Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=83669:57776&catid=1587&Itemid=566
Timestamp: 2019-04-19 10:35:49+00:00

Document:
PHILIPPINE NATIONAL BANK, Petitioner, v. SPOUSES EDUARDO AND MA. ROSARIO TAJONERA AND EDUAROSA REALTY DEVELOPMENT, INC., Respondents.
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to reverse and set aside the November 30, 2010 Decision1 of the Court of Appeals (CA), and its March 2, 2011 Resolution,2 in CA-G.R. CV No. 85458, entitled “Spouses Eduardo & Ma. Rosario Tajonera and Eduarosa Realty & Development, Inc. v. Philippine National Bank,” which affirmed with modification the December 8, 2003 Decision3 of the Regional Trial Court, Branch 71, Pasig City (RTC), in a case for annulment of sale, cancellation of title, cancellation of mortgage and damages.
Respondent Eduarosa Realty Development, Inc. (ERDI) was engaged in realty construction and sale of condominium buildings. Respondent Ma. Rosario Tajonera (Rosario), as the Vice President of ERDI, also performed the duties of president and marketing director dealing with banks, suppliers and contractors. ERDI, through Rosario, obtained loans from petitioner Philippine National Bank (PNB) and entered into several credit agreements to finance the completion of the construction of their 20-storey Eduarosa Tower Condominium located in Roxas Boulevard, Paranaque City.
Pursuant to the Credit Agreement,4 dated March 5, 1991, the principal amount of loan extended by PNB to ERDI was Sixty Million Pesos (P60,000,000.00). As security for the initial loan, ERDI executed the Real Estate Mortgage (REM) consisting of three (3) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 38845, 38846 and 38847 with an aggregate area of 1,352 square meters situated in Roxas Boulevard, Tambo, Paranaque, Metro Manila, registered in the name of ERDI (Paranaque properties). In addition, the loan was secured by the assignment of proceeds of contract receivables arising from the sale of condominium units to be constructed on the mortgaged Paranaque properties.
On January 31, 1992, ERDI executed an amendment to the Credit Agreement5 (First Amendment) and obtained an additional loan of Forty Million Pesos (P40,000,000.00). As additional security to the increased amounts of loan, the respondent spouses’ 958-square meter lot and the improvements thereon, situated in Greenhills, San Juan, Metro Manila (Greenhills property) and covered by TCT No. 29733, was mortgaged in favor of PNB as evidenced by the Supplement to REM.6 On October 28, 1992, a Second Amendment to Credit Agreement7 (Second Amendment) was executed by the parties to extend the repayment dates of the loan and the additional loan subject to the terms set forth in the said agreement.
The following year, or on November 3, 1993, a Third Amendment to the Credit Agreement8 (Third Agreement) was entered into by the parties wherein PNB granted an additional loan of Fifty Five Million Pesos (P55,000,000.00) to ERDI, subject to several conditions stated in the said agreement.
1. NULLIFYING and CANCELLING the Supplement to Real Estate Mortgage dated January 28, 1992 and the Certificate of Sale dated October 9, 1997.
2. NULLIFYING and CANCELLING the Transfer Certificate of Title No. 9424-R, Registry of Deeds for San Juan, Metro Manila, and REINSTATING Transfer Certificate of Title No. 29733, Registry of Deeds for San Juan, Metro Manila.
3. ORDERING the defendant to pay the plaintiffs the amount of P500,000.00 as moral damages.
4. ORDERING the defendant to pay the plaintiffs the amount of P200,000.00 as exemplary damages.
5. ORDERING the defendant to pay the plaintiffs the amount of P100,000.00 as and by way of attorney’s fees.
Counterclaims are hereby DISMISSED for lack of merit.
The RTC annulled the mortgage contract constituted over the Greenhills property on the ground of breach of contract on the part of PNB by violating the credit agreements.
WHEREFORE, the challenged Decision dated 08 December 2003 is AFFIRMED with Modification in that the awards for moral and exemplary damages are deleted.
The CA agreed with the RTC ruling that inasmuch as PNB did not release the remaining balance of the approved loan amounting to P39,503,088.84 under the Third Amendment, there was no sufficient valuable consideration in the execution of the Supplement to REM that secured the said credit agreement. There was, according to the CA, breach of contract on the part of PNB that warranted the annulment and cancellation of the Supplement to REM covering the Greenhills property. Further, the CA rejected PNB’s claim that its refusal to release the balance of the last loan was due to the respondents’ failure to comply with the undertaking of bringing new investors with additional collaterals to secure the additional loan as such requirement was not categorically stated in the terms of the credit agreement. Also, such claim was belied by PNB’s own witness who testified that the reason for its refusal to release was simply the respondents’ failure to settle their amortization.
PNB filed a motion for reconsideration of the said decision, but the same was denied by the CA in its assailed Resolution, dated March 2, 2011.
PNB’s assignment of errors boils down to the sole issue of whether the CA erred in annulling the mortgage contract constituted over the Greenhills property of the respondents.
PNB contends that the Supplement to REM was supported by sufficient and valuable consideration because the loan proceeds secured by it under the Third Amendment had been substantially released to the respondents. It avers that had it not been for the additional collateral over the Greenhills property, PNB would not have made the respondents’ loan account current under the First Amendment. This consideration, according to it, must be deemed valuable and sufficient enough to uphold the validity of the Supplement to the REM.
PNB insists that there was no breach, substantial or otherwise, of its contractual obligation when it did not release the remaining balance of the approved loan to the respondents considering that the latter had no history of any payment either on interest or principal of the loan. PNB, thus, asserts that the CA erred when it affirmed the RTC in ordering the annulment and cancellation of the supplement REM covering the Greenhills property.
PNB’s arguments fail to persuade.
As recited earlier, on March 5, 1991, ERDI obtained from PNB a loan in the amount of P60,000,000.00 plus P5,000,000.00 Domestic Bills. To secure this initial loan, ERDI mortgaged in favor of PNB its Paranaque properties together with the 20-storey condominium building to be erected thereon.
Thereafter or on January 31, 1992, ERDI and PNB entered into The First Amendment wherein the former obtained an additional loan of P40,000,000.00. As security for the additional loan, the respondents’ Greenhills property was mortgaged as evidenced by the Supplement to REM executed by the parties on January 28, 1992. The Second Amendment was likewise entered into by the parties for the purpose of extending the repayment dates of the loan and the additional loan.
On November 3, 1993, the Third Amendment was entered into by the parties wherein the respondents were granted a second additional loan of P55,000,000.00.
The obligation of PNB was to furnish the P55,000,000.00 additional loan accrued on November 3, 1993, the date the parties entered into the Third Amendment. Thus, PNB’s delay in furnishing the entire additional loan started from the said date.
Indeed, the execution of the subject Supplement to Real Estate Mortgage dated January 28, 1992 lacks sufficient valuable consideration since PNB did not release the balance of the Php160,000,000.00 approved loan in the amount of Php39,503,038.54, pursuant to the Third Amendment to Credit Agreement of the parties. As the records would show, the subject Supplement to Real Estate Mortgage, supra, was constituted by Appellees as additional security for the execution of the 1st, 2nd as well as the 3rd Amendment to Credit Agreements.
Now, what happened to the balance of the loan that was yet to be released to plaintiff corporation?
The bank did not allow further availments because of the failure of the borrower to pay the maturing obligation.
What was the reason, Mr. Witness, why the PNB withheld the release of the additional loan?
Because the borrower failed to settle the quarterly amortization June 30, 1994. Even the June 30, the amortization were never settled by the borrower.
1.05 Repayment Dates. The Borrower agrees to repay the Second Additional Loan in full in eleven (11) equal (or as nearly equal as possible) consecutive quarterly installments (“Repayment Dates”), the first installment to commence on June 30, 1994 and every quarter thereafter up to December 31, 1996.
Equally without merit is PNB’s reliance on the case of Sps. Omengan v. Philippine National Bank.27 The said case finds no application inasmuch as the circumstances in that case are not in all fours with the present case. In Omengan case, there was no actual meeting of the minds with respect to the conditionally approved additional loan as the condition attached to the increase in borrowers’ credit line was not acknowledged and accepted by them. Hence, there being no perfected contract over the increase in credit line, it was held that no breach of contract could be attributed to PNB in not releasing the additional loan. In the present case, there was a perfected contract in so far as the Third Amendment was concerned. Thus, PNB’s action in not releasing the entire amount of the additional loan was not justified.
Still in the said case, at the time the original loan was approved, the title to the property offered as collateral appeared to pertain exclusively to Spouses Omengan. By the time the application for increase was considered, PNB had acquired information that the said property, although in the name of spouses petitioners was owned in co-ownership. The Court justified PNB’s act of withholding the release of the additional loan because it already had reason to suspect the spouses’ claim of exclusive ownership over the mortgaged collateral. In this case, the respondents were unquestionably the exclusive owners of the mortgaged property (Greenhills property) at the time the initial and the additional loans were approved.
For said reasons, the Court holds that PNB was indeed guilty of breach of contract of its reciprocal obligation under the credit agreements.
Considering that there was no sufficient valuable consideration in the execution of the Supplement to REM on the Third Amendment as the balance of the last approved additional loan in the amount of P39,503,088.54 remained unreleased, the cancellation of the Supplement to REM constituted over the respondents’ Greenhills property was in order.
In this case, to repeat, PNB did not fulfill its principal obligation under the Third Amendment by failing to release the amount of the last additional loan in full. Consequently, the Supplement to REM covering the Greenhills property became unenforceable, as the said property could not be entirely foreclosed to satisfy the respondents’ total debts to PNB. Moreover, the Supplement to REM was no longer necessary because PNB’s interest was amply protected as the loans had been sufficiently secured by the Paranaque properties. As aptly found by the RTC, the Paranaque properties together with the 20-storey condominium building to be erected thereon would have been sufficient security in the execution of the REM even without the Greenhills property as additional collateral. Thus, under the circumstances, PNB’s actuation in foreclosing the Greenhills property was legally unfounded.
Being a banking institution, PNB owes it to the respondents to observe the high standards of integrity and performance in all its transactions because its business is imbued with public interest. The high standards are also necessary to ensure public confidence in the banking system, for, according to Philippine National Bank v. Pike,29 "[t]he stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks."30 Thus, PNB was duty bound to comply with the terms and stipulations under its credit agreements with the respondents, specifically the release of the amount of the additional loan in its entirety, lest it erodes public confidence. Yet, PNB failed in this regard.
Regarding the award of damages, the CA ruled that the RTC erred in awarding moral and exemplary damages for failure of the respondents to prove with convincing evidence malice or bad faith on the part of PNB. The Court finds no reason to overturn this finding.
Concededly, PNB was remiss in its obligation to release the balance of the additional loan it extended to the respondents. Nothing in the records or findings of the RTC and the CA, however, would show that PNB acted with a deliberate intent to maliciously cause damage or harm to the respondents. And, inasmuch as the respondents were also found to have been remiss in their obligation to pay their loan amortization, the CA was correct in deleting the award for moral and exemplary damages in favor of the respondents.
Finally, the Court sustains the award for attorney’s fees because the same is just and equitable under the circumstances.33 Considering PNB’s failure to release the remaining balance of the approved loan, the Court agrees that the respondents were compelled to litigate for the purpose of recovering their property and to protect their interest, making the award of attorney’s fees proper.
WHEREFORE, the petition is DENIED. The November 30, 2010 Decision and the March 2, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 85458 are AFFIRMED.
1Rollo, pp. 65-82. Penned by Associate Justice Jane Aurora C. Lantion with Associate Justices Andres B. Reyes, Jr. and Japar B. Dimaampao, concurring.
17 Dated October 19, 2012, id. at 313-380.
19Development Bank of the Philippines v. Guarina Agricultural and Realty Development Corporation, G.R No. 160758, January 15, 2014.
20 Id., citing Cortes v. Court of Appeals, 527 Phil. 153, 160 (2006).
21Central Bank of the Philippines v. Court of Appeals, 223 Phil. 266, 273 (1985).
24 Dato v. Bank of the Philippine Islands, G.R. No. 181873, November 27, 2013, 710 SCRA 716, 729, citing Magdiwang Realty Corporation v. The Manila Banking Corporation, G.R. No. 195592, September 5, 2012, 680 SCRA 251, 263-264, citing Bernales v. Heirs of Julian Sambaan, G.R. No. 163271, January 15, 2010, 610 SCRA 90, 104-105.
27 541 Phil. 293 (2007).
28Development Bank of the Philippines v. Guarina Agricultural and Realty Development Corporation, supra note 19.
29 507 Phil. 322, 340 (2005).
30Development Bank of the Philippines v. Guarina Agricultural and Realty Development Corporation, supra note 19.
31 Philippine National Bank v. RBL Enterprises, Inc., G.R. No. 149569, May 28, 2004, 430 SCRA 299, citing Spouses Mirasol v. Court of Appeals, 403 Phil. 760, 779 (2001).
32 Id., citing Article 2232 of the Civil Code.
33 Article 2208 (11) of the Civil Code.

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