Philippine National Bank v. Tad-Y
REITERATIONFacts
The Antecedents: Spouses Jose and Patricia Tad-y obtained agricultural sugar crop loans from Philippine National Bank (PNB) Binalbagan Branch, secured by a Real Estate Mortgage (REM) over six parcels of land. Two of these parcels, Lots 778 and 788, were sold at auction by the provincial treasurer for failure to pay real property taxes. PNB participated and was the sole bidder, acquiring the lots for P10,609.63. PNB's acquisition was annotated on the titles. Later, the spouses Tad-y obtained a loan restructuring and completed payments on their loans. PNB executed a deed of release for the REM but excluded Lots 778 and 788, claiming ownership by virtue of the auction sale. Patricia Tad-y offered to reimburse PNB for the auction price, but PNB insisted on its ownership and offered to negotiate repurchase. Procedural History: The Tad-ys, represented by Antonio Tad-y, filed a complaint for breach of contract and reconveyance of property. The Regional Trial Court (RTC) ruled in favor of the Tad-ys, ordering PNB to reconvey the lots upon reimbursement of the acquisition price plus interest. The RTC found PNB's participation in the auction sale an actionable abuse of right under Article 19 of the Civil Code, as PNB should have advanced the taxes as per the REM. The Court of Appeals (CA) affirmed the RTC decision, holding that PNB should have paid the taxes instead of allowing delinquency and acquiring the lots at a low price. The CA also found that PNB's acquisition inured to the Tad-ys' benefit under the attorney-in-fact provision of the REM, creating a constructive trust. PNB's motion for reconsideration was denied. The Petition: PNB filed a petition for review on certiorari, assailing the CA's decision and resolution, raising issues on breach of contract, the attorney-in-fact provision, and prescription.
Issue(s)
Whether the Court of Appeals erred in holding that PNB committed a breach of the REM by failing to pay the real estate taxes on the subject properties. Whether the Court of Appeals erred in holding that PNB was acting as attorney-in-fact for the spouses Tad-y during the public auction sale. Whether the Court of Appeals erred in failing to consider that the complaint is barred by prescription.
Ruling
The petition is DENIED. The April 16, 2013 Decision and the September 4, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 01412 are AFFIRMED.
Ratio Decidendi
On the obligation to pay real property taxes under the REM: The Court affirmed the CA's ruling that PNB had an obligation to advance the real property taxes. While paragraph (b) of the REM placed the primary duty on the mortgagor, the last sentence of paragraph (c) explicitly stated that "the Mortgagee shall advance the taxes and insurance premiums due in case the Mortgagor shall fail to pay them." This provision, read in conjunction with the rest of the REM, meant that PNB should have paid the delinquent taxes on behalf of the spouses Tad-y when they failed to do so, rather than allowing the properties to be auctioned. The Court clarified that this obligation to advance taxes, as stipulated in paragraph (c), was an additional stipulation that supplemented the provisions for judicial foreclosure, and its use of the word "also" indicated it was an additional stipulation. On the creation of agency relation under paragraph (d) of the REM: The Court sustained the CA's conclusion that PNB acted as an attorney-in-fact for the spouses Tad-y. Paragraph (d) of the REM appointed PNB as attorney-in-fact upon breach of any condition, with broad powers including the "proper administration of the mortgaged property." The Court interpreted PNB's participation in the auction sale, not to foreclose, but to protect its interest and preserve the mortgaged properties from third-party acquisition, as an act of administration convenient for the preservation of its mortgage rights. Therefore, PNB's acquisition of the lots inured to the benefit of the spouses Tad-y, as the agency was created to facilitate the exercise of the mortgagee's right to foreclose, an option PNB never exercised. The Court emphasized that this was an act of administration, not strict dominion, and thus did not require a specific power of attorney under Article 1878 of the Civil Code. On the issue of prescription: The Court held that PNB's belated invocation of prescription on appeal was unjustified. While Rule 9, Section 1 of the Rules of Court allows dismissal motu proprio if prescription is apparent on the face of the pleadings, this is not absolute. When prescription requires the determination of evidentiary matters, it cannot be the basis for outright dismissal without hearing. In this case, the complaint's allegations regarding the void nature of the auction sale and the prayer for reconveyance opened possibilities for different prescriptive periods, making the issue fact-dependent. PNB's failure to raise prescription as an affirmative defense in its answer or during pre-trial, and its inconsistent citation of legal bases for prescription, further weakened its claim. The CA's refusal to pass upon the defense of prescription was justified because it was raised for the first time on appeal and involved factual matters that should have been ventilated in the trial court.
Main Doctrine
A mortgagee who acquires mortgaged property at a tax delinquency auction sale, ostensibly to protect its interest, but without foreclosing the mortgage, acts as an agent for the mortgagor, and the acquisition inures to the mortgagor's benefit, creating a constructive trust. The failure to raise prescription as an affirmative defense in the answer or as a ground for dismissal before trial, especially when it involves evidentiary matters, bars its belated invocation on appeal.