Quirino Gonzales Logging Concessionaire v. Republic Planters Bank
REITERATIONFacts
The Antecedents: Quirino Gonzales Logging Concessionaire (QGLC), through Quirino Gonzales, applied for credit accommodations with Republic Bank (now Republic Planters Bank) on October 15, 1962. The bank approved a credit line of P900,000.00, comprising an overdraft line and a Letter of Credit (LC) line. Ten documents were executed, including agreements for credit, applications for LC, and trust receipts. The obligations were secured by a real estate mortgage on four parcels of land. Petitioners also executed promissory notes in favor of the Bank to secure advances for log exportation. In 1965, petitioners defaulted, and the Bank foreclosed the mortgage, becoming the highest bidder. On January 27, 1977, the Bank filed a complaint for sum of money, alleging non-payment of the balance of QGLC's obligation after foreclosure and non-payment of promissory notes. Procedural History: The Regional Trial Court (RTC) of Manila dismissed all claims of the Bank, ruling that the first to sixth causes of action were barred by prescription. It found no valid ground to sustain the seventh and eighth causes of action due to doubts about the log exports in 1967, and for the ninth cause of action, it gave credit to the testimony that the spouses signed documents in blank and never received the loan proceeds. The RTC also ordered the dissolution of the attachment on the preferred shares of stocks of the spouses Gonzales and awarded attorney's fees to them. On appeal, the Court of Appeals (CA) reversed the RTC decision, remanding the case for determination of the amounts due to the Bank. The CA held that foreclosure sale notices interrupted prescription for the first to sixth causes of action and that written agreements (promissory notes) prevailed over oral testimony for the seventh to ninth causes of action. The CA also found the counterclaim for reconveyance to have prescribed. The Petition: Petitioners sought review of the CA decision, arguing that the CA erred in holding that the Bank's first to sixth causes of action had not prescribed, that the seventh to ninth causes of action had merit, and that their counterclaim for reconveyance was barred by prescription. They also questioned the CA's reversal of the award of attorney's fees.
Issue(s)
Whether the respondent Court erred in holding that the Bank's first, second, third, fourth, fifth, and sixth causes of action have not prescribed. Whether the respondent Court erred in holding that the Bank's seventh, eighth, and ninth causes of action appear to be impressed with merit. Whether the respondent Court erred in reversing the findings of the RTC that petitioners may seek the return of the real and personal properties, as the same is barred by prescription. Whether the respondent Court erred in holding that petitioners are not entitled to an award of attorney's fees.
Ruling
The Supreme Court modified the decision of the Court of Appeals. It dismissed the Bank's complaint with respect to its first to sixth causes of action. Its complaint with respect to its seventh to ninth causes of action was remanded to the court of origin for determination of the amounts due the Bank thereunder.
Ratio Decidendi
On the first issue (prescription of first to sixth causes of action): The Supreme Court held that the Bank's contention that notices of foreclosure sale were tantamount to formal demands that interrupted the prescriptive period was without merit. The law requires a written extrajudicial demand by the creditor, which was absent. Furthermore, the Bank's claims for the deficient amounts after foreclosure (first to fifth causes of action) were in the nature of mortgage actions, which prescribe ten years from the time the right of action accrued, i.e., after the foreclosure in 1965. The complaint was filed in 1977, more than ten years later, thus barring these actions. For the sixth cause of action (promissory note), it was not clear if it was covered by the mortgage, and even if it were, the prescriptive period would still have run. The Court found that the first to sixth causes of action had prescribed. On the second issue (seventh to ninth causes of action): The Supreme Court found that the petitioners' claim of signing the promissory notes in blank and not receiving the value thereof was unsubstantiated. The genuineness and due execution of the notes were deemed admitted by failure to deny under oath. As negotiable instruments, the notes were prima facie deemed issued for consideration, and petitioners failed to adduce sufficient evidence to prove otherwise. The Court also found the reliance on certain exhibits as proposals for settlement to be without merit. Therefore, the case was remanded to the lower court for determination of the amounts due under these causes of action. On the third issue (reconveyance of properties): The Supreme Court affirmed that the petitioners' prayer for reconveyance of the foreclosed properties did not lie. Although the Bank's action for deficiency was barred by prescription, nothing irregular attended the foreclosure proceedings under Act No. 3135 to warrant reconveyance. The CA correctly found that the trial court's ruling on prescription of the Bank's claims made it impossible to conclude the foreclosed obligation was fictitious, and the counterclaim for reconveyance was also subject to prescription. On the fourth issue (attorney's fees): The Supreme Court agreed with the CA that the trial court's award of attorney's fees to the petitioners lacked legal basis. The CA had struck down the award for lack of legal basis, and this was not raised as an issue by the petitioners in their appeal.
Main Doctrine
Notices of foreclosure sale are not tantamount to written extrajudicial demands that interrupt the running of the prescriptive period for filing an action for deficiency claims arising from foreclosed mortgages. An action for deficiency claim after foreclosure prescribes ten years from the time the right of action accrued, which is after the foreclosure proceedings.