GR 224138; (October, 2021) (Digest)
G.R. No. 224138. October 06, 2021
DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. EVELINA TOGLE AND CATHERINE GERALDINE TOGLE, RESPONDENTS.
FACTS
Respondents Evelina Togle and her daughter Catherine Geraldine Togle applied for a P5,000,000.00 agricultural loan from petitioner Development Bank of the Philippines (DBP) to fund a poultry grower project on their properties. The loan agreement stipulated the loan proceeds were to be used exclusively for the construction of poultry houses. DBP approved the loan, secured by a real estate mortgage on the respondents’ properties. The initial drawdown of P3,000,000.00 was released, which respondents used to construct four poultry houses and related structures. Subsequently, Catherine requested an additional drawdown of P500,000.00. DBP denied the request, citing respondents’ failure to comply with loan specifications, specifically the alleged requirement to infuse equity in proportion to the amount released to construct twelve poultry houses for 60,000 broilers. DBP declared respondents in default, applied the acceleration clause, and foreclosed the mortgaged properties. DBP emerged as the highest bidder, and after respondents failed to redeem, ownership was consolidated in DBP’s name. Respondents filed a complaint for breach of contract, annulment of mortgage and foreclosure proceedings, and reconveyance, arguing the acceleration and foreclosure were premature and unwarranted. DBP countered that respondents failed to fulfill their obligations by not infusing the required equity and constructing only four houses instead of the projected twelve.
ISSUE
Whether the Court of Appeals erred in affirming the trial court’s decision which nullified DBP’s foreclosure of the mortgaged property.
RULING
The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ decision. The Court held that DBP’s foreclosure of the mortgage was invalid. The acceleration of the loan obligation and the subsequent foreclosure were premature because DBP failed to prove that respondents were in default. The evidence showed that respondents had substantially complied with the loan agreement by using the first drawdown to construct poultry houses as stipulated. DBP’s denial of the second drawdown was based on requirements not expressly stipulated in the loan agreement, such as the specific equity infusion and the construction of twelve houses. The loan agreement only specified the use of proceeds for construction, not a fixed number of houses. DBP’s own actions, including approving the feasibility study for four houses with a 20,000-broiler capacity and releasing the first tranche, were inconsistent with its later claim that twelve houses were required. Therefore, respondents were not in default, and DBP had no right to foreclose. The foreclosure proceedings were nullified, and DBP was ordered to reconvey the properties to respondents. The Court also awarded moral and exemplary damages, attorney’s fees, and costs of suit to respondents due to DBP’s unjustified actions which caused them mental anguish and financial ruin.