Resort Hotels Corp. v. Development Bank of the Philippines
REITERATIONFacts
The Antecedents: Resort Hotels Corporation (RHC), a hotel operator, obtained substantial loans from the Development Bank of the Philippines (DBP) between 1969 and 1981, aggregating approximately P157 million. These loans were secured by real estate and chattel mortgages on RHC's properties, including three hotels: Baguio Pines Hotel, Taal Vista Lodge Hotel, and Hotel Mindanao. Due to financial difficulties, RHC defaulted on its loan payments. In an attempt to address this, RHC and DBP agreed to a debt-to-equity conversion, where DBP acquired 55% of RHC's stock in exchange for a reduction of RHC's obligation by P47 million. Despite this conversion, RHC's outstanding obligation remained significant, with arrearages reaching approximately 49% of the total, triggering DBP's mandatory foreclosure under Presidential Decree No. 385. Procedural History: RHC initiated multiple lawsuits in various Regional Trial Courts (RTCs) to prevent the foreclosure of its mortgaged properties. These cases were eventually consolidated before the RTC of Makati City. DBP proceeded with the extrajudicial foreclosure of both real estate and chattel mortgages, emerging as the highest bidder in all sales. Titles to the foreclosed properties were consolidated in DBP's name after the statutory redemption period expired. Subsequently, DBP sold the Baguio and Tagaytay properties to SM Investment Corporation (SMIC). The RTC ruled in favor of RHC, nullifying the foreclosure sales and discharging petitioner Rodolfo Cuenca from personal liability. However, the Court of Appeals (CA) reversed the RTC's decision, dismissing RHC's cases and ordering RHC and Rodolfo Cuenca to pay DBP a deficiency balance. This petition for review on certiorari followed. The Petition: Petitioners Resort Hotels Corporation, Rodolfo M. Cuenca, and Cuenca Investment Corporation seek review of the CA's decision via a petition for certiorari under Rule 45 of the Rules of Court. They contend that the CA erred in upholding the validity of the foreclosure proceedings, arguing that DBP failed to comply with the statutory requirements of notice, posting, and publication under Act No. 3135. Petitioners also dispute the CA's ruling that fire insurance proceeds could not be used for redemption and challenge the computation of RHC's outstanding obligation, advocating for the RTC's fixed amount of P114,005,404.02. Furthermore, they argue against the joint and several liability of Rodolfo Cuenca.
Issue(s)
Whether the testimonies of Rodolfo Cuenca and Roberto Cuenca were sufficient to successfully challenge the validity of the foreclosure proceedings. Whether the foreclosure proceedings are valid based on the Certificate of Sale prepared by the Sheriffs. Whether petitioners could use the fire insurance proceeds to redeem the Baguio Pines Hotel property. Whether the Court of Appeals erred in fixing petitioners' obligation to respondent DBP at ₱612,476,182.08 instead of ₱114,005,404.02. Whether the Court of Appeals erred in holding petitioner Rodolfo Cuenca solidarily liable with petitioner RHC.
Ruling
The petition is GRANTED IN PART. The Court of Appeals decision is AFFIRMED with the MODIFICATION that the RTC's disposition is REINSTATED regarding the loan obligation amount, the deduction of fire insurance proceeds, and the discharge of Rodolfo Cuenca from liability.
Ratio Decidendi
On the sufficiency of testimonies to challenge foreclosure validity: The Supreme Court affirmed the CA's ruling that the testimonies of Rodolfo and Roberto Cuenca were insufficient to prove non-compliance with notice, posting, and publication requirements under Act No. 3135. The Court emphasized that the burden of proof rests on the party asserting a claim, and the petitioners failed to present convincing and substantial evidence. The Court reiterated that personal notice to the mortgagor is not necessary for the validity of extrajudicial foreclosure proceedings unless stipulated, citing Philippine National Bank v. Nepomuceno Productions, Inc.. The testimonies were deemed self-serving and lacked corroboration. The Court also noted that the petitioners failed to prove that DBP violated Section 7 of Act No. 3135 by taking possession during the redemption period without applying for a writ of possession and posting a bond. The Certificates of Sale presented by DBP, prepared by the Sheriffs, were considered evidence of compliance with Section 3 of Act No. 3135. On the validity of foreclosure proceedings based on Certificates of Sale: The Court agreed with the CA that the Certificates of Sale, prepared by the Sheriffs who conducted the foreclosure proceedings, served as evidence that DBP complied with the mandate of Section 3 of Act No. 3135. The burden of proof was on the petitioners to demonstrate the invalidity of these proceedings, a burden they failed to discharge. The Court reiterated the principle that he who asserts must prove, and the petitioners' claims of non-compliance were not substantiated by preponderant evidence. On the use of fire insurance proceeds for redemption: The Court sustained the CA's ruling that RHC could not use the fire insurance proceeds of the Baguio Pines Hotel to redeem the property. Citing Development Bank of the Philippines v. West Negros College, Inc., the Court held that petitioners must pay the entire obligation to DBP, not merely the purchase price of the hotel. The insurance proceeds were applied to the outstanding obligation, and their sufficiency or insufficiency was part of the overall accounting of the debt. On the amount of RHC's obligation: The Supreme Court reinstated the RTC's holding that the loan obligation was fixed at ₱114,005,404.02 as of January 11, 1984, with 12% interest per annum from the date of the RTC judgment until fully paid. The Court found the CA's computation of ₱612,476,182.08 to be based on inadmissible hearsay evidence, as the individuals who prepared DBP's Statement of Total Claim were not presented for cross-examination. The RTC's determination was based on the application for foreclosure and the evidence presented, considering the debt-to-equity conversion and the pending cases. On Rodolfo Cuenca's solidary liability: The Court sustained the RTC's discharge of Rodolfo Cuenca from personal liability. The RTC found no evidence showing his undertaking to be personally and solidarily liable for RHC's loan obligations to DBP. The Supreme Court agreed that without such evidence, Cuenca could not be held jointly and severally liable.
Main Doctrine
The burden of proof to establish the invalidity of foreclosure proceedings lies with the mortgagor. Mere allegations of non-compliance with notice, posting, and publication requirements are insufficient without substantial evidence. Personal notice to the mortgagor is not necessary for the validity of extrajudicial foreclosure proceedings unless stipulated.