G.R. No. 196476 - Development Bank of the Philippines vs. Heirs of Danico

Case Summary (G.R. No. 196476)

Key Dates and Applicable Law

Important dates from the record: April 22, 1977 (loan); July 12, 1982 (DAR certification / PD No. 27 coverage on three properties); August 6, 1982 (DBP extrajudicial foreclosure of TCT No. T-8127); September 9, 1985 (two Deeds of Absolute Sale to NPC); October 10, 1985 (Deed of Conditional Sale between DBP and Daniel Danico); November 12, 1986 (disbursement voucher for P301,350.50); January 10, 1999 (complaint filed); June 28, 2001 (consignation ordered); January 2, 2003 (RTC decision); December 2, 2010 (Court of Appeals decision); Supreme Court decision reviewed under the 1987 Constitution (decision date 2020). Controlling legal provisions and authorities in the record include Article 1370 (Civil Code, contract interpretation), Article 1956 (Civil Code, interest), Article 1169 (Civil Code, accrual of interest upon judicial or extrajudicial demand), Eastern Shipping Lines, Inc. v. Court of Appeals, and Nacar v. Gallery Frames (for applicable legal interest rate transition).

Procedural History

The heirs of Julieta filed suit in RTC (Civil Case No. 2881-99) on January 10, 1999 seeking cancellation or release of mortgage over the four properties and injunctive relief. DBP filed a petition for writ of possession (Misc. Case No. 338-99). The RTC consolidated the proceedings, tried the issues, and on January 2, 2003 declared the extrajudicial foreclosure of TCT No. T-8127 (consolidated to TCT No. T-19241) valid and legal, directed DBP to accept P301,350.50 as full payment of the Spouses Danico’s loan obligation (as to the foreclosed property), and declared NPC without liability. The Court of Appeals affirmed the RTC on December 2, 2010 but held NPC’s obligation to DBP was limited to P393,353.97 (rather than a higher figure DBP claimed) and denied DBP interest in the circumstances. The Supreme Court reviewed the CA decision and issued a modified judgment as detailed below.

Core Factual Findings

The Spouses Danico obtained an agricultural loan from DBP (April 22, 1977) secured by four titled properties and a chattel mortgage. Three properties were placed under PD No. 27 coverage by DAR on July 12, 1982. DBP extrajudicially foreclosed the parcel covered by TCT No. T-8127 on August 6, 1982, consolidated ownership under TCT No. T-19241 on September 12, 1983, and thus that parcel was not an outstanding collateral at the time of the 1985 sales.
On September 9, 1985 the Danicos executed two Deeds of Absolute Sale to NPC: (1) Lot No. 861 (OCT No. P-1439) for P511,290.00, with the deed expressly referencing a Statement of Account as of December 31, 1985 showing a mortgage balance of P393,353.97 and stipulating that the net proceeds after taxes, tenants, and costs be remitted to DBP; and (2) a portion of Lot No. 857 (TCT No. T-3278) for P242,644.50, referencing a Statement of Account as of April 30, 1985 showing a mortgage balance of P509,320.82 and stipulating application of proceeds to DBP. DBP expressly signified conformity to both deeds of sale.
NPC paid DBP P92,003.47 from the second sale proceeds (Official Receipt Nov. 17, 1986). NPC’s Disbursement Voucher (Nov. 12, 1986) reflected preparation of a check for P301,350.50 (the balance from the first sale after deductions) but payment was held pending Commission on Audit requirements; that P301,350.50 was later tendered and consigned with the RTC in 2001. The record lacks evidence that the remaining P150,641.03 from the second sale was ever remitted to DBP or the Danicos.

Issues Presented

Whether NPC is liable to pay DBP the total amount of P902,674.79 (the aggregate of the two stated account balances: P393,353.97 + P509,320.82).
Whether NPC is liable to pay interest and penalty charges.

Interpretation of the Contracts and Parties’ Obligations

The Supreme Court applied the rule that clear and unambiguous contractual terms control (Article 1370, Civil Code). The two Deeds of Absolute Sale, executed on the same day and with DBP’s expressed conformity, expressly referenced two separate Statements of Account (Dec. 31, 1985 and Apr. 30, 1985) and allocated the sale proceeds to DBP to satisfy the mortgage indebtedness as to each respective parcel. The deeds were transactions for the sale of specific lots for stated consideration; they did not contain any provision by which NPC expressly assumed the entire loan obligations of the Danicos under the original agricultural loan or the Deed of Conditional Sale. Because the deeds limited NPC’s obligation to the purchase price of the specific lots (and because DBP consented to the sales), NPC could not be held liable for the entire loan balances stated in the two Statements of Account beyond the proceeds actually payable for those lots. The Court therefore rejected DBP’s contention that NPC was liable for P902,674.79 in the aggregate.

Allocation of NPC’s Monetary Liability

The Court concluded NPC’s liability to DBP is limited to: (a) P301,350.50—the net proceeds from the first deed of sale (Lot No. 861 / OCT No. P-1439) to be applied against the Statement of Account as of December 31, 1985 (P393,353.97); and (b) P150,641.03—part of the proceeds of the second deed of sale (Lot No. 857-B / TCT No. T-3278) to be applied against the Statement of Account as of April 30, 1985 (P509,320.82). The Court noted that P92,003.47 from the second sale was already paid and applied; the balance of that second sale consideration remained unaccounted for in the record and thus NPC could not be held liable beyond the sale prices.

Ruling on Foreclosure Validity and Parties’ Appeals

The Supreme Court reaffirmed that the validity of DBP’s foreclosure of TCT No. T-8127 (consolidated into TCT No. T-19241) was no longer open to challenge by the heirs who failed to appeal the trial court’s foreclosure ruling. The rule that no affirmative relief may be granted to parties who failed to appeal was applied.

Liability for Interest: Legal Principles and Application

Article 1956 (Civil Code) requires an express written stipulation for monetary interest; absent such stipulation, interest cannot be recovered except as provided by law. The Deeds of Absolute Sale contain no stipulation for payment of monetary interest by NPC as purchaser. The mortgage provision that would render vendees jointly and severally liable for mortgage obligations (including interest) applies only when the mortgagor conveys without the mortgagee’s written consent; it is inapplicable here because DBP consented to the sales.
Accrual of interest by reason of delayed payment generally requires extrajudicial demand; in its absence, interest accrues only after judicial demand (Article 1169 and the cited authorities). DBP failed to show an effective extrajudicial demand prior to NPC’s tender/consignation. DBP’s certifications and letters acknowledging nonreceipt did not constitute extrajudicial demands for payment.
The Court nonetheless awarded compensatory (actual) interest from the date of DBP’s judicial demand (DBP’s Answer with Counterclaim and Crossclaim, July 13, 1999) in accordance with prevailing jurisprudential rules: (a) 12% per annum on P301,350.50 from July 13, 1999 until NPC’s c

Case Syllabus (G.R. No. 196476)

Caption and Source

Supreme Court Second Division, G.R. No. 196476, September 28, 2020; Decision penned by Justice Hernando.
Appeal from Court of Appeals decision in CA-G.R. CV No. 78619 (December 2, 2010) which affirmed in toto the Regional Trial Court (RTC), Branch 9, Malaybalay City, Decision dated January 2, 2003.
Parties: Petitioner — Development Bank of the Philippines (DBP); Respondents — Heirs of Julieta L. Danico (named heirs) and National Power Corporation (NPC).

Primary Reliefs Sought and Reliefs in Lower Courts

RTC disposition (January 2, 2003):
- Declared extrajudicial foreclosure of property covered by TCT No. T-8127 (consolidated under TCT No. T-19241) in DBP’s name as valid and legal.
- Directed DBP to accept P301,350.50 as full payment for Spouses Danico’s loan obligation.
- Declared NPC without liability.
Court of Appeals (December 2, 2010) affirmed RTC but interpreted monetary obligations, holding NPC’s obligation was P393,353.97 and denied DBP interest claims premised on the deeds of sale and alleged defaults.
This petition to the Supreme Court challenges CA ruling on monetary award and interest.

Antecedent Loan, Collateral and Foreclosure

On April 22, 1977, Spouses Julieta and Daniel Danico obtained an agricultural loan from DBP in the amount of P150,000.00.
Loan secured by:
- Real estate mortgage (REM) covering four titled properties: OCT No. P-1439 (Lot No. 861), TCT No. T-8127 (later T-19241), TCT No. T-3278 (Lot No. 857), and OCT No. P-537; and
- Chattel mortgage over one Massey Ferguson tractor and accessories.
DAR Certification dated July 12, 1982 placed three of those properties (OCT No. P-1439, TCT No. T-3278, OCT No. P-537) under Presidential Decree No. 27 (Operation Land Transfer).
DBP extrajudicially foreclosed TCT No. T-8127 on August 6, 1982 for nonpayment; redemption period expired September 12, 1983; sheriff’s sale and consolidation issued; TCT No. T-19241 issued in DBP’s name.

Deeds of Sale to NPC (September 9, 1985) and Related Statements of Account

Two deeds executed September 9, 1985 between Spouses Danico (sellers) and NPC (buyer):
- Deed of Absolute Sale of Registered Land: Lot No. 861 (OCT No. P-1439) — consideration P511,290.00.
  - Stipulated that lot was mortgaged to DBP in amount P393,353.97 as of December 31, 1985 and that after paying taxes, tenants, capital gains, remaining proceeds shall be issued in separate check to DBP.
- Deed of Absolute Sale of a Portion of Registered Land: portion of Lot No. 857 (TCT No. T-3278) — consideration P242,644.50.
  - Stipulated that the parcel was mortgaged to DBP in amount P509,320.82 as of April 30, 1985 and that proceeds would be applied to that mortgage and any remaining unpaid amount would be paid from proceeds of this parcel and issued in separate check in favor of DBP.
DBP’s written conformity to both deeds was expressly stipulated: DBP was to signify conformity and consent to annotation and issuance of new TCT in NPC’s name upon full payment.

Payments and Proceeds: What Was Paid, Tendered, and Consigned

NPC paid DBP P92,003.47 (Official Receipt No. 2205487 dated November 17, 1986) from proceeds of sale of portion of TCT No. T-3278 (second deed).
Disbursement Voucher No. P4-2-0-85-11-3449 dated November 12, 1986 was prepared for P301,350.50 (proceeds from first deed) but payment to DBP was put on hold for Commission on Audit requirements.
DBP certified (February 24, 1987) it would only release the original OCT No. P-1439 (later TCT No. T-21793 issued in NPC’s name) upon payment of P301,350.50.
There is record of consignation: NPC tendered and consigned a check in the amount of P301,350.50 with the RTC Clerk of Court per RTC Order dated June 28, 2001, after DBP refused to accept the check claiming it lacked interest.

Procedural History: Petitions, Counterclaims, Joinder, Pre-trial

January 10, 1999: Julieta Danico and her heirs filed Civil Case No. 2881-99 vs. DBP and NPC for cancellation/release of mortgage over the four properties and restraining order enjoining DBP from possession of TCT No. T-8127/T-19241.
May 7, 1999: DBP filed Misc. Case No. 338-99 for writ of possession over parcel now TCT No. T-19241.
July 13, 1999: DBP filed Answer with Affirmative Defenses, Counterclaim and Crossclaim; denied receipt of P301,350.50 and raised argument of two separate loan obligations.
August 11, 1999: NPC filed Answer asserting payment of P301,350.50 by Disbursement Voucher and Check No. 117684 in DBP’s name.
May 19, 2000: RTC ordered joint trial of Misc. Case No. 338-99 and Civil Case No. 2881-99.
November 10, 2000: Pre-trial Order included stipulations: existence of two deeds of sale; DBP’s admission of P92,003.47 receipt; NPC prepared check of P301,350.00 which became stale/still not delivered to DBP; Statement of Account as of December 31, 1985 showing balance P393,353.97; total pending account as of April 30, 1985 P509,520.82 (as alleged in pre-trial); three unforeclosed properties tenanted and under PD No. 27, etc.
March 1, 2001: RTC held trial in abeyance pending NPC’s tender of P301,350.50.
May 7, 2001: NPC manifested check ready to be delivered to DBP provided DBP surrender certain titles; DBP refused to accept check lacking purported interest charges.
June 28, 2001: RTC ordered consignment of check P301,350.50 with RTC Clerk of Court.

RTC Decision (January 2, 2003)

Declared extrajudicial foreclosure of TCT No. T-8127 (T-19241 consolidation) valid and legal.
Directed DBP to accept P301,350.50 as full payment for Spouses Danico’s loan obligation (as DBP had represented).
Declared NPC without liability.
Resulted in appeals by DBP and by heirs of Julieta.

Court of Appeals Decision (December 2, 2010)

Held NPC’s obligation to DBP was P393,353.97, not P509,320.82, for reasons:
- Both deeds of sale expressly state Spouses Danico’s obligation as of December 31, 1985 was P393,353.97.
- DBP’s own Certification (Feb. 24, 1987) acknowledging it would only release the original OCT No. P-1439 upon payment of P301,350.50 was treated as implicit admission aligning with P393,353.97 figure; P301,350.50 equals P393,353.97 less prior P92,003.47 payment.
Denied DBP’s claim for interest and penalties on two grounds:
- DBP had signified conformity with deeds of sale and did not then claim interest; it cannot later claim interest.
- Mortgage provision imposing joint and several liability of vendee and vendor for mortgage obligations applies only when conveyance is without mortgagee’s written consent, which was not the case here.
- DBP