Philippine National Bank vs. Court of Appeals, Spouses Antonio So Hu and Soledad Del Rosario, and Spouses Mateo Cruz and Carlita Ronquillo
### Facts
1. **Spouses Mateo Cruz and Carlita Ronquillo Ownership (1957):**
– The Spouses Cruz owned a parcel of land in Cabanatuan City, covered by Transfer Certificate of Title (TCT) No. T-4699.
– They secured a P70,000.00 loan from PNB Cabanatuan Branch with a mortgage on the property.
2. **Second Loan and Additional Mortgage (1964):**
– Mateo Cruz, as VP of San Nicolas Agricultural Project, Inc. (SNAPI), signed a loan for P156,000.00 from PNB Santiago Branch, securing it with a mortgage on the same property.
3. **Payment through Land Bank (1977):**
– The Spouses Cruz, through Land Bank, remitted various bonds and cash to PNB branches to pay off their loans, resulting in the issuance of a Deed of Release.
4. **New Loan and Third Mortgage (1980):**
– The Spouses Cruz obtained another loan for P50,000.00, later increased to P200,000.00, from PNB Cabanatuan Branch, securing it with another mortgage on the property.
5. **Sale to Spouses So Hu (1983):**
– The Spouses So Hu paid off the third loan and purchased the property from the Spouses Cruz. They demanded the release of TCT No. T-4699 from PNB, but PNB refused.
6. **Foreclosure (1985):**
– Claiming unpaid arrears under the second loan, PNB initiated foreclosure, and the property was sold to PNB at a public auction.
7. **Suit by Spouses So Hu (1986):**
– The Spouses So Hu filed for annulment of the foreclosure and certificate of sale and demanded the cancellation of the mortgage and return of TCT No. T-4699.
8. **Lower Court and Court of Appeals’ Decisions:**
– The Regional Trial Court declared the foreclosure void, awarded damages and attorney’s fees, and ordered the restoration of TCT No. T-4699 to the Spouses So Hu.
– The Court of Appeals affirmed the lower court’s decision but deleted the damages awarded to the Spouses So Hu.
### Issues
1. **Validity of Extrajudicial Foreclosure:**
– Whether PNB validly foreclosed the mortgage secured by the allegedly unpaid Second Loan.
2. **All-Inclusive Clause:**
– Whether the “all-inclusive clause” of the third mortgage extended to cover the Second Loan.
3. **Good Faith Purchasers:**
– Whether Spouses So Hu, as purchasers, were bona fide and could rely on the annotations on the title.
4. **Damages, Attorney’s Fees, and Litigation Expenses:**
– Whether the award of damages and attorney’s fees to the Spouses So Hu by the lower court was justified.
### Court’s Decision
1. **Extrajudicial Foreclosure:**
– The Court found that the foreclosure was invalid as both the Second and Third Loans had been settled:
– Payment evidenced through bonds and cash via Land Bank.
– Annotation of the release on TCT No. T-4699.
– Foreclosure cannot occur on a settled obligation.
2. **All-Inclusive Clause:**
– The Court deemed the issue moot because the Second Loan was fully paid, thus extinguishing any obligations under the “all-inclusive clause.”
3. **Good Faith Purchasers:**
– The Spouses So Hu were deemed buyers in good faith as they acted based on correct annotations and paid the mortgage off before the transaction.
4. **Damages and Attorney’s Fees:**
– The Court deleted the award for attorney’s fees and litigation expenses for lack of factual and legal basis.
### Doctrine
– **Rescission of Mortgage upon Payment:**
– Where the mortgage principal is paid, the mortgage obligation ceases to exist.
– **Good Faith Reliance on Title Annotations:**
– Buyers can rely on the correctness of annotations on the title at the time of sale and are protected if they act in good faith.
### Class Notes
– **Accessory Contract Doctrine:**
– Mortgage is an accessory contract and is dependent on the principal loan obligation.
– **Good Faith Purchasers Doctrine:**
– Protects individuals who rely on title records and act on the information therein.
– **Extinguishment of Mortgage:**
– Payment of principal debt extinguishes the mortgaged obligation and precludes foreclosure.
### Historical Background
– **Agricultural Loans and Foreclosure:**
– This case emerged from the practice of securing loans with real estate in agricultural sectors and addresses issues pertinent to foreclosure practices in the Philippines.
– **Legal Protections in Real Estate Transactions:**
– It highlights legal protections afforded to good faith purchasers of real estate and underscores the significance of clear, accurate property title annotations.
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