GR 160758; (January, 2014) (Digest)
G.R. No. 160758 ; January 15, 2014
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs. GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
FACTS
Guariña Corporation obtained a loan from DBP, secured by real estate and chattel mortgages, to develop a resort. The loan was to mature in 1988. DBP released the loan in installments but withheld a portion and later directly paid some of Guariña’s suppliers over its objection. In 1978, DBP demanded that Guariña expedite the project’s completion, warning of foreclosure. Unsatisfied, DBP initiated extrajudicial foreclosure proceedings in January 1979, citing the debtor’s alleged abandonment of the project and failure to complete construction as grounds for acceleration under the mortgage contract.
Guariña Corporation filed a complaint for specific performance and to stop the foreclosure, later amending it to seek nullification of the foreclosure sale after the properties were auctioned. DBP acquired the properties as the highest bidder and subsequently obtained a writ of possession. The trial court proceeded to hear the main case concerning the validity of the foreclosure.
ISSUE
Whether the extrajudicial foreclosure of the mortgages by DBP was valid.
RULING
The Supreme Court ruled the foreclosure was void and ineffectual. The core legal principle is that foreclosure is a remedy available only upon the mortgagor’s default in the payment of the principal obligation. The Court found that Guariña Corporation was not in default on the principal loan, which was not yet due and demandable as its maturity date was November 3, 1988. DBP’s act of foreclosing in 1979 was therefore premature.
DBP’s justification—that specific contractual provisions and PD 385 authorized foreclosure due to project abandonment and non-completion—was rejected. The Court held that such contractual stipulations allowing acceleration for reasons other than non-payment of the principal debt must be construed strictly against the drafter, DBP. The evidence did not sufficiently prove abandonment or a breach so material as to render the entire obligation due. Consequently, no lawful default existed to trigger the right to foreclose. Since the foreclosure was void, all resulting acts, including the issuance of the certificate of sale and the writ of possession, were likewise void. The Court affirmed the appellate decision ordering DBP to restore possession of the properties to Guariña Corporation and to pay reasonable rent for their use during its occupancy.