PUERTO AZUL v. EIB

Puerto Azul Land, Inc. and Ternate Utilities, Inc. Vs. Export Industry Bank, Inc., et al.

G.R. No. 213020

March 20, 2017

FACTS:

This is a Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court, seeking to reverse and set aside the Order dated June 30, 2014 of the public respondent Executive Judge2 of the Regional Trial Court of Pasay City for Extrajudicial Foreclosure of Real Estate Mortgage under Act No. 3135 as amended.

Petitioner Puerto Azul Land, Inc. is the owner and developer of the Puerto Azul Complex in Ternate, Cavite. To finance its operations and the development of Puerto Azul into a satellite city. Ternate Development Corporation (TDC), petitioner Ternate Utilities, Inc. (TUI), and Mrs. Trinidad Diaz-Enriquez, executed with Urban Bank Incorporated (UBI) a Mortgage Trust Indenture (MTI)6 dated February 3, 1995 and the Supplemental Mortgage Trust Indenture (SMTI) 7 date March 21, 1995. Among the properties that served as security for the loans were TUI's two (2) parcels of land situated in Pasay City and covered by Transfer Certificate of Title (TCT) No. T-133164.

PALI's business problems started when the Philippine Stock Exchange rejected the listing of its shares in its initial public offering, which drove away potential investors and real estate buyers from the business venture. Due to the ensuing 1997 Asian financial crisis and the decline of the real estate market, PALI failed to keep up with the payments of its debts and obligations.

On July 29, 2004, Export and Industry Bank, Inc. (EJB), which was later merged with UBI, filed a petition for extrajudicial foreclosure of real estate mortgage8 with the Qffice of the Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court (RTC) of Pasay City. In its petition docketed as REM No. 04-025, EIB sought to foreclose the mortgage constituted on TUI's properties covered by TCT No. T-133164 to satisfy PALI's outstanding obligations as of June 30, 2004, namely: P311,000,000.00 exclusive of interest, penalty charges, attorney's fees and other incidental expenses. Attached to the petition is a demand letter9 dated May 3, 2004, stating that PALI' s outstanding account, inclusive of interest and penalties, as of March 31, 2004 is Pl,386,279,000.00.

On September 14, 2004, PALI filed a Petition for suspension of payments and rehabilitation with the RTC of Manila. On September 17, 2004, the rehabilitation court, after finding that the petition was sufficient in form and substance, issued a Stay Order pursuant to Section 6, Rule 4 of the Interim Rules on Corporate Rehabilitation, 10 (a) staying the enforcement of all claims against the debtor, its guarantors and sureties not solidarily liable with the debtor, (b) prohibiting PALI from making any payment of its liabilities outstanding as of the date of filing of the petition, ( c) prohibiting PALI from selling, encumbering, transferring, or disposing any of its properties except in the ordinary course of business, and (d) appointing PatrickreceiverV.Caoile. as rehabilitation.

On March 3, 2005, EIB filed an Urgent Motion to order PALI and/or the mortgagor TUI/rehabilitation receiver to pay all the taxes due on TCT No. T-133164. On l\1arch 31, 2005, the rehabilitation court modified the Stay Order by excluding from its coverage TCT No. T-133164 return, and to adequately protect the creditor movant Export and Industry Bank, Inc., the latter may foreclose on TCT No. 133164.

On April 12, 2005, PALI filed an Urgent Motion for a status quo order, praying that the Stay Order be maintained, and that the enforcement of the claim of Pasay City be held in abeyance pending the hearing of its motion. On August 16, 2005, the rehabilitation court issued an Order, maintaining its March 31, 2005 Order, and reiterating that TCT No. T-133164 is excluded from the Stay Order and that EIB may foreclose it and settle the delinquency taxes of third-party mortgagor TUI with the local government of Pasay City.

Aggrieved by the Order dated August 16, 2005, PALI filed with the CA a petition for certiorari under Rule 65. The case was docketed as CA-G.R. SP No. 91996. On December 13, 2005, the rehabilitation court rendered a Decision approving PALI' s petition for suspension of payments and rehabilitation.

Dissatisfied with the terms of the rehabilitation plan and the qualifications of the rehabilitation receiver, EIB filed with the Court of Appeals (CA) a petition for review under Rule 42. On March 16, 2007, the CA rendered a Decision15 in CA-G.R. SP No. 91996, declaring the properties covered by TCT No. T-133164 to be subject of the Stay Order of the rehabilitation court. Dissatisfied with the CA Decision, EIB, later substituted by Pacific Wide Realty and Development Corporation (PWRDC), filed a petition for review on certiorari under Rule 45, which was docketed as G.R. No. 178768.

RULING

The Court resolved in the negative the two issues, namely: (I) whether the terms of the rehabilitation plan are unreasonable and in violation of the non-impairment clause; and (2) whether the rehabilitation court erred when it allowed the foreclosure of the accommodation mortgagee's property and excluded the same from the coverage of the Stay Order. Finding nothing onerous in the stipulations in PALI' s rehabilitation plan, the Court held that the restructuring of PALI' s debts is part and parcel of its rehabilitation, and is not prejudicial to the interest of PWRDC as secured creditor. It sustained the CA's affirmation of PALI's Rehabilitation Plan, including those terms which its creditors had found objectionable, i.e., the 50% "haircut" reduction of the principal obligations and the condonation of accrued interestpenaltyand charges. It also found no reversible error when the rehabilitation court removed TCT No. T-133164 from the coverage of the Stay Order, since the Interim Rules on Corporate Rehabilitation only covers the suspension of the enforcement of all claims against the debtors, its guarantors, and sureties not solidarily liable with the mortgagor, and is silent on the enforcement of claims against accommodation mortgagors, such as TUI.

With the resignation of EIB as trustee of the MTI on November 4, 2011, however, private respondent Philippine Business Bank-Trust and Investment Center (PBB-Trust) was appointed as a new trustee to administer the MTI, pursuant to a Memorandum of Agreement dated December 29, 2011 entered into by and among the following parties: (1) EIB, as the outgoing trustee; (2) PBB-Trust, as the successor-trustee; (3) Pacific Wide Holdings Inc., as the majority lender; and ( 4) Philippine Deposit Insurance Corporation (PDIC), as the minority lender.

On February 25, 2014, Sheriff Virgilio F. Villar, for the Ex-Officio Sheriff of Pasay City, issued a New Notice of Sheriff Sale,22 setting the auction sale of TCT No. 133164 on April 10, 2014 to satisfy PALi's obligation in the amount of P311,000,000.00, plus interests, penalties, publication of the notice of sale and expenses of the foreclosure proceedings. On April 3, 2014, PALI and TUI filed a Petition for Declaratory Relief3 before the RTC of Pasay City, seeking a judicial declaration of the parties' respective rights and obligations under the MTI and the SMTI, in relation to the Financial Rehabilitation and Insolvency Act of 2010, the LSP A and the terms and conditions of the approved rehabilitation plan. On April 10, 2014, with the denial of PALi's and TUI's application for temporary restraining order, and pursuant to the New Notice of Sheriff's Sale,25 the mortgaged properties covered by TCT No. T-133164 were sold on auction to SM Development Corporation (SMDC) for having submitted the highest bid in the amount of P570,000,000.00. However, proceeds of the sale were deposited to the Regional Trial Court, Pasay City, pending determination of the actual payee of the bid price, considering that EIB, the mortgagee bank, is already closed.

In a Notice dated May 9, 2014, the Executive Judge set a conference among the parties to thresh out issues regarding the disposition of the bid price tendered by SMDC.

TUI argued as follows:

(1) the obligation of the principal borrower, PALI, arising from the MTI dated February 3, 1995, the SMTI dated March 21, 1995 and related instruments is not P31 l ,OOO,OOO.OO but only P81,358,500.00 as of April 2014;

(2) pursuant to the Petition for Rehabilitation and Suspension of Payments, the RTC-Manila, Branch 24, approved the Rehabilitation Plan submitted by the Rehabilitation Receiver;

(3) in the Decision of the Supreme Court dated November 25, 2009, the consolidated cases of "PACWIDE REALTY AND DEVELOPMENT CORPORATION v. PUERTO AZUL LAND, INC." the rehabilitation plan called, among others, for a 50% reduction on PALI's obligation, the imposition of 2% annual interest for the first five years and 5% interest rate

thereafter until the obligation is fully paid; ( 4) pursuant to a Loan Sale Purchase Agreement dated December 11, 2006, the loan obligations of PALI and another corporation, Silahis International Hotel (SIH), were sold by EIB to PACWIDE for P150,000,000.00 [44.58% represented PALI's obligation and 55.42% for SIH's obligation]; (5) the P150,000,000.00 purchase price equitably reduced PALI's loan obligation to P81,358,500.00 as of April 2014, or 44.58% of the total purchase price; and (6) that as purchaser-assignee of the PALI loan, P ACWIDE cannot recover from PALI more than what it had paid EIB for the loan.

PBB-Trust countered that: (1) it was grave error for the manager's check representing the bid price to have been issued in the name of the "Regional Trial Court of Pasay City" as it should have been issued in the name of PBB-Trust, or at least, to the creditor it represents; (2) it is the ministerial duty of the Executive Judge to release the total bid price to the creditor; (3) to refuse to subsequently release the amount to PBB-Trust or to the creditors it represents is erroneous because the remittance of the full bid amount to the mortgagee merely creates a cause of action on the part of the debtor against the former for the collection of the alleged excess amount that the mortgagee received; and ( 4) PBB-Trust has authority to receive the proceeds of the foreclosure sale.

Despite having noted in the June 30, 2014 Order that there is still a "genuine dispute" on the amount due to the foreclosing mortgagee-assignee, PBB-Trust, as a result of the rehabilitation plan covering PALI and the sale of EIB's loan accounts to PACWIDE, the Executive Judge erroneously estimated that the interest, penalties and other expenses alone would far exceed PALI' s P311,000,000.00 principal loan obligation, and authorized the release of the entire P570,000,000.00 auction sale proceeds to PBB-Trust. In doing so, the Executive Judge exceeded her administrative supervision over extrajudicial foreclosure sales, as she virtually adjudicated the said dispute, and allowed one party to enjoy the subject proceeds even before the courts of proper jurisdiction could resolve the pending issues between the opposing parties.

Well-aware of the need to present the true and actual financial obligation of PALI under the MTI, the Executive Judge herself pointed out in the June 30, 2004 Order that she cannot exercise adjudicatory functions and is not, therefore, in the position ( 1) to interpret the applicability of the "50% haircut reduction in the obligation;" (2) to compute "the reduced interest rate" pursuant to the Rehabilitation Plan approved by the rehabilitation court; and (3) to determine the effect of the LSP A on the actual computation of PALI' s obligation to P ACWIDE. 44 In justifying its April 24, 2014 Order45 that the P570,000,000.00 bid price deposited with the Land Bank of the Philippines shall continue to be held in trust by the R TC of Pasay City, the Executive Judge emphasized the need for the presentation of evidence on the conflicting claims of TUI and PBB-Trust in a full-blown trial to determine which between them has the better right to receive the proceeds of the bid price. As further noted by the Executive Judge, the resolution of the case for declaratory relief pending before Branch 231 of the RTC of Pasay City will affect the propriety of the auction sale of the TUI property conducted on April 10, 2014, whereas the rehabilitation court is in a better position to interpret and determine the amount corresponding to the 50% loan reduction of PALI pursuant to the approved rehabilitation plan.

Notwithstanding the conflicting claims between TUI and PBB-Trust which must be resolved first before the courts of proper jurisdiction, the Executive Judge reversed her April 24, 2014 Order and released the entire P570,000,000.00 bid price of SMDC in favor of PBB-Trust. Aside from inviting doubt, if not suspicion, the assailed June 30, 2014 Order of the Executive Judge smacks of grave abuse of discretion, so patent and gross as to amount to an evasion of positive duty or virtual refusal to perform the duty enjoined by, or to act at all in contemplation of the law.

The Executive Judge also gravely erred in relying on the jurisprudence47 to the effect that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, such fact alone will not affect the validity of the sale, but will simply give the mortgagor a cause of action to recover such surplus. Contrary to the ruling of the Executive Judge, it is pointless to require petitioners to file another action to recover the surplus of extrajudicial foreclosure sale. To sustain private respondents' similar contention that the proper remedy to determine whether there is indeed a surplus from the extrajudicial foreclosure sale in the filing of a separate action for sum of money will only result in multiplicity of suits. Following private respondents' submission, the court where the intended action would be filed would still have to wait and rely on the ruling of the rehabilitation court as to the effect of an approved rehabilitation plan which requires a "50% haircut reduction" and condonation of interest and penalties on PALI's obligation. In the same vein, Branch 231 of the RTC of Pasay City would also have to decide first whether the LSP A executed by EIB in favor of P ACWIDE would further equitably reduce PALI' s obligation in accordance with Article 163448 of the New Civil Code on Assignment of Credits and Other Incorporeal Rights. Suffice it to state that Section 6, Rule 63 provides that if before the final termination of the case, a breach or violation of an instrument or a statute should take place, the action for declaratory relief may thereupon be converted into an ordinary action, and the parties shall be allowed to file such pleadings as may be necessary or proper.

There is, likewise, no merit in private respondents' claim that it is the ministerial duty of the Executive Judge to release the proceeds of the extrajudicial foreclosure sale to PBB-Trust, pursuant to Section 4, Rule 68 of the Rules of Court.

Under the above rule, the disposition of the proceeds of the foreclosure sale shall be in the following order: (a) pay the costs of sale; (b) pay off the mortgage debt to the person foreclosing the mortgage; ( c) pay the junior encumbrancers, if any, in the order of priority; and ( d) give the balance to the mortgagor, his agent the person entitled to it. Contrary to private respondents' claim, it is not part of the Executive Judge's ministerial supervisory authority to order the release of proceeds of the entire bid price to a person other than the one foreclosing the mortgage, i.e., EIB, which is already closed. 50 More so, since petitioners have a pending petition for declaratory relief before Branch 231 of the RTC of Pasay City, questioning the appointment of PBB-Trust as the successor-trustee of EIB under the MTI, as well as the exact computation of PALI' s outstanding obligation secured by TCT No. T-133164, in light of the approved rehabilitation plan and the LSP A, which supposedly equitably reduced the mortgaged debt.

To recall, between July 29, 2004 when EIB initially sought to extrajudicially foreclose the properties covered by TCT No. T-133164 and January 24, 2014 when PBB-Trust resumed such foreclosure proceeding, EIB executed a LSPA on December 11, 2006, conveying to PACWIDE PALI's obligations under Promissory Note Nos. 994810-11 in the total amount of P3 l l ,000,000.00. EIB also resigned as trustee under the MTI on November 4, 2011, and was succeeded by PBB-Trust on December 29, 2011, pursuant to a Memorandum of Agreement between PACWIDE (the majority lender) and PDIC (the minority lender). Thus, when PBB-Trust sought to push through with the extrajudicial foreclosure sale of TCT No. T-13 3164 on January 24, 2014, petitioners filed a petition for declaratory relief before the RTC of Pasay City, questioning the authority of EIB to pursue such foreclosure sale. Petitioners likewise asserted that the loan obligation of PALI to EIB as of April 2014 was reduced to P81,358,500.00 on account of the 50o/o "haircut" reduction pursuant to the approved rehabilitation plan of PALI, and due to the supposed equitable reduction under the LSP A executed between EIB and P ACWIDE.

In light of the issues pertaining to the effect of the rehabilitation plan and the LSPA on PALI's obligation for which TCT No. T-133164 was extrajudicially foreclosed, and the validity of the appointment of PBB-Trust as successor-trustee of EIB under the MTI, which must be both resolved with finality before the courts of proper jurisdiction, private respondents cannot insist that it is still part of the ministerial duty of the Executive Judge to order the release of the entire bid price in favor of PBB-Trust. The_ same pending and unresolved issues preclude the Court from granting petitioners' alternative relief in the instant petition to direct the Clerk of Court to release to TUI the amount of P488,641,500.00 out of the P570,000,000.00 proceeds of the auction sale of its properties and to hold the amount of P83,808,387.0l in trust for the lawful trustee under the MTI and the SMTI upon the latter's due appointment by PALI and the majority lenders.

A ministerial duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. 52Notably, in issuing the 30 June 2004 Order releasing of the entire bid price in favor of PBB-Trust, the Executive Judge had to set a conference for the parties to resolve their conflicting claims, hear and receive their respective arguments and memoranda thereon, before ultimately reversing her April 24, 2014 Order and directing them to avail of legal remedies to protect their rights and interest before the proper courts for lack of adjudicatory authority over the issues. Rather than the performance of a ministerial duty, the aforesaid conduct of the Executive Judge before issuing her assailed Order reveals an exercise of discretion.

Moreover, the Executive Judge gravely abused her discretion in releasing SMDC's entire bid price of P570,000,000.00 in favor of PBB-Trust, despite the fact that PBB-Trust failed to pay the correct filing fees for PALI' s outstanding account, inclusive of interest, penalties and other incidental expenses, amounting to Pl ,778,609,000.00 as of December 3, 2013. Chapter X, Section 1 of Administrative Matter (A.M) No. 03-8-02-SC53 provides that it shall be the duty of the Executive Judge to ensure strict compliance with the rules on extrajudicial foreclosure of mortgage. In line with her responsibility for the management of courts within her administrative area, the Executive Judge is also tasked to supervise directly the work of the Clerk of Court who is also the Ex-Officio Sheriff. 54 Supervision is not a meaningless matter, but an active power which at least implies authority to inquire into facts and conditions in order to render the power real and effective. No less than Section 7 of A.M. No. 04-2-04-SC provides that matters relating to the propriety and correctness of the assessment and collection of docket fees are judicial in nature and should only be determined by the regular court. In OCA Circular No. 42-05, the Court Administrator57 emphasized that any question relating to the correct or proper assessment and collection of docket fees of a particular case should be submitted before the court having jurisdiction of said case, and that the question should be resolved by the judge concerned within a reasonable period of time. Thus, the Executive Judge should have ensured first that the Clerk of Court performed her duty to collect the correct filing fees pursuant to Rule 141, Section 7(c), as amended by A.M. No. 00-2-01-SC, upon receipt of the application for extrajudicial foreclosure sale of mortgage.

Supreme Court Administrative Circular No. 3-98 states, among other matters, that no written request/petition for extrajudicial foreclosure of real estate mortgages shall be acted upon by the Clerk of Court, as Ex-0.fficio Sheriff, without the corresponding fee having been paid and the receipt thereof attached to the request/petition as provided for in Section 7 ( c) of Rule 141 of the Rules of Court. Corollarily, A.M. No. 99-10-05-0, as amended, provides that upon receipt of an application for extrajudicial foreclosure of mortgage, it shall be the duty of the Clerk of Court to, among other things, collect the filing fees therefor, and issue the corresponding official receipt, pursuant to Rule 141, Section 7 (c), as amended.

The Court notes that when EIB filed a Petition for Extrajudicial Foreclosure of Mortgage dated July 29, 2004, it paid the total legal fees of P3,133,095.0061 only for the outstanding total principal obligation as secured by the MTI and the SMTI in the amount of P311,000,000.00. Attached to EIB's petition, however, is a demand letter stating that as of March 31, 2004, PALI's outstanding account, inclusive of interest and penalties and other incidental expenses, is Pl ,386,279,000.00. Applying the aforecited Section 7 ( c), Rule 141, EIB should have paid filing fees in the amount of Pl3,854,790.00, failing which resulted in a huge deficit in the amount of Pl 0,721,695.00. In the meantime, however, PALI was placed under rehabilitation, TCT No. T-133164 was excluded from the Stay Order of the rehabilitation court, and the foreclosure proceedings was suspended for almost a decade. It was only on August 30, 2013 that an Entry of Judgment was issued in Pacific Wide Realty and Dev 't. Corp. v. Puerto Azul65 where the Court finally upheld the validity of PALI' s rehabilitation plan and the exclusion of TCT No. T-133164 from the Stay Order of the rehabilitation court. Per the Minutes of the Meeting66 of the Creditors of PALI on September 26, 2013, Atty. Jord Jharoah B. Valenton, counsel of PBB-Trust, mentioned that the amount to be indicated in the petition for foreclosure will determine the filing fee to be paid. Ricky L. Ricardo, General Manager of Pacific Wide Holdings, Inc., also said that there is a possibility that the filing fee previously paid by EIB can be applied to the re-filing of the foreclosure proceedings inasmuch as the nullity of the earlier order (approving the foreclosure) was due to a technicality in the publication of the notice filed by the Sheriff. Ricardo added, however, that if a petition for a higher amount will be made, there will definitely be additional filing fee to be paid.

Despite knowing that the amount indicated in the petition for foreclosure determines the filing fee, PBB-Trust, through Atty. Valenton, merely wrote the Executive Judge a letter dated January 24, 2014, seeking the issuance of a new notice of sale of TCT No. T-133164, and the posting and publication of such notice, without paying the correct filing fee for extrajudicial foreclosure of real estate mortgage under Section 7 ( c ). Private respondents cannot fault the Clerk of Court for failing to assess the correct filing fee because EIB 's petition for extrajudicial foreclosure hardly indicated the full amount of PALI' s indebtedness. EIB' s petition only stated the principal obligation in the total amount of P311,000,000.00, without stating the exact amount of interests, penalty charges, attorney's fees and other incidental expenses, which would place the total outstanding obligation at Pl ,386,279,000.00 as of March 31, 2004. In view of the failure to assess the correct filing fees and considering the legal disputes which delayed the foreclosure sale of the properties covered by TCT No. T-133164 until January 24, 2014 when PBB-Trust requested to push through with the auction sale, the Clerk of Court of Pasay City should reassess and collect the proper filing fees for EIB' s petition for extrajudicial foreclosure dated July 29, 2004, pursuant to Rule 141 of the Rules of Court, as amended by then A.M. No. 00-2-01-SC, based on PALi's outstanding account of Pl,778,609,000.00 as of December 3, 2013. It is not amiss to stress the importance of filing fees, for they are intended to take care of court expenses in the handling of cases in terms of costs of supplies, use of equipment, salaries, and fringe benefits of personnel, and others. The payment of said fees, therefore, cannot be made dependent on the result of the action taken without entailing tremendous losses to the government and to the judiciary in particular.

In light of the foregoing disquisitions, the Court no longer finds necessity to resolve the other issues raisedthe by parties.

WHEREFORE, the petition for certiorari is GRANTED. The assailed Order dated June 30, 2014 of the Pasay City Executive Judge in File No. REM 04-025 is REVERSED and SET ASIDE, and her Order dated April 24, 2014 is REINSTATED. Accordingly, Philippine Business Bank-Trust and Investment Center (PBB-Trust) is ORDERED to DEPOSIT in the Fiduciary Fund of the Regional Trial Court (RTC) of Pasay City with the Land Bank of the Philippines the amount of Five Hundred Seventy Million (P570,000,000.00), representing the entire bid price paid by SM