PNB v. D.B. Teodoro Development Corp.

FIRST DIVISION

[G.R. No. 167925. July 29, 2015.]

PHILIPPINE NATIONAL BANK,petitioner,vs. D.B. TEODORO DEVELOPMENT CORPORATION, ET AL.,respondents.

[G.R. No. 169362. July 29, 2015.]

ASSET PRIVATIZATION TRUST,petitioner,vs. D.B. TEODORO DEVELOPMENT CORPORATION, ET AL.,respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution dated July 29, 2015, which reads as follows:

"G.R. No. 167925 PHILIPPINE NATIONAL BANK, Petitioner, v. D.B. TEODORO DEVELOPMENT CORPORATION, ET AL., Respondents; G.R. No. 169362 ASSET PRIVATIZATION TRUST, Petitioner, v. D.B. TEODORO DEVELOPMENT CORPORATION, ET AL., Respondents.

These are consolidated petitions for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision 1 dated April 25, 2005 of the Court of Appeals in CA-G.R. CV No. 57472, entitled "Philippine National Bank and National Investment and Development Corporation, Plaintiffs-Appellants, vs. D.B. Teodoro Development Corporation, et al., Defendants-Appellees, Asset Privatization Trust, Plaintiff-Intervenor-Appellant," which affirmed with modification the Decision 2 dated August 6, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case No. 12566. In addition, the Petition in G.R. No. 169362 also assails the Resolution 3 dated August 15, 2005 of the Court of Appeals which denied for lack of merit the motion for reconsideration filed by petitioner Asset Privatization Trust (APT).

The aforementioned civil case at the center of this controversy (Civil Case No. 12566) is a complaint for recovery of deficiency claims and reformation of a Certificate of Sale with prayer for attachment filed by petitioner Philippine National Bank (PNB) and its former subsidiary National Investment and Development Corporation (NIDC) against respondents D.B. Teodoro Development Corporation (Teodoro Development) and D.B. Teodoro Integrated Homes Development Corporation (Teodoro Integrated) as the principal borrowers and the following as sureties, namely: (a) Teodoro and Teodoro Construction, Inc. (Teodoro Construction); (b) DBT Marbay Construction Company, Inc. (Teodoro Marbay); (c) Marbay Construction and Development Company, Inc. (Marbay); (d) Luzcon Incorporated (Luzcon); (e) Constellation Management Corporation (Constellation); (f) Spouses Donato B. Teodoro and Soledad C. Teodoro; (g) Spouses Amado B. Teodoro and Herminia L. Teodoro; (h) Natalia B. Vda. De Teodoro; (i) Spouses Jorge B. Teodoro and Carol Roman Teodoro; (j) Spouses Edward Sevilla and Teresita Teodoro-Sevilla; (k) Fe Teodoro-Gatchalian; (l) Artemio Teodoro Gatchalian; and (m) Spouses Jose B. Teodoro and Constance Balanay Teodoro (collectively referred as "Teodoros"). AScHCD

After the dissolution of NIDC, PNB absorbed all its assets and liabilities, as well as all claims for and against it. On the other hand, petitioner APT, now the Privatization Management Office (PMO), intervened in this case inasmuch as the obligation of respondents was already assigned and transferred by PNB to the Republic of the Philippines pursuant to Proclamation No. 50, as amended, 4 and other relevant laws and issuances.

A brief factual outline of the case as stated by the Court of Appeals in its assailed April 25, 2005 Decision follows:

PNB/NIDC granted various loans on different dates to [Teodoro Development] and [Teodoro Integrated] as principal borrowers. Said loans were secured by the other [respondents] enumerated above and collectively referred to herein as the "Teodoros."

Unable to pay the loans, the two (2) principal borrowers requested PNB to restructure their obligations, to which PNB agreed.

Thereupon, Teodoro Development and Teodoro Integrated executed promissory notes pursuant to the Agreement for Plan of Payment.

Later, NIDC granted a Guaranty Accommodation to Teodoro Development for the prompt payment to Marubeni Nederland, B.V. of Rotterdam ("Marubeni") of US$8,500,000.00 in the acquisition of machinery and equipment and establishment of a lime plant at Guimaras Island, Iloilo. This obligation was secured by a Surety Agreement executed by the other [respondents] in favor of NIDC.

Subsequently, to finance the purchase of machinery and equipment and the establishment of an integrated crushing plant (ICP), NIDC granted to Teodoro Integrated a Foreign Sub-Loan in the amount of US$9,300,000.00, which was also secured by the other [respondents].

All existing registered mortgage instruments securing the various aforestated loans granted to Teodoro Development and Teodoro Integrated by PNB and NIDC were consolidated into one Deed of Mortgage which was executed on April 13, 1982 by Teodoro Development, Teodoro Integrated, the Phil. Portland Cement Co., Inc. (PPCCI) and Donato Teodoro, as mortgagors, in favor of PNB/NIDC, pari-passu.

Under this Deed of Mortgage, the mortgagors not only agreed to consolidate the mortgage documents on properties already and previously mortgaged but in addition thereto, constituted a mortgage over the plant site, machinery and equipment for the Lime Plant Project of Teodoro Development in Guimaras, Iloilo, and also over the plant site, machinery and equipment for the Integrated Crushing Plant Project of Teodoro Integrated in Angono, Rizal.

When the mortgagors failed to comply with their obligation under the mortgage as well as on the credit and guarantee agreements, PNB/NIDC foreclosed the mortgage.

During the auction sale of the Integrated Crushing Plant (ICP) at Angono, Rizal and the parcel of land covered by TCT No. 496187, PNB and NIDC [bid] the amount of P72,724,840.00 for the lot in their belief that the crushing plant was erected thereon, resulting in the issuance of a Sheriff's Certificate of Sale (Exh. "2") dated November 15, 1983 in their favor, as highest bidders.

After the sale, PNB and NIDC discovered that the integrated crushing plant was not constructed on the parcel of land covered by TCT No. 496187 but on a vacant lot being leased by Teodoro Integrated with [while the vacant lot covered by TCT No. 496187 had] an assessed value of P104,980.00 only.

[Petitioners] contend that Teodoro Integrated had deliberately and deceitfully installed the equipment, machinery, and various components of the Integrated Crushing Plant (ICP) not on the mortgaged lot covered by TCT No. 496187, but on a differed parcel of land which was not mortgaged to PNB and NIDC although forming part of a mass of properties in the vicinity also owned by the Teodoros but registered in the name of one of their corporations, [respondent] Constellation. 5

Thus, PNB and NIDC filed Civil Case No. 12566 against respondents for deficiency claim and reformation of certificate of sale with prayer for attachment. However, the trial court dismissed the complaint in its assailed August 6, 1997 Decision. The dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of defendants and against plaintiffs dismissing plaintiffs' Complaint for lack of merit and on the ground of litis pendentia and:

1. Upholding the validity of the Certificate of Sale (Exh. "Z") in all respects;

2. Declaring as not yet due and demandable the Guaranty Accommodation in the amount of US$8,500,000.00 (Exh. "E") pending final resolution of Civil Case No. Q-35534; AcICHD

3. Directing plaintiffs, jointly and severally, to:

1. Reconvey in favor of the defendants Teodoro Development and Teodoro Integrated so much of the foreclosed property whose bid price approximates the amount of P11,896,623.88, or if this remedy is no longer possible, the repayment of some amount with legal interest computed from November 15, 1983 to defendants;

2. Pay defendants Teodoro Development the sum of P3,900,000.00 with legal interest starting from the date said amount was deviated to the exclusive interest of plaintiff NIDC;

3. Pay defendants Teodoro Development and Teodoro Integrated P200,000.00 each as moral damages;

4. Pay defendants P100,000.00 as exemplary damages;

5. Pay defendants P100,000.00 as attorney's fees; and

6. Pay costs of suit. 6

On appeal, the Court of Appeals affirmed the trial court's ruling with respect to the validity of the certificate of sale, the non-demandability of the Guaranty Accommodation in favor of Marubeni, and the award of P3,900,000.00 as the amount allegedly deviated by NIDC for its own interest. However, the appellate court deleted the amount of P11,896,623.88 awarded as excess of the proceeds of the foreclosure sales and the award for moral and exemplary damages. The dispositive portion of the assailed April 25, 2005 Decision of the Court of Appeals is reproduced here:

WHEREFORE, the Appeal is hereby DISMISSED. The assailed Decision of the trial court dated August 6, 1997 is hereby AFFIRMED with MODIFICATION by deleting the amount of P11,896,623.88 and the award for moral and exemplary damages. 7

APT filed a motion for reconsideration but it was denied by the Court of Appeals in its assailed Resolution dated August 15, 2005. Thereafter, both PNB and APT elevated the matter before this Court.

PNB was first to file its petition for review on certiorari dated June 10, 2005, entitled "Philippine National Bank v. D.B. Teodoro Development Corporation, et al.," which was docketed as G.R. No. 167925. 8 APT followed with the filing of its own petition which was docketed as G.R. No. 169362, 9 entitled "Asset Privatization Trust v. D.B. Teodoro Development Corporation, et al." Seeing that both petitions raise the same issues and arguments, this Court issued a Resolution 10 dated January 30, 2006 ordering the consolidation of the petitions each filed by PNB and APT.

From the pleadings, the issues raised for resolution are:

1. WHETHER OR NOT THE SHERIFF'S CERTIFICATE OF SALE DATED NOVEMBER 15, 1983 CAN BE SUBJECT TO REFORMATION ON THE BASIS OF FRAUD

2. WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING THAT NIDC DEVIATED THE AMOUNT OF P3,900,000.00 FROM TEODORO DEVELOPMENT

 

3. WHETHER OR NOT CIVIL CASE NO. 12566 IS BARRED BY LITIS PENDENTIA

4. WHETHER OR NOT THE GUARANTY ACCOMMODATION EXTENDED BY NIDC TO TEODORO DEVELOPMENT IN FAVOR OF MARUBENI NEDERLAND, B.V. IS DUE AND DEMANDABLE

5. WHETHER OR NOT PETITIONERS ARE ENTITLED TO DEFICIENCY CLAIMS

After a thorough consideration of the parties' submissions and arguments, we rule that the consolidated petitions are partly meritorious.

We affirm the Court of Appeals' decision with respect to the first and second issues but deviate therefrom on the third, fourth and fifth issues.

There is no legal basis to reform the

With regard to the first issue, petitioners argue that the Sheriff's Certificate of Sale dated November 15, 1983 should be reformed on the ground of fraud committed by respondents. They maintain that PNB and NIDC were misled by respondents into thinking that an integrated crushing plant was constructed and its machinery and equipment were installed on the mortgaged property covered by TCT No. 496187. On the basis of this misrepresentation, PNB and NIDC bid the amount of P72,724,340.00 for the said parcel of land during the foreclosure sale. However, they belatedly discovered that the property was merely a vacant lot with an assessed value of P104,980.00 per Tax Declaration No. 04-5715. Additionally, petitioners claim that through deceitful schemes employed by respondents and without the knowledge and consent of NIDC, respondents constructed the integrated crushing plant on a parcel of land which formed part of a mass of property in the same vicinity owned by the individual respondent Teodoros which was registered in the name of one of their corporations, respondent Constellation. More importantly, petitioners highlight the fact that the documentary evidence presented by respondents during trial to prove that it had previously informed NIDC of the change in location of the integrated crushing plant are mere photocopies, thus inadmissible and without evidentiary value following the best evidence rule. TAIaHE

On the other hand, respondents insist that NIDC had prior information of the change of location of the integrated crushing plant as evidenced by the documentary evidence it submitted before the trial court which, in turn, used said evidence as basis for ruling on this particular issue in respondent's favor. Moreover, respondents point out that petitioners failed to present any agreement or stipulation to the effect that the integrated crushing plant must be installed on the lot covered by TCT No. 496187, as a pre-condition for or prerequisite to the approval of the corresponding loan. Pertinently, respondents assert that they committed no fraud in this instance and insist that it was PNB and NIDC that should be at fault for committing gross and inexcusable negligence in the consummation of the transaction at issue.

We concur with the lower courts that the Sheriff's Certificate of Sale dated November 15, 1983 cannot be the subject of reformation on the basis of fraud allegedly committed by respondents.

The appellate court committed no error on this point since jurisprudence tells us that reformation is a remedy in equity, whereby a written instrument is made or construed so as to express or conform to the real intention of the parties, where some error or mistake has been committed. In granting reformation, the remedy in equity is not making a new contract for the parties, but establishing and perpetuating the real contract between the parties which, under the technical rules of law, could not be enforced but for such reformation. 11 Moreover, in an action for reformation of contract, the court determines whether the parties' written agreement reflects their true intention. 12

An action for reformation finds legal ground in Article 1359 of the Civil Code which is reproduced herein:

Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.

Thus, on the basis of the foregoing provision of law, an action for reformation may prosper only when the following requisites concur: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident.

To begin with, the Sheriff's Certificate of Sale is not even a contract between petitioners and respondents such that their supposed true intention should be gleaned in order to interpret its provisions. A certificate of sale is a document evidencing that on a certain date, pursuant to an extrajudicial foreclosure of mortgaged property or properties, the sheriff sold at public auction the property or properties enumerated for the bid price or prices stated therein.

A careful examination of their cause of action would reveal that what petitioners are, in effect, asking the courts to inquire into are the terms of the Deed of Mortgage 13 dated April 13, 1982 which consolidated all the outstanding loans of respondents including the mortgage over the parcel of land covered by TCT No. 496187. The same mortgage document also served as the basis for the foreclosure sale wherein the certificate of sale at issue was produced.

By insisting that NIDC and Teodoro Integrated agreed upon the installation of the integrated crushing plant on the said mortgaged lot as a condition for the approval of the loan used to finance its construction, petitioners thereby imply that the aforementioned deed of mortgage or even the loan agreements did not reflect the true intention of the contracting parties. However, petitioners failed to present any clear and unequivocal agreement or stipulation to the effect that Teodoro Integrated or any of the other respondents for that matter have committed to such an undertaking to build the integrated crushing plant on the lot covered by TCT No. 496187.

When PNB/NIDC and respondents executed the Deed of Mortgage on April 13, 1982, it is presumed that all the terms they agreed upon are incorporated therein. This is in accordance with the parol evidence rule laid down in Section 9, Rule 130 of the Revised Rules of Court. 14 We elaborated on this legal principle in Carganillo v. People15 in this wise:

It is settled that the agreement or contract between the parties is the formal expression of the parties' rights, duties and obligations and is the best evidence of the parties' intention. Thus, when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors-in-interest, no evidence of such terms other than the contents of the written agreement. . . . .

Nevertheless, the parol evidence rule is not ironclad and does admit of exceptions. However, petitioners were not able to convince both the trial court and the Court of Appeals of the existence of a clear and unequivocal agreement between NIDC and the respondents concerning the alleged mandatory location of the integrated crushing plant that was constructed by Teodoro Integrated in Angono, Rizal. Respondents, on the other hand, were able to persuade both tribunals by their documentary evidence and witness testimony that NIDC was apprised by Teodoro Integrated of the construction of the integrated crushing plant on a leased land different from the property covered by TCT No. 496187. cDHAES

We quote with approval the trial court's discussion on this matter, to wit:

However, the Court is not persuaded that at the time plaintiffs foreclosed on the land covered by TCT No. 496187 culminating to the issuance of the Certificate of Sale (Exhibit "E"), they were not aware that the integrated crushing plant was not actually established there. Uncontroverted evidence of defendants indubitably show that as early as 1978, there already was a decision approved by plaintiff NIDC to change the plant site from an owned land to a leased property. Thus, on May 6, 1978, defendant Teodoro Integrated through defendant Donato B. Teodoro sent NIDC a letter to that effect (Exh. "10"), which upon the favorable endorsement of NIDC's SVP and General Manager Conrado S. Reyes (Exh. "11"), was approved by its Board of Directors on October 2, 1979 (Exh. "12"). Notably, there is no evidence on record showing that this decision was ever abandoned by the parties before the execution of the Deed of Mortgage (Exh. "T") on April 13, 1982. Having had a hand in the decision making process of changing the location of the integrated crushing plant NIDC could not now claim that it did not know that the same was not on the land covered by TCT No. 496187. That plaintiffs were aware that at the time of the foreclosure, the machinery and equipment of the crushing plant were installed at the land of Luzcon, Inc. is further shown by the fact that they attempted to intervene in Civil Case No. 240 filed by Luzcon, Inc. against Teodoro Integrated as Lessee (Exh. "17"). Being aware and in fact a part of the decision making process to locate the crushing plant at a leased lot, the separate juridical personality of Luzcon, Inc. and Constellation Management Corporation has to be respected. If plaintiffs really committed a mistake, it was one borne of its own negligence than lack of knowledge or consent. 16

Thus, we uphold the findings of fact of the trial court on this score and declare that no fraud was committed by respondents in this particular instance that would warrant a reformation of the document prayed for by petitioners.

 

Even assuming we set aside respondents' documentary evidence regarding notice to petitioners of the change in the plant's location, we nonetheless agree with the observation of the trial court and the Court of Appeals that, in this alleged disadvantageous foreclosure sale here at issue, the fault lies with PNB/NIDC for not exercising the due diligence expected of a banking institution. In Dela Peña v. Avila, 17 we held that:

[B]anks . . . are expected to exercise more care and prudence than private individuals in their dealings because their business is impressed with public interest and their standard practice is to conduct an ocular inspection of the property offered to be mortgaged and verify the genuineness of the title to determine the real owner or owners thereof, hence, the inapplicability of the general rule that a mortgagee need not look beyond the title does not apply to them. . . . .

By analogy, considering the large amount of money involved in this transaction, PNB/NIDC could have performed a careful and extensive research of the mortgaged property it planned to purchase which would include sending a representative to actually visit the plant site, verify its location and the condition of the plant itself before formulating a bid. Simply put, PNB's and/or NIDC's own negligence cannot be a ground for reformation of instruments.

There is no reason to disturb the lower

The trial court found credible the affidavit of the NIDC designated comptroller in Teodoro Development that NIDC caused the deviation of the sum of P3,900,000.00 to pay off certain obligations of NIDC upon instructions of NIDC executives. The Court of Appeals held that said affidavit could not be deemed self-serving or hearsay as the witness testified in open court and was, in fact, cross-examined by counsel for petitioners.

Suffice it to say, that it is a well-settled doctrine that findings of trial courts on the credibility of witnesses deserve a high degree of respect. Having observed the deportment of witnesses during the trial, the trial judge is in a better position to determine the issue of credibility. 18

Civil Case No. 12566 is not barred

To recall, Civil Case No. 12566 (from which the present controversy arose) is a complaint for deficiency claim and reformation of certificate of sale with prayer for attachment. Both the trial court and the Court of Appeals ruled that it is barred by litis pendentia due to a case that was earlier filed by petitioners for recovery and delivery of personal property with application for writ of replevin, docketed as Civil Case No. 6195.

In Benavidez v. Salvador,19 we discussed the nature, effect and requisites of litis pendentia in this manner:

Litis pendentia is a Latin term, which literally means "a pending suit" and is variously referred to in some decisions as lis pendens and auter action pendant. As a ground for the dismissal of a civil action, it refers to the situation where two actions are pending between the same parties for the same cause of action, so that one of them becomes unnecessary and vexatious. It is based on the policy against multiplicity of suits.

Litis pendentia exists when the following requisites are present: identity of the parties in the two actions; substantial identity in the causes of action and in the reliefs sought by the parties; and the identity between the two actions should be such that any judgment that may be rendered in one case, regardless of which party is successful, would amount to res judicata in the other. ASEcHI

Contrary to the ruling of the trial court which was affirmed by the Court of Appeals, a careful perusal of the allegations of Civil Case No. 6195 and Civil Case No. 12566 reveal that the issues and causes of action involved in each of those cases are distinct from each other. Civil Case No. 6195, entitled "Philippine National Bank, et al. v. D.B. Teodoro Development Corporation, et al.," filed before the RTC of Makati City, Branch 138 is a case for "Recovery and Delivery of Personal Property with Application for Replevin" filed by PNB against respondents in 1984. It seeks to recover certain machinery and equipment worth P19,906,300.00 covered by the deeds of mortgage attached to the complaint.

On the other hand, Civil Case No. 12566, entitled "Philippine National Bank and National Investment and Development Corporation v. D.B. Teodoro Development Corporation," is a complaint for reformation of certificate of sale, deficiency claim, and attachment. It seeks the reformation of the Certificate of Sale dated November 15, 1983 of the Sheriff as it supposedly did not reflect the true intention of the parties, and the enforcement of deficiency obligations against respondents.

To reiterate, we rule that there is no identity of the issues and the reliefs sought in the aforementioned civil suits because a judgment in either case will not amount to res judicata to the other proceeding. In Civil Case No. 6195, the cause of action is the failure and/or refusal of the defendants to deliver to PNB and NIDC the chattels mortgaged by respondents to secure their obligations, for purposes of foreclosure. Civil Case No. 12566, on the other hand, poses the following causes of action: (1) fraudulent misrepresentation by respondents in the execution of the real estate mortgage of the parcel of land as the plant site; (2) insufficiency of the amounts realized from various foreclosure sales; and (3) enforcement of surety obligations of the sureties to the obligations.

It is also worth noting that the complaint in Civil Case No. 6195 had been withdrawn pursuant to the Order 20 dated April 21, 1986 of the RTC of Makati City, Branch 138 which was affirmed in the Order 21 dated June 27, 1990 of the same trial court. In line with past jurisprudence, the withdrawal of this other case is additional reason not to dismiss the complaint involved herein. 22

The guaranty accommodation extended

In its assailed Decision dated April 25, 2005, the Court of Appeals upheld the ruling of the trial court which declared that the guaranty obligation of Teodoro Development was not yet due and demandable in view of the pending derivative suit filed by respondent Artemio Gatchalian in behalf of Teodoro Development against NIDC, entitled "Artemio Gatchalian v. Marubeni Nederland B.V., et al.," docketed as Civil Case No. Q-35534 before the RTC of Quezon City, Branch 83 which was subsequently re-raffled to Branch 102. This case seeks to prevent NIDC from paying Marubeni, the contractor of the lime plant that was built in Guimaras, Iloilo, now Guimaras Province, on the ground that Marubeni failed to deliver and construct the facility according to the specifications agreed upon.

In upholding the lower court, the appellate court quoted with approval the following portions of the assailed August 6, 1997 Decision of the trial court, to wit:

[P]laintiffs seek to compel individual defendants to pay jointly and severally the various deficiency claims resulting from the foreclosures conducted on the mortgaged properties securing the loan obligations and financial accommodations extended to Teodoro Development and Teodoro Integrated. Before disposing of this issue, the Court will first resolve the Matter of Guaranty Accommodation in the amount of U.S.$8,500,000.00 extended by plaintiff NIDC to Teodoro Development in favor of Marubeni Nederland B.V. for the acquisition of machinery and equipment and establishing of a lime plant in Guimaras, Iloilo.

. . . There is no issue that the lime plant project never got to be completed and operational prompting defendant Teodoro Development to reject, with concurrence of the plaintiffs (Exh. "4"), the plant constructed by Marubeni. Since the exposure of plaintiff NIDC is one of guaranty, the latter's liability to NIDC would arise only at such time that Marubeni could legally pursue its claim against NIDC. Now, there is no issue that in the derivative suit instituted by Mr. Artemio Gatchalian on behalf of Teodoro Development, Civil Case No. Q-35534 (Exh. "8"), he was seeking the stoppage of any payment by Plaintiff NIDC to Marubeni due to the latter's contractual infractions and inability to deliver the project on a turn-key basis. In view thereof, the Court is of the opinion that the obligation of defendant Teodoro Development and individual defendants solidarily liable with it has not yet arisen pending final resolution of Civil Case No. Q-35534 (Exh. "8"). Therefore, the foreclosure for this particular account was patently premature. 23

Notably, respondents do not refute petitioners' assertion that the derivate suit filed by respondent Gatchalian had long been archived pursuant to the Order 24 dated November 12, 1993 of the trial court hearing that case for failure of the plaintiff "to take any positive step to pursue his case against said defendant (NIDC)" and take "appropriate action with respect to the other defendants (MARUBENI and TEODORO DEVELOPMENT)." Moreover, respondent Gatchalian made no attempt to revive his derivative suit after the case had been archived. We agree with petitioners that it would be the height of iniquity to deem that the guaranty obligation of Teodoro Development is not yet due and demandable because of a derivative suit which, from all indications, has already been abandoned by its proponent who conveniently is a defendant in the very case where said guaranty obligation is being enforced. ITAaHc

On the other hand, the conflicting claims between Teodoro Development and Marubeni had long been settled on July 15, 1983 by the Commercial Arbitration Tribunal in New York, United States of America, docketed as Case No. 13-110-0048-83, entitled "In the Matter of the Arbitration between Marubeni Nederland, B.V. and D.B. Teodoro Development Corporation and National Investment and Development Corporation," wherein the said tribunal decided in favor of Marubeni and against Teodoro Development and NIDC. 25 Contrary to respondents' claims that Teodoro Development cannot be compelled to obey any ruling of the commercial arbitration tribunal, the Settlement Agreement 26 dated July 2, 1981 entered into between Marubeni, Teodoro Development, and NIDC reveals otherwise. In said agreement, the parties indicated that all disputes and controversies arising out of or in connection with the contract will be referred for settlement before said arbitral tribunal and that any award or ruling rendered by the same in accordance with the rules of the American Arbitration Association shall be final and binding between the parties. The said agreement was signed by respondent Donato B. Teodoro in behalf of Teodoro Development. It is settled that:

 

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international character, is likewise recognized. The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.

A contract is required for arbitration to take place and to be binding. Submission to arbitration is a contract and a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is itself a contract. 27

We note that in the same Settlement Agreement Teodoro Development stipulated that:

[It] hereby fully and forever waives, releases and discharges Marubeni of and from any and all claims, demands, causes of actions, liabilities, damages, costs, expenses and losses of every kind or nature whatsoever, whether at this time known or unknown, anticipated or unanticipated, direct or indirect which are in any way related to the matters specified in the Claim Letters or past/previous acts or omissions (if any) of Marubeni in connection with the CONTRACTS.

Without limiting the generality of the foregoing, and except as provided in Annex "A" hereof, Teodoro specifically confirms that as of the date hereof, Marubeni has duly performed its obligations in accordance with the CONTRACTS and agreements made during the course of execution of the CONTRACTS. 28

Thus, in consideration of the foregoing stipulation, Marubeni agreed to extend the period for Teodoro Development to pay its liabilities under the aforementioned contracts. It appears that when Teodoro Development reneged on its obligations under the Settlement Agreement Marubeni sought recourse with, and was granted relief by, the arbitral tribunal in New York.

NIDC, being the guarantor of the obligation of Teodoro Development, paid the claims of Marubeni pursuant to the award handed down by the commercial arbitral tribunal. NIDC had no choice but to pay Marubeni in light of the Guaranty Agreement 29 dated September 23, 1976 which was executed by the parties. In said agreement, it is clearly stipulated in Section 12.01 thereof that, in the event Teodoro Development defaults in the payment of any amount covered in the guaranty agreement and NIDC is called upon to advance said amount, the guaranty obligation of Teodoro Development shall immediately become due and demandable without need of any notice, to wit:

Section 12.01 — Default — In the event of default by TEODORO in the payment of any amount of the Guaranteed Account and the NIDC is called upon to advance said amount to the Financier, the outstanding Guaranteed Account and all other obligations of TEODORO to NIDC mentioned elsewhere in this Agreement shall immediately become due and payable from TEODORO without need of any notice or demand. In computing the amount in Philippine Currency to be paid by TEODORO to NIDC with respect to the Guaranteed Account, the Philippine National Bank (PNB) prime foreign exchange rate prevailing as of the date of actual payment by TEODORO to NIDC, or the stipulated date of payment by TEODORO to the Financier, whichever is higher, shall prevail. 30

In the case at bar, the binding effect and finality of the arbitral award cannot be ignored by Teodoro Development because it agreed to submit itself to arbitration in case of dispute when it signed the Settlement Agreement dated July 2, 1981. Furthermore, as per the Guaranty Agreement dated September 23, 1976, the guaranty accommodation extended by NIDC to Teodoro Development in favor of Marubeni is definitely due and demandable since Teodoro Development is contractually bound to reimburse NIDC in the event that NIDC, as guarantor of the loan, is compelled to pay Marubeni which happened in this case pursuant to the arbitral award handed down by the arbitral tribunal.

Respondents contend that they are not bound by the foreign arbitral award since there was no proof that the arbitral tribunal acquired jurisdiction over the person of Teodoro Development and that NIDC, which participated in the arbitration proceedings, did not exert any efforts to defend Teodoro Development. Yet on the face of the arbitral award itself, it states that Teodoro Development failed to appear after due notice in accordance with the rules of the American Arbitration Association. As respondents likewise insist, their defenses against Marubeni are personal to them and thus, they cannot expect any of the petitioners to litigate their claims for them. CHTAIc

While it is true that a foreign judgment, such as a foreign arbitral award, may be assailed by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact, it is the party attacking a foreign judgment that had the burden of overcoming the presumption of its validity. 31 Respondents failed to do so.

There is a need to remand the

It cannot be disputed that PNB/NIDC had the right to extrajudicial foreclosure of the properties mortgaged. In the event that the proceeds of the foreclosure sale of the mortgaged properties are not enough to satisfy the outstanding indebtedness, PNB/NIDC as mortgagee is entitled by law to recover the deficiency from the mortgagors who are respondents in the instant case. In Sycamore Ventures Corporation v. Metropolitan Bank and Trust Company, 32 we discussed the aforementioned right granted to a creditor as governed by Act No. 3135, as amended by Act No. 4118, thus:

In brief, Act No. 3135 recognizes the right of a creditor to foreclose a mortgage upon the mortgagor's failure to pay his/her obligation. In choosing this remedy, the creditor enforces his lien through the sale on foreclosure of the mortgaged property. The proceeds of the sale will then be applied to the satisfaction of the debt. In case of a deficiency, the mortgagee has the right to recover the deficiency resulting from the difference between the amount obtained in the sale at public auction, and the outstanding obligation at the time of the foreclosure proceedings.

In light of our invalidation of the lower courts' ruling that the guaranty accommodation extended by NIDC to Teodoro Development in favor of Marubeni is not yet due and demandable, the obligation of Teodoro Development under the guaranty agreement must now be included in the computation of respondents' indebtedness to petitioners.

Compounding the situation is the fact that the Court of Appeals did not give credence to the mathematical basis of the trial court in finding that respondents had already overpaid petitioners in the amount of P11,896,623.88. This effectively placed into serious doubt the correctness and veracity of the trial court's previous computations to arrive at the conclusion that petitioners are no longer entitled to deficiency claims. We quote herein the relevant portion of the April 25, 2005 Decision of the Court of Appeals:

We cannot subscribe, however, with the lower court's award of the supposed over foreclosed amount of P11,896,623.88. There is simply no sufficient basis for such award. The mathematical computation made by the lower court cannot be taken at face value. . . . . 33

Considering that the trial court records of this case have not been elevated to this Court and the parties' submissions before us do not contain all of their respective exhibits and evidence, we are constrained to remand the issue of deficiency claim, if any remains outstanding, to the court a quo.

WHEREFORE, premises considered, the consolidated petitions are PARTLY GRANTED. The assailed Decision dated April 25, 2005 and the Resolution dated August 15, 2005 of the Court of Appeals in CA-G.R. CV No. 57472 are hereby REVERSED insofar as said issuances affirmed the trial court's rulings that the guaranty accommodation extended by NIDC to Teodoro Development in favor of Marubeni Nederland, B.V. is not yet due and demandable and that Civil Case No. 12566 is barred by litis pendentia. The case is REMANDED to the trial court for the sole purpose of determining with dispatch the exact amount of outstanding indebtedness, if any, that respondents owe to petitioners in this case. The assailed Decision dated April 25, 2005 in CA-G.R. CV No. 57472 is AFFIRMED in all other aspects.

SO ORDERED."SERENO, C.J., on official leave; PERALTA, J., acting member per S.O. No. 2103 dated July 13, 2015.

Very truly yours,

 

(SGD.) EDGAR O. ARICHETADivision Clerk of Court

Footnotes

1. Rollo (G.R. No. 167925), pp. 74-93; penned by Associate Justice Lucenito N. Tagle with Associate Justices Martin S. Villarama, Jr. (now a member of this Court) and Regalado E. Maambong, concurring.

2. Id. at 619-625.

3. Rollo (G.R. No, 169362), pp. 109-112.

4. PROCLAIMING AND LAUNCHING A PROGRAM FOR THE EXPEDITIOUS DISPOSITION AND PRIVATIZATION OF CERTAIN GOVERNMENT CORPORATIONS AND/OR THE ASSETS THEREOF, AND CREATING THE COMMITTEE ON PRIVATIZATION AND THE ASSET PRIVATIZATION TRUST.

5. Rollo (G.R. No. 167925), pp. 77-80.

6. Id. at 624-625.

7. Id. at 93.

8. Id. at 10-72.

9. Rollo (G.R. No. 169362), pp. 38-86.

10. Id. at 165-166.

11. Multi-Ventures Capital and Management Corporation v. Stalwart Management Services Corporation, 553 Phil. 385, 391 (2007).

12. Bagunu v. Spouses Aggabao and Acerit, 671 Phil. 183, 194 (2011).

13. Rollo (G.R. No. 167925), pp. 384-406.

14. Section 9. Evidence of written agreements. — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

 

 However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading:

  (a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

  (b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

  (c) The validity of the written agreement; or

  (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement.

 The term "agreement" includes wills.

15. G.R. No. 182424, September 22, 2014, 735 SCRA 677, 683.

16. Rollo (G.R. No. 167925), pp. 619-620.

17. 681 Phil. 553, 568 (2012).

18. Meneses (Deceased) v. Venturozo, 675 Phil. 641, 655 (2011).

19. G.R. No. 173331, December 11, 2013, 712 SCRA 238, 248.

20. Rollo (G.R. No. 169362), pp. 149-153.

21. Id. at 154-155.

22. See Philippine Woman's Christian Temperance Union, Inc. v. Abiertas House of Friendship, Inc., 354 Phil. 791, 803 (1998).

23. Rollo (G.R. No. 167925), pp. 620-621.

24. Rollo (G.R. No. 169362), p. 147.

25. Rollo (G.R. No. 167925), pp. 718-722.

26. Id. at 710-717.

27. Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc., 656 Phil. 29, 42-43 (2011).

28. Rollo (G.R. No. 167925), p. 712. The term "CONTRACTS" included (a) the Contract dated October 28, 1976 by the terms of which Marubeni sold to Teodoro machinery and equipment of the Lime Plant; (b) the Construction Loan Agreement to enable Teodoro to pay the costs and expenses for the installation of the Lime Plant; and (c) Cash Loan Agreement by which Marubeni extended an additional loan to Teodoro for the installation of the Lime Plant.

29. Id. at 129-151.

30. Id. at 148.

31. See Oil and Natural Gas Commission v. Court of Appeals, 354 Phil. 830, 850 (1998).

32. G.R. No. 173183, November 18, 2013, 709 SCRA 559, 568.

33. Id. at 90-91.