G.R. No. 200553 - Spouses Loquellano vs. Hongkong and Shanghai Banking Corp., Ltd.

Case Summary (G.R. No. 200553)

Factual Background

Petitioner Rosalina was a regular employee in the Financial Central Department of respondent Hongkong and Shanghai Banking Corporation, Ltd. As a consequence of her employment status, she became an automatic member of the respondent HSBC-SRP, a retirement plan that provided retirement, disability, and loan benefits to bank employees. In 1988, Rosalina applied for a housing loan of P400,000.00, payable over twenty-five (25) years at six percent (6%) per annum, with amortizations payable through automatic monthly salary deductions from her salary savings account with the bank. The loan application stated that it would be secured by setting off her retirement benefits and a chattel mortgage. Rosalina executed a promissory note for the loan.

On September 5, 1990, petitioner spouses Gildardo and Rosalina Loquellano and Manuel Estacion, as managing trustee for and on behalf of the HSBC-SRP, executed a contract of real estate mortgage over the mortgaged property under TCT No. 95422 (44867) to secure the housing loan.

Petitioner Rosalina continued paying the monthly installments and interest through automatic salary deductions until a labor dispute arose between the bank and the bank union. The dispute culminated in a strike on December 22, 1993. Rosalina, along with other employees, was dismissed from service for abandonment. She and the other dismissed employees filed an illegal dismissal case. The labor case eventually reached the Court and was decided on January 11, 2016 in Hongkong and Shanghai Banking Corp., Employees Union, et al. v. NLRC, et al. (776 Phil. 14 [2016]). The Court declared the strike illegal but held that such finding did not justify the wholesale termination of the strikers. It thus ordered backwages and separation pay (in lieu of reinstatement) for the employees named in that decision, including petitioner Rosalina.

After Rosalina’s termination on December 27, 1993, petitioners could no longer make payments by salary deduction starting January 1994. The HSBC-SRP then issued demand letters dated June 13, 1994 and November 28, 1994 demanding payment of the outstanding obligation in full. Rosalina offered partial payment of arrears in the amount of P69,205.99, but the offer was rejected.

In the following months, Rosalina received an Installment Due Reminder dated July 26, 1995 showing that overdue monthly installment, overdue interest, and interest accrued on the overdue installment amounted to P55,681.85, with an outstanding balance of P315,958.00. On August 11, 1995, Rosalina, through her salary savings account which remained existing, deposited payments covering all monthly installment arrearages and interests and penalties from January 1994 up to August 1995. The bank accepted and credited the payments to her housing loan account.

Subsequently, Rosalina received updated reminders, including one dated August 28, 1995, reflecting a reduced outstanding balance of P289,945.00, and a letter dated September 25, 1995 demanding payment of the entire housing loan obligation of P289,945.00. Yet, she also received an installment reminder dated September 27, 1995, which reflected the current monthly installment and interest due. Thereafter, she continued making deposits for monthly amortizations; the bank debited her savings account and credited payments to the housing loan up to June 1996, and the loan balance was shown as diminishing in subsequent reminders.

On May 20, 1996, the mortgaged property was extrajudicially foreclosed by the HSBC-SRP and sold at public auction for P324,119.59, with Manuel Estacion as highest bidder. A Certificate of Sale was issued on June 5, 1996.

RTC Proceedings

On August 22, 1996, petitioners filed with the RTC of Paranaque City, Branch 274 a complaint for Annulment of Sale with Damages and Preliminary Injunction against Hongkong and Shanghai Banking Corporation, Ltd., Manuel S. Estacion, and the HSBC-SRP, along with other defendants in their capacities as clerk of court and sheriff. Petitioners alleged that the foreclosure was tainted with bad faith because they had paid all arrears, interests, and penalties since August 1995 and that their loan obligation was updated through June 1996.

The respondents argued that the loan obligation had accelerated upon Rosalina’s termination, as provided in the HSBC-SRP Rules and Regulations, and that Rosalina failed to pay the entire balance. They further insisted that petitioners had been in default of amortizations from January 1994 up to July 1995 and that the mortgage contract authorized extrajudicial foreclosure upon default. The bank also asserted that it should not have been impleaded because it was not privy to the real estate mortgage and did not participate in the foreclosure.

On March 1, 2005, the RTC rendered judgment in favor of petitioners. It ordered the issuance of a permanent injunction, the annulment or cancellation of the extrajudicial foreclosure sale, and an award of damages and attorney’s fees. The RTC found that the real estate mortgage agreement—the sole basis for foreclosure—did not contain the retirement plan’s rules and regulations, nor were those rules made known to petitioners at the time of execution, and thus they were not binding on them. The RTC also found that when Rosalina resumed payment of the monthly amortizations, including arrears and interest, through the salary savings account, which the bank received and acknowledged with knowledge and acquiescence, the HSBC-SRP was estopped from disclaiming the payment and receipt despite earlier demand letters. It likewise rejected the contention that foreclosure was valid because Rosalina’s termination accelerated the obligation, reasoning that the termination issue was still pending appeal at that time. The RTC held respondents liable for damages under Articles 19 and 20 of the Civil Code, attributing the wrongful acts to the bank’s dismissal conduct and the retirement plan’s “blind” and unilateral foreclosure. As to Estacion, the RTC found liability due to his active participation.

Court of Appeals Ruling

Respondents appealed. On August 11, 2011, the Court of Appeals reversed and set aside the RTC decision and dismissed the complaint. The CA held that Rosalina availed of the housing loan through her employment with the bank and, in availing herself of the SRP loan, agreed to conform to the SRP rules and regulations. It relied on the SRP provision that if an employee’s service with the bank is terminated before full repayment of the loan, the employee must make a single payment covering the outstanding balance. It therefore concluded that, upon Rosalina’s termination on December 27, 1993—as an aftermath of joining the illegal strike—her entire outstanding obligations became due and demandable. Since petitioners allegedly refused and failed to settle the overdue loans and obligations in full, respondents exercised the right to foreclose under the real estate mortgage upon default. The CA also rejected the claim that the foreclosure was anomalous, reasoning that there was no showing of receipt and acknowledgment of full payment and that, although partial payments were credited to principal, a reservation for full satisfaction was made known to petitioners. It ruled that foreclosure was proper in view of petitioners’ default. Finally, it held that the bank should not have been impleaded because it was neither a party nor a signatory to the real estate mortgage contract.

Issues Raised

Petitioners raised two principal issues: first, whether the extrajudicial foreclosure and auction sale on May 20, 1996 was valid; and second, whether petitioners were entitled to damages and attorney’s fees.

Supreme Court Review and Disposition

In resolving the petition, the Court reiterated the limited scope of review under Rule 45, emphasizing that it generally resolves questions of law and is not a trier of facts. It nonetheless recognized that the validity of the foreclosure involved factual matters. It stated that an exception exists when the appellate findings are contrary to the trial court’s findings, as in this case.

The Court found that the HSBC-SRP’s filing of the extrajudicial foreclosure proceedings on May 20, 1996 had no basis and was therefore invalid. The Court began by acknowledging that petitioners failed to pay monthly amortizations of the housing loan starting January 1994 after Rosalina’s termination on December 27, 1993. The HSBC-SRP sent demand letters in 1994 and, after Rosalina offered partial payment, it rejected it. The Court also noted that no foreclosure proceedings were filed immediately. Instead, Rosalina received installment reminders, and crucially, on August 11, 1995, she deposited payments covering principal and interest arrearages from January 1994 up to August 1995 through her still-existing salary savings account. The bank accepted and credited these payments to her account.

The Court stressed that after the September 25, 1995 demand letter for full payment, the HSBC-SRP continued sending installment due reminders. It specifically cited that the September 27, 1995 reminder reflected installment and interest due without penalty charges, and that later reminders dated December 21, 1995, February 26, 1996, March 13, 1996, and April 11, 1996 showed diminishing balances due to the bank’s acceptance of monthly amortizations and interests from September 1995 up to June 1996. From these circumstances, the Court held that the HSBC-SRP was estopped from foreclosing on May 20, 1996.

To support this conclusion, the Court invoked Art. 1431 of the Civil Code on estoppel and Section 2(a), Rule 131 of the Rules of Court on conclusive presumptions. It explained that estoppel prevents a party from adopting inconsistent positions or actions that prejudice another who has relied on such actions or representations. The Court observed that the HSBC-SRP continuously sent installment reminders despite its earlier demand for full payment within thr

Case Syllabus (G.R. No. 200553)

The case arose from petitioners spouses Gildardo C. Loquellano and Rosalina Juliet B. Loquellano (petitioners) seeking annulment of an extrajudicial foreclosure sale and damages against Hongkong and Shanghai Banking Corporation, Ltd., Hongkong and Shanghai Banking Corporation-Staff Retirement Plan (HSBC-SRP), and Manuel Estacion (respondents).
The Court of Appeals reversed the Regional Trial Court and dismissed the complaint, prompting petitioners to file a petition for review on certiorari.
The Supreme Court treated the principal questions as matters of law under Rule 45, while recognizing that the validity of the foreclosure involved factual findings.
The Court ultimately GRANTED the petition, REVERSED and SET ASIDE the Court of Appeals decision, and AFFIRMED WITH MODIFICATION the trial court’s judgment.

Parties and Procedural Posture

Petitioners spouses Gildardo C. Loquellano and Rosalina Juliet B. Loquellano initiated the civil action for Annulment of Sale with Damages and Preliminary Injunction.
Respondents included Hongkong and Shanghai Banking Corporation, Ltd., Hongkong and Shanghai Banking Corporation-Staff Retirement Plan (HSBC-SRP), and Manuel Estacion as managing trustee for and in behalf of HSBC-SRP.
The Regional Trial Court, Branch 274, Paranaque City rendered a decision on March 1, 2005 in Civil Case No. 96-0363 in favor of petitioners, and later denied respondents’ motion for reconsideration on November 8, 2005.
The Court of Appeals rendered its assailed decision on August 11, 2011 and dismissed petitioners’ complaint by reversing the RTC on February 1, 2012 via resolution.
The Supreme Court reiterated that Rule 45 review is confined to questions of law, but it reviewed factual issues because the appellate court’s findings were contrary to those of the trial court.
The dispositive outcome reinstated the annulment and modified the damages awarded.

Employment Link and Loan Arrangement

Petitioner Rosalina had been a regular employee in the Financial Central Department of respondent bank, and she became an automatic member of HSBC-SRP.
HSBC-SRP was described as providing retirement, disability and loan benefits to the bank’s employees.
In 1988, petitioner Rosalina applied for a housing loan of P400,000.00 payable over twenty-five (25) years at six percent (6%) per annum through monthly salary deductions from her salary savings account.
The housing loan application stated that the loan was secured by setting-off petitioner Rosalina’s retirement benefits and a chattel mortgage.
Petitioners executed a promissory note for payment of the housing loan.
On September 5, 1990, petitioners and Manuel S. Estacion, acting as managing trustee for HSBC-SRP, executed a contract of real estate mortgage over petitioners’ house and lot covered by TCT No. 95422 (44867) in Pasay City to secure payment of the housing loan.
Petitioners religiously paid monthly installments and interests through automatic salary deductions prior to the labor dispute.

Labor Dispute and Termination

A labor dispute arose between the respondent bank and the bank union to which petitioner Rosalina belonged.
The dispute culminated in a strike on December 22, 1993.
Petitioners Rosalina and other employees were dismissed from service for abandonment, among other grounds.
Petitioner Rosalina and other dismissed employees filed an illegal dismissal case before the Labor Arbiter, which declared the strike illegal and dismissed the complaint.
The illegal dismissal controversy eventually reached the Supreme Court and was decided on January 11, 2016 in Hongkong and Shanghai Banking Corp., Employees Union, et al. v. NLRC, et al., where the Court declared the strike illegal but ruled that the mere finding of illegality did not justify wholesale termination.
The Supreme Court in that labor case found illegal dismissal and ordered the bank to pay backwages and separation pay in lieu of reinstatement for named employees including petitioner Rosalina.

Default and Demand Letters

Petitioners’ inability to continue payments began when petitioner Rosalina’s employment ended on December 27, 1993.
Petitioners were unable to make payments of amortizations due in Rosalina’s salary savings account beginning January 1994.
Respondent HSBC-SRP sent demand letters dated June 13, 1994 and November 28, 1994 demanding full payment of petitioner Rosalina’s outstanding obligation.
Petitioner Rosalina offered partial payment of arrears in the amount of P69,205.99, but HSBC-SRP rejected the offer.
Petitioners later received an Installment Due Reminder dated July 26, 1995 showing monthly installment arrears, interest arrears, and interest accrued on overdue installments totaling P55,681.85, with an outstanding loan balance of P315,958.00.
On August 11, 1995, petitioner Rosalina deposited in her still-existing salary savings account the payments covering monthly installment arrears and interests from January 1994 up to August 1995, and respondent bank accepted and credited the payments to the housing loan account.

Subsequent Payments and Account Updates

An Installment Due Reminder dated August 28, 1995 reflected a reduced outstanding balance of P289,945.00 after crediting the payments made.
In a letter dated September 25, 1995, HSBC-SRP demanded payment of the entire housing loan obligation in the amount of P289,945.00.
Despite this demand, petitioner Rosalina received an Installment Due Reminder dated September 27, 1995 reflecting current monthly installment and interest due on the loan, with the penalty charge omitted.
Petitioners continued to receive installment due reminders showing reduction in the outstanding balance due to the acceptance of subsequent monthly payments.
Respondent bank debited petitioner Rosalina’s savings account and credited payments to the housing loan account up to June 1996.
These reminders were central to the Court’s determination that HSBC-SRP’s later foreclosure lacked basis.

Extrajudicial Foreclosure Proceedings

On May 20, 1996, petitioners’ mortgaged property was extrajudicially foreclosed by HSBC-SRP and was sold at public auction for P324,119.59, with Manuel Estacion as the highest bidder.
A Certificate of Sale dated June 5, 1996 was issued.

Civil Complaint and Grounds Alleged

On August 22, 1996, petitioners filed a complaint in the RTC of Paranaque City, Branch 274 docketed as Civil Case No. 96-0363.
Petitioners sought Annulment of Sale with Damages and Preliminary Injunction against Hongkong and Shanghai Banking Corporation, Ltd., Manuel S. Estacion, HSBC-SRP, and RTC officers involved in the sheriff process.
Petitioners alleged that the foreclosure was tainted with bad faith, emphasizing that they had paid the arrears, interests, and penalties since August 1995 and had been updated with their loan obligations up to June 1996.

Defenses Raised by Respondents

Respondents argued that the loan obligations accelerated upon petitioner Rosalina’s termination from employment because HSBC-SRP rules and regulations required a single payment to cover the outstanding balance upon termination prior to full repayment.
Respondents contended that petitioner Rosalina failed to pay the entire loan balance, invoking the right to extrajudicially foreclose under the mortgage contract due to default.
Respondent bank asserted that it should not be impleaded because it was not privy to the real estate mortgage and did not participate as a party or signatory to the forecl