Chua v. United Coconut Planters Bank
REITERATIONFacts
The Antecedents: Spouses Felix and Carmen Chua (Spouses Chua) and co-petitioners entered into a Joint Venture Agreement (JVA) with Gotesco Properties, Inc. for property development. Deeds of absolute sale transferred 32 parcels of land to Revere Realty and Development Corporation (Revere), represented by Jose C. Go, with accompanying deeds of trust confirming petitioners' ownership. Subsequently, Spouses Chua and Lucena Grand Central Terminal, Inc. (LGCTI) entered into a Memorandum of Agreement (MOA) with United Coconut Planters Bank (UCPB) to consolidate obligations amounting to P204,597,177.04. A deduction was agreed upon in exchange for 30 parcels of land. A Real Estate Mortgage (REM) was executed by petitioners over 26 parcels, and another REM by UCPB and Revere over 18 properties. UCPB agreed to waive penalties and interests, leaving a balance of P68,000,000.00, which was converted into an equity interest in LGCTI in favor of UCPB via a Deed of Assignment of Liabilities. UCPB foreclosed the mortgages, selling the properties for P227,700,000.00. Later, LGCTI issued preferred shares to UCPB to offset the P68,000,000.00 obligation. Spouses Chua requested an accounting and clarification of liabilities secured by their properties, but UCPB did not comply. Procedural History: Petitioners filed a complaint against UCPB, Revere, Jose Go, and the Register of Deeds of Lucena City. The Regional Trial Court (RTC) declared Jose Go and Revere in default. The RTC rendered a partial judgment declaring the Deeds of Trust valid, stating Revere and Go were not owners and lacked authority to mortgage the properties, nullifying the Revere REM, and ordering reconveyance and damages against Revere and Go. The RTC later clarified that the reconveyance order was against Revere and Go, not UCPB, and that issues with UCPB would be determined after presentation of evidence. UCPB foreclosed the REMs. The RTC rendered judgment in favor of petitioners on January 6, 2009. The Court of Appeals (CA) reversed the RTC decision. On August 16, 2017, the Supreme Court reversed the CA decision, reinstating the RTC judgment with modifications, ordering reconveyance and payment of damages. Respondents filed motions for reconsideration, to inhibit the Division, and to refer the case to the En Banc. The Petition: The respondents (UCPB, Asset Pool A, Revere, and Jose Go) filed motions for reconsideration, assailing the August 16, 2017 decision on procedural and substantive grounds. They questioned the validity of the decision, alleged mortgagee in bad faith, contested the nullification of the Revere REM, disputed the application of foreclosure proceeds, and argued that the obligations were not fully paid. Revere and Jose Go claimed they were not duly heard. The Court considered and resolved these motions.
Issue(s)
Whether the decision promulgated on August 16, 2017, is valid despite allegations of procedural infirmities and violations of due process, and whether the motion to inhibit the Third Division and refer the case to the Court En Banc is meritorious. Whether the Court erred in nullifying the Deed of Real Estate Mortgage dated March 21, 2000, executed by Revere and Jose Go in favor of UCPB, and in the application of foreclosure proceeds related to this mortgage. Whether the Court erred in holding that the loan obligations of petitioners to UCPB under the MOA dated March 21, 2000, have been fully paid. Whether the Court erred in declaring that the Real Estate Mortgage dated June 2, 1997, is deemed extinguished by the MOA dated March 21, 2000. Whether the Court erred in ordering UCPB to execute Deeds of Reconveyance and return properties or their equivalent value to the petitioners, specifically P200,000,000.00. Whether the Court erred in awarding actual damages, interest, moral damages, exemplary damages, attorney's fees, and costs of suit against UCPB. Whether the Court erred in its application of foreclosure proceeds and the determination of the extent of petitioners' liability, specifically concerning the Revere REM. Whether UCPB acted in bad faith as a mortgagee, leading to the improper application of foreclosure proceeds and continued encumbrance of petitioners' properties.
Ruling
The Court denied the motions for reconsideration filed by respondents UCPB, Asset Pool A, Revere Realty Corp., and Jose Go. The Court also denied the motion to inhibit the Third Division and the urgent motions to refer the case to the Court En Banc. The Court reiterated in all respects its decision promulgated on August 16, 2017.
Ratio Decidendi
On the validity of the decision and motions for inhibition/referral: The Court found the attack against the validity of the decision to be bereft of merit. The grounds for inhibition under the Rules of Court and Internal Rules of the Supreme Court were not met. The respondents failed to show any valid or just reason for the inhibition of the Members of the Third Division or for the referral of the case to the Court En Banc, as none of the enumerated grounds in the Internal Rules of the Supreme Court were applicable. The Court emphasized that decisions of a Division are not inferior to the Court En Banc and that the deliberation and voting process followed the prescribed rules, even with a Member on leave. On the nullity of the Revere REM and application of foreclosure proceeds: The Court maintained its ruling that the Revere REM dated March 21, 2000, was null and void. This was based on the prior partial judgment of the RTC dated September 6, 2005, which declared Revere and Go as not the owners and without authority to mortgage the properties, a judgment that had become final and executory against them. The Court found no proof of petitioners' consent to the Revere REM, and UCPB failed to present evidence of such consent. The MOA itself did not authorize Revere to execute the REM, and the Parol Evidence Rule barred evidence of terms not contained in the written agreement. Furthermore, UCPB had actual knowledge of the Deeds of Trust, which stipulated that Revere could not dispose of the properties without the TRUSTORS' written consent, thus UCPB was deemed a mortgagee in bad faith. On the full payment of obligations and reconveyance: The Court affirmed that the loan obligations of petitioners to UCPB under the MOA had been fully paid. The application of foreclosure proceeds, considering the nullity of the Revere REM and the limited scope of the petitioners' REM, resulted in the full extinguishment of petitioners' obligation. On the extinguishment of the 1997 REM: The Court reiterated that the Memorandum of Agreement (MOA) of March 21, 2000, consolidated all obligations of the petitioners as of November 30, 1999, and effectively superseded the earlier Real Estate Mortgage dated June 2, 1997. The MOA explicitly addressed the consolidation of obligations, and its terms governed the relationship between the parties regarding these consolidated liabilities. On the full payment of obligations and reconveyance (continued): The Court maintained the order for UCPB to execute Deeds of Reconveyance and return properties or their equivalent value, specifically P200,000,000.00, representing the unused portion of the total credit accommodation, to prevent unjust enrichment. The Court calculated this amount based on the proportionality of the petitioners' actual obligation to the total credit facility extended. On damages and costs: The Court upheld the award of actual damages, legal interest, moral damages, exemplary damages, attorney's fees, and costs of suit against UCPB. These awards were based on the findings that UCPB acted as a mortgagee in bad faith, the foreclosure of the Revere REM was invalid, and the petitioners suffered damages due to the improper application of foreclosure proceeds and the continued encumbrance of their properties. On the nullity of the Revere REM and application of foreclosure proceeds (continued): The Court reiterated its stance on the Revere REM, emphasizing its invalidity and its impact on the application of foreclosure proceeds. On UCPB's bad faith and its consequences: The Court's findings of UCPB's bad faith as a mortgagee directly led to the improper application of foreclosure proceeds and the continued encumbrance of the petitioners' properties, justifying the awards of damages and other remedies.
Main Doctrine
The Court denied the motions for reconsideration, reiterating its decision that the foreclosure of the Revere REM was invalid due to the bank's bad faith and lack of consent from the petitioners, and that the application of foreclosure proceeds must be equitable to prevent unjust enrichment. The Court affirmed the nullity of the Revere REM and the obligation of UCPB to reconvey properties and return excess proceeds.