G.R. No. 184556 ; February 22, 2012
CHINA BANKING CORPORATION, Petitioner, vs. QBRO FISHING ENTERPRISES, INC., Respondent.

FACTS

Trans-Filipinas Realty Corporation (TFRC) obtained a loan from China Banking Corporation secured by a real estate mortgage. TFRC’s credit line was later increased. Respondent QBRO Fishing Enterprises, Inc., through a board resolution, authorized the mortgage of its properties to secure the obligations of TFRC with China Bank. Consequently, QBRO executed a real estate mortgage over nine parcels of land as collateral for TFRC’s additional loan. TFRC defaulted on its obligation, prompting China Bank to file a petition for extrajudicial foreclosure of the mortgaged properties of both TFRC and QBRO. China Bank emerged as the highest bidder at the auction.
QBRO filed a complaint to annul the mortgage, foreclosure, and auction sale concerning its properties. It argued that China Bank unlawfully consolidated two separate loan accounts (TFRC’s and QBRO’s) and their respective mortgages into a single account for foreclosure. QBRO also contended that the loan amount had ballooned unconscionably. The Regional Trial Court dismissed QBRO’s complaint, finding foreclosure proper. The Court of Appeals reversed the RTC, declaring the foreclosure proceedings null and void with respect to QBRO’s properties, holding that the two corporations had separate personalities and their loans should not have been merged.

ISSUE

Whether the extrajudicial foreclosure of QBRO’s properties, mortgaged to secure the loan obligation of TFRC, is valid.

RULING

Yes, the foreclosure is valid. The Supreme Court reversed the Court of Appeals and reinstated the RTC decision. The legal logic centers on the nature of QBRO’s role as a third-party mortgagor and the principle of estoppel. QBRO’s board resolution and the subsequent mortgage contract unequivocally authorized the use of its properties as security for TFRC’s obligations, “irrespective of the amount.” This established a clear accessory contract of mortgage where QBRO’s properties served as additional collateral for the principal loan of TFRC. There was no consolidation of two separate loans; there was only one loan account (TFRC’s) secured by multiple mortgages from different mortgagors.
The separate corporate personalities of TFRC and QBRO do not invalidate this arrangement. A corporation can voluntarily mortgage its property to secure the obligation of another. QBRO, by its own corporate act, assumed the role of a surety. Furthermore, QBRO’s subsequent conduct, including a written request from its manager (who was also TFRC’s manager) for an extension of the redemption period, constituted recognition of the foreclosure and estopped it from challenging its validity. The extrajudicial foreclosure was a proper remedy for the single defaulted loan, and the inclusion of all mortgaged properties pledged for that loan, including those of the third-party mortgagor QBRO, was lawful.