BANGKO SENTRAL NG PILIPINAS, PETITIONER, VS. HON. ISMAEL T. DULDULAO, IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH 197 OF THE REGIONAL TRIAL COURT OF LAS PIÑAS CITY, THE EX-OFFI…

Bangko Sentral ng Pilipinas versus Duldulao

The Case

This is a petition for certiorari brought by the Bangko Sentral ng Pilipinas against Judge Ismael Duldulao, in his capacity as Presiding Judge of Branch 197 of the Regional Trial Court of Las Piñas City, and against BF Homes, Incorporated as private respondent. The Bangko Sentral asks the Supreme Court to annul two orders of the trial court that refused to dismiss a petition for declaratory relief and prohibition filed by BF Homes on the eve of an extrajudicial foreclosure sale. The case matters because it fixes the boundaries of declaratory relief: who may file it, where it must be filed, and at what point it becomes too late because the feared breach has already happened.

Procedural History

BF Homes filed its petition for declaratory relief and prohibition before the Regional Trial Court of Las Piñas City, Branch 197, on July 23, 2013, one day before the scheduled auction sale. The Bangko Sentral moved to dismiss on several grounds: that the petition was really a real action with insufficient docket fees, that venue was improperly laid, that the sale had mooted the petition, that BF Homes was not a party in interest, and that the petition for prohibition did not comply with the Rules. The trial court denied the motion to dismiss in an Order dated September 15, 2013, and denied reconsideration in an Order dated December 13, 2013. The Bangko Sentral then came to the Supreme Court by petition for certiorari under Rule 65, with a prayer for an injunctive writ. The Court held the injunctive writ in abeyance and ordered BF Homes to comment, and with the comment filed the case became ripe for decision.

Facts

In 2001, Filipino Vastland Company, Incorporated borrowed 349,500,000 pesos from Banco Filipino Savings and Mortgage Bank, evidenced by promissory notes and secured by a deed of mortgage over several parcels of land. One of those parcels, a 29,862 square meter lot in Las Piñas City covered by a transfer certificate of title in the name of BF Homes, Incorporated, was used as collateral after BF Homes authorized Filipino Vastland through a Special Power of Attorney to pledge it for that loan.

In April 2009, Banco Filipino obtained a thirty-day emergency loan from the Bangko Sentral. It executed a promissory note with trust receipt agreement, secured by its past due loan receivables, and at the same time executed a Deed of Assignment of Mortgage assigning to the Bangko Sentral the Filipino Vastland promissory notes and mortgages, with authority to foreclose. The emergency loan was renewed several times and remained unpaid. In March 2011, the Monetary Board placed Banco Filipino under receivership, and the Bangko Sentral treated the emergency loan as in default and began calling on the securities. It demanded payment from Filipino Vastland, which asked for more time. Later, the Monetary Board directed liquidation of Banco Filipino.

In 2013, the Bangko Sentral filed an application for extrajudicial foreclosure of the BF Homes property. A notice of extrajudicial sale set the auction for July 24, 2013, and BF Homes received the notice on July 9, 2013. On July 23, 2013, BF Homes filed its petition for declaratory relief and prohibition, asking the court to declare whether its property, which secured the Filipino Vastland loan, could be foreclosed for Banco Filipino's default on its own emergency loan to the Bangko Sentral. The auction pushed through the next day, the Bangko Sentral emerged as the winning bidder, and a certificate of sale was issued and later annotated on the title.

Issues

• Whether or not the petition filed by BF Homes before the Regional Trial Court of Las Piñas City is one for declaratory relief.
• Whether or not BF Homes has legal interest to file the petition for declaratory relief.
• Whether or not the petition for declaratory relief is dismissible for improper venue.
• Whether or not the petition for declaratory relief is dismissible because the auction sale has already taken place.

Applicable Provisions

Section 1, Rule 63 of the Rules of Court defines who may file a petition for declaratory relief:

Section 1. Who may file petition. Any person interested under a deed, will, contract or other written instrument, whose rights are affected by a statute, executive order or regulation, ordinance or any other governmental regulation may, before breach or violation thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or duties, thereunder.

This provision supplies the requisites of the action and the requirement that it be brought before any breach or violation, which the Court applies to test both the standing of BF Homes and the timeliness of its petition.

Section 2, Rule 4 of the Rules of Court governs venue of personal actions:

Section 2. Venue of personal actions. All other actions may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in case of a non-resident defendant where he may be found, at the election of the plaintiff.

Because declaratory relief is a personal action, this rule determines whether the petition was filed in the proper court, and the Court stresses the word principal in the provision.

Ruling

On the first issue, the Court held that the petition is indeed one for declaratory relief. The requisites are a justiciable controversy, adverse interests, a legal interest on the part of the petitioner, and an issue ripe for judicial determination. The first, second, and fourth requisites were undisputed. On the second issue, the Court held that BF Homes has legal interest. As the registered owner of the property being foreclosed, it will sustain direct injury from the foreclosure. That it is not a signatory to the Deed of Assignment of Mortgage does not negate its interest, because the Special Power of Attorney it executed is also under scrutiny, and the rights of the Bangko Sentral as mortgagee must be reconciled with that authority.

On the third issue, the Court held that venue was improperly laid. Declaratory relief is a personal action, and under Section 2 of Rule 4 the residences of the principal parties control. The Ex-Officio Sheriff of Las Piñas City, impleaded as a respondent, is a mere nominal party, and the Court explained that the word principal was added precisely to prevent a plaintiff from choosing the residence of a minor or nominal party as the venue. The petition should have been filed in Parañaque City for BF Homes, in Manila for the Bangko Sentral, or in Makati City for Banco Filipino.

On the fourth issue, the Court held that the petition can no longer prosper. Declaratory relief presupposes that no actual breach has yet occurred. Here the auction sale was conducted, the certificate of sale was issued, and it was annotated on the title. The very act BF Homes sought to prevent had already taken place, rendering the relief futile. The Court noted that Section 6 of Rule 63 allows conversion of the petition into an ordinary action, but BF Homes neither asked for conversion nor specified the ordinary action it desired, and the Court cannot assume which one it meant.

Doctrine

An action for declaratory relief requires four requisites: a justiciable controversy, adverse interests between the parties, a legal interest in the petitioner, and an issue ripe for judicial determination. Legal interest means a personal and substantial interest such that the party has sustained or will sustain direct injury from the challenged act, as distinguished from a mere incidental interest. The registered owner of property under foreclosure has such interest even if it is not a party to the assignment of mortgage being questioned.

Declaratory relief is a personal action, and venue lies where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, at the election of the plaintiff. A nominal party such as an ex-officio sheriff cannot be used to fix venue.

Declaratory relief must be sought before breach or violation of the instrument or right involved. Once the act sought to be prevented has occurred, the petition becomes futile and must be dismissed. Conversion into an ordinary action under Section 6 of Rule 63 requires that the petitioner ask for it and specify the ordinary action desired.

Disposition

The petition for certiorari was granted, the two orders of the trial court were set aside, and the petition for declaratory relief filed by BF Homes was dismissed without prejudice to the filing of the appropriate ordinary action.

Remember This

Memorize this line: declaratory relief must come before breach, and once the act feared has happened, the remedy is gone. Examiners use this case to test the requisites of declaratory relief, legal interest of a registered owner who is not a party to the questioned contract, and venue in personal actions where a nominal party is impleaded.