G.R. No. 173036 - Agoo Rice Mill Corp. vs. Land Bank of the Philippines

Case Digest (G.R. No. 173036)
Expanded Legal Reasoning Model

Facts:

Loan Acquisition and Security

ARMC obtained financial assistance from LBP from October 1993 to October 1996, consisting of:

A Term Loan (TL) for ₱2,000,000.00.
Two Short-Term Loan Lines (STLLs) totaling ₱15,000,000.00.

The loans were evidenced by promissory notes and secured by a Real and Chattel Mortgage covering:

Four commercial lots with improvements.
Rice mill machineries and a generator.

Terms of Payment and Default

Specific payment deadlines were established:

The ₱2,000,000.00 TL was due on October 29, 1996.
The STLLs were due on April 28, 1996 (₱12,000,000.00) and April 8, 1997 (₱3,000,000.00).

Although ARMC made several partial interest payments, it encountered financial liquidity problems exacerbated by:

The negative impact of government rice importation in 1996.
Adverse effects of the El Niño phenomenon on regional rice production.

Attempts at Loan Restructuring

On January 6, 1997, ARMC, through its president, asked LBP for an extension of time to pay, requesting a deadline extension until February 28, 1997.
On February 25, 1997, LBP reminded ARMC of its obligation to pay by the specified deadline.
Foreseeing continued difficulty, ARMC:

Submitted a request on February 27, 1997, for the renewal of its ₱15,000,000.00 STLLs.
On March 12, 1997, formally proposed a restructuring plan—a payment arrangement of ₱5,000,000.00 every six months until full repayment.

LBP deferred the proposal and advised ARMC to secure a waiver for penalty charges before proceeding with any restructuring.

Demand for Additional Collateral

LBP, in subsequent letters:

On November 3, 1997, demanded that ARMC provide additional collateral by November 7, 1997, warning of impending legal action.
On November 10, 1997, noted that the existing collateral was deficient by ₱3,400,000.00 and extended the deadline to November 25, 1997.

ARMC requested a reappraisal of its properties, but LBP stood by its original, deemed “fair and reasonable” valuation.

Continued Notifications and Warning of Legal Action

On April 15, 1998, LBP notified ARMC of its failure to comply with collateral and payment obligations, warning that non-compliance by April 30, 1998 would result in referral to its Legal Office.
On May 22, 1998, LBP informed ARMC that the restructuring proposal was under evaluation, simultaneously reminding ARMC of its monthly payment due by May 29, 1998.

Initiation of Extrajudicial Foreclosure

On July 8, 1998, LBP issued a Final Notice of Payment and filed an application for extrajudicial foreclosure with the Office of the Ex-Officio Sheriff of San Fernando City, La Union.
The foreclosure petition alleged:

ARMC’s repeated failure to pay overdue obligations.
An outstanding debt of ₱23,473,320.83 (comprising ₱15,000,000.00 principal, ₱7,363,320.83 interest, and ₱1,110,000.00 penalties).
Adequate notice had been given about the foreclosure sale scheduled for August 26, 1998.

ARMC’s Legal Challenge

On August 24, 1998, ARMC filed a complaint for injunction before the RTC, seeking:

A writ of preliminary injunction.
A temporary restraining order to halt the foreclosure sale.
Recovery of damages.

ARMC contended that:

The foreclosure was premature and violated its contractual and property rights.
Negotiations for loan restructuring were still ongoing.
Inconsistencies existed in LBP’s petition (e.g., inclusion of a fully paid ₱2,000,000.00 TL and alterations in the mortgage contract by mixing different collaterals).

Temporary Relief and Subsequent Court Proceedings

On August 24, 1998, a Temporary Restraining Order (TRO) was issued by Executive Judge Vicente A. Pacquing directing a halt on the foreclosure.
The TRO was extended, and on September 8, 1998, the RTC suspended proceedings to allow for settlement negotiations, which ultimately failed.
On January 12, 1999, the RTC held a hearing on the writ of preliminary injunction, culminating in:

On March 18, 1999, the RTC issued the writ upon ARMC filing a bond of ₱4,000,000.00.

RTC’s Ruling and Subsequent Appeals

In its decision on August 5, 2004, the RTC found:

No merit in ARMC’s complaint, noting that LBP never agreed to a loan restructuring.
LBP’s right to foreclose under PD 385 was valid, as the mortgage was indivisible.

ARMC’s motion for reconsideration was denied on February 2, 2005.
ARMC filed an appeal on February 8, 2005, asserting:

That restructuring negotiations were ongoing.
Allegations of LBP’s bad faith, promissory estoppel, and unwarranted, excessive interest/penalty rates.

Foreclosure Sale and Court of Appeals (CA) Ruling

On May 12, 2005, a Notice of Extrajudicial Sale was issued setting the auction for June 3, 2005, which resulted in LBP emerging as the winning bidder.
The CA, in its decision on March 28, 2006, affirmed the RTC:

Upheld that under PD 385, no injunction could be granted to restrain foreclosure.
Found no evidence of LBP’s bad faith or of any binding promise to restructure the loans.
Determined that the interest and penalty charges were reasonable and in line with prevailing bank rates.

ARMC’s subsequent motion for reconsideration in the CA was also denied.

Petition for Review on Certiorari

On August 2, 2006, ARMC filed a petition for review on certiorari.
The petition was ultimately denied for lack of merit and because the foreclosure sale had been consummated, rendering the relief sought moot and academic.

Issues:

Whether ARMC possessed a clear, actual (right in esse) right entitling it to injunctive relief to stay LBP’s extrajudicial foreclosure.
Whether LBP acted in bad faith or breached an alleged commitment to restructure ARMC’s loans.
Whether the foreclosure proceedings violated ARMC’s contractual and property rights.
Whether the allegations of promissory estoppel (i.e., inducing ARMC to expect a loan restructuring) were substantiated.
Whether the interest and penalty charges imposed by LBP on the promissory notes were excessive, unconscionable, or unwarranted.

Ruling:

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Ratio:

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Doctrine:

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Case Digest (G.R. No. 173036) Core Legal Reasoning Model Expanded

Facts:

Case Digest (G.R. No. 173036) Expanded Legal Reasoning Model

Facts:

Issues:

Ruling:

Ratio:

Doctrine:

Case Digest (G.R. No. 173036)
Core Legal Reasoning Model

Expanded

Case Digest (G.R. No. 173036)
Expanded Legal Reasoning Model