G.R. No. 66715 - Philippine National Bank vs. Intermediate Appellate Court

Case Summary (G.R. No. 66715)

Factual Background

On March 20, 1968, Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB, San Carlos Branch, on land registered under TCT No. T-31913 to secure a sugar crop loan of P3,400. Later, acting as attorney-in-fact for Romeo Alcedo, she executed an amended mortgage including Alcedo’s Lot No. 1626 (part of Lot No. 1402, TCT No. 52705) as additional collateral for an increased loan of P16,500. The parties orally agreed to split the loan proceeds fifty-fifty, but Alcedo received no share. Alcedo revoked the Special Power of Attorney on May 12, 1970 and wrote to PNB to that effect. By letter dated May 22, 1970, the PNB branch manager acknowledged receipt of the revocation, advised that Alcedo’s lot had already secured the 1970–71 loan which Sepe had already availed, and assured Alcedo that the bank “shall exclude the aforementioned lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan.” On the same day the bank advised Sepe to replace Lot No. 1402 with another collateral. Despite these communications, Sepe obtained further loans that increased her indebtedness to P56,638.69 secured in part by Alcedo’s property. On January 15, 1974, PNB notified Alcedo of Sepe’s default and threatened foreclosure. Alcedo demanded that Sepe pay to avoid foreclosure, but she did not.

Trial Court Proceedings

On April 17, 1974, Alcedo sued Sepe and PNB for collection and injunction with damages. During the pendency of the case, PNB filed a petition for extrajudicial foreclosure in Pasig and the sheriff sold Lot No. 1626 to PNB as the highest bidder on November 19, 1974. Alcedo amended his complaint to seek annulment of the extrajudicial foreclosure sale and reconveyance of the land free from liens, and withdrew his claim for one-half of the loan proceeds. The Court of First Instance rendered judgment on March 14, 1980 declaring the sheriff’s sale and certificate of sale null and void, ordering PNB to reconvey the title to Alcedo free from liens and encumbrances arising from Sepe’s loans, and directing the spouses Sepe and PNB, in solidum, to pay moral damages of P10,000 and attorney’s fees of P5,000. The trial court further directed PNB to proceed against Sepe on its cross-claim for any outstanding obligations.

Intermediate Appellate Court Ruling

On November 29, 1983, the Intermediate Appellate Court affirmed the trial court’s judgment in toto. The appellate court found that PNB was estopped from foreclosing on Alcedo’s lot because the bank’s May 22, 1970 letter unequivocally led Alcedo to believe that his property would no longer be accepted as collateral for Sepe’s 1971–72 sugar crop loan. The court invoked estoppel by deed and cited Arts. 1431 and 1433 of the New Civil Code and Rule 131, Sec. 3(a) as grounds for treating the bank’s representation as conclusive against the bank. The appellate court relied on prior jurisprudence recognizing that one who intentionally or negligently induces another to act on a representation cannot later deny it to the latter’s prejudice.

Issues Presented

The petition raised principally whether PNB validly foreclosed the real estate mortgage on Alcedo’s property despite (1) Alcedo’s revocation of the Special Power of Attorney and (2) the bank’s written assurance that it would exclude the lot as collateral for Sepe’s future loans. PNB advanced three principal contentions on review: that the doctrine of promissory estoppel did not apply; that it was a mortgagee in good faith and for value; and that it had adduced substantial evidence to support its cross-claim against Sepe.

Parties’ Contentions

PNB contended that it held a valid mortgage as mortgagee in good faith and for value and that the bank’s foreclosure thereby was proper; it argued that promissory estoppel did not bar foreclosure and that its cross-claim against Sepe remained enforceable. Alcedo maintained that he revoked the power of attorney, that he relied on PNB’s written assurance that his lot would be excluded as collateral for the 1971–72 loan, and that the bank should be estopped from foreclosing because its conduct induced him to rely to his prejudice.

Supreme Court’s Ruling

The Supreme Court denied the petition for certiorari and affirmed the judgments below for lack of merit. The Court agreed with the Intermediate Appellate Court that PNB’s assurance to Alcedo that the lot would be excluded as collateral bound the bank under the doctrine of promissory estoppel. The Court concluded that PNB could not legitimately adopt a contrary position to the prejudice of the party who relied on its representation.

Legal Basis and Reasoning

The Court applied the doctrine of promissory estoppel as articulated in prior decisions such as Republic Flour Mills, Inc. v. Central Bank, L-23542, August 11, 1979, and other authorities cited by the appellate court. The Court observed that a party who makes an unequivocal representation and induces another to act thereon cannot thereafter deny the representation to the latter’s prejudice. The Court recognized that although Art. 1358 requires public form for acts creating or extinguishing real rights over immovable property, a revocation embodied in a private writing is valid and binding between the parties inter se. The Court relied on precedents holding that legalization by public instrument and registration are formalities to protect third parties and that private agreements or revocations are effective between the contracting parties (citing Doliendo v. Depino; Hawaiian-Philippines Co. v. Hernaez; Alano v. Babasa). On equitable grounds, and because PNB had promised to exclude Alcedo’s property as collateral for the 1971–72 loan, the bank acted in bad faith in proceeding to foreclose the property t

Case Syllabus (G.R. No. 66715)

Parties and Procedural Posture

PHILIPPINE NATIONAL BANK filed a petition for certiorari seeking to set aside the decision of the Intermediate Appellate Court dated November 29, 1983 and the resolution dated February 29, 1984 denying its motion for reconsideration.
ROMEO ALCEDO was the private respondent and plaintiff below who sued for annulment of an extrajudicial foreclosure sale, reconveyance of land, and damages.
The action originated in the Court of First Instance of Negros Occidental, Branch IV, as Civil Case No. 11393 and proceeded on appeal to the Intermediate Appellate Court.
The Supreme Court resolved the petition by reviewing whether the bank validly foreclosed a mortgage after having received notice of revocation and having given a written assurance to exclude the property as collateral.

Key Factual Allegations

On March 20, 1968, Leticia de la Vina-Sepe executed a mortgage over a lot under TCT No. T-31913 to secure a sugar crop loan of P3,400.
Acting as attorney-in-fact for ROMEO ALCEDO, Leticia de la Vina-Sepe executed an amended real estate mortgage to include Alcedo's Lot No. 1626 (portion of Lot No. 1402, TCT No. 52705) as collateral for an increased loan of P16,500.
Alcedo and Sepe allegedly agreed to split the loan proceeds fifty-fifty, and Alcedo wrote to the bank on May 12, 1970 revoking the Special Power of Attorney he had granted to Sepe.
On May 22, 1970, the bank's branch manager wrote to Alcedo acknowledging his revocation and assuring that the lot would be excluded as collateral for Sepe's 1971-72 sugar crop loan.
On the same day the bank advised Sepe in writing to replace Lot No. 1402 with another collateral of equal or higher value.
Despite the assurance, Sepe obtained additional loans so that her indebtedness grew to P56,638.69 with Alcedo's property still used as collateral.
On January 15, 1974, Alcedo received notices from the bank of Sepe's default and a six-day demand to settle or face foreclosure, and on November 19, 1974 the property was sold at extrajudicial foreclosure with the bank as highest bidder.
Alcedo sued for annulment of the foreclosure sale and reconveyance, and the trial court on March 14, 1980 annulled the sale, ordered reconveyance, and awarded moral damages of P10,000 and attorney's fees of P5,000.

Issues Presented

Whether the bank was estopped from foreclosing upon Alcedo's property because it received notice of revocation of the Special Power of Attorney and gave a written assurance to exclude the lot as collateral for Sepe's 1971-72 loan.
Whether the doctrine of promissory estoppel applied to bar foreclosure despite an existing mortgage in favor of the bank.
Whether the revocation of the Special Power of Attorney embodied in a private writing was effective between the parties despite Art. 1358 of the New Civil Code.
Whether PNB acted in good faith and for value in exercising extrajudicial foreclosure.

Contentions of the Parties

PNB contended that the doctrine of promissory estoppel did not apply, that it was a mortgagee in good faith and for value, and that it adduced substantial evidence to support its cross-claim against Leti