Development Bank of the Philippines vs. Togle

A lender cannot unilaterally impose conditions not found in the written loan agreement to justify withholding loan proceeds and foreclosing the mortgage; where the loan agreement is silent on the number of poultry houses to be built, broilers to be raised, and equity to be infused, evidence of such supposed conditions is barred by the parol evidence rule, and the lender's refusal to release loan proceeds constitutes a breach that renders the borrower's default and the subsequent foreclosure premature and void.

Evelina Togle and her late husband Jesus Togle owned two agricultural lots in Bangkas Heights, Toril, Davao City, under TCT Nos. 239080 and 239081, teeming with fruit-bearing trees. Their daughter Catherine Geraldine Togle applied for an agricultural loan with DBP-Davao City to fund a poultry grower project on the subject properties, with broilers to be supplied by Vitarich Corporation. DBP approved a P5,000,000.00 loan secured by a real estate mortgage over the properties, with the loan proceeds to be used exclusively for the construction of poultry houses.

On April 5, 1995, Catherine Geraldine Togle wrote to the manager of DBP-Davao City to apply for an agricultural loan to fund a poultry grower project on her family's thirty-six-hectare farm in Bangkas Heights, Toril, Davao City. She proposed to build four poultry houses with a starting capacity of 20,000 broilers, to be supplied by Vitarich Corporation, whose inspectors and technicians had approved the site. In compliance with DBP's requirements, she submitted a feasibility study for the construction of four poultry houses with a total broiler capacity of 20,000. Finding the feasibility study acceptable, DBP approved a P5,000,000.00 loan, secured by a real estate mortgage over the subject properties. The loan agreement provided that the proceeds were to be used exclusively for the construction of poultry houses, and that the borrower could avail of the commitment in one or more drawdowns subject to the conditions for lending specified in Article 7 of the agreement.

On November 15, 1995, Catherine issued a promissory note for P3,000,000.00 in favor of DBP and received the first drawdown two days later. Using the first drawdown, she was able to put up four poultry houses, a bodega, a water tank, and installed poultry machineries, equipment, and a generator set. Subsequently, by letter dated February 2, 1996, Catherine requested the release of an additional P500,000.00 to pay creditors for materials used in erecting the buildings, noting that the P5,000,000.00 loan was insufficient to finance all her projects and that she had lined up eight additional chicken houses to be financed by the additional drawdown and profits from the 20,000 broilers.

DBP denied the request, claiming that respondents had failed to comply with the loan specifications—specifically, that they should have infused equity in proportion to the amount released by DBP for the construction of twelve poultry houses capable of housing at least 60,000 broilers. This was the first time respondents were informed of these alleged requirements. After due notice, DBP applied the acceleration clause and declared respondents in default. On November 22, 1996, DBP foreclosed the properties and emerged as the highest bidder at the auction sale. For their failure to redeem the properties, ownership was consolidated to DBP, and the Register of Deeds cancelled the original titles and issued new ones in DBP's name. Thereafter, DBP stationed guards on the properties to prevent respondents from harvesting fruits and leasing out the farm, and removed electrical wirings, pipes, iron bars, lights, and speakers from the structures. Catherine was subsequently charged with violations of BP 22 and estafa by unpaid suppliers, forcing her to leave Davao City; she was eventually arrested at her father's funeral.

Respondents filed a complaint for breach of contract, annulment of mortgage and foreclosure proceedings, and reconveyance before the RTC of Davao City. The trial court found that the foreclosure was premature because respondents were not yet in default; it was DBP which breached the loan agreement and acted in bad faith by unilaterally altering its terms. The Court of Appeals affirmed, holding that the loan agreement contained no stipulation on the number of poultry houses or broilers, and that DBP's insistence on the twelve-poultry-house requirement violated the parol evidence rule. Both courts below uniformly found that DBP acted in bad faith, and that respondents were not required to put up twelve poultry houses for 60,000 broilers.

• Breach by Respondents: Petitioner maintained that it was respondents who breached the loan agreement, as the loan envisioned the construction of twelve poultry houses for 60,000 broilers. DBP argued that it would not have approved a P5,000,000.00 loan if the total project cost was only P3,000,000.00, as indicated by the feasibility study for four poultry houses.
• Respondents' Own Admission: Petitioner argued that Catherine's letter dated February 2, 1996 was proof that respondents committed to put up twelve poultry houses, as she stated she had lined up eight additional chicken houses to be financed by the additional drawdown.
• Failure to Infuse Equity: Petitioner maintained that Catherine should have already infused P2,747,760.00 in equity to match the P3,000,000.00 loan released, but the total valuation of the project only amounted to P3,193,000.00, short by P2,554,559.00.
• Non-Compliance with Mortgage Conditions: Petitioner argued that respondents failed to comply with other conditions in the mortgage contract, namely submission of tax declaration, an affidavit stating no unpaid materials or labor, and an Environmental Clearance Certificate, justifying its refusal to release the remaining loan proceeds.

• Timeliness of Petition: Respondents sought dismissal of the petition for belated filing, arguing that DBP received the CA resolution denying reconsideration on March 30, 2016, and had until April 14, 2016 to file a petition, but sought an extension only on April 15, 2016—one day late. Even if the extension were granted, it would have expired on May 14, 2016, yet DBP filed on May 16, 2016—two days late—rendering the CA dispositions final.
• Bad Faith of DBP: Respondents argued that the courts below did not err in ruling that they were not in default and that DBP acted in bad faith, contending that had DBP released the loan proceeds in full, the poultry project would have been successful.

• Timeliness of Filing: Whether DBP's motion for extension and petition for review on certiorari were timely filed.
• Default of Respondents: Whether respondents were in default for failing to construct twelve poultry houses for 60,000 broilers and for failing to infuse the required equity.
• Parol Evidence Rule: Whether DBP could introduce evidence of conditions not found in the written loan agreement to justify its refusal to release loan proceeds.
• Premature Foreclosure: Whether DBP's foreclosure of the real estate mortgage was premature and void.
• Monetary Awards: Whether the awards of moral damages, exemplary damages, actual damages, and attorney's fees were proper.

• Timeliness of Filing: Yes. The motion for extension and petition were timely filed; the Court credited the postmaster's certification that the motion was posted for mailing on April 14, 2016, and since May 14, 2016 fell on a Saturday, filing on the next working day, May 16, 2016, was proper.
• Default of Respondents: No. Respondents could not be deemed in default because the loan agreement did not require the construction of twelve poultry houses for 60,000 broilers, nor did it impose any equity requirement; DBP's refusal to release the additional P500,000.00 was without valid basis.
• Parol Evidence Rule: No. DBP could not introduce evidence of conditions not found in the written loan agreement; the loan agreement was clear and unambiguous, and none of the exceptions to the parol evidence rule were present.
• Premature Foreclosure: Yes. The foreclosure was premature and void because DBP, having breached its own obligation to release the loan proceeds, could not compel respondents to perform their end of the bargain or declare them in default.
• Monetary Awards: Yes, with modifications. Moral damages and exemplary damages were awarded due to DBP's bad faith, but were reduced to P300,000.00 and P200,000.00 respectively; attorney's fees were reduced to P100,000.00; the case was remanded for determination of actual damages and accounting of income.

• Timeliness of Filing: The Court gave credence to the certification of Postmaster III Myrna C. Zaspa that the motion for extension, bearing Registry No. RD606042813ZZ, was posted for mailing on April 14, 2016, though dispatched on April 15, 2016. The motion sought a thirty-day extension or until May 14, 2016. Since May 14, 2016 fell on a Saturday, DBP was justified in filing the petition on the next working day, May 16, 2016, pursuant to Rule 22, Section 1 of the Rules of Court, which provides that if the last day of the period falls on a Saturday, Sunday, or legal holiday, the time shall not run until the next working day.

• Default of Respondents: The loan agreement was silent on the specific number of poultry houses to be built, the number of broilers to be housed, and the equity to be infused by respondents. Article 2.02 merely stated that the loan proceeds were to be used exclusively "for the construction of poultry houses," without specifying any number. DBP's own counsel admitted during trial that the contract did not specify the number of chickens and that there was no rider to the contract. Sans any condition imposed before respondents could avail of another drawdown, respondents could draw from their credit line regardless of the number of poultry houses built. Respondents' supposed failure to comply with other mortgage conditions (tax declaration, affidavit of no unpaid materials, and ECC) did not render them in default either, because those conditions applied only to the "final drawdown," and respondents were merely requesting an additional P500,000.00—not the entire remaining balance of P2,000,000.00. The issues raised were ultimately questions of fact, and the factual findings of the trial court, affirmed by the Court of Appeals, were final and conclusive on the Supreme Court.

• Parol Evidence Rule: Where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The loan agreement was clear—the proceeds were for the construction of poultry houses without regard to the number, broilers, or equity. DBP's introduction of Catherine's February 2, 1996 letter to prove that respondents committed to twelve poultry houses was barred by the parol evidence rule under Section 10, Rule 130 of the 2019 Revised Rules on Evidence, which forbids any addition to or contradiction of the terms of a written instrument by evidence purporting to show that other or different terms were agreed upon. None of the exceptions applied: DBP did not put in issue the validity of the loan agreement, allege any intrinsic ambiguity, mistake, or imperfection, nor did it properly allege the failure of the written agreement to express the true intent of the parties. Even assuming DBP alleged that the agreement failed to express other terms, this should be taken against DBP, since the loan agreement was a contract of adhesion which DBP itself prepared; ambiguities in such contracts are interpreted against the drafting party. Moreover, Catherine's application letter showed she requested a P5,000,000.00 loan for a project of 20,000 broilers, and Vitarich's Area Manager testified that an initial grower would only be approved for 20,000 broilers, with an increase to 60,000 only after at least one year of experience—circumstances that further undermined DBP's claim.

• Premature Foreclosure: A mortgage is an accessory contract enforceable only upon breach of the principal obligation. In reciprocal obligations such as a loan, a party may only be deemed in breach when the other has already fulfilled its obligation. DBP withheld the additional P500,000.00 without valid reason, thereby failing to fulfill its own obligation under the loan agreement. It could not then compel respondents to fulfill their end, declare them in default, and foreclose the mortgage. The Court relied on Development Bank of the Phils. vs. Guariña Agricultural & Realty Development Corp., where DBP similarly refused to release loan proceeds and then declared the borrower in default, and the Court held that DBP had no right to exact compliance when it was DBP itself which failed to release the full loan amount. DBP acted in evident bad faith by unilaterally amending the loan specifications and prescribing conditions not found in the agreement.

• Monetary Awards: Moral damages were proper under Article 2220 of the Civil Code, which allows moral damages for breaches of contract where the defendant acted fraudulently or in bad faith. DBP's unilateral amendment of the loan contract and invocation of the supposed violation to declare respondents in default, apply the acceleration clause, and foreclose the property—all without legal basis—constituted bad faith. Exemplary damages were proper under Articles 2232 and 2234, as DBP acted in a wanton, fraudulent, reckless, and oppressive manner, causing Catherine to face criminal charges and arrest. The awards were nevertheless reduced to P300,000.00 for moral damages and P200,000.00 for exemplary damages, consistent with Trans World Airlines vs. Court of Appeals. Attorney's fees of P100,000.00 were awarded under Article 2208, as exemplary damages were awarded and respondents were compelled to litigate to protect their interests. The award of P3,713,200.00 in actual damages was modified because the record did not establish what happened to the poultry houses themselves; the case was remanded for determination of the current value of the four poultry houses, with the difference between the appraised value of P3,193,200.00 and the current value to be awarded as additional damages. Respondents were ordered to pay the P3,000,000.00 loan to avoid unjust enrichment, but this amount would only become due once the actual damages were fixed, to allow compensation of the amounts due.

• Parol Evidence Rule — When the terms of an agreement have been reduced to writing, the writing is considered as containing all the terms agreed upon, and no evidence of such terms other than the contents of the written agreement may be admitted between the parties and their successors in interest. A party may present evidence to modify, explain, or add to the terms only if he or she puts in issue in a verified pleading: (a) an intrinsic ambiguity, mistake, or imperfection; (b) the failure of the writing to express the true intent; (c) the validity of the agreement; or (d) the existence of other terms agreed to after execution. In this case, the loan agreement was clear and unambiguous, and none of the exceptions were present; DBP's attempt to introduce evidence of conditions on the number of poultry houses, broilers, and equity was barred.

• Contract of Adhesion — A contract where one party imposes a ready-made contract which the other may accept or reject but not modify, giving no room for negotiation. Ambiguities in such contracts are interpreted against the party that drafted them. The loan agreement was a contract of adhesion prepared by DBP; any ambiguity or failure to express other terms should be taken against DBP, not respondents.

• Accessory Nature of Mortgage in Reciprocal Obligations — A mortgage is an accessory contract dependent on the principal obligation, enforceable only upon breach of the principal obligation. In reciprocal obligations like a loan, the lender must perform its obligation—the release of the full loan amount—before it can demand that the borrower repay. If the lender fails to release the proceeds, the borrower does not incur delay, and the lender cannot declare default, apply the acceleration clause, or foreclose the mortgage.

• Finality of Factual Findings — When the factual findings of the trial court are affirmed by the Court of Appeals, said facts are final and conclusive on the Supreme Court, unless unsupported by evidence on record. The Court is not a trier of facts in petitions under Rule 45, which require only questions of law.

• "to deny the release of the remaining Php2,000,000.00 on the ground that Catherine had failed to put up 12 chicken houses to shelter 60,000 chickens is a clear breach of contract because such condition is not imposed under the Loan Agreement. Any attempt to impose such condition is an alteration of the Loan Agreement and violative of the parol evidence rule." — This passage, quoted by the Court from the Court of Appeals' decision, encapsulates the central ratio: DBP's imposition of conditions absent from the written loan agreement constituted a breach and violated the parol evidence rule.

• "by its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña Corporation[,] the latter's compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be obliged to perform what is expected of it while the other's obligation remains unfulfilled." — This quotation from DBP vs. Guariña was relied upon to establish the principle that a lender who withholds loan proceeds cannot declare the borrower in default or foreclose the mortgage, directly supporting the ruling that DBP's foreclosure was premature.

• "Sans any condition imposed before respondents could avail of another drawdown from the loan, the inevitable conclusion is that respondents could draw from its credit line regardless of the number of poultry houses built or to be built, be it four (4), twelve (12), or even a hundred (100)." — This passage articulates the Court's conclusion that the loan agreement imposed no restriction on the number of poultry houses, making DBP's refusal to release the additional drawdown unwarranted.

• Development Bank of the Phils. vs. Guariña Agricultural & Realty Development Corp., 724 Phil. 209 (2014) — Controlling precedent. The Court applied the same reasoning: DBP could not declare the borrower in default or foreclose the mortgage when DBP itself failed to release the full loan proceeds. The case established that in reciprocal obligations, the lender must first perform its obligation before exacting compliance from the borrower.
• Ortañez vs. Court of Appeals, 334 Phil. 514 (1997) — Applied on the parol evidence rule. The Court held that where deeds of sale were clear and unambiguous, they were deemed to contain all terms agreed upon, and whatever was not found in the instruments was deemed waived and abandoned. The same principle was applied to the loan agreement.
• Fortune Medicare, Inc. vs. Amorin, 729 Phil. 484 (2014) — Cited for the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity, particularly in contracts of adhesion.
• Trans World Airlines vs. Court of Appeals, 247-A Phil. 235 (1988) — Followed for the reduction of moral and exemplary damages awards to reasonable amounts.
• PNB vs. Spouses Tajonera, 744 Phil. 127 (2014) — Followed for the reduction of attorney's fees to P100,000.00.
• Dela Cruz vs. Octaviano, 814 Phil. 891 (2017) — Cited for the definition and purpose of exemplary or corrective damages as a deterrent to serious wrongdoing and vindication of undue suffering.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited for the rule on 6% legal interest per annum from finality of judgment until fully paid.

• Section 10, Rule 130, 2019 Revised Rules on Evidence — Defines the parol evidence rule: when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon, and no evidence of such terms other than the contents of the written agreement may be admitted, subject to enumerated exceptions. Applied to bar DBP from introducing evidence of conditions on the number of poultry houses, broilers, and equity not found in the loan agreement.
• Article 2220, Civil Code — Provides that willful injury to property may be a ground for awarding moral damages, and that the same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Applied to award moral damages due to DBP's bad faith in unilaterally amending the loan contract.
• Articles 2232 and 2234, Civil Code — Authorize exemplary damages in contracts when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, provided the plaintiff shows entitlement to moral, temperate, or compensatory damages. Applied to award exemplary damages against DBP.
• Article 2208, Civil Code — Authorizes recovery of attorney's fees when exemplary damages are awarded. Applied to award attorney's fees to respondents.
• Rule 22, Section 1, Rules of Court — Governs computation of time: if the last day of a period falls on a Saturday, Sunday, or legal holiday, the time shall not run until the next working day. Applied to justify DBP's filing of the petition on May 16, 2016, since May 14, 2016 fell on a Saturday.

Gesmundo, C.J. (Chairperson), Caguioa, M. Lopez, and J. Lopez, JJ., concurred.