Union Bank v. D'Rossa
REITERATIONFacts
The Antecedents: D’Rossa, Incorporated (DRI) executed a memorandum of agreement to mortgage its parcels of land in favor of Union Bank of the Philippines (Union Bank) as security for the credit facility of Josephine Marine Trading Corporation (JMTC). JMTC initially availed P3 million. Subsequently, Union Bank increased JMTC's credit facility to P27 million, from which JMTC availed US$700,503.64 (P18,318,170.18). Upon JMTC's failure to pay, Union Bank instituted foreclosure proceedings on DRI's properties. Union Bank emerged as the highest bidder for P15,300,000.00 during the auction sale. Procedural History: DRI filed a supplemental complaint seeking to nullify the public sale, claiming its liability was only P3 million. Union Bank contended DRI was liable for JMTC's total outstanding obligations. The Regional Trial Court (RTC) dismissed DRI's complaint and ordered it to pay attorney's fees. On appeal, the Court of Appeals (CA) reversed the RTC decision, upholding Union Bank's right to foreclose but limiting DRI's mortgage liability to P8.61 million. The CA declared the foreclosure sale null and void due to a variance in the date of the public sale notice and the actual sale date. The Petition: Union Bank filed a petition for review on certiorari, assailing the CA's decision and resolution, raising issues concerning the limitation of DRI's liability and the validity of the foreclosure sale.
Issue(s)
Whether the Court of Appeals erred in holding that DRI's mortgage liability is limited to P8.61 million. Whether the Court of Appeals erred in finding the foreclosure sale of DRI's mortgaged properties null and void for lack of republication of the notice of sale.
Ruling
The Supreme Court granted the petition, reversed and set aside the decision of the Court of Appeals, and affirmed the decision of the trial court in toto. The Court ruled that DRI's liability is not limited to P8.61 million and upheld the validity of the foreclosure sale.
Ratio Decidendi
On the limitation of DRI's liability: The Court held that DRI's liability is not limited to P8.61 million, citing the "dragnet clause" or "blanket mortgage clause" in the Real Estate Mortgage agreement. This clause expressly provided that the secured obligations included all obligations of the Borrower and/or the Mortgagor under the Notes, Agreement, and Mortgage, as well as any and all instruments issued upon renewal, extension, amendment, or novation thereof, irrespective of whether such obligations are new, separate, or additional. Furthermore, it covered all other obligations, whether presently owing or hereinafter incurred. The Court emphasized that such clauses are valid and binding, enabling parties to provide for continuous dealings without the need for executing new security documents for each transaction. The evidence, including a letter from DRI's President and the fact that both JMTC and DRI were family-owned corporations, indicated DRI's active involvement and consent to the increase of JMTC's credit facility, estopping it from questioning the foreclosure proceedings. Therefore, DRI was liable for JMTC's total outstanding obligations secured by the mortgage. On the validity of the foreclosure sale and republication: The Court found DRI's allegation of lack of republication to be without factual or legal basis, as DRI failed to present proof to support its claim. Conversely, Union Bank presented a Certificate of Posting and an Affidavit of Publication, along with copies of the newspaper issues, attesting to the republication of the notice of sale. The Court noted that foreclosure proceedings carry a presumption of regularity, and the burden of proof to rebut this presumption lies with the party challenging the proceedings. DRI failed to provide convincing evidence to overcome this presumption. Moreover, the Court pointed out that the principal object of a notice of sale is to inform the public, and personal notice to the mortgagor is not necessary unless stipulated. The fact that DRI's counsel wrote to the Sheriff requesting a hold in abeyance of the sale on September 20, 1996, demonstrated that DRI was aware of the scheduled sale and was not deprived of the opportunity to participate. The Court also noted that the issue of republication was not raised in the lower courts, violating the rule that issues not passed upon by the lower court cannot be raised on appeal.
Main Doctrine
A mortgage containing a 'dragnet clause' or 'blanket mortgage clause' is valid and binding, securing not only existing but also future obligations of the borrower, and the mortgagor is estopped from questioning foreclosure proceedings if they actively participated in or consented to the subsequent credit accommodations.