 36.
[4] Penned by Judge Marciano I. Bacalla.
[5] Records, p. 13.
[6] Exhibit "7", records, p. 183.
[7] Complaint, records, p. 9.
[8] Answer, records, pp. 73 and 75.
[9] Records, pp. 297-299.
[10] 223 Phil. 266, 277 (1985).
[11] Central Bank of the Philippines v. Court of Appeals, supra note 10.
[12] See Vitug, Civil Law, Vol. IV, pp. 207-208.
