G.R. No. 142309 - Spouses Dela Rama vs. Papa

China Banking Corporation (“China Bank”) extended several loans to Native West International Trading Corporation (“Native West”) and to So Ching, the president of Native West.
Native West executed promissory notes in favor of China Bank while So Ching, with the marital consent of Cristina So, executed two real estate mortgage agreements covering separate properties:

A mortgage executed on July 27, 1989 over a parcel of land in Cubao, Quezon City (TCT No. 277797).
A mortgage executed on August 10, 1989 over a parcel of land in Mandaluyong (TCT No. 5363).

The promissory notes matured, and despite due demands, neither Native West nor So Ching paid the loans.

China Bank relied on provisions in the mortgage contracts to file petitions for the extra-judicial foreclosure of the mortgaged properties.
The foreclosure process was initiated by the filing of petitions before designated Notaries Public (Atty. Renato E. Taguiam and Atty. Reynaldo M. Cabusora).
After due notice and publication, a foreclosure sale was scheduled for April 13, 1993.

Eight days prior to the scheduled sale, private respondents filed a complaint before the Regional Trial Court seeking:

Accounting with damages; and
A temporary restraining order (TRO) against China Bank, the notaries, and related parties.

The respondents alleged multiple causes of action including non-compliance with Administrative Order No. 3, non-observance of provisions in Presidential Decree No. 1079, discrepancies in the amounts secured by the mortgages, violation of the Truth in Lending Act, charging excessive interest, and violation of Article 1308 of the Civil Code.
On April 7, 1993, the trial court issued a TRO to enjoin the foreclosure sale and later, on April 28, 1993, granted a preliminary injunction.

The injunction was justified on grounds that the unresolved accounting issues and the nature of the loans involved demanded protection against irreparable injury.
The injunction required the respondents to post a bond of P1 million.

Petitioners moved for reconsideration of the trial court’s orders, which was denied on September 23, 1993.
To annul these orders, the petitioners elevated the case through certiorari and prohibition before the Court of Appeals.
In its January 17, 1995 decision, the Court of Appeals held that:

Administrative Circular No. 3 governed extra-judicial foreclosure; and
The foreclosure-related publication should comply with the provisions of Presidential Decree No. 1079.

The appellate court confined its discussion to the validity of the preliminary injunction, finding it not a capricious or whimsical exercise of discretion.
The petition and a subsequent motion for reconsideration were ultimately dismissed by the Court of Appeals.

The extra-judicial foreclosure of the properties is valid and lawful.
The mortgage contracts were intended to secure not only the amounts expressly stated (P6,500,000.00 for the July 27, 1989 mortgage and P3,500,000.00 for the August 10, 1989 mortgage) but also additional loans.
The variance in the total amount of unpaid loans does not warrant an injunction against the foreclosure sale.
The Truth in Lending Act was complied with and the interest charged was in accordance with law.
The P1.0 million injunction bond imposed on the respondents is grossly inadequate.

The petition seeks to have the foreclosure sale proceed given the clear admission by respondents that they were in default.

The dispute centers on the interpretation of the introductory “whereas clause” and paragraphs 1 to 3 of the mortgage contracts.
Petitioners argue that these provisions were meant to secure all present and future indebtedness, effectively constituting the real estate properties as continuing securities.
Private respondents contend that the additional loans are separate “clean loans” and not covered by the mortgage agreements.

While respondents relied on Administrative Order No. 3 to contest the foreclosure procedures, the parties had stipulated that foreclosure should be governed by Act No. 3135 (as amended) and Section 78 of Republic Act No. 337.
The court examined this juxtaposition and affirmed that a statute holds superiority over an administrative directive.

The essence of a mortgage contract is to identify a property as collateral securing the indebtedness.
In the event of default, the mortgagee’s right to foreclose is well established, even if there are ongoing accounting disputes regarding the exact amounts owed.

Whether additional loans extended beyond the amounts expressly stipulated in the mortgage contracts can be included as part of the secured obligations, thereby continuing the lien on the properties.
Whether petitioners (China Bank) are entitled to effect an extra-judicial foreclosure of the mortgaged properties given the admitted default in payment by the respondents.
Whether the extra-judicial foreclosure should be governed by Administrative Order No. 3 or by the provisions of Act No. 3135 (as amended), as stipulated in the mortgage contracts.
Whether the issuance of the preliminary injunction by the trial court—enjoining the foreclosure sale—was proper and justified under the circumstances.