Case Summary (G.R. No. 150694)
Terms and scope of the real estate mortgage
On September 2, 1997, petitioner’s Treasurer Amparo Zosa and General Manager Manuel Zosa, Jr. executed a real estate mortgage in favor of IEB over three parcels. The mortgage language was broadly drafted to secure “the payment of all loans, overdrafts, credit lines and other credit facilities or accommodations obtained or hereinafter obtained by the mortgagor and/or by IDHI Prime Aggregates Corporation,” including future indebtedness, interests, penalties, reimbursements, and obligations whether direct or indirect, absolute or contingent, and to cover subsequent obligations without the necessity of executing new agreements.
Subsequent loan avails, default and foreclosure initiation
Prime Aggregates obtained multiple loans from IEB from September 1997 through September 1998. By September 15, 2000, Prime Aggregates defaulted, with outstanding liabilities recorded at P90,267,854.96 and US$211,547.12. IEB initiated extra‑judicial foreclosure proceedings before the RTC of Cebu City; the sheriff issued a notice of foreclosure and scheduled sale in October–November 2000.
Petitioner’s injunction action and trial court rulings
Petitioner filed a complaint for injunction with an application for writ of preliminary injunction/TRO, asserting the mortgage was null and void as ultra vires because its officers were authorized to mortgage its properties only to secure a single P60,000,000 obligation of Prime Aggregates. The RTC (Branch 9) denied preliminary injunctive relief. Petitioner filed motions for reconsideration and several amended complaints; after re‑raffle the case proceeded in Branch 15, which dismissed the Third Amended Complaint on September 10, 2001. Petitioner pursued relief by certiorari in the Court of Appeals contesting the denial of preliminary injunction.
Court of Appeals findings and reasoning on authority and ratification
The Court of Appeals denied petitioner’s certiorari petition, finding no grave abuse of discretion in the trial court’s denial of a preliminary injunction. The appellate court rejected the contention that the mortgage was ultra vires in the operative circumstances. It relied on an SEC opinion (April 15, 1987) that, while not conclusive, is persuasive to the effect that a private corporation may give a third‑party mortgage when done in furtherance of the corporation’s interest and in the usual course of business or to secure a subsidiary. The CA found factual indicia that petitioner and Prime Aggregates were related (family ownership, overlapping directors and officers), concluded the mortgage served mutual family‑corporate interests, and emphasized petitioner’s conduct amounting to ratification and acquiescence in the transactions. The CA also found no evidence that the mortgage prejudiced petitioner’s corporate creditors or violated the trust‑fund doctrine.
Respondents’ mootness argument and post‑judgment foreclosure developments
Respondents argued the appeal became moot and academic because petitioner’s principal action had been dismissed and the foreclosed properties had already been sold and consolidated in IEB’s name; IEB had consolidated title under the banking law. Petitioner replied that the dismissal deprived the RTC of jurisdiction and that equitable mandatory relief might still be appropriate for continuing injurious acts. The record nevertheless shows issuance of a Certificate of Sale (Nov. 19, 2001) and the issuance of transfer certificates of title in IEB’s name, facts the courts treated as materially affecting the availability of preliminary injunctive relief.
Supreme Court conclusion on mootness and limited engagement on ultra vires question
The Supreme Court found petitioner’s request for preliminary injunctive relief moot and academic in light of the completed foreclosure and consolidation of title in IEB. Because injunctive relief was rendered ineffectual by events already completed, the Court deemed it unnecessary to fully resolve the ultra vires contention. However, the Court endorsed the appellate court’s reasoning as well‑taken: although corporate property is generally held in trust for corporate creditors, a corporation is not absolutely proscribed from mortgaging its assets to secure third‑party obligations wher
...continue readingCase Syllabus (G.R. No. 150694)
Case Caption, Citation and Participating Justices
- Supreme Court Second Division decision reported at 600 Phil. 159; G.R. No. 150694, March 13, 2009.
- Parties: Zomer Development Company, Inc. (petitioner) versus International Exchange Bank (IEB) and Sheriff IV Arthur R. Cabigon (respondents).
- Decision authored by Justice Carpio Morales.
- Concurrence by Justices Quisumbing, Tinga, Velasco, Jr., and Brion.
Relevant Corporate Authorizations and Board Resolution (August 25–26, 1997)
- On August 25, 1997, petitioner’s Board of Directors approved a resolution authorizing petitioner to apply for and obtain a credit line with IEB in the amount of P60,000,000 and to accept temporary excesses or permanent increases as IEB might approve.
- The Board also authorized petitioner to assign, pledge, or mortgage its properties as security for that credit line; and to secure and guarantee the term loan and other credit facilities of IDHI Prime Aggregates Corporation (Prime Aggregates) with IEB.
- On August 26, 1997, Prime Aggregates obtained a P60,000,000 term loan from IEB pursuant to these arrangements.
Execution and Terms of the Real Estate Mortgage (September 2, 1997)
- On September 2, 1997, petitioner, through Treasurer Amparo Zosa and General Manager Manuel Zosa, Jr., executed a real estate mortgage covering three parcels of land in favor of IEB (the “real estate mortgage”).
- The mortgage instrument expressly recited that it secured:
- The payment of all loans, overdrafts, credit lines and other credit facilities or accommodations obtained or hereinafter obtained by the mortgagor and/or by IDHI Prime Aggregates Corporation (referred to as DEBTOR).
- The payment of all interests, charges, penalties, reimbursements and other obligations owing by the mortgagor and/or debtor to the mortgagee, whether direct or indirect, principal or secondary, absolute or contingent, as appearing in the mortgagee’s accounts and records.
- The payment of all obligations of the mortgagor and/or debtor of whatever kind or nature, whether such obligations were contracted before, during, or after the constitution of the mortgage, and any subsequent obligations without necessity of executing new agreements.
- The faithful and strict performance and compliance by the mortgagor and/or debtor of all terms and conditions of the mortgage, credit agreements, promissory notes and other loan documents evidencing the loan, including amendments such as changes in interest rates, penalties, acceleration of payments, and the like.
- The mortgage’s language, as presented in the record, contained emphasized and underscored clauses broadening the mortgage’s coverage to current and future obligations of the mortgagor and/or Prime Aggregates.
Subsequent Loan Availments by Prime Aggregates and Loan Default
- Prime Aggregates obtained several loans from IEB from September 1997 until September 1998.
- Prime Aggregates failed to settle its outstanding obligations which, as of September 15, 2000, amounted to P90,267,854.96 and US$211,547.12, according to the record (Exhibit 62).
Initiation of Extra-Judicial Foreclosure and Respondent Sheriff’s Notice
- IEB initiated a petition for extra-judicial foreclosure of mortgage before the Regional Trial Court (RTC) of Cebu City following Prime Aggregates’ default.
- Sheriff IV Arthur R. Cabigon issued a Notice of Extra-Judicial Foreclosure and Sale on October 18, 2000, scheduling a sale on November 28, 2000 (Exhibit A).
Petitioner’s Parallel Civil Action for Injunction and Allegations
- Petitioner filed Civil Case No. CEB-25762 (complaint for injunction with application for writ of preliminary injunction/TRO), alleging that the real estate mortgage was null and void because Treasurer Amparo Zosa and General Manager Manuel Zosa, Jr. were authorized to execute it to secure only one obligation of Prime Aggregates.
- Petitioner prayed: (a) that the real estate mortgage and its extrajudicial foreclosure sale be declared null and void, (b) for P100,000 as attorney’s fees and P100,000 as litigation expenses, and (c) for issuance of a writ of preliminary injunction/TRO enjoining the foreclosure sale scheduled November 28, 2000 or December 5, 2000, and that the writ be made permanent after trial.
- The complaint was amended on November 15, 2000, and later supplemented by further pleadings including a Third Amended Complaint.
Trial Court Action on Preliminary Injunction and Initial Orders
- Branch 9 of the Cebu City RTC denied petitioner’s prayer for a writ of preliminary injunction (records at id. 348–357).
- Petitioner filed a Motion for Reconsideration, a Motion for Admission of a Second Amended Complaint (later withdrawn), and a Motion to Admit Third Amended Complaint; the trial court denied the Motion for Reconsideration (records at id. 361–435, 418–421).
Petitioner’s Petition for Certiorari Before the Court of Appeals and Grounds Raised
- Petitioner sought relief from the Court of Appeals via certiorari (docketed CA-G.R. SP No. 64390), alleging the trial court committed grave abuse in denying the preliminary injunction.
- Principal contentions included:
- The real estate mortgage was ultra vires and void because the corporation was not empowered to mortgage its properties as security for obligations of third parties.
- Amparo and Manuel Zosa were authorized only to mortgage petitioner’s properties to secure a P60,000,000 term loan and one credit facility of Prime Aggregates.
- Additional enumerated alleged errors (I–IX) ranging from alleged judicial bias, improper reliance on precedent, incorrect factual findings about corporate relationship, failure to hold secretary’s certificate void for lack of limitation, not strictly construing adhesion documents prepared by the bank, and conflicting findings of fact.