Cruz v. Metropolitan Bank and Trust Company
REITERATIONFacts
The Antecedents: From 1993 to 2004, petitioners Carmelita C. Cruz and Vilma Low Tay, doing business as Republic Shoes & Handbags Manufacturing, obtained various loans from Metrobank, securing them with a mortgage on real property under TCT No. PT-66603 (RD Pasig). Upon failure to fully pay, they entered a restructuring agreement, executing a April 15, 2004 promissory note for P8,600,000 outstanding balance. Petitioners denied default, alleging Metrobank's inaccurate records; after hiring an accountant to audit payments via summary of applications, promissory notes, receipts, and checks from 1993-2004, they claimed overpayment of P3,540,519.55 as of September 21, 2004 (total paid P32,648,374.60 vs. recorded P20,507,855.05, even deducting restructured balance), citing issues like delayed recording inflating interests, unaccounted dacion en pago, non-issuance of receipts, and unrecorded checks. On May 4, 2005, they filed a Complaint for Accounting against Metrobank (Marikina RTC, Civ. Case No. 2005-1035-MK). Despite this, on January 6, 2009, Metrobank extrajudicially foreclosed the mortgage (Pasig RTC, EJF No. 5560), won as highest bidder, obtained Certificate of Sale, leading to cancellation of petitioners' title and issuance of TCT No. 011-2012002076 to Metrobank. Procedural History: Metrobank filed ex parte Petition for Writ of Possession (Pasig RTC, LRC No. R-7234). Petitioners filed Complaint for Annulment of Foreclosure Sale (Pasig RTC, Civ. Case No. 72144), consolidated with possession petition. Marikina RTC (Sept. 21, 2012) ruled for petitioners in Accounting case, ordering full accounting of 1993-2004 payments; CA affirmed and remanded (CA-G.R. CV No. 99886, Feb. 23, 2015), upheld by SC in Metropolitan Bank v. Cruz (894 Phil. 177, 2021) with finality (Entry of Judgment June 15, 2022), emphasizing bank's fiduciary duty and discrepancies. Pasig RTC (Nov. 25, 2014) nullified foreclosure for lack of default absent accounting, denied writ, awarded damages. Metrobank appealed; CA (June 21, 2017, CA-G.R. CV No. 106039) reversed, dismissed annulment, granted writ conditioned on bond within redemption period, holding overpayment irrelevant to sale validity, no breach during sale, writ ministerial; MR denied (Jan. 4, 2018). The Petition: Petitioners assail CA via Petition for Review on Certiorari, arguing breach of trust (premature foreclosure pending accounting) as annulment ground, no default absent final accounting, sale/writ void for lack of basis; Metrobank opposed, echoing CA on limited grounds.
Issue(s)
Whether respondent bank prematurely foreclosed the mortgage pending a full and accurate accounting of petitioners' total payments, considering the discrepancies and uncertainties in the payment records. Whether, given the potential prematurity of the foreclosure and the ongoing accounting dispute, the foreclosure sale and the writ of possession issued in respondent bank's favor should be annulled to ensure fairness and prevent undue litigation burden.
Ruling
The petition is meritorious and GRANTED. The CA Decision (June 21, 2017) and Resolution (Jan. 4, 2018) in CA-G.R. CV No. 106039 are REVERSED. Pasig RTC Decision (Nov. 25, 2014) in Civ. Case No. 72144 and LRC No. R-7234 is REINSTATED, nullifying foreclosure, denying writ, awarding damages. Parties ordered to await final outcome of Accounting case (remanded to Marikina RTC Br. 192).
Ratio Decidendi
On Issue 1 (Premature Foreclosure Pending Accounting): The Court held foreclosure premature absent default, as mortgage validity depends on principal loan (Art. 1231, NCC); full payment extinguishes accessory mortgage, making foreclosure baseless (Luntao v. BAP Credit, accessory flows from principal). Foreclosure valid only upon delinquency (Rizal Commercial Banking Corp. v. Buenaventura, 646 Phil. 673); Act No. 3135, Sec. 8 allows setting aside sale if 'mortgage not violated' (no default). Here, SC's final judgment in Accounting case (894 Phil. 177, 2021) affirmed remand for full accounting due to discrepancies (overpayment claim, delayed recordings, unaccounted dacion/receipts), invoking res judicata by conclusiveness (Rule 38, Sec. 47[c]: final, jurisdictional, merits, party identity), barring relitigation of accounting deficiency. Bank's fiduciary duty demands extraordinary diligence (Banco De Oro v. Seastres); premature action amid uncertainty violates public interest, justifying annulment to uphold judgment immutability (Montehermoso v. Batuto). On Issue 2 (Annulment of Sale and Writ): Grounds in PNB v. Roque (681 Phil. 58) are specific to sale irregularities (fraud, misconduct, inadequacy), not exhaustive; CA erred in deeming 'limited/exclusive'—annulment warranted fundamentally if no default/payment extinguishes obligation. Accounting judgment's ambiguity on principal debt invokes res judicata, diluting payment essence if foreclosure proceeds; writ ministerial only post-valid sale (Cometa v. IAC), flawed if preceding stages invalid. Annulment prevents undue litigation burden, enforces banks' utmost fidelity; reinstatement of RTC decision and awaiting Accounting outcome ensures fairness.
Main Doctrine
A real estate mortgage, as an accessory contract, is valid only insofar as the principal loan obligation (mutuum) exists; its extinguishment by complete payment or other modes under Article 1231 of the Civil Code renders foreclosure proceedings baseless and annulable. The enumerated grounds for annulment in jurisprudence (fraud, irregularity in sale, inadequate price) are specific to irregularities during the foreclosure sale itself and do not preclude annulment where no default occurred because the secured debt was fully paid or not delinquent, as foreclosure is merely a consequence of non-payment (Rizal Commercial Banking Corp. v. Buenaventura). Act No. 3135, Section 8 explicitly allows setting aside the sale if 'the mortgage was not violated,' encompassing scenarios of full payment or extinguishment. A final judgment ordering a bank to render complete accounting due to discrepancies creates genuine uncertainty on the principal obligation's status, invoking res judicata by conclusiveness of judgment to bar foreclosure, as all elements concur: finality, jurisdiction, merits disposition, and identity of parties. Banks owe fiduciary duty of extraordinary diligence in recording payments, and premature foreclosure amid unresolved accounting violates this, justifying annulment to prevent injustice and uphold immutability of judgments.