Bangko Sentral ng Pilipinas v. Libo-on
REITERATIONFacts
The Antecedents: Spouses Libo-on obtained loans from Rural Bank of Hinigaran, Inc. (RBHI), executing promissory notes and a real estate mortgage as security. RBHI, in turn, obtained loans from Bangko Sentral ng Pilipinas (BSP), pledging and depositing promissory notes and TCTs, including those of Spouses Libo-on, as security under a "promissory note with trust receipt agreement." BSP demanded payment from Spouses Libo-on for their outstanding loan with RBHI. When Spouses Libo-on failed to pay, and RBHI also defaulted on its loan with BSP, BSP initiated extrajudicial foreclosure proceedings against the Spouses Libo-on's mortgaged property. Procedural History: Spouses Libo-on filed an action against BSP for damages with a prayer for injunctive relief, contesting the foreclosure. They argued no privity of contract existed between them and BSP, and the amount sought was beyond their original loan. The Regional Trial Court (RTC) granted a preliminary injunction, and later, declared the foreclosure irregular and unlawful, making the injunction permanent, and ordering BSP to pay attorney's fees and litigation expenses. The Court of Appeals (CA) affirmed the RTC's decision. The Petition: BSP filed a petition for review on certiorari, assailing the CA's decision, primarily questioning the authority to foreclose the mortgage due to the absence of a notarized deed of assignment, special power of attorney, or any document of transfer of rights, and the alleged lack of privity of contract.
Issue(s)
Whether the BSP has the authority to foreclose the real estate mortgage constituted by respondent and his wife. Whether there was privity of contract between respondent and his wife, on one hand, and petitioner BSP, on the other. Whether petitioner BSP is liable for attorney's fees and litigation expenses.
Ruling
The petition is DENIED. The Decision dated March 21, 2006 and Resolution dated July 18, 2006 of the Court of Appeals-Cebu City in CA-G.R. CV. No. 00098 are AFFIRMED.
Ratio Decidendi
On the authority to foreclose the real estate mortgage: The Supreme Court held that BSP has no authority to foreclose the subject mortgage. An assignment of credit requires specific formalities, especially when involving real property, which must be in a public instrument and registered. The "promissory note with trust receipt agreement" executed by RBHI in favor of BSP did not constitute a valid assignment of credit. The Court emphasized that the mere pledge and deposit of security documents, including the TCT and promissory note of Spouses Libo-on, do not grant BSP the authority to intervene in the original mortgage contract or foreclose the property. Furthermore, RBHI, as the mortgagor, was not the absolute owner of the property during the term of the mortgage with Spouses Libo-on, and thus could not validly pledge it to BSP. The Court also noted that the terms of the "promissory note with trust receipt agreement" indicated a contract of loan with the securities pledged as collateral, not an absolute conveyance of title characteristic of an assignment of credit, and that such an arrangement, if intended to allow appropriation of the property, would violate the prohibition against pactum commissorium. On the privity of contract: The Court affirmed the lower courts' finding that there was no privity of contract between BSP and Spouses Libo-on. The original loan and mortgage were between Spouses Libo-on and RBHI. BSP's involvement arose from its loan agreement with RBHI, where RBHI pledged its receivables, including the Spouses Libo-on's loan and mortgage, as security. However, without a valid assignment of credit, BSP did not step into the shoes of RBHI as the creditor with respect to the Spouses Libo-on's mortgage obligation. Therefore, BSP could not directly enforce the mortgage against the Spouses Libo-on. On attorney's fees and litigation expenses: The Court affirmed the award of attorney's fees and litigation expenses. While the Court found that BSP acted in an honest belief that it had the power to foreclose, the Spouses Libo-on were compelled to defend their rights against an unlawful foreclosure proceeding. The award was based on the necessity of the Spouses Libo-on incurring expenses to protect their interests, which is a valid ground for awarding attorney's fees, even if moral damages were not awarded due to the absence of bad faith or malicious intent on BSP's part.
Main Doctrine
The Bangko Sentral ng Pilipinas (BSP) cannot foreclose a real estate mortgage constituted by a third party in favor of a rural bank, absent a valid assignment of credit or a public instrument evidencing such transfer of rights, as the mere pledge and deposit of security documents do not grant the BSP the authority to directly intervene in the mortgage contract between the original parties.