1

G.R. No. 126568 April 30, 2003 Gonzales vs CA QUIRINO GONZA !" OGGING CONC!""IONAIR!, QUIRINO GONZA !" an# !U$!%IA GONZA !", petitioners, vs. &'! COUR& O$ A((!A " )CA* an# R!(U+ IC ( AN&!R" +AN,, respondents. In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire (QGLC), through its proprietor, general manager co!petitioner Quirino Gonzales, applied on "ctober #$, #%&' for credit accommodations# (ith respondent )epublic *an+ (the *an+), later +no(n as )epublic ,lanters *an+. -he *an+ approved QGLC.s application on /ecember '#, #%&', granting it a credit line of ,%00,000.00' bro+en into an overdraft line of ,$00,000.00 (hich (as later reduced to ,1$0,000.00 and a Letter of Credit (LC) line of ,100,000.00.2 ,ursuant to the grant, the *an+ and petitioners QGLC and the spouses Quirino and 3ufemia Gonzales executed ten documents4 t(o denominated 56greement for Credit in Current 6ccount,51 four denominated 56pplication and 6greement for Commercial Letter of Credit,5$ and four denominated 5-rust )eceipt.5& ,etitioners. obligations under the credit line (ere secured b7 a real estate mortgage on four parcels of land4 t(o in ,andacan, 8anila, one in 8a+ati (then part of )izal), and another in /iliman, Quezon Cit7.9 In separate transactions, petitioners, to secure certain advances from the *an+ in connection (ith QGLC.s exportation of logs, executed a promissor7 note in #%&1 in favor of the *an+. -he7 (ere to execute three more promissor7 notes in #%&9. In #%&$, petitioners having long defaulted in the pa7ment of their obligations under the credit line, the *an+ foreclosed the mortgage and bought the properties covered thereb7, it being the highest bidder in the auction sale held in the same 7ear. "(nership over the properties (as later consolidated in the *an+ on account of (hich ne( titles thereto (ere issued to it.: "n ;anuar7 '9, #%99, alleging non!pa7ment of the balance of QGLC.s obligation after the proceeds of the foreclosure sale (ere applied thereto, and non!pa7ment of the promissor7 notes despite repeated demands, the *an+ filed a complaint for 5sum

of mone75 (Civil Case <o. #0&&2$) against petitioners before the )egional -rial Court ()-C) of 8anila. -he complaint listed ten causes of action. -he first concerns the overdraft line under (hich the *an+ claimed that petitioners (ithdre( amounts (unspecified) at t(elve percent per annum (hich (ere unpaid at maturit7 and that after it applied the proceeds of the foreclosure sale to the overdraft debt, there remained an unpaid balance of ,#,''1,20#.$&. -he *an+.s second to fifth causes of action pertain to the LC line under (hich it averred that on the strength of the LCs it issued, the beneficiaries thereof dre( and presented sight drafts to it (hich it all paid after petitioners. acceptance= and that it delivered the tractors and e>uipment sub?ect of the LCs to petitioners (ho have not paid either the full or part of the face value of the drafts. @pecificall7 (ith respect to its second cause of action, the *an+ alleged that it issued LC <o. &2!00$$/ on ;anuar7 #$, #%&2 in favor of 8onar+ International Incorporated% covering the purchase of a tractor#0 on (hich the latter allegedl7 dre( a sight draft (ith a face value of ,9#,$00.00,## (hich amount petitioners have not, ho(ever, paid in full. Ander its third cause of action, the *an+ charged that it issued LC <o. &#!###0/ on /ecember '9, #%&' also in favor of 8onar+ International covering the purchase of another tractor and other e>uipment=#' and that 8onar+ International dre( a sight draft (ith a face value of ,:0,2$0.00,#2 and (hile pa7ments for the value thereof had been made b7 petitioners, a balance of ,&:,0&1.%9 remained. Ander the fourth cause of action, the *an+ maintained that it issued LC <o. &2! 0#:'/ on Bebruar7 ##, #%&2 in favor of ;.*.L. 3nterprises, Inc.#1 covering the purchase of t(o tractors,#$ and ;.*.L. 3nterprises dre( on Bebruar7 #2, #%&2 a sight draft on said LC in the amount of ,#$$,000.00 but petitioners have not paid said amount. "n its fifth cause of action, the *an+ alleged that it issued LC <o. &2!0':1/ on 8arch #1, #%&2 in favor of @uper 8aster 6uto @uppl7 (@86@) covering the purchase of 53ight Anits G8C (G.I.) -ruc+s5= that on 8arch #1, #%&2, @86@ dre( a sight draft (ith a face value of ,&1,000.00#& on the basis of said LC= and that the pa7ments made b7 petitioners for the value of said draft (ere deficient b7 ,1$,$01.91.

-he *an+ thus pra7ed for the settlement of the above!stated obligations at an interest rate of eleven percent per annum, and for the a(ard of trust receipt commissions, attorne7.s fees and other fees and costs of collection. -he sixth to ninth causes of action are anchored on the promissor7 notes issued b7 petitioners allegedl7 to secure certain advances from the *an+ in connection (ith the exportation of logs as reflected above.#9 -he notes (ere pa7able 20 da7s after date and provided for the solidar7 liabilit7 of petitioners as (ell as attorne7.s fees at ten percent of the total amount due#: in the event of their non!pa7ment at maturit7. -he note dated ;une #:, #%&1, sub?ect of the sixth cause of action, has a face value of ,$$,000.00 (ith interest rate of t(elve percent per annum=#% that dated ;ul7 9, #%&9 sub?ect of the seventh has a face value of ,'0,000.00='0 that dated ;ul7 #:, #%&9 sub?ect of the eighth has a face value of ,2:,000.00='# and that dated 6ugust '2, #%&9 sub?ect of the ninth has a face value of ,##,000.00.'' -he interest rate of the last three notes is pegged at thirteen percent per annum.'2 "n its tenth and final cause of action, the *an+ claimed that it has accounts receivable from petitioners in the amount of ,#'0.1:. In their 6ns(er'1 of 8arch 2, #%99, petitioners admit the follo(ing4 having applied for credit accommodations totaling ,%00,000.00 to secure (hich the7 mortgaged real properties= opening of the LCC-rust )eceipt Line= the issuance b7 the *an+ of the various LCs= and the foreclosure of the real estate mortgage and the consolidation of o(nership over the mortgaged properties in favor of the *an+. -he7 den7, ho(ever, having availed of the credit accommodations and having received the value of the promissor7 notes, as the7 do den7 having ph7sicall7 received the tractors and e>uipment sub?ect of the LCs. 6s affirmative defenses, petitioners assert that the complaint states no cause of action, and assuming that it does, the same isCare barred b7 prescription or null and void for (ant of consideration. *7 "rder of 8arch #0, #%99, *ranch 2& of the 8anila )-C attached the preferred shares of stoc+s of the spouses Quirino and 3ufemia Gonzales (ith the *an+ (ith a total par value of ,1#1,000.00. Binding for petitioners, the trial court rendered its /ecision of 6pril '', #%%' the dispositive portion of (hich reads4

DE3)3B")3, ?udgment is rendered as follo(s4 #. 6ll the claims of plaintiff particularl7 those described in the first to the tenth causes of action of its complaint are denied for the reasons earlier mentioned in the bod7 of this decision= '. 6s regards the claims of defendants pertaining to their counterclaim (3xhibits 5#5, 5'5 and 525), the7 are hereb7 given ten (#0) 7ears from the date of issuance of the torrens title to plaintiff and before the transfer thereof in good faith to a third part7 bu7er (ithin (hich to as+ for the reconve7ance of the real properties foreclosed b7 plaintiff, 2. -he order of attachment (hich (as issued against the preferred shares of stoc+s of defendants!spouses Quirino Gonzales and 3ufemia Gonzales (ith the )epublic *an+ no( +no(n as )epublic ,lanters *an+ dated 8arch '#, #%99 is hereb7 dissolved andCor lifted, and 1. ,laintiff is li+e(ise ordered to pa7 the sum of ,'0,000.00, as and for attorne7.s fees, (ith costs against plaintiff. @" ")/3)3/. In finding for petitioners, the trial court ratiocinated4'$ 6rt. ##11 of the Civil Code states that an action upon a (ritten contract prescribes in ten (#0) 7ears from the time the right of action accrues. 6rt. ##$0 states that prescription starts to run from the da7 the action ma7 be brought. -he obligations allegedl7 created b7 the (ritten contracts or documents supporting plaintiff.s first to the sixth causes of action (ere demandable at the latest in #%&1. -hus (hen the complaint (as filed on ;anuar7 '9, #%99 more than ten (#0) 7ears from #%&1 F(hen the causes of action accruedG had alread7 lapsed. The first to the sixth causes of action are thus barred by prescription. . . . 6s regards the seventh and eight causes of action, the authenticit7 of (hich documents (ere partl7 in doubt in the light of the categorical and uncontradicted statements that in #%&$, defendant Quirino Gonzales logging concession (as terminated based on the polic7 of the government to terminate logging concessions covering less than '0,000 hectares. If this is the case, the Court is in a >uandar7 (h7 there (ere log exports in #%&9H

*ecause of the foregoing, the Court does not find any valid ground to sustain the seventh and eight causes of action of plaintiff's complaint. 6s regards the ninth cause of action, the Court is baffled (h7 plaintiff extended to defendants another loan (hen defendants according to plaintiff.s records (ere defaulting creditorsH -he above facts and circumstances has (sic) convinced this Court to give credit to the testimon7 of defendants. (itnesses that the Gonzales spouses signed the documents in question in blank and that the promised loan was never released to them . -here is therefore a total absence of consent since defendants did not give their consent to loans allegedl7 procured, the proceeds of (hich (ere never received b7 the alleged debtors, defendants herein. . . . ,laintiff did not present evidence to support its tenth cause of action. Bor this reason, it must conse>uentl7 be denied for lac+ of evidence. "n the matter of FtheG counterclaims of defendants, the7 see+ the return of the real and personal properties (hich the7 have given in good faith to plaintiff. 6gain, prescription ma7 appl7. -he real properties of defendants ac>uired b7 plaintiff (ere foreclosed in #%&$ and conse>uentl7, defendants had one (#) 7ear to redeem the propert7 or ten (#0) 7ears from issuance of title on the ground that the obligation foreclosed (as fictitious. xxx xxx xxx

6s regards the seventh to ninth causes of action, the C6 also upheld the contention of the *an+ that the (ritten agreements!promissor7 notes prevail over the oral testimon7 of petitioner Quirino Gonzales that the cancellation of their logging concession in #%&9 made it unbelievable for them to secure in #%&9 the advances reflected in the promissor7 notes.20 Dith respect to petitioners. counterclaim, the C6 agreed (ith the *an+ that42# Certainl7, failure on the part of the trial court to pass upon and determine the authenticit7 and genuineness of Fthe *an+.sG documentar7 evidence Fthe trial court having ruled on the basis of prescription of the *an+.s first to sixth causes of actionG ma+es it impossible for the trial court. to eventuall7 conclude that the obligation foreclosed (sic was fictitious. <eedless to sa7, the trial court.s ruling averses (sic) the (ell!entrenched rule that .courts must render verdict on their findings of facts.5 (China !anking Co" vs" C#, 90 @C)6 2%:) Burthermore, the defendants!appellees. Fherein petitioners.G counterclaim is basicall7 an action for the reconve7ance of their properties, thus, the trial court.s earlier ruling that the defendants!appellees. counterclaim has prescribed is itself a ruling that the defendants!appellees. separate action for reconve7ance has also prescribed. -he C6 struc+ do(n the trial court.s a(ard of attorne7.s fees for lac+ of legal basis.2' Eence, petitioners no( press the follo(ing issues before this Court b7 the present petition for revie( on certiorari4 #. DE3-E3) ") <"- )3@,"</3<- C"A)- 3))3/ I< @" E"L/I<G -E6- )3@,"</3<-!6,,3LL33@ ($%C.) )3,A*LIC ,L6<-3)@ *6<JF.@G BI)@-, @3C"</, -EI)/, B"A)-E, BIB-E 6</ @IK-E C6A@3@ "B 6C-I"< E6I3 <"- ,)3@C)I*3/ C"<-)6)L -" -E3 BI</I<G@ "B -E3 L"D3) C"A)-, )-C *)6<CE 2& -E6- -E3 @6I/ C6A@3@ "B 6C-I"< E6I3 6L)36/L ,)3@C)I*3/. '. DE3-E3) ") <"- )3@,"</3<- C"A)- 3))3/ I< @" E"L/I<G -E6- )3@,"/<3<-!6,,3LL33@ ($%C.) )3,A*LIC ,L6<-3)@ *6<JF.@G @3I3<-E, 3IGE- 6</ <I<-E C6A@3@ "B

"n appeal,'& the Court of 6ppeals (C6) reversed the decision of the trial court b7 /ecision'9 of ;une ':, #%%& (hich disposed as follo(s4': DE3)3B")3, premises considered, the appealed decision (dated 6pril '', #%%') of the )egional -rial Court (*ranch 2&) in 8anila in Civil Case <o. :'!1#1# is hereb7 )3I3)@3/ and let the case be remanded bac+ to the court a quo for the determination of the amount(s) to be a(arded to the Fthe *an+G!appellant relative to its claims against the appellees. @" ")/3)3/. Dith regard to the first to sixth causes of action, the C6 upheld the contention of the *an+ that the notices of foreclosure sale (ere 5tantamount5 to demand letters upon the petitioners (hich interrupted the running of the prescriptive period.'%

6C-I"< 6,,36)@ ($%C.) -" *3 I8,)3@@3/ DI-E 83)IC"<-)6)L -" -E3 BI</I<G@ "B -E3 L"D3) C"A)- )-C *)6<CE 2& -E6- -E3 @6I/ C6A@3@ E6I3 <" I6LI/ G)"A</ -" @A@-6I< F-E38G 6</ B") L6CJ "B 3II/3<C3. 2. DE3-E3) ") <"- )3@,"</3<- C"A)- F3))3/G I< )3I3)@I<G -E3 BI</I<G@ "B -E3 )3GI"<6L -)I6L C"A)*)6<CE 2& "B 86<IL6 -E6- ,3-I-I"<3)@!6,,3LL6<- ($%C.) 86L @33J -E3 )3-A)< "B -E3 )36L 6</ ,3)@"<6L ,)",3)-I3@ DEICE -E3L 86L E6I3 GII3< I< G""/ B6I-E 6@ -E3 @683 I@ *6))3/ *L ,)3@C)I,-I"< 6</ -E6,3-I-I"<3)@!6,,3LL6<- ($%C.) E6/ "<3 (#) L36) -" )3/338 -E3 ,)",3)-L ") -3< (#0) L36)@ B)"8 I@@A6<C3 "B -E3 -I-L3 "< -E3 G)"A</ -E6- -E3 "*LIG6-I"< B")3CL"@3/ D6@ BIC-I-I"A@. 1. DE3-E3) ") <"- )3@,"</3<- C"A)- 3))3/ I< @" E"L/I<G -E6- ,3I-I"<3)@!6,,3LL6<-@ F$%CG 6)3 <"3<-I-L3/ -" 6< 6D6)/ "B 6--")<3L.@ B33@. -he petition is partl7 meritorious. "n the first issue. -he Civil Code provides that an action upon (ritten contract, an obligation created b7 la(, and a ?udgment must be brought (ithin ten 7ears from the time the right of action accrues.22 -he finding of the trial court that more than ten 7ears had elapsed since the right to bring an action on the *an+.s first to sixth causes had arisen 21 is not disputed. -he *an+ contends, ho(ever, that 5the notices of foreclosure sale in the foreclosure proceedings of #%&$ are tantamount to formal demands upon petitioners for the pa7ment of their past due loan obligations (ith the *an+, hence, said notices of foreclosure sale interruptedCforestalled the running of the prescriptive period.5 2$ -he *an+.s contention does not impress. ,rescription of actions is interrupted (hen the7 are filed before the court, (hen there is a (ritten extra?udicial demand b7 the creditors, and (hen there is an7 (ritten ac+no(ledgment of the debt b7 the debtor.2& -he la( specificall7 re>uires a written extra&udicial demand by the creditors (hich is absent in the case at bar. -he contention that the notices of foreclosure are

5tantamount5 to a (ritten extra?udicial demand cannot be appreciated, the contents of said notices not having been brought to light. *ut even assuming arguendo that the notices interrupted the running of the prescriptive period, the argument (ould still not lie for the follo(ing reasons4 Dith respect to the first to the fifth causes of action, as gleaned from the complaint, the *an+ see+s the recover7 of the deficient amount of the obligation after the foreclosure of the mortgage. @uch suit is in the nature of a mortgage action because its purpose is precisel7 to enforce the mortgage contract.29 6 mortgage action prescribes after ten 7ears from the time the right of action accrued. 2: -he la( gives the mortgagee the right to claim for the deficienc7 resulting from the price obtained in the sale of the propert7 at public auction and the outstanding obligation at the time of the foreclosure proceedings.2% In the present case, the *an+, as mortgagee, had the right to claim pa7ment of the deficienc7 after it had foreclosed the mortgage in #%&$.10 In other (ords, the prescriptive period started to run against the *an+ in #%&$. 6s it filed the complaint onl7 on ;anuar7 '9, #%99, more than ten 7ears had alread7 elapsed, hence, the action on its first to fifth causes had b7 then prescribed. <o other conclusion can be reached even if the suit is considered as one upon a (ritten contract or upon an obligation to pa7 the deficienc7 (hich is created b7 la(,1# the prescriptive period of both being also ten 7ears.1' 6s regards the promissor7 note sub?ect of the sixth cause of action, its period of prescription could not have been interrupted b7 the notices of foreclosure sale not onl7 because, as earlier discussed, petitioners. contention that the notices of foreclosure are tantamount to (ritten extra!?udicial demand cannot be considered absent an7 sho(ing of the contents thereof, but also because it does not appear from the records that the said note is covered b7 the mortgage contract. Coming no( to the second issue, petitioners see+ to evade liabilit7 under the *an+.s seventh to ninth causes of action b7 claiming that petitioners Quirino and 3ufemia Gonzales signed the promissor7 notes in blan+= that the7 had not received the value of said notes, and that the credit line thereon (as unnecessar7 in vie( of their mone7 deposits, the7 citing 53xhibits ' to '!*,512 in, and unremitted proceeds on log exports from, the *an+. In support of their claim, the7 also urge this Court to loo+ at 3xhibits 5*5 (the *an+.s recommendation for approval of petitioners. application for credit accommodations), 5,5 (the 56pplication and 6greement for

Commercial Letter of Credit5 dated ;anuar7 #&, #%&2) and 5-5 (the 56pplication and 6greement for Commercial Letter of Credit5 dated Bebruar7 #1, #%&2). -he genuineness and due execution of the notes had, ho(ever, been deemed admitted b7 petitioners, the7 having failed to den7 the same under oath.11 -heir claim that the7 signed the notes in blan+ does not thus lie. ,etitioners. admission of the genuineness and due execution of the promissor7 notes not(ithstanding, the7 raise (ant of consideration1$ thereof. -he promissor7 notes, ho(ever, appear to be negotiable as the7 meet the re>uirements of @ection #1& of the <egotiable Instruments La(. @uch being the case, the notes are prima facie deemed to have been issued for consideration.19 It bears noting that no sufficient evidence (as adduced b7 petitioners to sho( other(ise. 3xhibits 5'5 to 5'!*5 to (hich petitioners advert in support of their claim that the credit line on the notes (as unnecessar7 because the7 had deposits in, and remittances due from, the *an+ deserve scant consideration. @aid exhibits are merel7 claims b7 petitioners under their then proposals for a possible settlement of the case dated Bebruar7 2, #%9:. ,arentheticall7, the proposals (ere not even signed b7 petitioners but b7 certain 6ttorne7s "smundo ). Iictoriano and )ogelio ,. 8adriaga. In an7 case, it is no defense that the promissor7 notes (ere signed in blan+ as @ection #11: of the <egotiable Instruments La( concedes the prima facie authorit7 of the person in possession of negotiable instruments, such as the notes herein, to fill in the blan+s. 6s for petitioners. reliance on 3xhibits 5*5, 5,5 and 5-,5 the7 have failed to sho( the relevance thereof to the seventh up to the ninth causes of action of the *an+. "n the third issue, petitioners asseverate that (ith the trial court.s dismissal of the *an+.s complaint and the denial of its first to sixth causes of action, it is but fair and ?ust that the real properties (hich (ere mortgaged and foreclosed be returned to them.1% @uch, ho(ever, does not lie. It is not disputed that the properties (ere foreclosed under 6ct <o. 2#2$ (6n 6ct to )egulate the @ale of ,ropert7 under @pecial ,o(ers Inserted in or 6nnexed to )eal 3state 8ortgages), as amended. -hough the *an+.s action for deficienc7 is barred b7 prescription, nothing irregular attended the foreclosure proceedings to (arrant the reconve7ance of the properties covered thereb7.

6s for petitioners. pra7er for moral and exemplar7 damages, it not having been raised as issue before the courts belo(, it can not no( be considered. <either can the a(ard of attorne7.s fees for lac+ of legal basis. DE3)3B")3, the C6 /ecision is hereb7 6BBI)83/ (ith 8"/IBIC6-I"<. )epublic *an+.s Complaint (ith respect to its first to sixth causes of action is hereb7 /I@8I@@3/. Its complaint (ith respect to its seventh to ninth causes of action is )386</3/ to the court of origin, the 8anila )egional -rial Court, *ranch 2&, for it to determine the amounts due the *an+ thereunder.