Spouses Pio Dato and Sonia Y. Sia vs. Bank of the Philippine Islands

A credit line facility is merely a fixed limit of credit, not a single loan that the bank must release in full or evidence by a promissory note for the entire amount; its cancellation does not extinguish separate loans secured by another mortgage. Foreclosure is proper upon default, and the purchaser at the foreclosure sale who is not redeemed within the redemption period becomes the absolute owner entitled to a writ of possession as a ministerial duty.

Spouses Pio Dato and Sonia Y. Sia were borrowers of Bank of the Philippine Islands under several loan and credit facilities secured by real estate mortgages, including one over TCT No. 102434 in Labangon, Cebu. Their loan documents included promissory notes and real estate mortgage contracts containing a clause allowing foreclosure upon default. The parties' arrangement also included a ₱5.7 Million credit facility secured by the same and additional collaterals, the cancellation of which later became central to the spouses' claim that their obligations had been extinguished.

On May 23, 1990, Spouses Pio Dato and Sonia Y. Sia applied for a ₱240,000 loan granted by BPI for a term of six months, secured by a real estate mortgage over Lot 1, Labangon, Cebu, covered by TCT No. 102434. On August 8, 1990, they availed of a ₱4 Million Revolving Promissory Note Line with a term of one year, secured by the same real estate mortgage. They alleged that the loan was precipitated by BPI's representation that it would be indorsed to the Industrial Guarantee and Loan Fund (IGLF) so that they could avail of a lower interest rate and longer payment terms.

Before the ₱240,000 and ₱4 Million loans matured, the spouses approached BPI through Mona Padilla, BPI's account officer, for additional loans of ₱2 Million and ₱2.8 Million. After discussions with Padilla, they agreed to obtain a ₱5.7 Million Credit Facility using the same collaterals offered in their previous loans and four additional parcels of land covered by TCT Nos. 87010, 102435, 102436, and 102437. On November 23, 1990, they obtained ₱800,000 from the credit facility, which was credited to their current account after they executed a promissory note for the same amount. They paid some interest on their loans, but the amount was insufficient to cover the principal.

On February 13, 1991, Padilla sent a written reminder to settle all unpaid interest before February 22, 1991, but the spouses failed to pay. Their ₱240,000 and ₱4 Million loans also remained unsettled. BPI, through Padilla and Assistant Vice President Danilo A. Quinto, sent another demand letter for payment of the outstanding loan. The spouses still failed to pay the principal amount of ₱4,240,000, exclusive of interest, penalties, and other charges. The ₱800,000 from the ₱5.7 Million Credit Facility was paid through a Letter of Credit. Because the ₱240,000 and ₱4 Million loans were not settled, BPI cancelled the ₱5.7 Million Credit Facility. To assist the spouses in paying off their loans, BPI released the four lots that secured the credit line; the spouses agreed to sell the lots and use the proceeds for partial payments. BPI issued a cancellation of the real estate mortgage over the four lots. Despite the cancellation, the spouses failed to sell the lots. BPI sent a follow-up demand letter dated July 11, 1991, requesting payment of ₱4,240,000 plus unpaid interests, penalties, and charges on or before July 30, 1991. In a letter dated July 19, 1991, the spouses acknowledged their account and stated that they were seriously considering selling some of their real estate properties to service their debt.

On August 3, 1993, the spouses filed a complaint with the RTC of Cebu City praying for a temporary restraining order to maintain the status quo, moral and exemplary damages, attorney's fees, and litigation costs. They alleged that BPI deliberately refused to comply with the condition or undertaking of the loan for IGLF endorsement and approval until the maturity date lapsed. They failed to pay notwithstanding numerous demands, leading to the extrajudicial foreclosure of the real estate mortgage covered by TCT No. 102434, which secured their ₱240,000 and ₱4 Million loans. The lot was sold at a public auction held on August 9, 1993, with BPI as the sole bidder in the amount of ₱10,060,080.20. The certificate of sale was issued on August 10, 1993 upon payment of all required registration fees.

During the trial, the spouses discovered that the document embodying the cancellation of the real estate mortgage over the four lots stated that the consideration was the full and complete payment of the obligation secured in the principal amount of ₱5,700,000, together with interest. They amended their complaint, claiming that the bank inserted and annotated a falsified or illegal real estate mortgage of ₱5.7 Million purportedly availed of by them, and that TCT No. 102434 was never intended to secure a fabricated and falsified loan. They also claimed extinguishment of their obligation, alleging that because BPI credited the payment of ₱5.7 Million to their account, which was more than sufficient to cover their promissory notes of ₱240,000 and ₱4 Million, their obligation was totally extinguished as of August 5, 1991, and the foreclosure proceedings were illegal and baseless. They prayed for moral damages, exemplary damages, attorney's fees, and litigation costs. During the pendency of the case, the one-year redemption period lapsed without the spouses exercising their right to redeem. On January 27, 1995, BPI filed a supplemental answer with counterclaim, alleging that with the expiration of the redemption period, it was entitled to a writ of possession and to reasonable compensation of ₱10,000 per month from the date of the issuance of the certificate of sale.

The RTC found no logical and valid reason to support the complaint. It found that BPI could not be held guilty of delay in endorsing the loan to IGLF because BPI, through Padilla, never committed itself to make such endorsement; there was no contract, oral or written, proving any agreement to endorse the loans to IGLF. The RTC also found no basis for the claim that the real estate mortgage covering the ₱5.7 Million credit facility was falsified, because Pio admitted the authenticity of their signatures on the promissory notes and real estate mortgages, and the spouses admitted under oath that their signatures on the real estate mortgage document securing the ₱5.7 Million credit facility were theirs. On extinguishment, the RTC found no evidence of payment of ₱5.7 Million by the spouses or by any third person, and held that the cancellation of mortgage referred only to the real estate mortgage covering the credit facility. The CA affirmed these factual findings.

• Breach of Contract / IGLF Endorsement: Spouses Sia argued that BPI breached its contract or undertaking to indorse their loan to IGLF, which was a condition precedent, and that the foreclosure was premature because BPI deliberately refused to comply until the loan matured.
• Falsification of Real Estate Mortgage: They alleged that BPI inserted and annotated a falsified or illegal real estate mortgage of ₱5.7 Million purportedly availed of by them, and that TCT No. 102434 was never intended to secure such fabricated loan.
• Extinguishment and Solutio Indebiti: They claimed that the cancellation of the real estate mortgage stated full payment of the ₱5.7 Million obligation; since BPI credited that payment to their account, their ₱240,000 and ₱4 Million loans were extinguished as of August 5, 1991, and BPI should return the excess ₱1,460,000 by solutio indebiti.
• No Credit Line Agreement: They argued that they neither executed a ₱5.7 Million promissory note nor received ₱5.7 Million, so no ₱5.7 Million credit line facility existed.
• Injunction / Writ of Possession: They invoked Cometa vs. Intermediate Appellate Court to argue that the pending suit questioning the validity of the extrajudicial foreclosure required pre-emptive resolution and should suspend the writ of possession.
• Damages: They prayed for moral and exemplary damages, attorney's fees, and litigation costs.

• No IGLF Agreement: BPI maintained that it never committed to endorse the loans to IGLF; no oral or written contract existed, and the alleged verbal agreement violated the parol evidence rule.
• Cancellation of Mortgage: BPI argued that the cancellation of the real estate mortgage referred only to the mortgage covering the ₱5.7 Million credit facility; no payment of ₱5.7 Million was made by Spouses Sia or any third person, and the release of the four collaterals was to assist them in paying their loans.
• Validity of Foreclosure: BPI contended that the extrajudicial foreclosure was valid because Spouses Sia defaulted on their ₱240,000 and ₱4 Million loans, and that as purchaser who was not redeemed, it was entitled to a writ of possession.
• Attorney's Fees and Litigation Expenses: BPI claimed entitlement to attorney's fees and litigation expenses under Article 2208 of the Civil Code because it was compelled to litigate to protect its rights.

• Breach of Contract (IGLF Endorsement): Whether the CA erred in holding that BPI did not breach its contract with Spouses Sia concerning the IGLF endorsement.
• Cancellation of the ₱5.7 Million Credit Facility: Whether the cancellation of the ₱5.7 Million credit facility raises a legal issue.
• Writ of Possession and Injunction: Whether the pending suit questioning the validity of the extrajudicial foreclosure entitles Spouses Sia to a suspension of the writ of possession or issuance of a TRO/writ of preliminary injunction.
• Attorney's Fees and Litigation Expenses: Whether the award of attorney's fees and litigation expenses should be reduced.

• Breach of Contract (IGLF Endorsement): No. No evidence established that IGLF endorsement was a condition precedent; the RTC and CA factual findings, affirmed by the CA, are binding, and admissions of the loan documents negate breach.
• Cancellation of the ₱5.7 Million Credit Facility: No legal issue. A credit line is a fixed limit of credit; BPI was not obliged to release the full ₱5.7 Million or require a promissory note for that entire amount. The cancellation covered only the credit facility mortgage, and the foreclosure rested on default on the ₱240,000 and ₱4 Million loans.
• Writ of Possession and Injunction: No. The buyer in a foreclosure sale who is not redeemed becomes absolute owner entitled to possession; issuance of the writ is ministerial, and a pending annulment suit does not bar it. Cometa is inapplicable.
• Attorney's Fees and Litigation Expenses: Yes, reduction is proper. The awards of ₱500,000 attorney's fees and ₱50,000 litigation expenses are excessive and may be equitably reduced to ₱50,000.

• Breach of Contract (IGLF Endorsement): The Court concurred with the CA and the RTC that BPI did not commit breach of contract. The CA found that petitioner Pio admitted the execution and genuineness of the notarized real estate mortgage and promissory note, including the signatures of Spouses Sia on the letter of advice to signify their conformity with the terms and conditions. By admission of due execution, the party whose signature it bears admits that he signed it voluntarily or that it was signed by another for him with authority; by admission of genuineness, the party admits that the document was in the words and figures exactly as set out in the pleading relying on it. The Court found no cause to deviate from the factual findings of both the RTC and the CA, which are entitled to great weight and binding when affirmed by the CA. Since both lower courts found no evidence that IGLF endorsement was a condition precedent, the spouses' bare assertions could not support a claim for breach.

• Cancellation of the ₱5.7 Million Credit Facility: The Court rejected the spouses' shifting arguments. Initially, they insisted that foreclosure was premature because BPI violated an agreement to have their loan endorsed to IGLF. Thereafter, they changed their stance and insisted that there was no ₱5.7 Million Credit Line Facility agreement; they alleged that BPI's banking officers borrowed the ₱5.7 Million and prepared the cancellation of the real estate mortgage, but the cancellation was credited in their favor, so payment should extinguish their ₱4 Million and ₱240,000 loans, with the excess ₱1,460,000 returnable by solutio indebiti. The Court was not convinced. The extrajudicial foreclosure was based on three real estate mortgage contracts: one over TCT No. 102434 and its improvements for ₱240,000 dated August 10, 1990; one over the same property for ₱4,000,000 dated May 24, 1990; and one over the same property and TCT Nos. 87010, 102435, 102436, and 102437 for ₱5,700,000 dated November 22, 1990. Paragraph 6 of these contracts allowed foreclosure if the mortgagor failed or refused to pay any sum secured. The spouses admitted that they had not updated the interest due on their loans and intentionally stopped servicing the interest on the ₱4,000,000 loan because of the alleged breach. Mr. Sia admitted that his only basis for claiming full payment was the cancellation of the real estate mortgage executed by BPI on August 2, 1991; based on that document, they assumed that an unknown third person had paid in their behalf by way of donation, but they presented only a deed of acceptance of donation, not a deed of donation. The Court held that the spouses misconstrued the concept of a credit line. A credit line is a fixed limit of credit granted by a bank to a customer, usually intended to cover a series of transactions; the bank is not obliged to release the entire amount at once or to require a promissory note for the full amount. BPI allowed only ₱800,000 out of the ₱5.7 Million credit line and precluded further availments because the spouses had not paid their ₱4 Million and ₱240,000 loans. The RTC and CA found that the release of the four collaterals was to assist the spouses in paying their loans, not because of payment of ₱5.7 Million. The entire ₱5.7 Million was not availed of, and the real estate mortgages securing the credit line were cancelled in the spouses' favor. The real issue was their non-payment of the ₱4 Million and ₱240,000 loans. Foreclosure is proper when debtors are in default. The CA found non-payment of obligations covered by PN Nos. 90/98 and 90/152, making the extrajudicial foreclosure and certificate of sale valid and binding; for failure to redeem, BPI validly exercised the right to consolidate ownership.

• Writ of Possession and Injunction: The spouses invoked Cometa vs. Intermediate Appellate Court, where the validity of a levy and sale of properties in a separate case was held to require pre-emptive resolution. The Court found Cometa inapplicable. In Cometa, the property was sold after levy and execution when the judgment award was not satisfied in another case for damages; the petitioner assailed the validity of the execution sale and claimed ownership had been transferred before the sale, putting ownership in issue. Here, the property owned by the spouses was mortgaged to BPI as security for their loans and was sold after extrajudicial foreclosure. A pending suit questioning the validity of the extrajudicial foreclosure does not entitle the spouses to a suspension of the writ of possession. Citing Baldueza vs. CA, the Court held that the buyer in a foreclosure sale becomes the absolute owner of the property if it is not redeemed during the one-year period after registration of the sale. The buyer is entitled to possession and may demand it after consolidation of ownership and issuance of a new transfer certificate of title; the buyer may even demand possession during the redemption period upon posting a bond under Section 7 of Act 3135, but no bond is required after the redemption period expires. Issuance of the writ of possession is a ministerial duty of the court upon proper application and proof of title. The facts showed that the spouses mortgaged the property, failed to pay despite demand, the property was foreclosed and sold at public auction to BPI as highest bidder, the spouses failed to redeem, BPI consolidated ownership, and a new title was issued. The writ of possession was therefore properly issued. Despite the pending annulment suit, BPI was entitled to the writ, without prejudice to the eventual outcome. There was no basis for a TRO or writ of preliminary injunction to enjoin the Third Notice to Vacate dated October 8, 2013.

• Attorney's Fees and Litigation Expenses: The Court agreed with the CA and RTC that BPI was entitled to receive rental fees as the new owner of the property covered by TCT No. 102434 (now TCT No. 130468), following F. David Enterprises vs. Insular Bank of Asia and America, which held that the buyer in a foreclosure sale becomes the absolute owner if the property is not redeemed within one year after registration. The Court also agreed that attorney's fees and litigation expenses were warranted because BPI was compelled to engage counsel to protect its rights, as provided in Article 2208 of the Civil Code. However, the Court deemed the awards of ₱500,000 as attorney's fees and ₱50,000 as litigation expenses excessive considering the nature of the case. Attorney's fees, being part of a party's liquidated damages, may be equitably reduced. The awards were therefore reduced to ₱50,000.

• Credit Line Facility — A credit line is a fixed limit of credit granted by a bank to a customer, usually intended to cover a series of transactions; the customer may avail up to the limit but must not exceed it, and is expected to reduce indebtedness before further drawings when the line is nearly exhausted. The bank is not obliged to release the entire amount in a single transaction or to require a promissory note for the full credit line. In this case, BPI allowed only ₱800,000 of the ₱5.7 Million credit line and precluded further availments because Spouses Sia had not paid their other loans; the cancellation of the mortgage securing the credit line did not prove payment of ₱5.7 Million or extinguish the separate ₱240,000 and ₱4 Million loans.

• Foreclosure upon Default — Foreclosure is proper when the debtors are in default of payment of their obligation. Spouses Sia admitted non-payment of their ₱240,000 and ₱4 Million loans and even intentionally stopped servicing interest on the ₱4 Million loan; thus the extrajudicial foreclosure of the mortgage over TCT No. 102434 was valid and binding.

• Writ of Possession after Foreclosure — The buyer in a foreclosure sale becomes the absolute owner of the property if it is not redeemed within one year after registration of the sale. The buyer is entitled to possession and may demand it after consolidation of ownership and issuance of a new transfer certificate of title; issuance of the writ of possession is a ministerial duty of the court upon proper application and proof of title. A pending suit for annulment of the mortgage and sheriff's sale does not bar the writ, without prejudice to the eventual outcome. Here, BPI was the highest bidder, Spouses Sia failed to redeem, BPI consolidated ownership and obtained a new title, so the writ was properly issued.

• Admission of Genuineness and Due Execution of a Document — A party who admits the due execution of a document admits that he signed it voluntarily or that another signed it for him with authority; admission of genuineness means the document was in the words and figures exactly as set out in the pleading relying on it. Pio admitted the signatures on the real estate mortgage and promissory notes, so the claim of falsification failed.

• Equitable Reduction of Attorney's Fees — Attorney's fees, being part of a party's liquidated damages, may be equitably reduced. Although BPI was entitled to attorney's fees and litigation expenses under Article 2208 of the Civil Code, the awards of ₱500,000 and ₱50,000 were excessive and were reduced to ₱50,000.

• "It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment of their obligation." — This states the ratio decidendi for upholding the validity of the extrajudicial foreclosure after the spouses admitted non-payment of their loans.
• "Thus, contrary to the belief and understanding of Spouses Sia, BPI does not have to require the execution of promissory note of the entire ₱5.7 Million since a credit line as stated above, is merely a fixed limit of credit." — This clarifies the nature of a credit line and rejects the spouses' argument that the absence of a ₱5.7 Million promissory note meant no credit facility existed.
• "It is settled [that] the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act 3135 as amended." — This is the controlling formulation on the purchaser's right to possession and the ministerial duty to issue a writ of possession.
• "By the admission of the due execution of a document, it means that the party whose signature it bears admits that he signed it voluntarily or that it was signed by another for him and with his authority; and by the admission of the genuineness of the document, it means that the party whose signature it bears admits that at the time it was signed it was in the words and figures exactly as set out in the pleading of the party relying upon it." — This defines the effect of admissions of genuineness and due execution, which defeated the spouses' falsification claim.

• Heirs of Amparo del Rosario vs. Aurora Santos, et al., 194 Phil. 670 (1981) — Cited for the rule that admission of the genuineness of a document includes admission that its words and figures are correctly set out; applied to reject the claim that the real estate mortgage was falsified.
• Magdiwang Realty Corporation vs. The Manila Banking Corporation, G.R. No. 195592, Sept. 5, 2012, 680 SCRA 251 — Cited for the rule that factual findings of the trial court, especially when affirmed by the CA, are entitled to great weight and binding on the Supreme Court; applied to uphold the finding that no IGLF endorsement agreement existed.
• Rosario Textile Mills Corporation vs. Home Bankers Savings and Trust Co., 500 Phil. 475 (2005) — Cited for the definition of a credit line as a fixed limit of credit; applied to reject the spouses' claim that the absence of a ₱5.7 Million promissory note meant no credit facility existed.
• TML Gasket Industries, Inc. vs. BPI Family Savings Bank, Inc., G.R. No. 188768, Jan. 7, 2013, 688 SCRA 50 — Cited for the rule that foreclosure is proper when debtors are in default; applied to uphold the extrajudicial foreclosure.
• Cometa vs. Intermediate Appellate Court, 235 Phil. 569 (1987) — Distinguished; its ruling on pre-emptive resolution of ownership in an execution sale did not apply because the property here was extrajudicially foreclosed under a mortgage.
• Baldueza vs. CA, G.R. No. 155813, Oct. 15, 2008, 569 SCRA 135 — Cited for the rule that the buyer in a foreclosure sale is entitled to a writ of possession, which is ministerial, and that a pending annulment suit does not bar it; applied to deny the injunction.
• F. David Enterprises vs. Insular Bank of Asia and America, G.R. No. 78714, Nov. 21, 1990, 191 SCRA 516 — Cited for the rule that the buyer in a foreclosure sale becomes absolute owner if not redeemed within one year; applied to support BPI's entitlement to rental fees and possession.
• BPI, Inc. vs. Yu, G.R. No. 184122, Jan. 20, 2010, 610 SCRA 412 — Cited for the rule that attorney's fees may be equitably reduced; applied to reduce the award.

• Article 2208, Civil Code — Attorney's fees and expenses of litigation may be recovered when a party is compelled to litigate with third persons or incur expenses to protect his interest. The Court applied this to uphold BPI's entitlement to attorney's fees and litigation expenses, but reduced the amounts as excessive.
• Section 7, Act 3135 as amended — Cited in the rule on writ of possession: the buyer in a foreclosure sale may demand possession even during the redemption period upon posting a bond under Section 7; after the redemption period expires without redemption, no bond is required and possession becomes an absolute right. Applied because Spouses Sia failed to redeem within one year, making BPI entitled to the writ without bond.
• Rule 130, Section 7, Rules of Court — Parol evidence rule: when the terms of an agreement are reduced to writing, it contains all such terms, and no evidence of other terms may be admitted between the parties. The RTC cited this to reject the alleged verbal IGLF endorsement agreement; the Supreme Court concurred with the lower courts' finding that no such agreement existed.

Maria Lourdes P. A. Sereno (Chief Justice, Chairperson), Teresita J. Leonardo-De Castro, Lucas P. Bersamin, and Martin S. Villarama, Jr. concurred. No separate concurring opinions are summarized in the text.