DBP v Spouses Doyon

Facts:
Respondents Jesus and Anacorita Doyon, spouses, obtained from petitioner
DBP several loans amounting to P10M and mortgaged their real estate properties as
well as motor vehicles of JD Bus Lines. DBP restructured the loans upon request of
respondents when they failed to fully pay the loans upon maturity and signed 3
promissory notes. Respondents still failed to pay the quarterly instalment on the
promissory note and DBP demanded the full payment of the total value of their
loans and even ignored and adamantly refused to pay. DBP filed for extrajudicial
foreclosure in the RTC to which respondents filed an action for nullification of said
foreclosure claiming they already paid the principal amount and the case was not
acted upon by the RTC for 3 years. DBP then withdrew the petition and moved to
dismiss the foreclosure case in the RTC to which respondents did not comment on.
Weeks after the dismissal of the petition, DBP demanded payment from
respondents which still went ignored. DBP then filed an application for extrajudicial
foreclosure with the DBP special sheriff and took constructive possession of the
foreclosed properties. The DBP special sheriff then issued notices of sale at public
auction of the foreclosed properties. Respondents then filed for damages and the
DBP special sheriff in the RTC since according to them, DBP's move to dismiss the
petition before RTC led them to believe that it would no longer seek satisfaction of
its claims and acted contrary to Art. 19 of the CC when it foreclosed the real and
chattel mortgages. Respondents also alleged that the provision in the mortgage
contracts that allows DBP to take constructive possession of the mortgaged
properties was void since it constituted a pactum commissorium as it permitted DBP
to appropriate the properties and assailed the validity of the public auctions held by
the DBP special sheriff. DBP pointed out that despite the restructuring of the loans,
respondents repeatedly ignored and failed to pay which led them to file the petition
for foreclosure with the RTC but the delay on the action of the RTC prevented DBP
from collecting the payment and so it withdrew the petition in order to avail of a
more efficient legal remedy, the foreclosure through the DBP special sheriff as
authorized by its charter. RTC ruled in favor of respondents, finding bad faith on
DBP's part when it withdrew the foreclosure petition and led respondents to believe
that the loans had been extinguished. RTC ordered DBP to vacate the foreclosed
property and awarded actual and exemplary damages plus moral damages and
attorney's fees and costs for both DBP and its special sheriff. CA affirmed RTC's
ruling by deleting the DBP special sheriff's liability since it was merely performing its
ministerial duty when it foreclosed the properties and issued notices of sale in
public auction and reconsideration was denied. Hence this petition.
Issue: W/N DBP is liable for damages to the Spouses Doyon.
Ruling:
SC disagreed with RTC and CA's finding that bad faith was attendant on DBP's
act of foreclosing the mortgaged properties. An action for damages under Art. 19
must prove that the defendant had a legal right or duty which he exercised or
performed with bad faith and the complainant was prejudiced or injured as a result
of such exercise or performance of the defendant. DBP had the right to foreclose the
mortgaged properties and since respondents neither assailed the due execution of
the promissory notes nor presented proof of payment, their obligation still exists

and upon default, by prior mutual agreement, DBP has the right to foreclose the
mortgages as stated in the promissory notes. There is no bad faith, RTC sat on the
case for 3 long years which prejudiced DBP and nothing in the withdrawal and
dismissal of the foreclosure that their obligation was extinguished and there was
nothing even remotely showing that DBP led respondents to believe that it waived
its claims. Since DBP demanded payment right after the dismissal, respondents
must have presumed that the bank did not have any intention of waiving its claims
against them and despite giving respondents opportunity to pay their long overdue
obligations, were still ignored. RTC erred in granting damages to respondents since
they had no cause of action. As ruled in Agricultural and Industrial Bank v
Tambunting, a stipulation allowing the mortgagee to take actual or constructive
possession of a mortgaged property upon foreclosure is valid and not contrary to
law. The mortgage contracts uniformly provided that DBP could take possession of
the foreclosed properties upon failure of respondent to pay even one amortization
and so their refusal to pay gave rise to DBP's right to take constructive possession
of the foreclosed motor vehicles. Petition granted and CA's decision affirming RTC's
award of damages to respondents are set aside. Respondents claim for damages is
dismissed for lack of cause of action.