Provident Savings Bank vs. Court of Appeals

The period of receivership imposed by the Central Bank on a banking institution constitutes a caso fortuito that interrupts (not merely suspends) the prescriptive period for foreclosure of a real estate mortgage, because foreclosure proceedings are deemed part of "doing business" which is prohibited during such receivership; thus, the bank's right to foreclose had not prescribed, and the successor-in-interest's assumption of the mortgage constituted an acknowledgment of the debt that further interrupted prescription.

The case involves a real estate mortgage executed in 1967 by the spouses Lorenzo and Liwayway Guarin to secure a loan from Provident Savings Bank. Following the debtors' default, the bank was placed under receivership by the Central Bank from 1972 to 1981, which specifically prohibited it from transacting business. The mortgaged property was subsequently sold to Wilson Chua, who then sought to compel the bank to release the mortgage and surrender the certificate of title, claiming that the bank's right to foreclose had prescribed during the receivership period.

• On February 16, 1967, spouses Lorenzo K. Guarin and Liwayway J. Guarin obtained a loan of P62,500.00 from Provident Savings Bank, payable on or before June 20, 1967.
• To secure the loan, the spouses executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 177014.
• In September 1972, the bank was placed under receivership by the Central Bank of the Philippines pursuant to Monetary Board Resolution No. 1766, which prohibited it from transacting business until the receivership was set aside by the Supreme Court on July 27, 1981.
• On December 11, 1984, Lorenzo Guarin requested a recomputation of the account and a postponement of the foreclosure sale scheduled for December 27, 1984.
• On February 10, 1986, the Guarins received a Statement of Account showing an outstanding balance of P591,088.80 as of February 15, 1986.
• On February 26, 1986, Lorenzo Guarin expressed readiness to pay the recomputed amount; on February 27, 1986, the bank replied that payment could be made but the title could not be released as it also secured the debt of L.K. Guarin Manufacturing Co., Inc.
• On May 20, 1986, Wilson Chua informed the bank that the mortgaged property had been offered to him by the Guarins as payment for a judgment debt, and he expressed willingness to assume the mortgage obligation.
• On July 10, 1986, the Guarins executed a Deed of Absolute Sale With Assumption of Mortgage in favor of Wilson Chua for P250,000.00, with Chua undertaking to assume the mortgaged obligation of P591,088.80.
• On August 5, 1986, Chua informed the bank of the purchase and requested permission to pay the loan, threatening legal action if refused.
• On August 11, 1986, the bank replied that the request could be granted only if Chua also settled the corporate obligation of L.K. Guarin Manufacturing Co., Inc.
• On August 3, 1987, Chua's counsel demanded the release of the owner's duplicate of TCT No. 177014, claiming that the bank's right to foreclose had prescribed.
• On August 21, 1986, Wilson Chua filed a complaint against Provident Savings Bank before the Regional Trial Court to compel the release of the mortgage, return of the title, and payment of damages.

• The bank argued that the period of its receivership from September 1972 to July 1981 constituted a caso fortuito or fuerza mayor that legally interrupted the running of the prescriptive period for foreclosure under Article 1154 of the New Civil Code.
• It contended that foreclosure proceedings fall within the purview of "doing business," which was prohibited during the receivership, citing the definition in Mentholatum Co. vs. Mangaliman.
• The bank asserted that Wilson Chua's letter dated August 5, 1986, requesting to pay the loan, constituted an express acknowledgment of the debt under Article 1155 of the New Civil Code, which interrupted prescription for the second time and estopped Chua from raising the defense of prescription.
• It argued that there was no novation by substitution of debtors because the bank never consented to the substitution, as evidenced by its condition that Chua must also pay the corporate debt of L.K. Guarin Manufacturing Co., Inc.

• Wilson Chua argued that the bank's right to foreclose the mortgage had prescribed since the loan matured on June 20, 1967, and the 10-year prescriptive period under Article 1142 of the New Civil Code expired on June 20, 1977, before the receivership was lifted in 1981.
• He contended that the receivership did not legally interrupt the prescriptive period because there was no proof that the bank was precluded from collecting indebtedness while under receivership, and that the appointment of a receiver does not dissolve the corporation.
• He claimed that his assumption of the mortgage on July 10, 1986 did not constitute an acknowledgment that the obligation was outstanding and had not prescribed.
• He asserted that he had legal standing as successor-in-interest of the Guarins and that the bank's act of requiring him to pay the obligation constituted consent to the novation/substitution of debtors.

• Procedural Issues:
  • Whether the Court of Appeals gravely abused its discretion in denying the bank's motion for new trial based on allegedly newly discovered evidence (a statement of account).
• Substantive Issues:
  • Whether the bank's right to foreclose the real estate mortgage had prescribed.
  • Whether the period of receivership constituted a caso fortuito that interrupted the prescriptive period for foreclosure.
  • Whether Wilson Chua had legal standing to bring the action to compel release of the mortgage.
  • Whether there was a valid novation by substitution of debtors.
  • Whether Wilson Chua's assumption of the mortgage constituted an acknowledgment of the debt that interrupted prescription.

• Procedural:
  • The Supreme Court found no grave abuse of discretion in the Court of Appeals' denial of the motion for new trial, noting that the newly discovered evidence (statement of account) could have been located with due diligence during the trial.
• Substantive:
  • The Court held that foreclosure is deemed part of "doing business" as defined in Mentholatum Co. vs. Mangaliman, which refers to a continuity of commercial dealings and arrangements incident to the purpose of the organization.
  • The Court ruled that the period of receivership from September 1972 to July 1981 constituted a caso fortuito (fuerza mayor) that legally interrupted the running of the prescriptive period for foreclosure under Article 1154 of the New Civil Code, as the bank was specifically prohibited from transacting business during this time.
  • The Court held that when the receivership was lifted in 1981, the 10-year prescriptive period under Article 1142 began to run anew, and thus the action filed by Chua in 1986 was premature.
  • The Court further held that Chua's letter dated August 5, 1986, requesting permission to pay the loan, constituted an express acknowledgment of the obligation under Article 1155 of the New Civil Code, which interrupted prescription for the second time and estopped him from claiming prescription.
  • The Court ruled that there was no novation by substitution of debtors because the bank's response conditioning the release on payment of the corporate debt showed lack of consent to the substitution.
  • The Court concluded that the bank's right to foreclose had not prescribed, granted the petition, set aside the Court of Appeals decision, and dismissed Wilson Chua's complaint.

• Caso Fortuito (Fuerza Mayor) — An extraordinary event or circumstance that could not be foreseen or, if foreseeable, could not be avoided. Applied in this case to hold that the period during which a bank is under receivership and prohibited from transacting business constitutes a caso fortuito that interrupts (not merely suspends) the prescriptive period for foreclosure under Article 1154 of the New Civil Code, as the bank was prevented from enforcing its rights.
• Doing Business — Defined as a continuity of commercial dealings and arrangements, and the exercise of functions normally incident to and in progressive prosecution of the purpose of the organization. Applied to hold that foreclosure proceedings are part of a bank's business activities, which could not be pursued during the receivership period.
• Interruption vs. Suspension of Prescription — Interruption ceases all benefits acquired from possession and starts prescription anew as an entirely new period, whereas suspension includes the past period in the computation added to the period after prescription is resumed. Applied to clarify that the receivership constituted an interruption of the prescriptive period.
• Novation by Substitution of Debtor — Requires the express consent of the creditor to be valid. Applied to hold that no novation occurred because the bank conditioned its acceptance on the payment of an additional corporate debt, indicating lack of consent to the substitution.

• "Withal, we believe that a foreclose is deemed embraced by the phrase 'doing business' as a preparatory measure to acquiring or holding property for petitioner as a saving bank under Section 34 of the General Banking Act."
• "Indeed, the period during which the obligee was prevented by a caso fortuito from enforcing his right is not reckoned against him (Article 1154, New Civil Code)."
• "When prescription is interrupted, all the benefits acquired so far from the possession cease and when prescription starts anew, it will be entirely a new one. This concept should not be equated with suspension where the past period is included in the computation being added to the period after prescription is resumed."
• "In point of law, this written communication is synonymous to an express acknowledgment of the obligation and had the effect of interrupting the prescription for the second time (Article 1155, New Civil Code)."

• Teal Motor Co. vs. Court of First Instance of Manila (51 Phil. 549 [1928]) — Cited for the rule that the appointment of a receiver does not dissolve the corporation nor interfere with the exercise of its corporate rights, but distinguished as applicable only where there is no restraint imposed on the corporation, unlike in the instant case where the bank was specifically prohibited from doing business.
• Mentholatum Co., Inc. vs. Mangaliman (72 Phil. 524 [1941]) — Cited for the definition of "doing business" as referring to a continuity of commercial dealings and arrangements, and the exercise of functions normally incident to and in progressive prosecution of the purpose of the organization, which the Court applied to foreclosure proceedings.
• Central Bank vs. Court of Appeals (106 SCRA 143 [1981]) — Cited as the decision that set aside the receivership of Provident Savings Bank on July 27, 1981, establishing the duration of the prohibition against the bank.
• The Philippine Trust Co. vs. HSBC (67 Phil. 204 [1939]) — Cited for the principle that the receiver of a bank is obliged to collect debts owing to the bank, but distinguished as not applicable to the extent that the receiver in this case could not foreclose due to the specific prohibition on transacting business.
• Osmeña vs. Rama (14 Phil. 99 [1909]) — Cited for the principle that an acknowledgment of debt interrupts prescription under Article 1155 of the New Civil Code.

• Article 1142, New Civil Code — Provides for a 10-year prescriptive period to bring an action to recover possession of real property or to foreclose a mortgage thereon. Cited as the basis for the bank's right to foreclose.
• Article 1154, New Civil Code — Provides that the period during which the obligee is prevented by an extraordinary fortuitous event from enforcing his right is not reckoned against him. Applied to the receivership period as a caso fortuito.
• Article 1155, New Civil Code — Provides that the prescription of actions is interrupted when the debtor acknowledges the debt. Applied to Chua's letter requesting to pay the loan.
• Section 34, General Banking Act — Cited as the basis for the bank's authority to acquire or hold property, supporting the view that foreclosure is part of its business.
• Section 36, Corporation Code — Vests banks with the usual attributes and powers of a corporation.
• Section 36(11) and Section 45, Corporation Code — Cited regarding the corporate power to acquire and dispose of property and the enforcement of collection of secured debts.
• Section 29, General Banking Act — Cited in relation to the powers of banking institutions regarding the enforcement of debts.

• Feliciano, J. — Concurred in the result only, without expressing agreement with the reasoning in the main opinion.