G.R. No. L-41192-93 - Ong Tiao Seng vs. Court of Appeals

Evelina Togle and her daughter Catherine Geraldine Togle are registered owners of two agricultural lots in Bangkas Heights, Toril, Davao City (TCT Nos. 239080 and 239081), planted with various fruit-bearing trees.
On April 5, 1995, Catherine applied to the Development Bank of the Philippines (DBP) for a ₱5,000,000 agricultural loan, submitting a feasibility study to construct four poultry houses (capacity: 20,000 broilers), with broilers to be supplied by Vitarich.

DBP approved the loan, requiring a real estate mortgage on the subject properties. On November 15, 1995, Catherine executed a promissory note for ₱3,000,000, and on November 17 the bank disbursed that amount, which Catherine used to erect four poultry houses, a bodega, a water tank, and procure machinery and equipment.
On February 2, 1996, Catherine requested an additional drawdown of ₱500,000 to settle creditors for materials used. DBP denied the request, alleging that the Togles had failed to construct the twelve poultry houses (60,000 broiler capacity) and to infuse the requisite equity. DBP invoked the acceleration clause, declared the loan in default, foreclosed the mortgage on November 22, 1996, became the highest bidder, consolidated ownership, and caused the Register of Deeds to cancel TCT Nos. 239080 and 239081 and issue new titles in DBP’s name (TCT Nos. 300166 and 300167). DBP also took possession of the property and removed fixtures.

In August 1999, the Togles sued DBP in the RTC, Davao City, for breach of contract, annulment of mortgage and foreclosure proceedings, reconveyance, moral damages, and injunction.
On October 20, 2006, the RTC ruled the foreclosure void for premature acceleration and breach of contract by DBP (unilaterally altering loan terms), ordered reconveyance of titles, and awarded moral damages (₱5,000,000), attorney’s fees (₱500,000), and costs.
The Court of Appeals, on September 28, 2015, affirmed with modifications: it nullified the foreclosure, ordered reconveyance, required the Togles to repay ₱3,000,000 plus stipulated interest, and awarded moral damages (₱500,000), exemplary damages (₱300,000), compensatory damages (₱3,713,200), attorney’s fees (₱500,000), and accounting of fruits and proceeds. Its March 17, 2016 resolution denied DBP’s motion for reconsideration.
DBP filed a Rule 45 petition before the Supreme Court, arguing (a) the CA misapplied the parol evidence rule, (b) the loan contemplated twelve poultry houses (₱5M funding), and (c) the Togles defaulted, justifying acceleration and foreclosure. The Togles countered that DBP’s petition was late and substantively without merit.

Whether the Togles were in default under the loan agreement, justifying DBP’s withholding of proceeds and foreclosure.
Whether DBP acted in bad faith by altering unambiguous loan terms and imposing conditions not found in the written contract.
Whether the foreclosure proceedings were premature and therefore void.
Whether the awards of reconveyance, damages (moral, exemplary, compensatory), attorney’s fees, and accounting are proper.