GR 174055; (February, 2008) (Digest)
G.R. No. 174055 ; February 12, 2008
PHILIPPINE NATIONAL BANK, petitioner, vs. SPOUSES WILFREDO and ESTELA ENCINA, respondents.
FACTS
Respondents Spouses Encina obtained multiple loans from petitioner PNB, secured by real estate mortgages on their properties. After fully paying their initial loans, they obtained a P1,250,000.00 credit facility. Upon maturity of this obligation, they defaulted. PNB sent demand letters and subsequently extrajudicially foreclosed the mortgaged properties, with PNB emerging as the highest bidder. Titles were consolidated in PNB’s name. The spouses later entered into a lease contract with PNB for the same properties. Subsequently, the spouses filed a complaint to nullify the foreclosure sale, alleging, among other grounds, that the interest rate was void for being indeterminable and that the foreclosure violated Act No. 3135 .
The Regional Trial Court (RTC) dismissed the complaint. The Court of Appeals (CA) reversed the RTC, declaring the interest rate null and void for being solely dependent on the will of PNB. Consequently, the CA also nullified the foreclosure sale, ruling that without a valid interest rate, the principal obligation could not be deemed to have matured to justify foreclosure.
ISSUE
Whether the Court of Appeals erred in ruling on the merits regarding the validity of the interest rate and the foreclosure sale despite the RTC’s dismissal of the complaint.
RULING
Yes, the Supreme Court partially granted the petition. The Court held that the CA erred in resolving the substantive issue on the validity of the interest rate. The RTC’s order of dismissal was based on PNB’s motion to dismiss under Rule 16 of the Rules of Court. In such a scenario, the allegations in the complaint are hypothetically admitted for the purpose of testing their legal sufficiency. The CA, in reviewing the RTC’s dismissal, should have confined itself to determining whether the complaint stated a cause of action based on those pleaded facts, without delving into the veracity of the allegations or adjudicating the merits.
The Supreme Court found that the complaint indeed stated a cause of action concerning the alleged nullity of the interest rate provision. The spouses sufficiently alleged that the interest was to be set unilaterally by PNB, which, if proven, could render the stipulation void. Therefore, the RTC erred in dismissing the complaint on this point, and the CA correctly reversed the dismissal. However, the CA overstepped by making a definitive ruling that the interest rate was void. This was a factual matter requiring a full-blown trial where evidence could be presented by both parties. The proper course was to remand the case for trial on this specific issue. The Court thus set aside the CA decision and remanded the case to the RTC for further proceedings solely on the first cause of action regarding the interest rate.