G.R. No. 195889 , September 24, 2014
PHILIPPINE NATIONAL BANK, Petitioner, vs. SPOUSES EDUARDO AND MA. ROSARIO TAJONERA and EDUAROSA REALTY DEVELOPMENT, INC., Respondents.

FACTS

Respondent Eduarosa Realty Development, Inc. (ERDI), through its Vice-President Ma. Rosario Tajonera, obtained loans from petitioner Philippine National Bank (PNB) to finance the construction of the Eduarosa Tower Condominium. The initial Credit Agreement dated March 5, 1991, for ₱60,000,000.00, was secured by a Real Estate Mortgage (REM) over ERDI’s Parañaque properties. On January 31, 1992, a First Amendment granted an additional loan of ₱40,000,000.00, secured by a Supplement to REM over the spouses Tajonera’s Greenhills property. A Second Amendment on October 28, 1992, extended repayment dates. A Third Amendment on November 3, 1993, granted another additional loan of ₱55,000,000.00. By September 30, 1994, ERDI’s outstanding obligation reached ₱211,935,067.40. Due to ERDI’s failure to pay, PNB foreclosed the Greenhills property, became the highest bidder, and obtained a new title after consolidation.
Respondents filed a complaint for annulment of sale, cancellation of title, cancellation of mortgage, and damages, alleging that the mortgage obligation was novated, no new loans were released under the Third Amendment, foreclosure notices were defective, and PNB’s delay caused project non-completion. The Regional Trial Court (RTC) ruled in favor of respondents, annulling the Supplement to REM and the foreclosure sale, and awarding damages. The Court of Appeals (CA) affirmed but deleted the moral and exemplary damages. PNB appealed, arguing the mortgage was supported by consideration and that it did not breach the contract.

ISSUE

Whether the Court of Appeals erred in affirming the annulment of the mortgage contract (Supplement to REM) over the Greenhills property.

RULING

The Supreme Court DENIED the petition and AFFIRMED the CA decision. The Court held that the Supplement to REM, which secured the additional loan under the Third Amendment, lacked sufficient valuable consideration because PNB failed to release the remaining balance of ₱39,503,088.84 from the ₱55,000,000.00 loan. The Third Amendment explicitly stated that the loan was granted to finance the condominium project’s completion, and PNB’s refusal to release the balance—based on respondents’ alleged failure to bring in new investors or settle amortizations—constituted a breach of contract, as such conditions were not stipulated in the agreement. Consequently, the accessory contract (Supplement to REM) could be annulled due to PNB’s breach, even though the principal contract (Third Amendment) remained enforceable only to the extent of the released proceeds. The Court upheld the award of attorney’s fees as respondents were compelled to litigate to protect their interests.