GR 180439; (December, 2009) (Digest)
G.R. No. 180439 ; December 23, 2009
Resort Hotels Corporation, Rodolfo M. Cuenca and Cuenca Investment Corporation, Petitioners, vs. Development Bank of the Philippines and SM Investment Corporation, Respondents.
FACTS
Petitioner Resort Hotels Corporation (RHC) obtained substantial loans from respondent Development Bank of the Philippines (DBP), secured by real estate and chattel mortgages over several hotel properties. Upon RHC’s default, DBP, pursuant to Presidential Decree No. 385, initiated extrajudicial foreclosure proceedings due to arrearages exceeding 20% of the total obligation. RHC filed multiple complaints seeking to enjoin the foreclosures, but its applications for preliminary injunctions were denied. The foreclosure sales thus proceeded, with DBP emerging as the highest bidder for all properties. The one-year redemption period lapsed without RHC exercising its right.
RHC later filed a consolidated complaint challenging the foreclosure’s validity and computation of its loan obligation. The Regional Trial Court (RTC) ruled in favor of RHC, finding the foreclosure void due to DBP’s failure to properly account for a debt-to-equity conversion and the application of fire insurance proceeds, and fixed the obligation at ₱114,005,404.02. The Court of Appeals (CA) reversed, upholding the foreclosure’s validity.
ISSUE
The core issue is whether the extrajudicial foreclosure of the mortgaged properties by DBP was valid.
RULING
The Supreme Court affirmed the CA’s ruling upholding the foreclosure’s validity. The legal logic rests on the application of PD 385, which mandates government financial institutions to foreclose loans with arrearages of at least 20% of the total obligation. The Court found that RHC’s arrearages, amounting to approximately 49% of its outstanding obligation, clearly triggered this mandatory duty. RHC’s claim of a prior debt-to-equity conversion agreement did not invalidate the proceedings. The Court emphasized that an extrajudicial foreclosure is a proceeding in rem, binding upon all parties interested in the property. The denial of RHC’s applications for injunctive relief by the lower courts allowed the foreclosure to proceed legally. Any alleged irregularities in the debt accounting, such as the treatment of the debt-to-equity swap or the fire insurance proceeds, pertained to the computation of the loan balance and the application of the foreclosure sale proceeds, but did not constitute a jurisdictional defect that would nullify the foreclosure sale itself. Consequently, the foreclosure was deemed regular and valid. The Court modified the CA decision by reinstating the RTC’s specific computation of the loan obligation at ₱114,005,404.02, subject to interest, and the directive to deduct the collected fire insurance proceeds, while discharging petitioner Rodolfo Cuenca from personal liability.