Philippine National Bank vs. Romeo Alcedo

A bank is estopped from foreclosing a real estate mortgage on property it expressly assured the owner, in writing, would be excluded as collateral for a specific loan. The doctrine of promissory estoppel binds a party to its clear and unequivocal representations when another party reasonably relies upon them to his prejudice, and the party making the representation may not later take an inconsistent position.

Private respondent Romeo Alcedo owned Lot No. 1626, a portion of Lot No. 1402 covered by TCT No. 52705 of the Isabela Cadastre. His sister-in-law, Leticia de la Vina-Sepe, obtained sugar crop loans from petitioner Philippine National Bank (PNB), San Carlos Branch, secured by real estate mortgages. Alcedo executed a Special Power of Attorney authorizing Sepe to mortgage his lot as additional collateral for her loans. The parties had a verbal agreement to split the loan proceeds equally between Sepe and Alcedo.

On March 20, 1968, Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB, San Carlos Branch, over a lot registered in her name under TCT No. T-31913 to secure a sugar crop loan of P3,400. Thereafter, Sepe, acting as attorney-in-fact for her brother-in-law, private respondent Romeo Alcedo, executed an amended real estate mortgage including Alcedo's Lot No. 1626 as additional collateral for Sepe's increased loan of P16,500. Sepe and Alcedo verbally agreed to split the loan proceeds fifty-fifty, but when Alcedo failed to receive his one-half share, he wrote a letter on May 12, 1970 to PNB revoking the Special Power of Attorney he had given Sepe to mortgage his lot.

Replying on May 22, 1970, PNB Branch Manager Jose T. Gellegani advised Alcedo that his land had already been included as collateral for Sepe's 1970-71 sugar crop loan, which she had already availed of, but assured him that the bank would exclude his lot as collateral for Sepe's forthcoming 1971-72 sugar crop loan. On the same day, PNB advised Sepe in writing to replace Lot No. 1402 with another collateral of equal or higher value. Despite this advice, Sepe was still able to obtain an additional loan from PNB, increasing her debt from P16,500 to P56,638.69, with Alcedo's property as collateral.

On January 15, 1974, Alcedo received two letters from PNB: one informing him of Sepe's failure to pay her loan in the total amount of P56,638.69, and another giving him six days to settle the obligation or face foreclosure proceedings against his property. Alcedo requested Sepe to pay her accounts to forestall foreclosure, but to no avail. During the pendency of the case Alcedo filed against Sepe and PNB, PNB filed a petition for extrajudicial foreclosure of its real estate mortgage on Alcedo's land in the Office of the Sheriff at Pasig, Metro Manila. On November 19, 1974, the property was sold to PNB as the highest bidder, and the corresponding Sheriff's Certificate of Sale was issued to the bank.

In its answer, PNB alleged that it had no knowledge of the agreement between Sepe and Alcedo to split the loan proceeds; that it required Sepe to put up other collaterals when it granted her an additional loan because Alcedo informed the bank he was revoking the Special Power of Attorney; that the revocation was not formalized in accordance with law; and that the revocation did not impair the real estate mortgage earlier executed on April 28, 1969. The trial court found in favor of Alcedo, and the appellate court affirmed, holding that PNB was estopped from foreclosing the mortgage on Alcedo's lot to pay Sepe's 1971-72 sugar crop loan after having assured Alcedo in writing that his lot would be excluded as collateral.

• Inapplicability of Promissory Estoppel: PNB argued that the doctrine of promissory estoppel does not apply to this case.
• Mortgagee in Good Faith: PNB maintained that it was a mortgagee in good faith and for value.
• Substantial Evidence for Cross-Claim: PNB argued that it adduced substantial evidence in support of its cross-claim against defendant Leticia Sepe.

N/A — The decision does not separately recount the arguments advanced by private respondent Alcedo before the Supreme Court, aside from the positions adopted by the lower courts which the respondent sought to sustain.

• Promissory Estoppel: Whether PNB is bound by its written assurance to exclude Alcedo's property as collateral for Sepe's 1971-72 sugar crop loan under the doctrine of promissory estoppel.
• Validity of Foreclosure: Whether PNB validly foreclosed the real estate mortgage on Alcedo's property despite notice of Alcedo's revocation of the Special Power of Attorney and despite the bank's written assurance to exclude the property as collateral.
• Validity of Revocation: Whether the revocation of the Special Power of Attorney embodied in a private writing is valid and binding between the parties notwithstanding the requirement of a public instrument under Article 1358 of the Civil Code.

• Promissory Estoppel: Yes. The act and assurance given by PNB to Alcedo that his lot would be excluded as collateral for Sepe's 1971-72 sugar crop loan is binding on the bank under the doctrine of promissory estoppel, as enunciated in Republic Flour Mills Inc. vs. Central Bank.
• Validity of Foreclosure: No. The extrajudicial foreclosure was null and void ab initio because PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-72 sugar crop loan, and the certificate of sale delivered to PNB is likewise null and void.
• Validity of Revocation: Yes. A revocation embodied in a private writing is valid and binding between the parties, as the requirement of a public instrument under Article 1358 is a mere form or solemnity imposed for validity against third persons, not an essential requisite of the contract as between the parties.

• Promissory Estoppel: The Court agreed with the appellate court that under the doctrine of promissory estoppel, the assurance given by PNB to Alcedo that his lot would be excluded as collateral for Sepe's 1971-72 sugar crop loan is binding on the bank. Having given that assurance, the bank may not turn around and do the exact opposite of what it said it would not do. One may not take inconsistent positions, and a party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The Court cited Philippine National Bank vs. Court of Appeals (94 SCRA 357), where the bank manager assured the heirs of the debtor-mortgagor that they would be allowed to pay the remaining obligation of their deceased parents, and the Court held that the bank must abide by its representations.

• Validity of Foreclosure: Since PNB had promised to exclude Alcedo's property as collateral for Sepe's 1971-72 sugar crop loan, it should have released the property to Alcedo. The mortgage which Sepe gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop loan was null and void for having been already disauthorized by Alcedo. Since Alcedo's property secured only P13,100.00 of Sepe's 1970-71 sugar crop loan of P16,500.00 (because P3,400 was secured by Sepe's own property), Alcedo's property may be held to answer for only the unpaid balance, if any, of Sepe's 1970-71 loan, but not the 1971-72 crop loan. The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-72 sugar crop loan, and the extrajudicial foreclosure being null and void ab initio, the certificate of sale which the Sheriff delivered to PNB as the highest bidder at the sale is also null and void.

• Validity of Revocation: While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of Attorney to mortgage his property should appear in a public instrument, a revocation embodied in a private writing is valid and binding between the parties. The legalization by a public writing and the recording of the same in the registry are not essential requisites of a contract entered into as between the parties, but mere conditions of form or solemnities which the law imposes in order that such contract may be valid as against third persons, and to insure that a publicly executed and recorded agreement shall be respected by the latter.

• Promissory Estoppel — A party who, by his own declaration, act, or omission, intentionally and deliberately leads another to believe a particular thing true and to act upon such belief, cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. The Court applied this doctrine to hold PNB bound by its written assurance to Alcedo that his lot would be excluded as collateral for Sepe's 1971-72 sugar crop loan, preventing the bank from foreclosing on the property to satisfy that loan.

• Estoppel in Pais — Estoppel arises when one, by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts. The doctrine is based upon the grounds of public policy, fair dealing, good faith and justice, and is designed to aid the law in the administration of justice where without its aid injustice might result.

• Revocation of Agency in Private Writing — A revocation of a Special Power of Attorney embodied in a private writing is valid and binding between the parties, notwithstanding the requirement of Article 1358 of the Civil Code that such acts appear in a public document. The public instrument requirement is a mere condition of form or solemnity imposed for validity against third persons, not an essential requisite of the contract as between the parties.

• "Having given that assurance, the bank may not turn around and do the exact opposite of what it said it would not do. One may not take inconsistent positions." — This passage articulates the core of the promissory estoppel doctrine as applied to PNB's written assurance, forming the ratio decidendi of the case.

• "The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against its own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon." — This is the canonical formulation of the estoppel doctrine that the Court adopted and applied to the bank's conduct.

• "The legalization by a public writing and the recording of the same in the registry are not essential requisites of a contract entered into, as between the parties, but mere conditions of form or solemnities which the law imposes in order that such contract may be valid as against third persons." — This passage explains why the revocation of the Special Power of Attorney in a private writing was valid and binding between Alcedo and PNB despite Article 1358.

• Republic Flour Mills Inc. vs. Central Bank, L-23542, August 11, 1979 — Controlling precedent for the doctrine of promissory estoppel, cited by the Court as the basis for holding PNB bound by its assurance to Alcedo.
• Philippine National Bank vs. Court of Appeals, 94 SCRA 357 — Followed; the Court cited this case where the bank manager assured the heirs of the debtor-mortgagor that they would be allowed to pay the remaining obligation of their deceased parents, and the Court held that the bank must abide by its representations.
• Republic vs. Court of Appeals, 133 SCRA 505 — Cited for the principle that one may not take inconsistent positions.
• Lazo vs. Republic Surety & Insurance Co., Inc., 31 SCRA 329 — Cited for the principle that a party may not go back on his own acts and representations to the prejudice of the other party who relied upon them.
• Doliendo vs. Depino, 12 Phil. 758 — Cited for the proposition that a revocation embodied in a private writing is valid and binding between the parties.
• Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746 — Cited for the same proposition regarding the validity of a revocation in a private writing.
• Alano, et al. vs. Babasa, 10 Phil. 511 — Cited for the principle that public writing and recording are not essential requisites of a contract as between the parties, but mere conditions of form or solemnities for validity against third persons.

• Article 1431, Civil Code — Provides that through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Applied to bind PNB to its written assurance to Alcedo.
• Article 1433, Civil Code — Provides that estoppel may be in pais or by deed. Cited by the appellate court in support of its application of estoppel against PNB.
• Article 1358, Civil Code — Requires that acts or contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property appear in a public document. The Court held that a revocation in a private writing is nonetheless valid and binding between the parties.
• Section 3(a), Rule 131, Rules of Court — Provides the conclusive presumption that whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. Cited as the procedural basis for the estoppel applied against PNB.

Narvasa, Cruz, Gancayco, and Medialdea, JJ., concurred.

N/A — No dissenting opinions are noted in the case text.