Development Bank of the Philippines v. Spouses Jesus and Anacorita Doyon
REITERATIONFacts
The Antecedents: Spouses Jesus and Anacorita Doyon obtained several loans amounting to ₱10 million from Development Bank of the Philippines (DBP). As security, they mortgaged real estate properties and motor vehicles of JD Bus Lines. Due to inability to pay, they requested restructuring and signed three promissory notes on June 29, 1994. However, they still failed to pay the quarterly installments, prompting DBP to demand payment. Procedural History: DBP filed an application for extrajudicial foreclosure. To prevent this, the spouses filed an action for nullification, claiming they had paid the principal amount. This case remained unacted upon for three years. In 1998, DBP withdrew its foreclosure application and moved for the dismissal of the spouses' case, which was granted with prejudice by the RTC. Subsequently, DBP demanded payment of over ₱20 million, and upon refusal, filed a new application for extrajudicial foreclosure. The spouses then filed a complaint for damages, alleging DBP acted in bad faith by foreclosing anew after leading them to believe their loans were extinguished. They also assailed the validity of the mortgage provisions allowing constructive possession and the public auctions. The RTC ruled in favor of the spouses, awarding damages. The CA affirmed the RTC decision but modified the liability for damages, holding DBP solely liable. The Petition: DBP filed a petition for review on certiorari, asserting it did not act in bad faith as it had the right to foreclose on the mortgages due to the respondents' default. The Supreme Court agreed to review the case, citing a possible misapprehension of facts.
Issue(s)
Whether petitioner DBP acted in bad faith when it foreclosed on the real and chattel mortgages anew. Whether the provision in the mortgage contracts allowing petitioner as mortgagee to take constructive possession of the mortgaged properties upon respondents’ default constituted a pactum commissorium. Whether the public auctions conducted by the DBP special sheriff were valid.
Ruling
The petition is GRANTED. The decision of the Court of Appeals is SET ASIDE, and a new judgment is entered dismissing the spouses' complaint for lack of cause of action.
Ratio Decidendi
On the issue of bad faith: The Court held that DBP did not act in bad faith. For an action for damages under Article 19 of the Civil Code to prosper, the complainant must prove that the defendant had a legal right or duty, exercised it with bad faith, and the complainant was prejudiced. DBP had the legal right to foreclose because the spouses' obligation remained outstanding, as they neither assailed the promissory notes nor presented proof of payment. The three-year delay by the RTC in acting on the spouses' case prejudiced DBP, justifying its resort to a more efficient legal remedy, which was foreclosure through a special sheriff as authorized by its charter. The RTC's dismissal order merely stated the case was moot and academic due to the withdrawal of the foreclosure application; it did not extinguish the spouses' obligation or indicate DBP waived its claims. Furthermore, DBP's demand for payment after the dismissal negated any presumption of waiver. Since the spouses had no cause of action, the RTC and CA erred in granting damages. On the issue of pactum commissorium: The Court reiterated that a stipulation allowing the mortgagee to take actual or constructive possession of a mortgaged property upon foreclosure is valid and not repugnant to Article 2088 or 2137 of the Civil Code. Citing Agricultural and Industrial Bank v. Tambunting, the Court explained that such stipulations are analogous to provisions on antichresis and the appointment of a receiver. The mortgage contracts uniformly provided that DBP could take possession upon the respondents' failure to pay even one amortization, thus, their refusal to pay gave DBP the right to take constructive possession of the foreclosed motor vehicles. On the validity of the public auctions: The Court held that the public auctions were valid. Citing Philippine National Bank v. Cabatingan, the Court affirmed that a sale at public auction held at any time between 9:00 a.m. and 4:00 p.m. of a particular day, regardless of duration, is valid. The foreclosed real properties were sold between 10:00 a.m. and 11:00 a.m., and the chattels between 2:00 p.m. and 3:30 p.m., both falling within the statutory hours.
Main Doctrine
A bank's withdrawal of an application for extrajudicial foreclosure and motion for dismissal of a related case, when done to pursue a more efficient legal remedy authorized by its charter, does not constitute bad faith, especially when the debtor remains in default and the dismissal order does not extinguish the obligation. Furthermore, stipulations allowing the mortgagee to take possession upon default and public auctions conducted within statutory hours are valid.