Case Summary (G.R. No. 214588)
Procedural History
The Tad‑ys filed a complaint for breach of contract and reconveyance in the Regional Trial Court (RTC), Branch 55, Himamaylan City (Civil Case No. 912). The RTC rendered judgment ordering PNB to reconvey Lots 778 and 788 to the plaintiffs upon payment of the auction acquisition price plus expenses and 12% interest. PNB appealed to the Court of Appeals (CA), which affirmed the RTC’s decision. PNB’s motion for reconsideration in the CA was denied. PNB then filed a petition for review on certiorari to the Supreme Court, which denied the petition and affirmed the CA and RTC rulings.
Material Facts
- On January 30, 1975, spouses Jose and Patricia Tad‑y obtained an agricultural sugar crop loan from PNB for P109,000, secured by a REM over six parcels in Himamaylan and Hinigaran. The REM was annotated on the titles.
- On August 14, 1975, the spouses obtained a second agricultural loan (P63,000), which the REM was extended to cover and likewise annotated.
- On August 9, 1988, Lots 778 and 788 (both covered by the REM) were sold at a provincial tax delinquency auction for unpaid real property taxes. PNB participated and was the sole bidder, acquiring both lots for a total price of P10,609.63. Final Bills of Sale issued on August 23, 1989, and the certificates of sale were annotated on the respective titles.
- The Tad‑ys availed themselves of restructuring under RA 7202 in November 1995 and completed payments in 1996. On March 6, 1996, PNB executed a deed of release of the REM but excluded Lots 778 and 788, claiming ownership by virtue of the auction acquisition.
- Patricia Tad‑y repeatedly requested release and offered reimbursement of the auction price (letters dated July 19, 2001 and October 23, 2003). PNB refused to reconvey but offered to negotiate repurchase.
- The Tad‑ys filed their complaint on March 23, 2004. The RTC, and later the CA and Supreme Court, addressed whether PNB breached the REM, whether PNB’s auction purchase inured to the benefit of the Tad‑ys by virtue of agency under the REM, whether the action was barred by prescription or laches, and whether a constructive trust arose.
Issues Presented
- Whether PNB breached the REM by failing to pay real property taxes on Lots 778 and 788.
- Whether PNB’s acquisition of the lots at the tax delinquency auction was attributable to PNB acting as attorney‑in‑fact (agent) of the spouses under paragraph (d) of the REM and thus inured to the benefit of the Tad‑ys.
- Whether the Tad‑ys’ action was barred by prescription or laches and whether PNB may raise prescription for the first time on appeal.
RTC’s Findings and Relief
The RTC held that: (a) the REM’s paragraph (c) (last sentence) obligated the mortgagee to advance taxes and insurance premiums if the mortgagor failed to pay; by not paying taxes, PNB refused to perform and allowed delinquency, then participated in and acquired the properties at auction for a below‑market price — conduct constituting an actionable abuse of right under Article 19 of the Civil Code; (b) paragraph (d) of the REM, which appoints PNB as attorney‑in‑fact upon breach, made any acquisition by PNB inure to the benefit of the mortgagors; and (c) the Province of Negros Occidental was not an indispensable party. The RTC ordered reconveyance of Lots 778 and 788 to the plaintiffs upon payment of the acquisition price and expenses plus 12% interest.
Court of Appeals’ Rationale
The CA affirmed the RTC. Key points: (a) paragraphs (b) and (c) of the REM must be read in conjunction; when mortgagors failed to pay taxes, paragraph (c)’s last sentence obligated the mortgagee to advance taxes and insurance premiums, making PNB’s allowing tax delinquency and subsequent auction participation improper in context; (b) PNB waived the prescription defense by not raising it at trial and thereby could not raise it for the first time on appeal; and (c) paragraph (d) automatically appointed PNB as attorney‑in‑fact upon breach and the acquisition inured to the Tad‑ys, giving rise to a constructive trust over the acquired lots to prevent unjust enrichment.
Supreme Court’s Disposition and Overview of Analysis
The Supreme Court denied PNB’s petition and affirmed the CA’s decision. The Court analyzed separately the prescription/laches defense, the parties’ obligations under the REM regarding payment of real property taxes, the scope and effect of the agency clause in paragraph (d) of the REM, and the creation of a constructive trust.
Prescription and Laches — Court’s Analysis and Ruling
- Procedural posture: PNB did not plead prescription in its answer nor raise it at the trial level; it first raised prescription on appeal. Under the Rules of Court, defenses not pleaded are deemed waived unless the bar by the statute of limitations is apparent from the pleadings or record. Jurisprudence permits raising prescription for the first time on appeal only when the bar is clearly, sufficiently and satisfactorily apparent on the record, or when no factual issues relevant to prescription arise.
- The Court found the statutory basis for prescription unclear in this case. PNB cited Article 1144(1) (ten‑year action upon a written contract) in its appeal brief and later invoked Article 1144(2) in the petition on the theory that a constructive trust had arisen; this inconsistency demonstrated lack of clarity as to the applicable prescriptive period.
- The complaint’s allegations and requested relief (breach of contract and reconveyance; allegations that the auction was null and void ab initio) left open multiple possible characterizations of the cause of action (e.g., challenge to validity of sale, breach of mortgage, reconveyance), each potentially carrying different prescription periods. As in Sanchez, such factual uncertainties preclude a summary dismissal on the basis of prescription.
- Because PNB’s prescription defense was not clearly apparent from the pleadings or the record and involved factual matters (including the validity of the auction sale and whether the contract was void), it was inappropriate to consider the defense for the first time on appeal. The CA properly declined to decide prescription. The Court also noted the Tad‑ys’ long delay in pressing claims but held that laches involves factual inquiries better resolved at trial; PNB’s belated invocation of laches on appeal was similarly improper.
Obligation to Pay Real Property Taxes Under the REM — Court’s Interpretation
- Contract interpretation principles: A contract is to be construed as a whole; doubtful stipulations take meaning from the contract’s entire context (Art. 1374 Civil Code). Paragraphs (b) and (c) of the REM were examined together. Paragraph (b) expressly places on the mortgagor the duty to pay taxes and assessments and to surrender official receipts. Paragraph (c) sets out events of default and foreclosure remedies, and the last sentence of paragraph (c) provides additional stipulations including that “the Mortgagee shall advance the taxes and insurance premiums due in case the Mortgagor shall fail to pay them.”
- The Court concluded that the mortgagee’s obligation to advance taxes and insurance premiums arises only in the specific context of judicial foreclosure (as that last sentence supplements the prior sentences governing foreclosure). Accordingly, PNB’s obligation to pay the taxes did not arise as a general duty upon mere default short of judicial foreclosure. The Court therefore sustained PNB’s contention that its duty to advance taxes under that clause was tied to judicial foreclosure.
Agency under Paragraph (d) of the REM — Scope and Effect
- Paragraph (d) of the REM provides for automatic appointment of the mortgagee as attorney‑in‑fact “effective upon the breach of any condition of this mortgage” with broad powers: to take possession, collect rents, eject tenants, lease or sell at private sale, execute documents, make repairs, pay expenses and “perform any other act which the Mortgagee may deem convenient for the proper administration of the mortgaged property.” The clause also guarantees repayment of advances and permits application of proceeds to indebtedness.
- The Court acknowledged that Article 1878 of the Civil Code requires express authorization for powers of attorney to create, convey or transfer ownership of immovables; this requirement addresses acts of strict dominion. However, paragraph (d) is a general agency clause directed at acts of administration under Article 1877. Whether an act is administrative or one of strict dominion is ultimately a question of fact dependent on circumstances.
- The Court held that paragraph (d)’s grant of power to “perform any other act…convenient for the proper administration” encompasses acts reasonably necessary to preserve and administer the mortgaged property for the purpose of protecting the mortgagee’s foreclosure rights, including participation in a tax delinquency auction to prevent loss to third parties. PNB admitted that it participated in the auction to protect its mortgage interest. The Court found this to be an act of administration (preserving the mortgagee’s ability to later alienate the property to satisfy the debt) rather than a manifestatio
Case Syllabus (G.R. No. 214588)
Procedural History
- Petition for review on certiorari to the Supreme Court assails the Court of Appeals (CA) April 16, 2013 Decision and September 4, 2014 Resolution in CA-G.R. CV No. 01412, which dismissed the appeal by petitioner Philippine National Bank (PNB) against the Regional Trial Court (RTC), Branch 55, Himamaylan City, Negros Occidental, Decision of December 22, 2005 in Civil Case No. 912 (proceeding for breach of contract and reconveyance of property). [1-4]
- PNB filed Notice of Appeal from the RTC decision and thereafter moved through appellate processes, including motion for reconsideration before the CA which was denied, leading to the present petition. [31, 37]
Facts
- On January 30, 1975, spouses Jose Tad-y and Patricia Toledanes Tad-y obtained an agricultural sugar crop loan from PNB (Binalbagan Branch) in the amount of P109,000.00. A Real Estate Mortgage (REM) over six parcels in Himamaylan City and Hinigaran, Negros Occidental secured the loan; the REM was annotated as Entry No. 201793 on the titles. [5-8]
- On August 14, 1975, the spouses obtained another agricultural loan from PNB for P63,000.00; the REM was extended to cover this loan and annotated as Entry No. 210254. [9-11]
- On August 9, 1988, Lots 778 and 788 (Lot 778: TCT No. T-161293 formerly T-2524, area 24,249 sqm; Lot 788: TCT No. T-22350, area 147,564 sqm) were sold at public auction by the provincial treasurer of Negros Occidental for unpaid real property taxes. PNB participated as sole bidder and the winning bid totaled P10,609.63. [12-14]
- The provincial treasurer issued two Final Bills of Sale to PNB on August 23, 1989; the Certificates of Sale were annotated on succeeding dates (entries and page citations in record). [15-16]
- In November 1995, the spouses availed of restructuring under Republic Act No. 7202; a year later they completed payments on the two loans. On March 6, 1996, PNB executed a deed of release of the REM but explicitly excluded Lots 778 and 788, asserting it had acquired title by virtue of the auction sale. [17-20]
- Patricia Tad-y made written demands to PNB to release Lots 778 and 788 and offered to reimburse PNB for the auction price (letters dated July 19, 2001 and October 23, 2003). PNB responded that it had acquired ownership but was willing to negotiate repurchase. [21-24]
- Patricia and her children, represented by respondent Antonio Tad-y, filed on March 23, 2004 a complaint for breach of contract and reconveyance before the RTC of Himamaylan City. The complaint alleged that PNB, instead of advancing taxes due, participated as lone bidder in the auction and acquired the property, rendering the sale void and seeking reconveyance and related reliefs. [24, 54-55]
RTC Decision (Trial Court)
- RTC rendered judgment in favor of the plaintiffs (the Tad-ys) ordering PNB to reconvey title of Lot No. 788 (TCT No. T-23550) and Lot No. 778 (TCT No. T-2524 now T-161298) to the plaintiffs; the plaintiffs were ordered to pay PNB the acquisition price and other expenses plus 12% per annum interest from the date of public auction up to repurchase. The Register of Deeds was ordered to issue new TCTs upon full payment. [26]
- RTC reasoning:
- Cited the last sentence of paragraph (c) of the REM which provides that "the Mortgagee shall advance the taxes and insurance premiums due in case the Mortgagor shall fail to pay them," and ruled PNB should have paid real property taxes when the mortgagors defaulted. [27]
- Found that PNB's refusal to perform and allowing the lots to become delinquent so it could acquire them at a below-market price was an actionable abuse of right under Article 19 of the Civil Code, prejudicing the Tad-ys. PNB's participation in the auction sale, though not illegal per se, constituted abuse. [28]
- Under paragraph (d) of the REM (automatic appointment as attorney-in-fact upon breach), the RTC held PNB's purchase should inure to the benefit of the Tad-ys. [29]
- RTC rejected PNB's contention that the Province of Negros Occidental was an indispensable party, finding the suit targeted PNB's participation only. [30]
Court of Appeals Ruling
- The CA affirmed the RTC decision, adopting and sustaining the trial court's conclusions. [31]
- CA held:
- Paragraph (b) (obligation of mortgagor to pay taxes) must be read with the last sentence of paragraph (c) (mortgagee to advance taxes and insurance premiums if mortgagor fails to pay), thus PNB should have advanced taxes on behalf of the Tad-ys when the latter failed to pay, rather than allowing taxes to accumulate and then acquiring the properties at auction for a very low price. [32-33]
- Refused to consider prescription as PNB had not raised it in the answer below; issue deemed waived and barred from being raised for the first time on appeal. [33-34]
- Sustained RTC's conclusion that paragraph (d) constituted automatic appointment of PNB as attorney-in-fact and that PNB's acquisition inures to the benefit of the Tad-ys. [35]
- Declared that a constructive trust was created over the disputed lots because PNB obtained or held legal title which equity required it not to hold, citing the doctrine of constructive trust to prevent unjust enrichment. The appellate court relied on equitable construction arising from fraud, duress, or abuse of confidence. [36]
Issues Raised in the Petition for Review
- PNB identified three principal errors alleged to have been committed by the CA: [37]
A. The CA made a manifestly mistaken inference that PNB committed breach of the REM by failing to pay real estate taxes on the properties.
B. The CA misapprehended facts in holding that PNB acted as attorney-in-fact of the spouses Tad-y during the public auction sale.
C. The CA erred in failing to consider that the complaint was barred by prescription, which was apparent on the face of the complaint and the record.
Supreme Court Analysis — Prescription
- Rule and jurisprudential background:
- Rule 9, Section 1 of the Rules of Court: defenses not pleaded are deemed waived, but if it appears from pleadings or evidence that the action is barred by statute of limitations, the court shall dismiss the claim. The Court reiterated jurisprudence that prescription is a ground for dismissal only when clearly apparent on the face of the pleadings or record; where evidentiary matters are involved, dismissal without hearing is inappropriate. [40-45]
- Prior Supreme Court authorities permit prescription to be raised even for the first time on appeal if the bar is clearly and satisfactorily apparent on the record, but the party invoking it must prove it is clearly apparent. [46-49]
- Sanchez v. Sanchez illustrates that when the complaint's allegations open multiple possible factual scenarios affecting the applicable prescriptive period, the issue is best decided after full trial rather than on motion to dismiss. [50-51]
- Application to this case:
- Supreme Court found PNB raised prescription for the first time on appeal and that