CASE DIGEST : Philippine National Bank – Binalbagan Branch v. Antonio Tad-y, et al. G.R. No. 214588, September 7, 2022 GAERLAN

FACTS

Spouses Jose Tad-y and Patricia Tad-y obtained agricultural sugar crop loans from the Philippine National Bank (PNB) in 1975. To secure the loans, they executed a Real Estate Mortgage (REM) over six parcels of land. The REM required the mortgagors to pay all taxes and assessments on the mortgaged properties, with failure to do so constituting an event of default. It also contained a stipulation that, in case of judicial foreclosure, PNB could advance the payment of taxes and insurance premiums, with such advances becoming part of the secured obligation.

In 1988, two of the mortgaged properties became delinquent in the payment of real property taxes. Instead of advancing the tax payments as allegedly contemplated under the mortgage and Republic Act No. 7202 (Sugar Restitution Law), PNB participated as the lone bidder in the tax delinquency auction and acquired the properties. After the spouses restructured and fully paid their loans pursuant to R.A. No. 7202, they demanded the reconveyance of all mortgaged properties. PNB reconveyed the other parcels but refused to return the two lots it had acquired through the tax sale.

The heirs of the spouses filed a complaint for breach of contract and reconveyance of property before the Regional Trial Court (RTC), arguing that PNB violated the REM and its fiduciary obligations by purchasing the mortgaged properties for itself instead of protecting the mortgagors' interests. The RTC ruled in favor of the heirs, and the Court of Appeals affirmed. PNB elevated the case to the Supreme Court, insisting that the action had prescribed and that it had lawfully acquired ownership through the tax delinquency sale.

The Supreme Court examined the parties' contractual obligations under the REM, the powers granted to PNB under its charter, the legal consequences of the tax delinquency sale, and whether PNB could validly acquire ownership of the mortgaged properties despite its fiduciary relationship with the mortgagors.

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ISSUE

Whether PNB validly acquired ownership of the two mortgaged properties by purchasing them at the tax delinquency auction despite its fiduciary relationship with the mortgagors and the provisions of the Real Estate Mortgage.

Whether the heirs' action for breach of contract and reconveyance was already barred by prescription or laches under Article 1144 of the Civil Code and the applicable statutes of limitation.

Whether PNB breached the Real Estate Mortgage and the fiduciary duties arising from its relationship with the mortgagors by acquiring the properties for itself instead of merely protecting its security interest.

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HELD

The Supreme Court DENIED the petition and affirmed the decisions of the RTC and the Court of Appeals. It held that PNB could not legally acquire ownership of the mortgaged properties because its relationship with the spouses was fiduciary in nature. By virtue of the REM, PNB had the authority to advance payment of taxes and preserve the mortgaged properties but not to purchase them for its own benefit. Applying the long-settled principle under the Civil Code on agency and fiduciary relations, particularly as explained in Severino v. Severino, an agent or fiduciary cannot acquire interests adverse to those of the principal over property entrusted to it. PNB effectively acted as an agent in protecting the mortgaged properties and was therefore estopped from asserting ownership against the mortgagors.

The Court further ruled that the defense of prescription could not be entertained because PNB raised it only on appeal. Under the Rules of Court, prescription is an affirmative defense that must be seasonably pleaded before the trial court. Moreover, PNB itself relied on varying provisions of Article 1144 of the Civil Code, demonstrating uncertainty as to the applicable prescriptive period. Since the complaint involved both breach of contract and reconveyance, and the validity of the tax sale also affected the proper statute of limitations, the issue required factual determination that could no longer be raised for the first time on appeal. Likewise, laches could not prosper because it likewise required factual proof that PNB failed to establish before the trial court.

Finally, the Court held that PNB violated the obligations imposed by the Real Estate Mortgage and acted contrary to the fiduciary standards governing its relationship with the mortgagors. Instead of preserving the security by advancing the payment of delinquent taxes, PNB chose to acquire the properties through a tax sale for its own benefit. Such conduct was inconsistent with good faith and equity and effectively constituted a breach of contract. Accordingly, the Court ordered PNB to reconvey the disputed properties to the heirs upon reimbursement of the amount it paid during the tax auction, together with the corresponding expenses and interest, thereby restoring the parties to their rightful legal positions