MAYBANK PHILIPPINES, INC. (Formerly PNB-Republic Bank1), vs.

SPOUSES
OSCAR and NENITA TARROSA

G.R. No. 213014

Digested by: Patience is a virtue

FACTS:

 On December 15, 1980, respondents-spouses Oscar and Nenita

Tarrosa (Sps. Tarrosa) obtained from then PNB-Republic Bank, now
petitioner Maybank Philippines, Inc. (Maybank), a loan in the amount
of ₱91,000.00. The loan was secured by a Real Estate Mortgage over a
500-square meter parcel of land
 After paying the said loan, Sps. Tarrosa obtained another loan from
Maybank in the amount of ₱60,000.00, however failed to settle the
second loan upon maturity.
 Sps. Tarrosa received a Final Demand Letter requiring them to settle
their outstanding loan and they offered to pay a lesser amount, which
Maybank refused
 Maybank commenced extrajudicial foreclosure proceedings and subject
property was eventually sold in a public auction sale.
 Sps. Tarrosa filed a complaint for declaration of nullity and invalidity of
the foreclosure of real estate and of public auction sale proceedings
and damages against Maybank averring that
a.) The loan was unsecured
b.) Maybank’s right to foreclose had prescribed

ISSUE: WON the Tarrosa spouses are considered default under the law?

RULING:

 An action to enforce a right arising from a mortgage should be

enforced within ten (10) years from the time the right of action
accrues, i.e., when the mortgagor defaults in the payment of his
obligation to the mortgagee; otherwise, it will be barred by
prescription and the mortgagee will lose his rights under the
mortgage. However, mere delinquency in payment does not
necessarily mean delay in the legal concept. To be in default is
different from mere delay.
  In order that the debtor may be in default, it is necessary that: (a) the
obligation be demandable and already liquidated; (b) the debtor delays
performance; and (c) the creditor requires the performance judicially
or extrajudicially, unless demand is not necessary – i.e., when there is
an express stipulation to that effect; where the law so provides; when
the period is the controlling motive or the principal inducement for the
creation of the obligation; and where demand would be useless

 it is not sufficient that the law or obligation fixes a date for

performance; it must further state expressly that after the period
lapses, default will commence.

 Thus, it is only when demand to pay is unnecessary in case of the

aforementioned circumstances, or when required, such demand is
made and subsequently refused that the mortgagor can be considered
in default and the mortgagee obtains the right to file an action to
collect the debt or foreclose the mortgage.

 In the event that the Mortgagor herein should fail or refuse to pay any
of the sums of money secured by this mortgage, or any part thereof,
in accordance with the terms and conditions herein set forth, or should
he/it fail to perform any of the conditions stipulated herein, then and
in any such case, the Mortgagee shall have the right, at its election to
foreclose this mortgage.
(Extra notes)

DISPOSITIVE:

 Considering that the existence of the loan had been admitted, the
default on the part of the debtors-mortgagors had been duly
established, and the foreclosure proceedings had been initiated within
the prescriptive period as afore-discussed, the Court finds no reason to
nullify the extrajudicial foreclosure sale of the subject property.

 WHEREFORE, the petition is GRANTED. The Decision dated November

29, 2013 and the Resolution dated May 13, 2014 of the Court of
Appeals in CA-G.R. CV No. 02211 are hereby REVERSED AND SET
ASIDE. The complaint in Civil Case No. 98-10451 is DISMISSED.
  Link of Full text in case of emergency:
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G.R. No. 213014

MAYBANK PHILIPPINES, INC. (Formerly PNB-Republic Bank1), Petitioner

vs.
SPOUSES OSCAR and NENITA TARROSA, Respondents

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari2 are the Decision3 dated November 29, 2013 and the
Resolution4 dated May 13, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 02211, which affirmed
the Decision5 dated June 16, 2005 of the Regional Trial Court of Bacolod City, Branch 41 (RTC) in Civil
Case No. 98-10451 declaring the extra judicial foreclosure sale of the property covered by Transfer
Certificate of Title (TCT) No. T-5649 as null and void for being barred by prescription.

The Facts

On December 15, 1980, respondents-spouses Oscar and Nenita Tarrosa (Sps. Tarrosa) obtained from
then PNB-Republic Bank, now petitioner Maybank Philippines, Inc. (Maybank), a loan in the amount of
₱91,000.00. The loan was secured by a Real Estate Mortgage6 dated January 5, 1981 (real estate
mortgage) over a 500-square meter parcel of land situated in San Carlos City, Negros Occidental (subject
property), covered by TCT No. T-5649,7 and the improvements thereon.8

After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained another loan from
Maybank in the amount of ₱60,000.00 (second loan),9 payable on March 11, 1984.10 However, Sps.
Tarrosa failed to settle the second loan upon maturity.11

Sometime in April 1998, Sps. Tarrosa received a Final Demand Letter12 dated March 4, 1998 (final
demand letter) from Maybank requiring them to settle their outstanding loan in the aggregate amount
of ₱564,579.91, inclusive of principal, interests, and penalty charges.13 They offered to pay a lesser
amount, which Maybank refused.14 Thereafter, or on June 25, 1998, Maybank commenced extrajudicial
foreclosure proceedings15 before the office of Ex-Officio Provincial Sheriff Ildefonso Villanueva, Jr.
(Sheriff Villanueva). The subject property was eventually sold in a public auction sale held on July 29,
199816 for a total bid price of ₱600,000.00, to the highest bidder, Philmay Property, Inc. (PPI), which
was thereafter issued a Certificate of Sale17 dated July 30, 1998.18
On September 7, 1998, Sps. Tarrosa filed a complaint19 for declaration of nullity and invalidity of the
foreclosure of real estate and of public auction sale proceedings and damages with prayer for
preliminary injunction against Maybank, PPI, Sheriff Villanueva, and the Registry of Deeds of San Carlos
City, Negros Occidental (RD-San Carlos), before the RTC, docketed as Civil Case No. 98-10451. They
averred, inter alia, that: (a) the second loan was a clean or unsecured loan; (b) after receiving the final
demand letter, they tried to pay the second loan, including the agreed interests and charges, but
Maybank unjustly refused their offers of payment; and (c) Maybank’s right to foreclose had prescribed
or is barred by laches.20

On the other hand, Maybank and PPI countered21 that: (a) the second loan was secured by the same
real estate mortgage under a continuing security provision therein; (b) when the loan became past due,
Sps. Tarrosa promised to pay and negotiated for a restructuring of their loan, but failed to pay despite
demands; and (c) Sps. Tarrosa’s positive acknowledgment and admission of their indebtedness
controverts the defense of prescription.22

The RTC Ruling

In a Decision23 dated June 16, 2005, the RTC held that the second loan was subject to the continuing
security provision in the real estate mortgage.24 However, it ruled that Maybank’s right to foreclose,
reckoned from the time the mortgage indebtedness became due and payable on March 11, 1984, had
already prescribed, considering the lack of any timely judicial action, written extrajudicial demand or
written acknowledgment by the debtor of his debt that could interrupt the prescriptive period.25
Accordingly, it declared the extrajudicial foreclosure proceedings affecting the subject property as null
and void, and ordered Maybank to pay Sps. Tarrosa moral and exemplary damages, as well as attorney’s
fees and litigation expenses.26 Maybank filed a motion for reconsideration27 which was, however,
denied in an Order28 dated December 9, 2005, prompting it to appeal29 to the CA.

The CA Ruling

In a Decision30 dated November 29, 2013, the CA affirmed the RTC ruling that Maybank’s right to
foreclose the real estate mortgage over the subject property is already barred by prescription. It held
that the prescriptive period should be reckoned from March 11, 1984 when the second loan had
become past due and remained unpaid since demand was not a condition sine qua non for the accrual
of the latter’s right to foreclose under paragraph 5 of the real estate mortgage. It observed that
Maybank failed to present evidence of any timely written extrajudicial demand or written
acknowledgment by the debtors of their debt that could have effectively interrupted the running of the
prescriptive period.31

Undaunted, Maybank moved for reconsideration,32 which was denied in a Resolution33 dated May 13,
2014; hence this petition.

The Issues Before the Court

The essential issue for the Court’s resolution is whether or not the CA committed reversible error in
finding that Maybank’s right to foreclose the real estate mortgage over the subject property was barred
by prescription.

The Court’s Ruling

The petition is meritorious.

An action to enforce a right arising from a mortgage should be enforced within ten (10) years from the
time the right of action accrues, i.e., when the mortgagor defaults in the payment of his obligation to
the mortgagee; otherwise, it will be barred by prescription and the mortgagee will lose his rights under
the mortgage.34 However, mere delinquency in payment does not necessarily mean delay in the legal
concept. To be in default is different from mere delay in the grammatical sense, because it involves the
beginning of a special condition or status which has its own peculiar effects or results.35

In order that the debtor may be in default, it is necessary that: (a) the obligation be demandable and
already liquidated; (b) the debtor delays performance; and (c) the creditor requires the performance
judicially or extrajudicially,36 unless demand is not necessary – i.e., when there is an express stipulation
to that effect; where the law so provides; when the period is the controlling motive or the principal
inducement for the creation of the obligation; and where demand would be useless. Moreover, it is not
sufficient that the law or obligation fixes a date for performance; it must further state expressly that
after the period lapses, default will commence.37 Thus, it is only when demand to pay is unnecessary in
case of the aforementioned circumstances, or when required, such demand is made and subsequently
refused that the mortgagor can be considered in default and the mortgagee obtains the right to file an
action to collect the debt or foreclose the mortgage.38

In the present case, both the CA and the RTC reckoned the accrual of Maybank’s cause of action to
foreclose the real estate mortgage over the subject property from the maturity of the second loan on
May 11, 1984.1âwphi1 The CA further held that demand was unnecessary for the accrual of the cause of
action in light of paragraph 5 of the real estate mortgage, which pertinently provides:

5. In the event that the Mortgagor herein should fail or refuse to pay any of the sums of money secured
by this mortgage, or any part thereof, in accordance with the terms and conditions herein set forth, or
should he/it fail to perform any of the conditions stipulated herein, then and in any such case, the
Mortgagee shall have the right, at its election to foreclose this mortgage, [x x x].39

However, this provision merely articulated Maybank’s right to elect foreclosure upon Sps. Tarrosa’s
failure or refusal to comply with the obligation secured, which is one of the rights duly accorded to
mortgagees in a similar situation.40 In no way did it affect the general parameters of default, particularly
the need of prior demand under Article 116941 of the Civil Code, considering that it did not expressly
declare: (a) that demand shall not be necessary in order that the mortgagor may be in default; or (b)
that default shall commence upon mere failure to pay on the maturity date of the loan. Hence, the CA
erred in construing the above provision as one through which the parties had dispensed with demand as
a condition sine qua non for the accrual of Maybank's right to foreclose the real estate mortgage over
the subject property, and thereby, mistakenly reckoned such right from the maturity date of the loan on
March 11, 1984. In the absence of showing that demand is unnecessary for the loan obligation to
become due and demandable, Maybank's right to foreclose the real estate mortgage accrued only after
the lapse of the period indicated in its final demand letter for Sps. Tarrosa to pay, i.e., after the lapse of
five (5) days from receipt of the final demand letter dated March 4, 1998.42 Consequently, both the CA
and the RTC committed reversible error in declaring that Maybank's right to foreclose the real estate
mortgage had already prescribed.

Thus, considering that the existence of the loan had been admitted, the default on the part of the
debtors-mortgagors had been duly established, and the foreclosure proceedings had been initiated
within the prescriptive period as afore-discussed, the Court finds no reason to nullify the extrajudicial
foreclosure sale of the subject property.

WHEREFORE, the petition is GRANTED. The Decision dated November 29, 2013 and the Resolution dated
May 13, 2014 of the Court of Appeals in CA-G.R. CV No. 02211 are hereby REVERSED AND SET ASIDE.
The complaint in Civil Case No. 98-10451 is DISMISSED.

SO ORDERED.