SPOUSES FRANCISCO DE GUZMAN AND SERAFINA DE GUZMAN, PLAINTIFFS-APPELLANTS, VS. METROPOLITAN BANK & TRUST COMPANY, INC., AND AS NECESSARY PARTIES NOTARY PUBLIC ATTY. EDGARDO G. V…
CORALES, J.:
The Antecedents
In 1995, 1996, and 1997, Spouses De Guzman obtained various loans from Metrobank, respectively amounting to P5,000,000.00, P2,000,000.00 and P2,000,000.00.[4] These loans were secured by real estate mortgages (REMs) over Spouses De Guzman’s properties registered under Transfer Certificate of Title (TCT) Nos. NT-200809, NT-191440, NT-191441, NT-191443, NT-224908, NT-224909, and NT-199661.[5]
On April 10, 1998, the three (3) subsisting loans were consolidated under Promissory Note (PN) No. 473002[6] for P9,000,000.00 payable on its due date on April 3, 1999 with 22.670% interest per annum to be reviewed/adjusted every 30 days.
Allegedly, Spouses De Guzman defaulted in their payments of interests. On November 8, 1998, they wrote Metrobank acknowledging the fact that they could not pay their P9,000,000.00 principal obligation. This prompted Metrobank to extrajudicially foreclose the REMs on March 12, 1999 through Notary Public Villarin.[7] The mortgaged properties were sold in a public auction wherein Metrobank emerged as the highest bidder. Spouses De Guzman failed to redeem the properties within one (1) year from registration of the certificate of sale and titles thereto were eventually consolidated in the name of the bank. Later on, Metrobank filed a petition for issuance of writ of possession which was granted by the RTC, Branch 34, Gapan City, Nueva Ecija. The writ of possession was implemented on August 18, 2000.[8]
Two (2) years after, or on July 16, 2002 to be more specific, Spouses De Guzman filed the nullification case alleging that their contracts of loan with Metrobank violated Section 2 of Act No. 2655, or the Usury Law,[9] while the subsequent extrajudicial foreclosure proceedings failed to comply with the posting of notices and publication requirements under Section 3 of Act No. 3135.[10] They added that Metrobank increased the interest rates without their knowledge and consent to make it appear that the loans are already due and demandable and in order to misapply the payment to the penalties and interests which were automatically debited from their account.[11]
In support of the complaint, Francisco identified a Loan Subsidiary Ledger from Metrobank which showed that the interests for the loans were periodically adjusted and ranged from 13.25% to 33%. He only discovered this skyrocketing interests during the Asian financial crisis because the bank unilaterally imposed the higher interest rates. He denied receipt of the notice of auction sale and insisted that he only learned of the foreclosure sale on March 19, 1999 when he went to the bank. He presented certifications from the respective Offices of the Barangay Chairmen of Langla and Apolinario Esquivel, Jaen, Nueva Ecija[12] and from the Chief of Police of Jaen Police Station[13] stating that they did not receive any notice of extrajudicial foreclosure sale involving Spouses De Guzman’s properties.[14] He further testified that the REMs were foreclosed on March 12, 1999 even though their loan was not yet due.[15]
Spouses De Guzman also called to the witness stand Metrobank’s Loan Clerk, Angelito Dela Cruz (Dela Cruz), who admitted that the extrajudicial foreclosure happened even before the maturity of the PN. However, he explained that Spouses De Guzman should have paid interests every month after the review but failed to do so, thus, the foreclosure was justified by the acceleration clause in the PN authorizing the bank to consider the whole debt due and demandable upon default in the payment of any interest and/or installment. He further testified that prior to the consolidation of Spouses De Guzman’s loans, they were paying monthly interests pursuant to the provision in the Credit Line Agreement (CLA) that the interests should be reviewed every 30 days.[16]
In its defense, Metrobank argued that the Usury Law had already been rendered legally ineffective by Central Bank Circular No. 905 and the governing rule on interest rates is whatever would be agreed upon by the lender and borrower. It insisted on the bank’s compliance with all the requirements for extrajudicial foreclosure of REMs[17] and presented the following documents:[18] registry receipts for a February 12, 1999 cover letter with attached Notice of Auction Sale respectively addressed to and signed by Francisco,[19] the Barangay Chairmen of Tabuating and Esquivel,[20] the Municipal Treasurers and the Chiefs of Police of Jaen and San Leonardo;[21] copies of the February 12, 1999 cover letter stamped “Received” by the RD of Nueva Ecija;[22] copies of five (5) PNs[23] previously signed by Francisco, with interest rates ranging from 13.654% to 33.933%; and the April 10, 1998 CLA[24] between the bank and Spouses De Guzman.
The Ruling of the RTC
In its November 5, 2012 Decision,[25] the RTC noted the previous PNs executed by Spouses De Guzman which contained the same stipulations on payment of interests, subject to review every discount period, and acceleration clause as that stated in PN No. 473002. It found that since the first time Spouses De Guzman applied for a loan with Metrobank, they were fully aware of the imposed interests and other charges and that upon default, the entire debt would be due and demandable. Thus, in signing the PN, Spouses De Guzman signified their mutual consent to the periodic readjustment of interest rates on their loans. The court a quo also underscored Spouses De Guzman’s failure to adduce preponderance of evidence showing the alleged irregularities in the foreclosure proceedings. The certifications they presented were procured seven (7) years after the auction sale and they did not bother to call at the witness stand any of the persons who allegedly certified that they did not receive the notices of extrajudicial foreclosure and sale. The RTC disposed the case as follows:
WHEREFORE, premises considered, on the ground of the failure of the plaintiffs to prove by preponderance of evidence their causes of action, this case is hereby DISMISSED.
The defendants’ counterclaim is likewise DISMISSED. No pronouncement as to costs.
SO ORDERED. (Emphasis appears in the original text of the Decision)
Upon denial of their motion for reconsideration,[26] Spouses De Guzman interposed the instant appeal with this lone assigned error:[27]
THE LOWER COURT GRAVELY ERRED WHEN IT RULED THAT THE EXTRA-JUDICIAL FORECLOSURE SALE WAS VALID DESPITE THE SAME BEING PREMATURELY MADE[.]
Spouses De Guzman argue that the March 12, 1999 foreclosure proceedings was premature and null and void because it was held even before the principal loan, interests, and other charges stipulated in PN No. 473002 matured on April 5, 1999. They insist that there is no agreement in the PN as to the monthly payment of interests before April 5, 1999, thus, neither the principle of default nor the acceleration clause finds application in their case. Lastly, they invoke the rule on parol evidence contending that only the PN should be considered in determining the agreement between them and Metrobank.[28]
Metrobank counters that Spouses De Guzman had been paying monthly interests since 1996 and repeatedly renewed the loans. It is illogical that on the fourth and final renewal, and after having been on default, they now claim that they did not agree to pay said interests. It stands firm on the application of the acceleration clause under the PN.[29]
This Court’s Ruling
The appeal fails to persuade Us.
Parol Evidence May Be Admitted to Establish True Intent of the Parties
As a general rule, no evidence of the terms of an agreement reduced into writing shall be admitted other than the contents of the written agreement itself. However, under Section 9, Rule 130 of the Rules of Court, a party may present evidence to modify, explain, or add to the terms of a 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 first and third instances are present in this case. The validity of the PN and the REMs was put in issue by Spouses De Guzman in their complaint for nullification of foreclosure proceedings and loan documents. There is also an intrinsic ambiguity in the PN. The instrument states that the principal loan and its interests shall be for single payment but only the P9,000,000.00 principal loan was due on April 5, 1999 while the 22.670% per annum would be reviewed/adjusted every 30 days. With these intrinsic ambiguity and imperfection in the PN, the true intent of the parties in executing the written agreement must be established with certainty. This is precisely the rationale for allowing the exceptions under Section 9, Rule 130 of the Rules of Court. Once the intent is clear, it shall prevail over what the document appears to be on its face.[30]
The true intent of the parties herein was duly proven ironically by Spouses De Guzman’s own witness, Dela Cruz, who testified as follows:
Q A Q A x x x Q Was there a default made by the plaintiffs in the payment of any installment or interest? A Yes, sir. x x x Q A Q A Q A Q A x x x Re-direct. ATTY. CATRO: (sic) Q ATTY. CASTRO: A It is stated here the interest rate is rewiewed/collected (sic) every thirty days, the interest rate of 22.670, sir. Q A This one sir, “every thirty days”. Q This is with respect to the interest? A Yes, sir. ATTY. VILLARIN: We request that the portion pointed to by the witness be marked as Exhibit 20-C “reviewed every thirty days”. ATTY. CASTRO: Q ATTY. VILLARIN: Counsel is cross examining his own witness. ATTY. CASTRO: Due to the questioning of counsel he turned hostile. Q What do you mean by letter X on the box for singly (sic) payment of loan? A Q And this is for single payment only? A But it will be reviewed, sir. ATTY. VILLARIN: Q But he is supposed to pay interest every month? A Yes, sir. Q Did he pay interest every month? A No, sir, just after the thirty days review, sir. x x x Q A Q A x x x ATTY. VILLARIN: Additional re-cross, your Honor. Q This Exhibit 20 was executed April 10, 1998? A Yes, sir. Q And simultaneous with this promisory (sic) note is a credit line agreement? A Yes, sir. Q I show you Exhibit 19, the interest is subject to review every month? A Yes, sir. Q When was this loan obtained? When did the plaintiffs start transacting with your bank? A Sometime in the year 1995, sir. Q And during that time, did the plaintiff pay interest every month? A He was able to pay every month, sir. ATTY. CASTRO: ATTY. VILLARIN: He is trying to make it appear that the plaintiff has no obligation to pay interest every month. ATTY. CASTRO: This is not the point of this representation. ATTY. VILLARIN: That is why it is my duty to clarify. Q From 1995, do you collect interest from the plaintiff every month? A Yes, sir. Q And he was able to pay? A Yes, sir. Q Until the year 1998? A Yes, sir. Q Do you know why he is questioning now the practise (sic) of paying the interest? ATTY. CASTRO: Incompetent. ATTY. VILLARIN: Q So from 1995 to 1998 before the execution of this Exhibit 20, he is paying the interest monthly? A Yes, sir. Q The loan has been reviewed every thirty days? A Yes, sir. Q He has never questioned the payment of interest to your bank? A Never, sir.[31] x x x
It is quite plain from the foregoing that the intent of the parties in including the phrase “to be reviewed/adjusted every 30 days” was to pay monthly interests in accordance with the adjusted rate. Spouses De Guzman presented Dela Cruz as their own witness, thus, they are bound by his unrebutted testimony that they had been paying monthly interests before their loans were consolidated under PN No. 473002. It is also worthy to note that Francisco himself admitted that they were able to make partial payments of interests on the subject loans in the year 1997 but they defaulted in the year 1999 because they had no money to pay.[32] In fact, in their November 9, 1998 letter, Spouses De Guzman acknowledged that they have past due obligations to Metrobank and voluntarily surrendered the mortgaged properties to avoid publication of their financial plight.[33] There could have been no past due obligations in the absence of agreement to pay monthly interests considering that the principal obligation would be demandable only on April 5, 1999. As the true intent of the parties was duly proven in this case, it prevails over what appears on the PN.
Foreclosure: Not Premature
Given Spouses De Guzman’s admission of their past due obligations under the PN and the evidence of non-payment of monthly interests starting May 1998, the entire principal obligation became due and payable pursuant to the acceleration clause which states “if default be made on the payment of any installment and/or interest[s] and other charges on this note as and when the same has become due and payable x x x the entire principal, interest and other charges due on this note, at the option of the Bank and without notice to me/us shall immediately become due and payable”.[34] Their failure to pay the entire obligation despite demand gave Metrobank the right to foreclose the mortgage as stated in the REMs and the CLA.
To stress, the foreclosure of the REMs became a matter of right on the part of Metrobank due to Spouses De Guzman’s default on their obligations.[35] The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness in case of default in payment. When the principal obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold with the view of applying the proceeds to the payment of the obligation. Therefore, foreclosure is a necessary consequence of non-payment of the mortgage indebtedness[36] and the proceedings must be upheld in the absence of evidence negating its validity.
WHEREFORE, the appeal is DENIED. The November 5, 2012 Decision of the Regional Trial Court, Branch 35, Gapan City in Civil Case No. 2547 is AFFIRMED.
SO ORDERED.
Villon, J., Chairperson and Zalameda, JJ., concur.
[1] See Notice of Appeal in relation to the March 19, 2013 Order giving due course to said appeal, records, pages 322 and 325, respectively.
[2] Penned by Pairing Judge Celso O. Baguio, rollo, pages 20-30.
[3] Records, pages 16-19.
[4] TSN, Francisco De Guzman, January 18, 2006, page 5.
[5] See page 2 of Amended Complaint, supra, at note 3.
[6] Records, pages 160-161.
[7] See Notice of Auction Sale, ibid., pages 150-153.
[8] See admission of facts by plaintiffs-appellants Spouses De Guzman in the Pre-Trial Order, ibid., pages 62-63.
[9] Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or personal, or chooses in action, a higher rate of interest or greater sum or value, including commissions, premiums, fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or credits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly registered, or by any document conveying such real estate or an interest therein, than twelve per centum per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or forbearance is granted: Provided, That the rate of interest under this section or the maximum rate of interest that may be prescribed by the Monetary Board under this section may likewise apply to loans secured by other types of security as may be specified by the Monetary Board.
[10] Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.
[11] See Amended Complaint, supra, at note 3.
[12] See September 4, 2006 Certification from Punong Barangay Jun L. San Gabriel and August 2, 2006 Certification from Barangay Chairman Leopoldo H. Alejo, records, pages 154 and 155, respectively.
[13] See September 4, 2006 Certification signed by Police Superintendent Antonio A. Feliciano, ibid., page 156.
[14] TSN, Francisco De Guzman, April 21, 2006, pages 3-7 and November 15, 2006, page 3.
[15] Ibid., February 14, 2008, page 4.
[16] TSN, Angelito Dela Cruz, July 24, 2008, pages 8-19.
[17] See Answer with Compulsory Counterclaim, records, pages 24-27.
[18] See Metrobank’s Formal Offer of Documentary Exhibits, ibid., pages 240-246.
[19] Ibid., page 184.
[20] Ibid., pages 189 and 191, respectively.
[21] Ibid., pages 195, 196, 193, and 194, respectively.
[22] Ibid., page 192.
[23] Ibid., pages 248-252.
[24] Ibid., page 253 and its dorsal portion.
[25] Supra, at note 2.
[26] See February 25, 2013 Order, penned by Presiding Judge Mildred S. Villaroman-Hernal, records, pages 319-320.
[27] See Appellants’ Brief, rollo, pages 14-18.
[28] Ibid.
[29] See Defendants-Appellees’ Brief, ibid., pages 36-39.
[30] See Heirs of Policarpio Ureta v. Heirs of Liberato Ureta, G.R. No. 165748. September 14, 2011.
[31] TSN, Angelito Dela Cruz, July 24, 2008, pages 10-11, 16, 18-19.
[32] TSN, Francisco De Guzman, January 10, 2007, page 6.
[33] See November 9, 1998 letter, records, page 183.
[34] See page 2 of PN No. 473002, supra, at note 6.
[35] See Equitable PCI Bank v. OJ-Mark Trading, G.R. No. 165950. August 11, 2010.
[36] See Equitable PCI v. Fernandez, G.R. No. 163117. December 18, 2009.