C. Mendoza vs.

Court of Appeals (359 SCRA 438)

FACTS:

Respondent was granted by respondent Philippine National Bank (PNB) credit line
and Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit
accommodations and for those which may thereinafter be granted, petitioner
mortgaged to respondent PNB some of his properties. Petitioner later requested for
loan restructuring and issued promissory notes, which he failed to comply.
Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the
mortgaged properties were sold at public auction to respondent PNB, as highest
bidder. Petitioner filed a case in the RTC contending that foreclosure is illegal
invoking promissory estoppel, and secured favorable judgment. The decision of RTC
was reversed by the Court of Appeals.

ISSUE:

Whether or not the foreclosure of petitioners real estate and chattel mortgages
were legal and valid as opposed to promissory estoppel.

RULING:

YES. First, there was no promissory estoppel as the promise (of respondent bank)
must be plain and unambiguous and sufficiently specific. Second, there was no
meeting of the minds leading to another contract, hence loan was not restructured.
Third, promissory notes petitioner issued were valid. Fourth, stipulation in the
mortgage, extending its scope and effect to after-acquired property is valid and
binding after the correct and valid process of extra-judicial foreclosure. Finally,
record showed that petitioner did not even attempt to tender any redemption price
during the one-year redemption period.

D. SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA v.

EQUITABLE PCI BANK, INC.

572 SCRA 245 (2008)

A mortgage must sufficiently describe the debt sought to be secured, which

description must not be such as to mislead or deceive. An obligation is not secured
by a mortgage unless it comes fairly within the terms of the mortgage

Spouses Leopoldo and Mercedita Viola of Leo-Mers Commercial, Inc. obtained a loan
through a credit line facility from the Philippine Commercial International Bank (PCI
Bank), which was later merged with Equitable Bank and became known as Equitable
PCI Bank, Inc. To secure the payment of the loan, a Real Estate Mortgage in favor
of PCI Bank was executed. Spouses Viola made partial payments therein; PCI Bank
contends however, that Spouses Viola made no further payments despite demands.
Thus, PCI Bank extrajudicially foreclosed the mortgage before the Regional Trial
Court (RTC) and that the mortgaged properties were sold at a public auction.

Spouses Viola filed a complaint for annulment of foreclosure sale, accounting and
damages before the RTC. They alleged that they had made substantial payments of
P3,669,210.67, receipts of which were issued without PCI Bank specifying whether
the payment was for interest, penalty or the principal obligation. Based on PCI
Banks statement of account, not a single centavo of their payments was applied to
the principal obligation, that the foreclosure proceedings and auction sale were null
and void because the mortgage debt is only P2,224,073.31, for the principal
obligation, and P1,455,137.36, on the interest, but the mortgaged properties were
sold to satisfy an inflated of P4,783,254.69, plus 3% penalty fee per month year and
15% interest per year, which amounted to P14,024,623.22.

The RTC upheld the position of the PCI Bank but reduced the interest of the
principal. Spouses Viola filed a Motion for Reconsideration but it was denied. On
appeal, the Court of Appeals (CA) dismissed the petition for lack of merit.

ISSUE:
Whether or not the mortgage contract also secured the penalty fee per month on
the outstanding amount as stipulated in the Credit Line Agreement.

HELD:

A mortgage must sufficiently describe the debt sought to be 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 the case at bar, the parties executed two separate documents on March 31, 1997
the Credit Line Agreement granting the Client a loan through a credit facility in the
maximum amount of P4,700,000.00, and the Real Estate Mortgage contract
securing the payment thereof.

As the Credit Line Agreement specifically defined a penalty fee of three percent
(3%) per month of the outstanding amount to be computed from the day deficiency
is incurred up to the date of full payment thereon, the provision of the mortgage
contract does not specifically mention that.

Since an action to foreclose must be limited to the amount mentioned in the

mortgage and the penalty fee of 3% per month of the outstanding obligation is not
mentioned in the mortgage, it must be excluded from the computation of the
amount secured by the mortgage.

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

Moreover, the penalty fee does not belong to the species of obligation
enumerated in the mortgage contract, namely: loans, credit and other banking
facilities obtained x x x from the Mortgagee, . . . including the interest and bank
charges, . . . the costs of collecting the same and of taking possession of and
keeping the mortgaged properties, and all other expenses to which the Mortgagee
may be put in connection with or as an incident to this mortgage . . .

In Philippine Bank of Communications v. Court of Appeals which raised a similar

issue, the Court held that there is also sufficient authority to declare that any
ambiguity in a contract whose terms are susceptible of different interpretations
must be read against the party who drafted it.

E.TAN vs. VALDEHUEZA

Facts:

An action instituted by the plaintiff-appellee Lucia Tan against the defendants-

appellants Arador Valdehueza and Rediculo Valdehueza for (a) declaration of
ownership and recovery of possession of the parcel of land described in the first
cause of action of the complaint, and (b) consolidation of ownership of two portions
of another parcel of (unregistered) land described in the second cause of action of
the complaint, purportedly sold to the plaintiff in two separate deeds of pacto de
retro. Parcel of land described in the first cause of action was the subject matter of
the public auction sale in Oroquieta, Misamis Occidental, wherein the TAN was the
highest bidder . Due to the failure of defendant Arador Valdehueza to redeem the
said land within the period of one year as being provided by law, MR. VICENTE D.
ROA who was then the Ex-Officio Provincial Sheriff executed an ABSOLUTE DEED OF
SALE in favor of the plaintiff LUCIA TAN. Civil case 2002 was a complaint for
injunction filed by Tan on July 24, 1957 against the Valdehuezas, to enjoin them
"from entering the above-described parcel of land and gathering the nuts therein
" This complaint and the counterclaim were subsequently dismissed. The
Valdehuezas appealed to the lower court alleging that it erred in making a finding
on the second cause of action that the transactions between the parties were
simple loan, instead, it should be declared as equitable mortgage.

Held:
The trial court treated the registered deed of pacto de retro as an equitable
mortgage but considered the unregistered deed of pacto de retro "as a mere case of
simple loan, secured by the property thus sold under pacto de retro," on the ground
that no suit lies to foreclose an unregistered mortgage. It would appear that the trial
judge had not updated himself on law

and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil
Code and decisions of this Court circa 1910 and 1912. Under article 1875 of the Civil
Code of 1889, registration was a necessary requisite for the validity of a mortgage
even as between the parties, but under article 2125 of the new Civil Code (in effect
since August 30,1950), this is no longer so. 4 If the instrument is not recorded, the
mortgage is nonetheless binding between the parties. (Article 2125, 2nd sentence).

The Valdehuezas having remained in possession of the land and the realty taxes
having been paid by them, the contracts which purported to be pacto de retro
transactions are presumed to be equitable mortgages, 5 whether registered or not,
there being no third parties involved.

F.

LUCIA TAN, plaintiff-appellee,vs. ARADOR VALDEHUEZA and REDICULO

VALDEHUEZA, defendants-appellants.Facts: An action instituted by the plaintiff-
appellee Lucia Tan against the defendants-appellants Arador Valdehueza and
Rediculo Valdehueza for (a) declaration of ownership and recovery of possession of
the parcel of land described in the first cause of action of the complaint, and
(b)consolidation of ownership of two portions of another parcel of (unregistered)
land described inthe second cause of action of the complaint, purportedly sold to
the plaintiff in two separatedeeds of pacto de retro.Parcel of land described in the
first cause of action was the subject matter of the public auctionsale in Oroquieta,
Misamis Occidental, wherein the TAN was the highest bidder .Due to the failure of
defendant Arador Valdehueza to redeem the said land within the period of one year
as being provided by law, MR. VICENTE D. ROA who was then the Ex-Officio
ProvincialSheriff executed an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA
TAN.Civil case 2002 was a complaint for injunction filed by Tan on July 24, 1957
against the Valdehuezas, to enjoin them "from entering the above-described parcel
of land and gatheringthe nuts therein ...." This complaint and the counterclaim were
subsequently dismissedThe Valdehuezas appealed to the lower court alleging that it
erred in making a finding on thesecond cause of action that the transactions
between the parties were simple loan, instead, itshould be declared as equitable
mortgage.Held: The trial court treated the registered deed of pacto de retro as an
equitable mortgage butconsidered the unregistered deed of pacto de retro "as a
mere case of simple loan, secured bythe property thus sold under pacto de retro,"
on the ground that no suit lies to foreclose anunregistered mortgage. It would
appear that the trial judge had not updated himself on lawand jurisprudence; he
cited, in support of his ruling, article 1875 of the old Civil Code anddecisions of this
Court circa 1910 and 1912.Under article 1875 of the Civil Code of 1889, registration
was a necessary requisite for thevalidity of a mortgage even as between the
parties, but under article 2125 of the new CivilCode (in effect since August
30,1950), this is no longer so. 4If the instrument is not recorded, the mortgage is
nonetheless binding between the parties.(Article 2125, 2nd sentence).The
Valdehuezas having remained in possession of the land and the realty taxes having
beenpaid by them, the contracts which purported to be pacto de retro transactions
are presumed tobe equitable mortgages, 5 whether registered or not, there being
no third parties involved.