G.R. No. 207408 - Heirs of Timbol, Jr. vs. Philippine National Bank

In December 1996, Karrich Holdings Ltd. (KHL), a Hong Kong–based company owned by Felino M. Timbol, Jr., applied for credit facilities with Philippine National Bank’s (PNB) wholly-owned subsidiary, PNB International Finance Limited (PNB-IFL).
Karrich Auto Exchange (KAE), operated as a sole proprietorship in the Philippines and also owned by Timbol, participated as the co-borrower.
The total credit facility granted amounted to USD 850,000.00 (approximately PhP 22,796,200.00).

As security for the loan, Timbol executed multiple real estate mortgages on nine different parcels of land registered in the names of Felino M. Timbol, Jr. and his wife Emmanuela R. Laguardia.
Three main mortgage transactions were involved:

The first mortgage, for Php 13,053,600.00, involved seven properties (TCT Nos. 196111 to 196117).
The second mortgage, for Php 7,598,850.00, secured a 293-sq.m. parcel of land (TCT No. 177564).
The third mortgage, for Php 2,143,750.00, covered an 87.5-sq.m. parcel (TCT No. 207636).

Allegations emerged that Timbol was induced to sign the mortgage forms and promissory notes in blank with such documents later returned to PNB without copies being furnished to him.

Timbol executed several promissory notes evidencing availments under the credit facility, initially reflecting amounts in US Dollars later subject to adjustments (e.g., from USD 849,595.07 to USD 848,300.00).
Upon default in payments by Timbol, KAE, and KHL, PNB-IFL sent a demand letter on September 2, 1999.
The demand letter stated that the total outstanding obligation, including penalties and interests, had risen significantly (with figures later cited as high as PhP 38,088,173.59 and arguments concerning inflated or “bloated” obligations).

On November 15, 1999, after the default, PNB initiated the foreclosure of the mortgaged properties, asserting a violation of the mortgage terms.
An extra-judicial auction sale followed, with PNB allegedly being the highest bidder at a price of PhP 35,669,000.00.
A Notice of Extra-Judicial Sale was notarized by Atty. Ricardo M. Espina, and a Certificate of Sale was issued on December 10, 1999.

On August 4, 2000, Timbol and Laguardia filed a suit against PNB, Espina, and the Makati City Register of Deeds seeking annulment of the mortgage, foreclosure, and auction sale, as well as claims for accounting, damages, and injunctive relief.
The Regional Trial Court (RTC) of Makati City, Branch 150, granted a writ of preliminary injunction and later, on January 5, 2005, declared the foreclosure null and void on the ground that the annotations on the titles did not reflect the actual loan amount and that PNB had failed to furnish copies of the executed documents.
Despite these findings regarding procedural irregularities, the RTC denied relief for damages and attorney’s fees.

Without filing a motion for reconsideration, PNB elevated the case to the Court of Appeals, which rendered a decision on September 26, 2012.
During the pendency of the appeal, Timbol died and was substituted by his heirs, who then became the petitioners in the review.
The Court of Appeals reversed the RTC decision, holding that the extrajudicial foreclosure was valid and that the mortgage contracts (including a clause appointing PNB as attorney-in-fact) provided proper authority for foreclosure.
Petitioners contended that PNB had “bloated” the outstanding obligation, failed to supply copies of the documents, and should have been precluded from appealing without filing a motion for reconsideration.
In contrast, PNB argued that the foreclosure had been properly executed, that the alleged irregularities were immaterial given Timbol’s acknowledgment of his obligations, and that there was no legal mandate requiring a motion for reconsideration prior to appeal.

A key dispute involved whether the failure to present copies of the mortgage documents vitiated the foreclosure process.
Another issue was whether PNB-IFL had properly assigned its mortgage rights to PNB based on the contractual clause in Paragraph 21 of the mortgage.
The appropriate application of procedurally mandated rules (such as the option to appeal instead of filing a motion for reconsideration) formed part of the contested issues.

Whether PNB’s extra-judicial foreclosure and auction sale were conducted in strict conformity with the contractual provisions in the mortgage documents.
Whether any alleged irregularities—such as signing documents in blank and failing to provide copies—undermine the foreclosure.

Whether the alleged “bloating” or misrepresentation of the outstanding obligation by PNB is sufficient to render the foreclosure null and void.

Whether PNB-IFL was duly empowered by a valid board resolution and contractual provisions, particularly the assignment clause, to assign its rights to PNB and foreclose the mortgage.

Whether PNB’s failure to file a motion for reconsideration before appealing affected the Court of Appeals’ jurisdiction and the proper disposition of the case.
Whether petitioners’ subsequent procedural omissions (e.g., failure to file timely Appellees’ Brief) precluded raising substantive objections.

Whether the established ruling in PNB v. Timbol, which addressed similar issues concerning the extrajudicial foreclosure and the acceptance of the loan obligations, should control the present case.
Whether reexamining issues already settled in earlier appellate proceedings would violate principles of finality and judicial economy.