SPCL Additional Foreclosure Full Text

7/31/2019 SPCL Additional Foreclosure Full Text

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DEVELOPMENT BANK OF THEPHILIPPINES,Petitioner,

- versus -

RUBEN S. GO and ANGELITA M. GO, and the HONORABLE

COURT OF APPEALS,Respondents.

G.R. No. 168779

Present:

YNARES-SANTIAGO,J.,Chairperson,

AUSTRIA-MARTINEZ,CHICO-NAZARIO,NACHURA, andREYES,JJ.

Promulgated:

September 14, 2007

x------------------------------------------------------------------------------------x

DECISION

NACHURA,J.:

For this Courts consideration is a Petition for Review on Certiorarifiled by theDevelopment Bank of the Philippines (DBP) partially assailing the September 23, 2004Decision[1]and June 20, 2005 Resolution of the Court of Appeals (CA) in CA-G.R. CV No.63959.

The facts of the case, as found by the CA, are as follows:

On August 4, 1982, [private respondents] entered into a contractof loan with [petitioner] DBP for a sum of P494,000.00.

The contract was evidenced by two (2) promissory notes, onefor P194,000.00, payable quarterly for five (5) years, and the otherfor P300,000.00, payable quarterly for seven (7) years. The above promissorynotes were secured by a mortgage contract over both the real and personalproperties of [private respondents].

One of the provisions of the contract contained the stipulatedinterest rate. Another provision of the contract contained a penalty clause.Both promissory notes had a stipulated interest rate of eighteen percent(18%) per annum interest rate (sic) and a penalty charge in case of default ofeight percent (8%) per annum.

Another provision of the contract required all mortgagors to

insure all real and personal properties mortgaged with the DBP Pool ofAccredited Insurance Companies. In this case, [private respondents] were

made to insure their real and personal properties with [the] DBP Pool ofAccredited Insurance Companies for P709,000.00the net replacement costof the assets mortgaged.

Another provision of the loan contract provided for [the]increase/decrease of interest rates, as follows:

The DBP further reserves the right to increase, withnotice to the mortgagor, the rate of interest on the loanas well as other fees and charges on loans and advancespursuant to such policy as it may adopt from time totime during the period of the loan. Provided, that therate of interest on the loan shall be reduced in the eventthat the applicable maximum rate of interest is reducedby law or by the Monetary Board; Provided, further, thatthe adjustment in the rate of interest shall take effect onor after the effectivity of the increase or decrease in themaximum rate of interest.

[Petitioner] DBP alleged that it was empowered to unilaterallyincrease or decrease interest rates. In fact, DBP unilaterally increased on

August 16, 1984 the interest rate from the original 18% per annum interestrate to 35% per annum, then on September 3, 1984 lowered the 35% per

annum interest rate to 29% per annum, and then raised again on August 4,1985 the 29% per annum interest rate to 30%.

[Petitioner] DBP extra-judicially foreclosed on (sic) the mortgagedproperties of [private respondents], claiming that [private respondents] haddefaulted on their loan contract and on September 30, 1986, the Sheriff sold[private respondents] mortgaged properties at [a] public auction sale to DBP,the highest bidder, at P181,800.00.

On February 12, 1987, [private respondents] commenced suit withBranch 145, Regional Trial Court of Makati, docketed as Civil Case No.15998, to nullify the extrajudicial foreclosure and sale at public auction of[private respondents] mortgaged properties.

The Regional Trial Court of Makati issued a TemporaryRestraining Order on February 16, 1987 and granted [private respondents]application for preliminary prohibitory injunction onMarch 17,1987 restraining [petitioner] DBP from consolidating title and the QuezonCity Register of Deeds from registering any consolidation of ownership by[the] DBP.[2]

On April 30, 1999, the RTC rendered its Decision,[3]the dispositive portion of whichreads:

WHEREFORE, the above-premises (sic) considered, this Courtenters judgment in favor of the plaintiff spouses Go as against defendantDevelopment Bank of the Philippines, Gil V. Corpus, and Samuel Cleofe[,]

as well as those defaulting defendants and declares the following:
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1. The interest and penalty charges imposed bydefendant DBP on plaintiffs loan is hereby declared null and void;

2. The promissory notes (Exhs. A and B) [are]hereby declared null and void;

3. The insurance premiums and other charges imposedon plaintiffs [are] null and void for having no legal and evidentiary basis. Theinsurance premiums[,] as well as other additional charges paid[,] are to bereimbursed to the plaintiffs;

4. The extra-judicial foreclosure of the mortgagedproperties of the plaintiffs on September 30, 1986 is hereby declared as nulland void;

5. Moral damages in the amount of P50,000.00 ishereby awarded to plaintiffs as against defendant DBP. Exemplary damagesin the amount of P50,000.00 is further awarded in favor of plaintiffs asagainst defendant DBP;

6. Attorneys fees in the amount ofP100,000.00 isawarded in favor of the plaintiffs as against defendant DBP;

7. Defendant Samuel Cleofe is ordered to refrainregistration (sic) of any document consolidating title by defendant DBP overplaintiffs properties;

8. Costs against defendant.

SO ORDERED.

The DBP appealed the case to the CA. The CA reversed the decision of the RTC,ruling thus:

WHEREFORE, in view of the foregoing, the instant appeal isherebyGRANTED. The April 30, 1999 Decision of the Regional Trial

Court of Makati, Branch 145, in Civil Case No. 15998 isherebyREVERSED and SET ASIDE and a new one is entered as follows:1. The promissory notes and the real estate mortgage are hereby

declared legal and valid;2. The 8% per annum penalty charge imposed by defendant-

appellant DBP on plaintiffs-appellees loan is hereby declared legaland valid;

3. The insurance premiums and other charges imposed onplaintiffs are hereby declared legal and valid;

4. The increases in interest rate on the loan are hereby declarednull and void;

5. The extra-judicial foreclosure of the mortgaged properties andconsequent sale at public auction and issuance of Certificate ofSale, are hereby declared premature and therefore null and void;

6. The plaintiffs-appellees are hereby ordered to pay defendant-appellant DBP the P494,000.00 principal amount of their loan with

18% interest per annum from the date the loan was granted up tofull payment, less payments already made, within ninety (90) daysfrom the finality of this decision, otherwise, the defendant-appellant shall be entitled to foreclose the mortgaged propertiesand sell the same at public auction to satisfy the loan.

7. The awards of moral damages, exemplary damages andattorneys fees are hereby deleted.

8. No pronouncement as to costs.

SO ORDERED.[4]

The CA held that the unilateral increases in interest rates were void since these weredone without notice and without the corresponding Monetary Board increase in lending rates.

The extrajudicial foreclosure was also deemed void because the loan had not yet matured at thetime of the foreclosure proceedings.

Conversely, the CA held that the stipulated interest rate of 18% was not usuriousbecause it was clearly below the maximum rate fixed by the Monetary Board at that time. As tothe penalty charge, the CA held that it was in the nature of liquidated damages, separate anddistinct from interest payments. The penalty charge was deemed valid because the law expresslyrecognized it as an accessory undertaking of the obligor. The CA also held that the promissorynote and the real estate mortgage were valid since the principal obligation can stand even though

the stipulation on the interest was void. The insurance over the mortgaged property was also heldvalid because this constituted an additional condition under the mortgage contract.

The appellate court likewise ruled that the formation of the DBP Pool of AccreditedInsurance Companies did not amount to restraint of trade because it does not exclude otherinsurance companies from being accredited to be part of the pool so long as they meet therequirements for accreditation.

The CA also reversed the RTCs award for damages and attorneys fees finding thatthere was no basis for such award.

Petitioner DBP filed a Motion for Partial Reconsideration.[5]It sought the modificationof paragraph 6 of the dispositive portion of the CA Decision. Paragraph 6 allegedly failed to takeinto consideration and/or incorporate the 8% per annumpenalty charge and insurance premiums and

other chargesstated in paragraphs 2 and 3, respectively. Petitioner also argued that the wayparagraph 6 is written will convey the idea that private respondents are only liable to pay theprincipal amount of the loan plus the regular 18% per annum interest. DBP likewise argues thatthe provision may be interpreted to mean that in the event of private respondents failure to paythe amount within ninety (90) days from finality of the CA Decision, extrajudicial foreclosure isthe only remedy available to it.

Thus, petitioner prayed that said paragraph 6 be amended to read as follows:

6. The plaintiffs-appellees are hereby ordered to pay defendant-appellant DBP the P494,000.00 principal amount of their loan with 18%interest per annum from the date the loan was granted up to full payment,(plus 8% per annum penalty charge as provided in paragraph 2, supra,) andthe total amount of insurance premiums and other charges (as provided in

paragraph 3, supra,) less payments already made, within ninety (90) daysfrom the finality of this decision, otherwise, the defendant-appellant DBP
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shall be entitled to a writ of execution to finally judiciallyforeclose themortgaged properties and sell the same at public auction to satisfy the loan.

The CA denied the Motion for Partial Reconsideration for lack of merit in aResolution[6]dated June 20, 2005.

Petitioner DBP now comes to this Court claiming that the CA committed grave abuseof discretion in issuing the assailed Decision.[7]It proffers the same grounds it raised in its Motionfor Partial Reconsideration before the CA and reiterates its prayer for the amendment ofparagraph 6 of the assailed Decision to read, thus:

6. The plaintiffs-appellees are hereby ordered to pay defendant-appellantDBP the P494,000.00 principal amount of their loan with 18% interest perannum from the date the loan was granted up to full payment, plus 8% perannum penalty charge as provided in paragraph 2, supra, and plus the totalamount of insurance premium and other charges as provided in paragraph3, supra,less payments already made, within ninety (90) days from thefinality of this decision, otherwise, the defendant-appellant DBP shall beentitled to a writ of execution to finally judicially foreclose the mortgagedproperties and sell the same at public auction to satisfy the loan.[8]

The petition is partly meritorious.

Initially, we resolve the procedural issues.

The petition is captioned as a petition for review. Under Rule 45 of the Revised Rulesof Civil Procedure, a petition for review shall raise only questions of law which must be distinctlyset forth.[9]A question of law exists when there is doubt or controversy as to what the law is on acertain state of facts. On the other hand, there is a question of fact when the doubt or differencearises as to the truth or the falsehood of the alleged facts. For a question to be one of law, it mustinvolve no examination of the probative value of the evidence presented by the litigants or any ofthem.[10]

Petitioner assails the CA Decision in this wise:

Petitioner DBP filed this instant petition on the ground that thelatter part of the dispositive portion of the subject DECISION of theHonorable Court of Appeals is not the logical consequence of the earlier partof the same dispositive portion. In other words, the Honorable Court of

Appeals committed grave abuse of discretion as shown by the fact thatparagraph 6 of the dispositive portion of its DECISION dated September23, 2004 failed to take into consideration and/or incorporate the decreestated in paragraphs 2 and 3 of the same dispositive portion of theDecision.[11]

This issue that petitioner raises before this Court is not a question of law. Petitionerimputes grave abuse of discretion to the CA for its alleged omission in its Decision.

In determining the nature of an action, it is not the caption but the averments of thepetition and the character of the relief sought that are controlling.[12]Considering that petitioner

charges the CA with acting in grave abuse of discretion, the petition should properly be treated asa special civil action for certiorariunder Rule 65 of the Rules of Court.[13]

However, even if, in the interest of justice, we treat this as a special civil actionfor certiorariunder Rule 65,[14]the petition nevertheless fails to convince us that the CA committedgrave abuse of discretion.

It is well-settled that an act of a court or tribunal may only be considered to have beendone in grave abuse of discretion when the same was performed in a capricious or whimsicalexercise of judgment which is equivalent to lack of jurisdiction. The abuse of discretion must beso patent and gross as to amount to an evasion of positive duty or to a virtual refusal to performa duty enjoined or to act at all in contemplation of law, as where the power is exercised in anarbitrary and despotic manner by reason of passion or personal hostility.[15]

An error of judgment committed in the exercise of its legitimate jurisdiction is not thesame as grave abuse of discretion. An abuse of discretion is not sufficient by itself to justify theissuance of a writ ofcertiorari. The abuse must be grave and patent, and it must be shown that thediscretion was exercised arbitrarily and despotically.[16]In fine, certiorariwill issue only to correcterrors of jurisdiction, not errors of procedure or mistakes in the findings or conclusions of thelower court.[17]

In this case, we find no merit in petitioners claim that the CA committed grave abuseof discretion. The CA Decision states clearly and distinctly the facts and laws upon which the

judgment was made, and is in accord with existing law and jurisprudence.

Petitioner offers no sufficient support for its allegation that the CA committed graveabuse of discretion. The petition contains no explanation of how the CA exercised its judgmentcapriciously or whimsically or in an arbitrary or despotic manner. Other than the bare assertion ofgrave abuse of discretion in the section Grounds Relied Upon for the Allowance of thePetition,[18]there is no discussion of the acts and circumstances that would be aptly characterizedas grave abuse of discretion by the CA.

The loan contract states:

Additional conditions

8. Loan amortizations or portions thereof (principal and/or regular

interest) in arrears SHALL be subject to the following charges:

x x x x

b. Penalty charges 8% p.a. on amortization or portionthereof for more than 30 days.[19]

The CA correctly held that the 8% penalty charge is valid. This Court has recognized apenalty clause as an accessory obligation which the parties attach to a principal obligation for thepurpose of insuring the performance thereof by imposing on the debtor a special prestation(generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or isirregularly or inadequately fulfilled.[20]

The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. The non-performance gives rise to the
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presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden ofproving an excusethe failure of the performance was due to eitherforce majeureor the acts of thecreditor himself.[21]

In the present case, the non-performance of the obligation is due to the increases ininterest rates by DBP, which the CA held were unauthorized and, therefore, void. Thus, theprivate respondents had no obligation to pay the increased rate. Therefore, the obligation to paythe 8% penalty charge never arose since there was, as yet, no breach that would put the penaltyclause in operation. It would have been premature, nay, gross error for the CA to order privaterespondents to pay the same in the assailed Decision.

On the other hand, we agree with the CA in upholding the validity of the insuranceover the mortgaged property. The same constitutes an additional condition clearly and explicitlyincluded in the mortgage contract[22]to which private respondents agreed. Obligations arisingfrom contracts have the force of law between the contracting parties and should be complied within good faith.[23]

However, we find that, either by mistake or inadvertence, the CA Decision failed toinclude the obligation to pay the insurance premiums and other charges in the dispositive portionof the assailed Decision. The CA held in paragraph 3 of the dispositive portion that the insurancepremium and other charges were valid and legal but failed to give the corresponding executoryforce to that pronouncement.[24]

The dispositive portion, or thefallo, is its decisive resolution and is thus the subject ofexecution.[25]Since the execution must conform to that which is ordained or decreed inthe dispositive portion of the decision,[26]the subject dispositive portion must provide the properorder for execution of the judgment. As we have held in the past, a judgment, if left unexecuted,

would be nothing but an empty victory for the prevailing party.[27]Hence, this Court must rectifythe error.

As to the second part of petitioners prayer seeking to amend the dispositive portion toinclude entitlement to a writ of execution to judicially foreclose the mortgaged properties, we findno basis to grant the same.

The mortgage contract states that petitioner may resort to either judicial or extrajudicialforeclosure in case of default.[28]Petitioner opted for extrajudicial foreclosure. However, both thetrial court and the CA declared the extrajudicial foreclosure void for being premature. For all

intents and purposes, there has been no foreclosure. Therefore, this Court, or any other court forthat matter, cannot issue a writ of execution to judicially foreclose the property.

If and when private respondents default on their obligation subject of this decision,then petitioner, once again, shall have the option to resort to either judicial or extrajudicialforeclosure. Should it opt to judicially foreclose the mortgage, it should follow the procedure inRule 68 of the Rules of Court. We cannot allow the petitioner to resort to short-cuts in theprocedure for judicial foreclosure even in the guise of avoiding multiplicity of suits through themere expediency of amending a duly-promulgated decision of the appellate court.

WHEREFORE, premises considered, the petition for review is GRANTED INPART. Paragraph 6 of the assailed September 23, 2004 Decision of the Court of Appealsis MODIFIED as follows:

6. The plaintiffs-appellees are hereby ordered to pay defendant-appellantDBP the P494,000.00 principal amount of their loan with 18% interest per

annum from the date the loan was granted up to full payment, plus the totalamount of insurance premium and other charges as provided in paragraph3, supra,less payments already made, within ninety (90) days from thefinality of this decision, otherwise, the defendant-appellant shall be entitled toforeclose the mortgaged properties and sell the same at public auction tosatisfy the loan.

No pronouncement as to costs.

SO ORDERED.
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SECOND DIVISION

SPOUSES LEOPOLDO S. VIOLA andMERCEDITA

VIOLA,Petitioners,

- versus -

EQUITABLE PCI BANK, INC.,Respondent.

G.R. No. 177886

Present:

QUISUMBING,J., Chairperson,CARPIO MORALES,

TINGA,VELASCO, JR., and

BRION,JJ.

Promulgated:

November 27, 2008x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO MORALES,J.:

Viaa contract denominated as CREDIT LINE AND REAL ESTATE MORTGAGEAGREEMENT FORPROPERTY LINE[1](Credit Line Agreement) executed on March 31, 1997,Leo-Mers Commercial, Inc., as the Client, and its officers spouses Leopoldo and Mercedita Viola(petitioners) obtained a loan through a credit line facility in the maximum amountof P4,700,000.00 from the Philippine Commercial International Bank (PCI Bank), which was latermerged with Equitable Bank and became known as Equitable PCI Bank, Inc. (respondent).

The Credit Line Agreementstipulated that the loan would bear interest at the prevailingPCIBank lending rate per annum on the principal obligation and a penalty fee of three percent(3%) per month on the outstanding amount.

To secure the payment of the loan, petitioners executed also on March 31, 1997 a RealEstate Mortgage[2]in favor of PCIBank over their two parcels of land covered by TransferCertificates of Title No. N-113861 (consisting of 300 square meters, more or less) and N-129036(consisting of 446 square meters, more or less) of the Registry of Deeds of Marikina.

Petitioners availed of the full amount of the loan. Subsequently, they made partialpayments which totaled P3,669,210.67. By respondents claim, petitioner had since November24, 2000 made no further payments and despite demand, they failed to pay their outstandingobligation which, as of September 30, 2002, totaledP14,024,623.22, broken down as follows:

(a) Principal obligation P4,783,254.69

(b) Past due interest from11/24/00 to 09/30/02

at 15% interest P1,345,290.38

(c) Penalty at 3% per monthfrom 03/31/98 to 02/23/02 P7,896,078.15

_____________________P14,024,623.22[3] (Underscoring supplied)

Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk

of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court (RTC)of Marikina City. The mortgaged properties were sold on April 10, 2003 for P4,284,000.00 atpublic auction to respondent, after which a Certificate of Sale dated April 21, 2003[4]was issued.

More than five months later or on October 8, 2003, petitioners filed a complain t[5]forannulment of foreclosure sale, accounting and damages before the Marikina RTC, docketed asCivil Case No. 2003-905-MK and raffled to Branch 192. Petitioners alleged, inter alia, that theyhad made substantial payments of P3,669,210.67 receipts of which were issued withoutrespondent specifying whether the payment was for interest, penalty or the principal obligation;that based on respondents statement of account, not a single centavo of their payments wasapplied to the principal obligation; that every time respondent sent them a statement of accountand demand letters, they requested for a proper accounting for the purpose of determining theiractual obligation, but all their requests were unjustifiably ignored on account of which they were

forced to discontinue payment; that the foreclosure proceedings and auction sale were not onlyirregularly and prematurely held but were null and void because the mortgage debt isonly P2,224,073.31 on the principal obligation and P1,455,137.36 on the interest, or a total ofonly P3,679,210.67 as of April 15, 2003, but the mortgaged properties were sold to satisfy aninflated and erroneous principal obligation ofP4,783,254.69, plus 3% penalty fee per month or 33% per

year and 15% interest per year, which amounted to P14,024,623.22 as o f September 30, 2002; that theparties never agreed and stipulatedin the real estate mortgage contract that the15% interest per annum on the

principal loan and the 3% penalty fee per month on the outstanding amountwould be covered or secured bythe mortgage; that assuming respondent could impose such interest and penalty fee, the same areexorbitant, unreasonable, iniquitous and unconscionable, hence, must be reduced; and thatrespondent is only allowed to impose the legal r ate of interest of12% per annum on the principalloan absent any stipulation thereon.[6]

In its Answer, respondent denied petitioners assertions, contending,inter alia, that the

absence of stipulation in the mortgage contract securing the payment of 15% interest per annumon the principal loan, as well as the 3% penalty fee per month on the outstanding amount, isimmaterial since the mortgage contract is a mere accessory contract which must take its bearingsfrom the principal Credit Line Agreement.[7]

During the pre-trial conference, the parties defined as sole issuein the case whether themortgage contract also secured the payment of 15% interest per annum on the principal loanof P4,700,000.00 and the 3% penalty fee per month on the outstanding amount, which interestand penalty fee are stipulated only in the Credit Line Agreement.[8]

By Decision[9]ofSeptember 14, 2005, the trial court sustained respondents affirmativeposition on the issue but found the questioned interest and penalty fee excessive andexorbitant. Thus, it equitablyreduced the interest on the principal loan from 15% to 12% perannum and the penalty fee per month on the outstanding amount from 3% to 1.5% per month.
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Accordingly, the court nullified the foreclosure proceedings and the Certificate of Salesubsequently issued, without prejudice to the holding anew of foreclosure proceedings basedon the re-computed amount of the indebtedness, if the circumstances so warrant.

The dispositive portion of the trial courts Decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1) The interest on the principal loan in the amount of FourMillion Seven Hundred Thousand (P4,700,000.00) Pesos should

be recomputed at 12% per annum;

2) The 3% per month penalty on delinquent account asstipulated by the parties in the Credit Line Contract dated March 31, 1997 ishereby REDUCED to 1.5% per month;

3) The foreclosure sale conducted on April 10, 2003 by theClerk of Court and Ex-Officio Sheriff of Marikina, to satisfy the plaintiffsmortgage indebtedness, and the Certificate ofSale issued as a consequence ofthe saidproceedings, are declared NULL and VOID, without prejudice to the conduct of another foreclosure proceedings on the basis of the re-computedamount of the plaintiffs indebtedness, if the circumstances so warr

ant.

No pronouncement as to costs.

SO ORDERED. (Underscoring supplied)

Petitioners filed a Motion for Partial Reconsideration,[10]contending that the penalty feeper month on the outstanding amount should have been taken out of the coverage of themortgage contract as it was not stipulated therein. By Order dated December 6, 2005, the trialcourt denied the motion.

On appeal by petitioners, the Court of Appeals, by Decision[11]of February 21,2007, dismissed the same for lack of merit, holding that the Real Estate Mortgage covers not

only the principal amount [of P4,700,000.00] but also the interest andbank charges, which[phrase bank charges] refers to thepenalty chargesstipulated in the Credit Line Agreement.[12]

Petitioners Motion for Reconsideration having been denied by Resolution[13]of May16, 2007, they filed the present Petition for Review on Certiorari, alleging that

THE HONORABLE COURT OF APPEALS COMMITTED AREVERSIBLE ERROR IN DECIDING THE CASE NOT IN ACCORD

WITH LAW AND APPLICABLE DECISIONS OF THE SUPREMECOURT BY RULING THAT THERE IS NO AMBIGUITY INCONSTRUING TOGETHER THE CREDIT LINE AND MORTGAGECONTRACTS WHICH PROVIDED CONFLICTING PROVISIONS AS

TO INTEREST AND PENALTY.[14]

The only issue is whether the mortgage contract also secured the penalty fee per monthon the outstanding amount as stipulated in the Credit Line Agreement.

The Court holds not.

A mortgage must sufficiently describe the debt sought to be secured, whichdescription must not be such as to mislead or deceive, and an obligation is not secured by amortgage unless it comes fairly within the terms of the mortgage.[15]

In the case at bar, the parties executed two separate documents on March 31, 1997

the Credit Line Agreementgranting the Client a loan through a credit facility in the maximumamount of P4,700,000.00, and the Real Estate Mortgage contract securing the paymentthereof. Undisputedly, both contracts were prepared by respondent and written in fine print,single space.

The Credit Line Agreementcontains the following stipulations on interest and delinquencycharges:

A. CREDIT FACILITY9. INTEREST ON AVAILMENTS

The CLIENT shall pay the BANK interest on each availmentagainst the Credit Facility at the rate of:

PREVAILING PCIBANK LENDING RATEfor the first interest period as defined in A(10) hereof. x x x.

x x x x

15. DELINQUENCYCLIENTs account shall be considered delinquent if the availmentsexceed the amount of the line and/or in case the Account is debited forunpaid interest and the Available Balance is insufficient to cover the amountdebited. In such cases, the Available Balance shall become negative and theCLIENT shall pay the deficiency immediately in addition to collectionexpenses incurred by the BANK and a penalty fee of three percent (3%) permonth of the outstanding amount to be computed from the day deficiency isincurred up to the date of full payment thereon.x x x x.[16] (Underscoring supplied)

The Real Estate Mortgage contract states its coverage, thus:That for and in consideration of certain loans, credit and other

banking facilities obtained x x x from the Mortgagee, the principal amount ofwhich is PESOS FOUR MILLION SEVEN HUNDERED THOUSANDONLY (P4,700,000.00) Philippine Currency, and for the purpose of securingthe payment thereof, including the interest and bank charges accruingthereon, the costs of collecting the same and of taking possession of andkeeping the mortgaged propert[ies], and all other expenses to which theMortgagee may be put in connection with or as an incident to this mortgage,as well as the faithful compliance with the terms and conditions of thisagreement and of the separate instruments under which the credits herebysecured were obtained, the Mortgagor does hereby constitute in favor of theMortgagee, its successors or assigns, a mortgage on the real propertyparticularly described, and the location of which is set forth, in the listappearing at the back hereof and/or appended hereto, of which theMortgagor declare that he is the absolute owner and the one in possession

thereof, free and clear of any liens, encumbrances and adverseclaims.[17] (Emphasis and underscoring supplied)
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The immediately-quoted provision of the mortgage contract does not specifically

mention that, aside from the principal loan obligation, it also secures the payment of a penaltyfee of three percent (3%) per month of the outstanding amount to be computed from the daydeficiency is incurred up to the date of full payment thereon,which penalty as the above-quotedportion of the Credit Line Agreementexpressly stipulates.

Since an action to foreclose must be limited to the amount mentioned in themortgage[18]and the penalty fee of 3% per month of the outstanding obligation is not mentionedin the mortgage, it must be excluded from the computation of the amount secured by the

mortgage.

The ruling of the Court of Appeals in its assailed Decision that the phrase includingthe interest and bank charges in the mortgage contract refers to thepenaltycharges stipulated in the Credit Line Agreement is unavailing.

Penalty fee is entirely different from bank charges.The phrase bank charges isnormally understood to refer to compensation for services. A penalty fee is likened to acompensation for damages in case of breach of the obligation. Beingpenalin nature, such feemust be specific and fixed by the contracting parties, unlike in the present case which slapsa 3% penalty fee per month of the outstanding amount of the obligation.

Moreover, the penalty fee does not belongto the species of obligation enumerated in

the mortgage contract, namely: loans, credit and other banking facilities obtained x x x from theMortgagee, . . . including the interest and bank charges, . . . the costs of collecting the same and oftaking possession of and keeping the mortgaged properties, and all other expenses to which theMortgagee may be put in connection with or as an incident to this mortgage . . .

In Philippine Bank of Communications v. Court of Appeals[19]which raised a similar issue, thisCourt held:

The sole issue in this case is whether, in the foreclosure of a real estatemortgage, the penalties stipulated in two promissory notes secured by themortgage may be charged against the mortgagors as part of the sums secured,although the mortgage contract does not mention the said penalties.

x x x x

We immediately discern that the mortgage contract does not at allmention the penalties stipulated in the promissory notes. However, thepetitioner insists that the penalties are covered by the following provision ofthe mortgage contract:

This mortgage is given as security for the payment to theMORTGAGEE on demand or at maturity, as the casemay be, of all promissory notes, letters of credit, trustreceipts, bills of exchange, drafts, overdrafts and allother obligations of every kind already incurred or

which hereafter may be incurred.

x x x x

The Court is unconvinced, for the cases relied upon by the petitionerare inapplicable. x x x.

x x x x

The mortgage contract is also one of adhesion as it was prepared solelyby the petitioner and the only participation of the other party was the affixingof his signature or adhesion thereto.Being a contract of adhesion, themortgage is to be strictly construed against the petitioner, the party whichprepared the agreement.

A reading, not only of the earlier quoted provision, but of the entiremortgage contract yields no mention of penalty charges. Construing thissilence strictly against the petitioner, it can fairly be concluded that thepetitioner did not intend to include the penalties on the promissory notes inthe secured amount. This explains the finding by the trial court, as affirmedby the Court of Appeals, that penalties and charges are not due for want ofstipulation in the mortgage contract.

Indeed, a mortgage must sufficiently describe the debt sought tobe secured, which description must not be such as to mislead or deceive,and an obligation is not secured by a mortgage unless it comes fairly

within the terms of the mortgage. In this case, the mortgage contract

provides that it secures notes and other evidences of indebtedness. Under therule ofejusdem generis, where a description of things of a particular class or kindis accompanied by words of a generic character, the generic words willusually be limited to things of a kindred nature with those particularlyenumerated . . . A penalty charge does not belong to the species ofobligations enumerated in the mortgage, hence, the said contractcannot be understood to secure the penalty .[20] (Emphasis andunderscoring supplied)

Respondents contention that the absence in the mortgage contract of a stipulationsecuring the payment of the 3% penalty fee per month on the outstanding amount is of noconsequence, the deed of mortgage being merely an accessory contract that must take its bearings from the principal Credit Line Agreement,[21]fails. Such absence is significant as it

creates an ambiguity between the two contracts, which ambiguity must be resolved in favor ofpetitioners and against respondent who drafted the contracts. Again, as stressed by the Courtin Philippine Bank of Communications:

There is also sufficient authority to declare that any ambiguity in a contractwhose terms are susceptible of different interpretations must be read againstthe party who drafted it.

A mortgage and a note secured by it are deemed parts of onetransaction and are construed together, thus, an ambiguity is created whenthe notes provide for the payment of a penalty but the mortgagecontract does not. Construing the ambiguity against the petitioner, itfollows that no penalty was intended to be covered by the mortgage .

The mortgage contract consisted of three pages with no less than seventeen

conditions in fine print; it included provisions for interest and attorneys feessimilar to those in the promissory notes; and it even provided for the
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payment of taxes and insurance charges. Plainly, the petitioner can be asspecific as it wants to be, yet it simply did not specify nor even allude to, thatthe penalty in the promissory notes would be secured by the mortgage. Thiscan then only be interpreted to mean that the petitioner had no design ofincluding the penalty in the amount secured.[22] (Emphasis and underscoringsupplied)

WHEREFORE, theassailed Court of Appeals Decision of February 21, 2007and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412 affirming the trialcourts decision are, in light of the foregoing

disquisition,AFFIRMEDwithMODIFICATION in that the penalty fee per month of theoutstanding obligation is excluded in the computation of the amount secured by the Real EstateMortgage executed by petitioners in respondents favor.

SO ORDERED.
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SECOND DIVISION[G.R. No. 139479. December 27, 2002]

PHILIPPINE NATIONAL BANK,petitioner, vs. NEPOMUCENO PRODUCTIONS,INC., FILM ADVERTISING MEDIA EXHIBITIONS, INC. (FAME), LUISNEPOMUCENO, AMPARO NEPOMUCENO, and JESUSNEPOMUCENO, respondents.

D E C I S I O NAUSTRIA-MARTINEZ,J.:

Before us is a petition for review on certiorari of the decision of the Court of Appeals inCA-G.R. CV No. 47500[1]affirming the decision of the Regional Trial Court of Pasig City

(Branch 155) in Civil Case No. 28809 which set aside the foreclosure proceedings and auction saleof respondents properties and ordered petitioner to pay attorneys fees.

The relevant facts of the case are undisputed.On November 28, 1973, petitioner Philippine National Bank (PNB) granted respondents a

4 Million Pesos (P4,000,000.00) credit line to finance the filming of the movie PacificConnection.[2]The loan was secured by mortgages on respondents real and personal properties,to wit: (1) a 7,623 square meters parcel of land located in Malugay Street, Makati (referred to asthe Malugay property); (2) a 3,000 square meters parcel of land located in North Forbes Park,Makati (referred to as the Forbes property);[3]and (3) several motion picture equipments.[4]Thecredit line was later increased to 6 Million Pesos (P6,000,000.00) on January 14, 1974,[5]and finallyto 7.5 Million Pesos (P7,500,000.00) on September 8, 1974.[6]

Respondents defaulted in their obligation. Petitioner sought foreclosure of the mortgagedproperties with the Sheriffs Office of Pasig, Rizal. Initially scheduled on August 12, 1976, theauction sale was re-scheduled several times without need of republication of the notice of sale, asstipulated in the Agreement to Postpone Sale,[7]until finally, the auction sale proceeded onDecember 20, 1976, with petitioner as the highest bidder in the amount of P10,432,776.97.[8]

Aggrieved, respondents filed Civil Case No. 28809 with the Regional Trial Court of Pasig(Branch 155), an action for annulment of foreclosure sale and damages withinjunction.[9]Respondents contended that the foreclosure sale is null and void because: (1) theobligation is yet to mature as there were negotiations for an additional loan amount ofP5,000,000.00; (2) lack of publication; (3) the purchase price was grossly inadequate andunconscionable; and (4) the foreclosure proceedings were initiated by petitioner in bad faith.[10]

In its Decision dated September 16, 1992, the court a quo ordered the annulment andsetting aside of the foreclosure proceedings and auction sale held on December 20, 1976 on theground that there was lack of publication of the notice of sale.[11]The court a quo also orderedpetitioner to pay P100,000.00 as attorneys fees.[12]

Dissatisfied, petitioner elevated the case to the Court of Appeals.

During completion stage of the appeal, the appellate court issued a Resolution on January31, 1996 dismissing petitioners appeal with regard to the Forbes Park property as the same wasalready the subject of a Deed of Reconveyance executed by petitioner in favor of respondents onNovember 22, 1994, as well as a Compromise Agreement dated September 13, 1994 between thesame parties.[13]Said Resolution having become final and executory on February 26, 1996, entryof judgment was made on March 27, 1996 .[14]Hence, resolution of the appeal in the Court of

Appeals pertained only to the Malugay property.On December 11, 1998, the appellate court rendered the assailed Decision, which

affirmed in toto the decision of the court a quo.[15]Hence, herein petition for review under Rule 45 of the Rules of Court.Petitioner maintains that:

ITHE COURT OF APPEALS ERRED IN DECLARING PNBS FORECLOSURE SALE OFRESPONDENTS PROPERTIES NULL AND VOID FOR LACK OF REPUBLICATION

DESPITE THE PARTIES AGREEMENT TO WAIVE THE REPUBLICATION ANDRESPOSTING OF SHERIFFS SALE

IITHE COURT OF APPEALS ERRED IN NOT DECLARING THE RESPONDENTS INESTOPPEL TO ASSAIL THE VALIDITY OF THE FORECLOSURE SALE AFTER THEYINDUCED PNB TO EXECUTE THE AGREEMENT TO POSTPONE SALE WAIVING

THE REPUBLICATION AND REPOSTING OF THE SHERIFFS NOTICE OF SALEIII

THE COURT OF APPEALS ERRED IN SUSTAINING THAT RESPONDENTS ARENOT THIRD PERSONS IN CONTEMPLATION OF THE LAW[16]

The focal issue in this case is whether the parties to the mortgage can validly waive theposting and publication requirements mandated by Act No. 3135.

We answer in the negative.Act. No. 3135, as amended, governing extrajudicial foreclosure of mortgages on real

property is specific with regard to the posting and publication requirements of the notice of sale,to wit:Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in atleast three public places of the municipality or city where the property is situated, and if suchproperty is worth more than four hundred pesos, such notice shall also be published once a weekfor at least three consecutive weeks in a newspaper of general circulation in the municipality orcity.

On this score, it is well settled that what Act No. 3135 requires is: (1) the posting of noticesof sale in three public places; and, (2) the publication of the same in a newspaper of generalcirculation.[17]Failure to publish the notice of sale constitutes a jurisdictional defect, whichinvalidates the sale.[18]

Petitioner, however, insists that the posting and publication requirements can be dispensedwith since the parties agreed in writing that the auction sale may proceed without need of re-publication and re-posting of the notice of sale.[19]

We are not convinced. Petitioner and respondents have absolutely no right to waive theposting and publication requirements of Act No. 3135.

In People v. Donato,[20]the Court expounded on what rights and privileges may bewaived, viz.:x x x the doctrine of waiver extends to rights and privileges of any character, and, since the

word 'waiver' covers every conceivable right, it is the general rule that a person may waive anymatter which affects his property, and any alienable right or privilege of which he is the owner or

which belongs to him or to which he is legally entitled, whether secured by contract, conferredwith statute, or guaranteed by constitution, provided such rights and privileges rest in theindividual, are intended for his sole benefit, do not infringe on the rights of others, and furtherprovided the waiver of the right or privilege is not forbidden by law, and does not contravene

public policy; and the principle is recognized that everyone has a right to waive, and agree towaive, the advantage of a law or role made solely for the benefit and protection of the individualin his private capacity, if it can be dispensed with and relinquished without infringing on anypublic right, and without detriment to the community at large x x x.Although the general rule is that any right or privilege conferred by statute or guaranteed byconstitution may be waived, a waiver in derogation of a statutory right is not favored, and a

waiver will be inoperative and void if it infringes on the rights of others, or would be againstpublic policy or morals and the public interest may be waived.While it has been stated generally that all personal rights conferred by statute and guaranteed byconstitution may be waived, it has also been said that constitutional provisions intended to protectproperty may be waived, and even some of the constitutional rights created to secure personalliberty are subjects of waiver.[21]

While it is established that rights may be waived, Article 6 of the Civil Code explicitlyprovides that such waiver is subject to the condition that it is not contrary to law, public order,

public policy, morals, or good customs, or prejudicial to a third person with a right recognized bylaw.[22]
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The principal object of a notice of sale in a foreclosure of mortgage is not so much tonotify the mortgagor as to inform the public generally of the nature and condition of the propertyto be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders andprevent a sacrifice of the property.[23]Clearly, the statutory requirements of posting andpublication are mandated, not for the mortgagors benefit, but for the public or third persons. Infact, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not evennecessary, unless stipulated.[24]As such, it is imbued with public policy considerations and any

waiver thereon would be inconsistent with the intent and letter of Act No. 3135.Moreover, statutory provisions governing publication of notice of mortgage foreclosure

sales must be strictly complied with and slight deviations therefrom will invalidate the notice and

render the sale at the very least voidable.[25]"Where required by the statute or by the terms of the foreclosure decree, public notice of theplace and time of the mortgage foreclosure sale must be given, a statute requiring it being heldapplicable to subsequent sales as well as to the first advertised sale of the property. It has beenheld that failure to advertise a mortgage foreclosure sale in compliance with statutoryrequirements constitutes a jurisdictional defect invalidating the sale and that a substantial error oromission in a notice of sale will render the notice insufficient and vitiate the sale."[26]

Thus, in the recent case ofDevelopment Bank of the Philippines v. Aguirre,[27]theforeclosure sale held more than two (2) months after the published date of sale was considered

void for lack of republication.[28]Similarly, in the instant case, the lack of republication of thenotice of the December 20, 1976 foreclosure sale renders it void.

The right of a bank to foreclose a mortgage upon the mortgagors failure to pay hisobligation must be exercised according to its clear mandate, and every requirement of the lawmust be complied with, lest the valid exercise of the right would end.[29]The exercise of a rightends when the right disappears, and it disappears when it is abused especially to the prejudice ofothers.[30]

We also cannot accept petitioners argument that respondents should be held inestoppelforinducing the former to re-schedule the sale without need of republication and reposting of thenotice of sale.

Records show that respondents, indeed, requested for the postponement of the foreclosuresale.[31]That, however, is all that respondents sought. Nowhere in the records was it shown thatrespondents purposely sought re-scheduling of the sale without need of republication and reposting of thenotice of sale.To request postponement of the sale is one thing; to request it without need ofcompliance with the statutory requirements is another. Respondents, therefore, did not commitany act that would have estopped them from questioning the validity of the foreclosure sale fornon-compliance with Act No. 3135.

In addition, the Agreement to Postpone Sale signed by respondents was obviously

prepared solely by petitioner.[32]

A scrutiny of the agreement discloses that it is in a ready-madeform and the only participation of respondents is to affix or adhere their signature thereto. Ittherefore partakes of the nature of a contract of adhesion, i.e., one in which one of the contractingparties imposes a ready-made form of contract which the other party may accept or reject, butcannot modify.[33]One party prepares the stipulation in the contract, while the other party merelyaffixes his signature or his adhesion thereto, giving no room for negotiation, and depriving thelatter of the opportunity to bargain on equal footing.[34]As such, their terms are construed strictlyagainst the party who drafted it.[35]

Finally, while we rule that the appellate court did not commit any error in affirming thedecision of the court a quo, we find the award of P100,000.00 as attorney's fees to beexcessive.Article 2208 of the Civil Codeallows the award of such fees when its claimant is compelledto litigate with third persons or to incur expenses to protect its just and valid claim. In view ofpetitioner's foreclosure of the property without complying with the statutory requirements,[36]theaward of attorney's fees of P25,000.00 is just, fair, and reasonable.

WHEREFORE, the Decision dated December 10, 1998 in CA-G.R. CV No. 47500 ishereby AFFIRMED with modification that the award of attorneys fees is reduced toP25,000.00.

No pronouncement as to costs.SO ORDERED.
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SECOND DIVISION[G.R. No. 118357. May 6, 1997]

PHILIPPINE NATIONAL BANK,petitioner, vs. COURT OF APPEALS andINDUSTRIAL ENTERPRISES, INC., respondents.

D E C I S I O NROMERO,J.:

This is a petition for review on certiorariof the Decision[1]of the Court of Appealsaffirmingintoto the November 27, 1992 decision[2]of the Regional Trial Court of Makati, Branch150 which disposed of Civil Case No. 8109, "Industrial Enterprises, Inc. v. Marinduque Miningand Industrial Corporation, Geronimo Velasco (in his capacity as the then Minister of Energy)

and Philippine National Bank," an action for rescission of contract and damages, as follows:"WHEREFORE, in the light of the foregoing, and as plaintiff Industrial Enterprises,Inc. was able to establish by preponderant evidence the allegations in its Complaintand causes of action against defendants Marinduque Mining and IndustrialCorporation and Philippine National Bank, the Court finds both defendants civillyliable to plaintiff and, therefore, orders them to jointly and severally:

1. pay plaintiff the sum of P31.66 Million as of July 31, 1983, for the expenses invested byplaintiff in the property subject of this case, as computed by Sycip, Gorres, Velayo and Companyand brought to current value per SGV formula, as agreed in the Memorandum of Agreement;2. pay plaintiff the sum of P37,569,733.00, for the indemnification and rehabilitation cost,plus interest at the legal rate from March 31, 1991, until fully paid;3. pay plaintiff the sum of P120 Million for unrealized profit for five (5) years from

August, 1983, the date of defendant MMIC's takeover of the property, to October, 1988, whenplaintiff was re-awarded the contract, plus interest at the legal rate, from the date of this decision,until fully paid;4. pay plaintiff an amount not less than ten (10) percent of the losses it incurred and itsunrealized profits as indicated in Numbers 1 to 3, for the injury done to plaintiff's businessstanding and commercial credit;5. pay plaintiff an amount not less than five (5) percent of the above obligation asreimbursement to plaintiff for litigation expenses and attorney's fees; and6. COST OF SUIT.

And finally, the extrajudicial foreclosure sale held on August 31, 1984, in Catbalogan,Samar, over the property of plaintiff, part of the Giporlos Coal Project, is herebydeclared NULL and VOID.SO ORDERED."Marinduque Mining and Industrial Corporation (MMIC) was founded by Jesus S. Cabarrus

in 1949.[3]Four years later or in 1953, Cabarrus established J. Cabarrus, Inc. which subsequently

was renamed Industrial Enterprises, Inc. (IEI). During the period when most of the factsrelevant to this case transpired, Cabarrus and his family owned about 12% to 14% of the sharesof stock in the MMIC[4]where he was the President. He was also the President of IEI.

On July 27, 1979, IEI entered into a coal operating contract with the Bureau of EnergyDevelopment (BED), with Cabarrus and then Minister of Energy Geronimo Velasco assignatories.[5]The contract was pursuant to the Coal Development Act of 1976 (P.D. No. 972, asamended) and covered 2,000 hectares of two (2) coal blocks in Barrio Carbon, Magsaysay,Eastern Samar.

While exploring this area, IEI found the adjacent areas, comprising of three (3) coal blocks,to be likewise coal potentials. Hence, upon confirmation by the BED that these three (3) adjacentcoal blocks were in the free area, IEI filed an application for another coal operating contract on

August 12, 1981. Simultaneously, IEI applied for the conversion of its July 27, 1979 coaloperating contract from exploration to development/production. IEI also followed up itsapplication on the three (3) newly-discovered coal blocks. All of these coal blocks were

collectively known as the Giporlos Coal Project.

Sometime in April, 1982, Minister Velasco informed Cabarrus that IEI's application forexploration of the three (3) coal blocks had been disapproved and that, instead, the contract

would be awarded to MMIC. Following Cabarrus' letter of May 4, 1982[6]requesting that therejection of IEI's application be made in writing, Minister Velasco wrote him a letter dated June 2,1982,[7]where Minister Velasco said:

"We appreciate your desire to increase Industrial Enterprises, Inc.'s (IEI) involvementin coal development. In line, however, with the objective of rationalizing thecountry's overall coal supply-demand balance, we believe that coal users who have thecapability to go into coal production themselves should, as much as possible, beencouraged and given the preference to do so. This ensures maximum utilization of

local coal and will be beneficial to coal producer/user in the long run. In your area ofinterest, therefore, we believe that the logical coal operator should be MarinduqueMining and Industrial Corporation (MMIC) which is now developing the Bagacay coaldeposit in order to support MMIC's coal conversion program at the Nonoc NickelRefinery. As a member of the board of MMIC, I am fully aware that this coalconversion program is critical to the profitability and the survival of the NonocNickel Refinery. It is, therefore, imperative that MMIC secure its own coal supply.Consistent with the above rationale, you are aware that MMIC Board has in fact takenconcrete steps to consolidate the Giporlos and Bagacay coal areas under MMIC and,for this purpose, has authorized Chairman Cesar C. Zalamea to create a committee (of

which I was asked to be Chairman) to evaluate the Giporlos coal blocks of IEI toserve as basis for their acquisition by MMIC. As President of MMIC, you are likewiseaware that the Board has recently hired the services of SGV to make an evaluation ofthe proper pricing for the IEI coal interest to be paid for by MMIC. With thesedevelopments indicating the imminent formal acquisition of Giporlos coal areas byMMIC, it would indeed be inconsistent now for us to award additional coal blocks inthe same area to IEI. We believe that these additional coal areas, if at all, should beapplied for and awarded direct to MMIC.In view of the foregoing, please be advised that we are denying IEI's application, and

we suggest instead that MMIC apply for the same blocks."On March 28, 1983, Minister Velasco informed Cesar Zalamea, Chairman of the Board of

the Development Bank of the Philippines (DBP) and of the MMIC, that IEI's application for theconversion of its coal operating contract for the Giporlos area from exploration todevelopment/production had been put "under advisement in the light of the ongoing discussionfor the transfer of IEI's rights and obligations" to MMIC.[8]

Thereafter, MMIC and IEI, through Chairman Zalamea and PresidentCabarrus,[9]respectively, entered into a Memorandum of Agreement (MOA) whereby IEI

assigned to MMIC all its rights and interests under the July 27, 1979 coal operating contract. TheMOA provided as follows:"NOW, THEREFORE, the parties have agreed, as hereby they agree, one with theother, as follows:

1. That IEI, subject and conformably with the whereas clauses hereinabove stated, hereby assignsand transfers all its rights and interests on the Coal Operating Contract described in the first

whereas clause; and MMIC shall in consideration of the above assignment and transfer(a) Undertake all the obligations required of IEI under said Coal Operating Contract;(b) Reimburse all costs and expenses actually incurred as of 31 July 1983 by IEI on the coalproperty and brought up to current values, as shall be audited and confirmed by Sycip, Gorresand Velayo as of said date of 31 July 1983; and(c) Pay to IEI the total sum equivalent to P4.17 per ton of proven and positive reserves of coalto be confirmed by an independent geologist who shall be designated and appointed by mutualagreement of the parties.

2. That the total sum due from MMIC to IEI under this agreement shall be paid upon theeffectivity of this agreement in the following manner
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(a) An assumption by MMIC of the outstanding loan obligation (evidenced by Promissory NoteNo. 1516 for P3.3 Million and Promissory Note No. 11098 for P5.0 Million) of IEI to ManilaBanking Corporation which as of 31 July 1983 stands at P8.3 Million.(b) Payment in cash to IEI of the difference between the above amount of P8.3 Million and thesum total of subparagraphs (b) and (c) par. 1, above.3. That this agreement shall only become binding and effective upon its approval by theBED, which approval shall be secured jointly by MMIC and IEI."

MMIC and IEI, again through Zalamea and Cabarrus, respectively, jointly informed theBED on August 10, 1983, that they had entered into the MOA "at the instance and suggestion ofthe Hon. Minister of Energy in one of the earlier meetings of the Board of Directors of

MMIC."[10]MMIC and IEI were informed of the approval of the MOA on August 29, 1983 bythe then Acting BED Director Wenceslao R. de la Paz.[11]

MMIC took over possession and control of the two (2) coal blocks even before the MOAwas finalized. However, instead of continuing the exploration and development work activelypursued by IEI, MMIC completely stopped all works and dismissed the work force thereon,leaving only a caretaker crew.

Consequently, IEI made written demands to MMIC, pursuant to the MOA, for thereimbursement of all costs and expenses it had incurred on the project which, as of July 31, 1983,had amounted to P31.66 million as audited by the Sycip, Gorres and Velayo Company.

In view of MMIC's failure to comply with its obligations under the MOA, IEI filed acomplaint against MMIC and Minister Velasco on August 7, 1984, for rescission of the MOA anddamages, before the Regional Trial Court of Makati, Branch 137. Docketed as Civil Case No.8109, the complaint alleged that MMIC acted in gross and evident bad faith in entering into theMOA when it had no intention at all to operate the two (2) coal blocks and of complying with anyof its obligations under the said agreement. It likewise alleged that Minister Velasco wasinstrumental in causing the assignment of the coal operating contracts to MMIC when he did notact on complainant IEI's application for conversion of its coal operating contract fromexploration to development/production and in rejecting its application for another coal operatingcontract for the exploration of additional three (3) coal blocks which he had reserved for MMIC.

Meanwhil

SPCL Additional Foreclosure Full Text

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