Land Bank of the Philippines v. Samahang Barangay Integrated Development Cooperative

FIRST DIVISION

[G.R. No. 230560. April 2, 2018.]

LAND BANK OF THE PHILIPPINES, petitioner, vs. SAMAHANG BARANGAY INTEGRATED DEVELOPMENT COOPERATIVE, NERI PEREZ, LUZ NAVARETTE, AND PROSPERO SUMAYAO, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution datedApril 2, 2018which reads as follows:

"G.R. No. 230560 (Land Bank of the Philippines, v. Samahang Barangay Integrated Development Cooperative, Neri Perez, Luz Navarette, and Prospero Sumayao)

We resolve this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the October 24, 2016 Decision 2 and the March 9, 2017 Resolution, 3 both promulgated by the Court of Appeals (CA) in CA-G.R. CV No. 103797.

This case stemmed from a complaint 4 for sum of money filed by petitioner Land Bank of the Philippines (LBP) before the Regional Trial Court (RTC) of Naga City, Branch 61, against respondents Samahang Barangay Integrated Development Cooperative (SABIDCO), Neri Perez (Perez), Luz Navarette (Navarette), and Prospero Sumayao (Sumayao), who at one time were officers of SABIDCO. The complaint seeks to recover the payment of a deficiency obligation resulting from an auction sale, which allegedly arose from a loan agreement under the antecedent set of facts:

SABIDCO obtained several loans from LBP, as follows:

(1) P240,725.25, for the construction of "poultry houses," secured by a contract of Real Estate Mortgage (REM) 5 executed on December 27, 1991, over a property (subject lot) covered by TCT No. 18026. 6

(2) P5,965,550.32, for an irrigation project, i.e., the purchase of an existing irrigation facility consisting of five (5) dams. This was covered by a Loan Agreement (Irrigation Project Loan) 7 dated December 29, 1992 and was evidenced by a Promissory Note. 8 The loan was authorized through SABIDCO's Board Resolution 9 No. 091-048 Series of 1991 dated December 4, 1991. The resolution did not specify that the subject lot shall be utilized as a security for the loan. Consequently, respondents and LBP agreed that the loan shall be paid directly through a non-transferable Deed of Assignment (of Future Collection of Irrigation Service Fee/Water Rights). 10 Under the deed, LBP was given the exclusive authority to collect the irrigation fees from the farmer-beneficiaries which amount shall be applied as payment to SABIDCO's loan until it is paid in full. 11

(3) P424,634.50 for "poultry production" secured by an Additional REM 12 executed on August 4, 1993, over the same property listed in the December 27, 1991 REM. 13

On January 16, 1996, a Comprehensive Surety Agreement (CSA) 14 was signed by Perez, Navarette, and Sumayao, who were then SABIDCO's Chairman, Treasurer, and Chairman of Credit Committee, respectively. The CSA was to guarantee the punctual payment of SABIDCO's obligation pertaining to its Irrigation Project Loan agreement with LBP.

Despite repeated demands, SABIDCO failed to pay its obligation under the Irrigation Project Loan.

Believing that the subject lot mortgaged under the December 27, 1991 REM and the August 4, 1993 Additional REM (REM contracts) was also a security for the Irrigation Project Loan, LBP filed a petition for extra-judicial foreclosure 15 of the subject lot. The petition likewise prayed for the foreclosure of the assigned "water right and future collection of irrigation service fee/water rights" (water rights), covered under the Deed of Assignment. 16

The auction sale was held on June 7, 2002 wherein Nagaville Development Corporation emerged as the highest bidder. Only the amount of P1,163,000.00 out of the P5,251,571.50 was realized during the auction. LBP applied the amount to SABIDCO's total obligation, thereby leaving a balance of P4,088,571.50. 17 LBP sent several demand letters to SABIDCO 18 and individually to Perez, Navarette and Sumayao 19 for the collection of the balance, but to no avail. This prompted LBP to file a complaint for sum of money against respondents.

Respondents countered 20 in their Amended Answer with Cross Claim and Third Party Complaint that LBP unlawfully caused the foreclosure of the properties. They claimed that the subject lot covered under the REM contracts was mortgaged to secure a different loan which had long been fully paid by SABIDCO. Respondents likewise claimed that the water rights and collection of irrigation fees assigned to LBP under the Deed of Assignment was not transferable and the proceeds thereof should have been applied to SABIDCO's loan, until fully paid. Moreover, Perez, Navarette and Sumayao denied personal liability under the CSA, claiming that their execution of the said agreement was merely as representatives of SABIDCO.

On May 9, 2014, the RTC rendered its Decision, 21 dismissing LBP's complaint against the respondents. The RTC ruled, among others, that the subject lot covered in the REM Contracts, did not serve as a security for the Irrigation Project Loan. Rather, the REM contracts were for two loans which have not been shown to have been unpaid. As such, the RTC said that it was wrong for LBP to foreclose the subject lot and the assigned water rights. The RTC likewise ruled that Perez, Navarette and Sumayao were not liable as sureties since the CSA was not made as a basis for the approval of SABIDCO's Irrigation Project Loan.

Thereafter, LBP appealed the RTC's decision with the CA.

On October 24, 2016, the CA rendered its Decision. The CA denied the appeal, affirmed the RTC's decision; and declared that the REM Contracts and the Deed of Assignment, are valid. The CA, among others, rejected LBP's insistence that the subject lot covered under the REM Contracts was a security for SABIDCO's Irrigation Project Loan, since both contracts contain a dragnet clause. The dispositive portion of the decision reads, thus:

WHEREFORE, the May 9, 2014 Decision rendered in Civil Case No. 2004-0035 is AFFIRMED. Whereas, the August 26, 2014 Order rendered in the same case is MODIFIED in that the August 4, 1993 real estate mortgage and December 28, 1992 Deed of Assignment of Future Collection of Irrigation Service Fee/Water Rights are declared valid.

SO ORDERED. 22

Its motion for reconsideration, having been denied in the CA's March 9, 2017 Resolution, LBP filed this instant petition, substantially reiterating the arguments it raised in its appeal, as follows: (1) whether or not the December 27, 1991 REM and August 4, 1993 Additional REM constituted on TCT No. 18026 secured SABIDCO's irrigation project loan; (2) whether or not the June 7, 2002 extra-judicial foreclosure proceeding is valid; and, (3) whether or not Perez, Navarette and Sumayao are personally liable as sureties. 23

The petition is denied.

Notably, the issues cited by LBP are factual in nature. Under Rule 45 of the Rules of Court, only questions and errors of law, not of fact, may be raised before the Court. 24 Not being a trier of facts, it is not the function of the Court to re-examine, winnow and weigh anew the respective sets of evidence of the parties. Corollary to this precept, but subject to well-defined exceptions, 25 is the rule that findings of fact of trial courts or the CA, when supported by substantial evidence on record, are conclusive and binding on the Court. 26 None of these exceptions, however, has been shown to be attendant in the present case.

First, LBP's contention that the REM contracts were executed to secure the Irrigation Project Loan since these contracts contain a dragnet clause is not availing.

In Philippine Charity Sweepstakes Office (PCSO) v. New Dagupan Metro Gas Corporation, Purita E. Peralta and Patricia P. Galang, 27 this Court discussed the nature of a mortgage liability and the concept of a "blanket mortgage" or "dragnet" clause; thus:

As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.

Alternatively, while a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be specifically described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage contract.

The stipulation extending the coverage of a mortgage to advances or loans other than those already obtained or specified in the contract is valid and has been commonly referred to as a "blanket mortgage" or "dragnet" clause. In Prudential Bank v. Alviar, this Court elucidated on the nature and purpose of such a clause as follows:

A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." x x x.

A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty and constitutes an exception to the rule than an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract. x x x. 28 [Emphasis Ours] [Citations omitted]

The "dragnet" clause appearing in the REM contracts dated December 27, 1991 and August 4, 1993, upon which LBP anchors its argument reads:

x x x This mortgage shall also stand as security for said obligations and any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage. 29

It is clear from the aforequoted clause of the REM contracts that there is no stipulation that the mortgaged realty, which is the subject lot, shall also secure future loans and advancements, particularly the Irrigation Project Loan. A reading of the other pertinent clauses of the subject REM contracts does not show that the security provided in the subject mortgage is continuing in nature.

As correctly pointed out by the RTC:

The same documents presented as evidence by plaintiff [LBP], however, demonstrate several facts contrary to its claim. The Real Estate Mortgage taken out on the cooperative's property covered by TCT No. 18026 was for a P240,725.25 loan which SABIDCO obtained for the construction of poultry houses while the additional Real Estate Mortgage was for a P424,634.50 loan for poultry production. The first REM was executed on December 27, 1991; the additional REM was dated August 4, 1993. x x x

xxx xxx xxx

The properties covered by the real estate mortgages were not set up as security for the irrigation purchase loan of SABIDCO. Rather, the REMs were for two other loans which have not been shown to have been unpaid. x x x Moreover, it is highly unlikely that the bank would accept one property as security for two different loans, one of which amounted to more than P5,000,000.00.

The terms of those mortgages, which were prepared by the bank, were clear: the enumerated properties were collateral for the other loans of the cooperative, but not for the irrigation project loan. 30

This finding was reiterated by the CA when it held that:

This dragnet clause cannot prevail over a set of facts, which when taken all together, distinctly belies Land Bank's claim. First, the promissory note executed on December 29, 1992 evidencing the P5,965,550.32 irrigation purchase loan expressly states that the loan shall be secured by a deed of assignment. It does not mention of any additional security, such as a mortgage, for the loan. Second, the real estate mortgages taken on the property covered by the TCT No. 18026 particularly state the respective purposes for which they were executed, i.e., construction of poultry houses for the December 27, 1991 mortgage, and poultry production for the August 4, 1993 additional mortgage. No mention of the irrigation purchase loan whatsoever can be found in either of the mortgages. Third, the mortgages specifically indicate the amounts to be secured: P240,725.25 for the first mortgage, and P424,634.50 for the second one. Neither mortgage reflects the amount of P5,965,550.32 representing the irrigation purchase loan. 31

Thus, in the absence of clear and supportive evidence of a contrary intention, a mortgage containing a dragnet clause will not be extended to cover future advances, 32 as in this case.

Second, LBP's claim that the June 7, 2002 foreclosure sale is valid, proceeds from its erroneous theory that the subject lot mentioned in the REM contracts, also served as a security for the Irrigation Project Loan. But as We have established earlier, nothing is mentioned in the REM contracts that would show that indeed, the said lot would secure SABIDCO's future obligations, let alone its Irrigation Project Loan.

As aptly held by the CA:

There are two main points rendering the foreclosure sale proceedings defective and irregular and thus void: (1) the real estate mortgage foreclosed was not a security for the irrigation purchase loan, the alleged non-payment of which gave rise to the initiation of the foreclosure proceedings; and (2) the deed of assignment foreclosed did not authorize Land Bank or any person to foreclose the water rights subject thereof. Certainly, therefore, the RTC did not err in annulling the June 7, 2002 foreclosure sale proceedings. 33

And, as emphasized by the RTC:

x x x It was erroneous for the bank to have foreclosed the real estate mortgages as well as the assigned water rights. x x x

xxx xxx xxx

x x x There is no stipulation in the Deed of Assignment that the bank was clothed with authority to foreclose the water rights over the irrigation system. On the contrary, what was stipulated was the power of attorney granted to the bank to collect the cooperative's receivables until the loan had been fully satisfied. This, the bank failed to do. 34

Lastly, in debunking LBP's contention that Perez, Navarette and Sumayao are personally liable as sureties, We defer to the CA's disquisition on the matter:

x x x Neri Perez, Luz Navarette, and Prospero Sumayao are not solidarily liable with SABIDCO for the alleged deficiency claim of P4,088,571.50. There could not be a valid deficiency claim for, as We have just held, there was no valid foreclosure sale to begin with. It cannot be said that they acted as sureties for SABIDCO with respect to the irrigation purchase loan per the Comprehensive Surety Agreement dated January 16, 1996 inasmuch as Land Bank has not convincingly shown that the agreement was part of the consideration in the grant of the loan. It does not help that the agreement was entered into more than three (3) years after the irrigation purchased loan was contracted. 35

All told, the Court adopts and approves the aforequoted findings by the courts a quo, the same being fully supported by the evidence on record.

WHEREFORE, premises considered, the October 24, 2016 Decision and the March 9, 2017 Resolution, both promulgated by the Court of Appeals in CA-G.R. CV 103797, are AFFIRMEDin toto.

SO ORDERED." Sereno, C.J., on leave.

Very truly yours,

(SGD.) LIBRADA C. BUENADeputy Division Clerk of Court

 

Footnotes

1.Rollo, pp. 23-52.

2. Penned by Associate Justice Henri Jean-Paul B. Inting, with Associate Justices Marlene B. Gonzales-Sison, and, Ramon A. Cruz, concurring. Id. at 54-63.

3.Id. at 65-66.

4.Id. at 84-88.

5.Id. at 91-94.

6.Id. at 202-205.

7.Id. at 198-200.

8.Id. at 89-90.

9.As mentioned in the Appellee's Brief, id. at 184.

10.Id. at 95-96.

11.Id. at 185.

12.Id. at 206-209.

13.Id. at 185.

14.Id. at 97-99.

15.Id. at 210-212.

16.Id. at 211.

17.Id. at 27.

18.Id. at 213-214.

19.Id. at 215-217.

20.Id. at 112-122.

21.Id. at 144-149.

22.Id. at 16.

23.Id. at 33.

24.Usero v. Court of Appeals, 490 Phil. 241, 247 (2005).

25.Sps. Almendrala v. Sps. Ngo, 508 Phil. 305, 315 (2005).

26.Pascual v. Burgos, et al., 776 Phil. 167, 182 (2016).

27. 690 Phil. 504 (2012).

28.Id. at 521-522.

29.Rollo, p. 91.

30.Id. at 147.

31.Id. at 60.

32.Asiatrust Development Bank v. Tuble, 691 Phil. 732, 746 (2012).

33.Rollo, pp. 60-61.

34.Id. at 147-148.

35.Id. at 61-62.