FACTS:
[26] QUIRINO GONZALES LOGGING v. COURT OF APPEALS
GR No. 126568 | April 30, 2003 | Real Estate Mortgage | Mart Laforteza
Petitioner: QUIRINO GONZALES LOGGING CONCESSIONAIRE (QGLC),
QUIRINO GONZALES, and EUFEMIA GONZALES
Respondents: THE COURT OF APPEALS and REPUBLIC PLANTERS BANK
Recit-Ready: in October 1962, QGLC applied for a credit accommodation with
Republic Bank to expand its logging business, the Bank granted an accommodation
of P900,000. To secure the mortgage, QGLC mortgaged 4 parcels of land. By 1965,
QGLC was long in default. The Bank then foreclosed their properties. Despite the
foreclosure, there was a deficiency of P1.2 million from QGLC’s obligations. The
Bank filed a case to collect a sum of money against QGLC. The RTC held that the
action has prescribed. The action upon a written contract prescribes in 10 years from
the time the right of action accrues, which is from the day the action may be brought.
The case being filed in 1977, more than 10 years have elapsed since 1964, when
QGLC has become in default. The foreclosure notices cannot interrupt the running
of the prescriptive period because it is not considered an extrajudicial demand. CA
reversed. HAS THE ACTION PRESCRIBED? – YES. An action upon a contract of
mortgage prescribes in 10 years. The case, being filed more or less 13 years after
the right of action arises, the action is now barred by prescription. The foreclosure
notices are not considered extrajudicial demand. Prescription of actions is
interrupted when they are filed before the court, when there is a written extrajudicial
demand by the creditors, and when there is any written acknowledgment of the debt
by the debtor. The law specifically requires a written extrajudicial demand by the
creditors which is absent in the case at bar. HAVING PRESCRIBED, CAN THE
FORECLOSED PROPERTIES BE RETURNED TO QGLC – NO. the properties
were foreclosed under Act No. 3135 (An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate Mortgages), as amended.
Though the Bank's action for deficiency is barred by prescription, nothing irregular
attended the foreclosure proceedings to warrant the reconveyance of the properties
covered thereby.
Doctrine: AN ACTION UPON A MORTGAGE, WHICH IS BARRED BY
PRESCRIPTION, DOES NOT ENTITLE THE MORTGAGORS TO THE RETURN
OF THE FORECLOSED PROPERTIES TO THEM, WITHOUT ANY
IRREGULARITY ON THE FORECLOSURE PROCEEDINGS.
1. To expand its logging business, QGLC, through President Gonzales,
applied in October 15, 1962 for credit accommodations with Republic
Bank, later known as Republic Planters Bank. The bank approved on
December 21, 1962, granting it a credit line of P900,000 broken down into
an overdraft line of P500,000 (later reduced to 450,000), and a Letter of
Credit (LC) line of P400,000.
2. The bank, QGLC, and spouses executed the following documents:
• 2 Agreement for Credit in Current Account
• 4 Application and Agreement for Commercial Letter of Credit
• 4 Trust Receipts.
3. The obligations were secured by REM on 4 parcels of land. 2 in
Pandacan, Manila; 1 in Makati; 1 in Diliman, Quezon City.
4. In separate transactions, to secure certain advances from the Bank in
connection of QGLC’s exportation of logs, the latter executed a
promissory note in 1964 with 3 more in 1967.
5. In 1965, petitioners having been long in default, the Bank foreclosed the
mortgage and bought the properties. Ownership over the properties were
later consolidated in the Bank and new titles were issued. In January
1977, the Bank filed a complaint for a sum of money, alleging non-
payment of the deficiency of QGLC’s obligations after application of the
proceeds of the mortgage sale. It listed 10 causes of actions:
• FIRST, petitioners withdrew amounts at 12% per annum, which
were unpaid, and left a balance of P1.2 million after the
application of the proceeds of the mortgage sale.
• SECOND TO FIFTH, the Bank alleged that it issued Letters of
Credit covering purchases of tractors and truck which remain
unpaid in full.
• SIXTH TO NINTH, the promissory notes, in connection with the
exportation of logs, were payable 30 days after date and provided
for solidary liability in case of non-payment at maturity date.
• TENTH, the Bank claimed that it had accounts receivable from
petitioners at P120.
6. Petitioners admitted: was fictitious; and the petitioners’ counterclaim is basically an action for
the reconveyance of their properties, hence the ruling that the
• Having applied for the P900,000 accommodation. counterclaim is barred by prescription means that the action for
• Opening the LC/Trust Receipt line reconveyance has also prescribed.
• The various LCs issued
• The foreclosure ISSUES:

7. However, they denied having availed of the credit accommodations and 1. WHETHER OR NOT THE FIRST TO SIXTH CAUSES OF ACTION HAVE
having received the value of the Promissory Notes, as they also deny PRESCRIBED – YES
receiving the tractors and equipment. They assert that the Bank has no 2. WHETHER OR NOT THE CA ERRED IN HOLDING THAT THE
cause of action, and if it does, it is barred by prescription or void for want SEVENTH, EIGHTH, AND NINTH CAUSES OF ACTION WERE
of consideration. IMPRESSED WITH MERIT DESPITE THE CONTARY FINDINGS OF
THE LOWER COURT – NO
8. RTC ruled in FAVOR of PETITIONERS, holding that under Article 1144, 3. WHETHER OR NOT PETITIONERS MAY SEEK THE RETURN OF THE
an action upon a written contract prescribes in 10 years, and that under PROPERTIES GIVEN IN GOOD FAITH AS THE SAME IS BARRED BY
Article 1150, prescription starts to run from the day the action may be PRESCRIPTION - NO
brought. Since the complaint was filed in 1977, more than ten years from 4. WHETHER OR NOT PETITIONERS ARE ENTITLED TO AN AWARD
1964, the first to the sixth causes of action are barred by prescription. The OF ATTORNEY’S FEES - NO
seventh and eighth are likewise dismissed because the Court found no
valid ground to sustain them, considering that the authenticity of the RATIO:
documents were in doubt because QGLC’s logging concession was
terminated in 1965 by the government. As to the ninth, the Court gave
1. THE ACTION HAS PRESRIBED BECAUSE THE FORECLOSURE
credit to the testimonies that the spouses signed the notes in blank and
NOTICE DID NOT INTERRUPT THE RUNNING OF THE
that the loan was never released, therefore there was a lack of consent
PRESCRIPTIVE PERIOD.
since the defendants never consented to the loans, the proceeds of which
were never received. The tenth was denied for lack of evidence. On the
On the first issue. The Civil Code provides that an action upon written contract,
matter of [the] counterclaims of defendants, they seek the return of the
an obligation created by law, and a judgment must be brought within ten years
real and personal properties which they have given in good faith to
from the time the right of action accrues.
plaintiff. Again, prescription may apply. The real properties of defendants
acquired by plaintiff were foreclosed in 1965 and consequently,
The finding of the trial court that more than ten years had elapsed since the right
defendants had one (1) year to redeem the property or ten (10) years from
to bring an action on the Bank's first to sixth causes had arisen is not disputed.
issuance of title on the ground that the obligation foreclosed was fictitious.
The Bank contends, however, that "the notices of foreclosure sale in the
foreclosure proceedings of 1965 are tantamount to formal demands upon
9. CA REVERSED. In the first to the sixth causes of action, the CA upheld
petitioners for the payment of their past due loan obligations with the Bank,
the contention of the Bank that the notices of foreclosure were tantamount
hence, said notices of foreclosure sale interrupted/forestalled the running of the
to demand letters which interrupted the running of the prescriptive period.
prescriptive period."
As to the seventh to ninth causes of action, the CA held that the written
agreements prevailed over the oral testimony of Quirino Gonzales that the
The Bank's contention does not impress. Prescription of actions is interrupted
cancellation of their concession made it unbelievable for them to secure
when they are filed before the court, when there is a written extrajudicial demand
in 1967 the advances. The CA also held that the failure of the trial court
by the creditors, and when there is any written acknowledgment of the debt by
to evaluate the genuineness of the Bank’s documentary evidence makes
the debtor.
it impossible for the lower court to conclude that the obligation foreclosed
The law specifically requires a written extrajudicial demand by the creditors which
is absent in the case at bar. The contention that the notices of foreclosure are
"tantamount" to a written extrajudicial demand cannot be appreciated, the
contents of said notices not having been brought to light.
But even assuming arguendo that the notices interrupted the running of the
prescriptive period, the argument would still not lie for the following reasons:
With respect to the first to the fifth causes of action, as gleaned from the
complaint, the Bank seeks the recovery of the deficient amount of the obligation
after the foreclosure of the mortgage. Such suit is in the nature of a mortgage
action because its purpose is precisely to enforce the mortgage contract. A
mortgage action prescribes after ten years from the time the right of action
accrued.
The law gives the mortgagee the right to claim for the deficiency resulting from
the price obtained in the sale of the property at public auction and the
outstanding obligation at the time of the foreclosure proceedings. In the present
case, the Bank, as mortgagee, had the right to claim payment of the deficiency
after it had foreclosed the mortgage in 1965. In other words, the prescriptive
period started to run against the Bank in 1965. As it filed the complaint only on
January 27, 1977, more than ten years had already elapsed, hence, the action
on its first to fifth causes had by then prescribed.
As to the sixth cause of action, the prescriptive period cannot be interrupted by
the foreclosure notices not only because the notices are not considered an
extrajudicial demand, but also because said note is not covered by the mortgage
contract.
the case dated February 3, 1978. They were not even signed by petitioners but
by certain Attorneys Victoriano and Madriaga. In any case, it is no defense that
the promissory notes were signed in blank as Section 14 of the Negotiable
Instruments Law concedes the prima facie authority of the person in possession
of negotiable instruments, such as the notes herein, to fill in the blanks.
3. ALTHOUGH THE FIRST TO SIXTH CAUSES OF ACTION WERE
DISMISSED BY THE TRIAL COURT, PETITIONERS CANNOT
RECOVER THE PROPERTIES MORTGAGED.
It is not disputed that the properties were foreclosed under Act No. 3135 (An Act
to Regulate the Sale of Property under Special Powers Inserted in or Annexed to
Real Estate Mortgages), as amended. Though the Bank's action for deficiency is
barred by prescription, nothing irregular attended the foreclosure proceedings to
warrant the reconveyance of the properties covered thereby.
4. PRAYER FOR MORAL AND EXEMPLARY DAMAGES WERE NOT
RAISED AS AN ISSUE BEFORE THE COURTS BELOW. HENCE, IT
CANNOT BE CONSIDERED NOW. NEITHER THE AWARD OF
ATTORNEY’S FEES FOR LACK OF LEGAL BASIS.

2. PETITIONERS ARE PRESUMED AUTHORIZED TO SIGN THE

NOTES IN BLANK UNDER SECTION 14 OF THE NEGOTIABLE
INSTRUMENTS LAW.

Petitioners seek to evade liability by claiming that the spouses signed the
promissory notes in blank; that they had not received the value of said notes, and
that the credit line thereon was unnecessary in view of their money deposits in,
and unremitted proceeds on log exports from, the Bank.

The genuineness and due execution of the notes have been admitted by
petitioners. Hence, their claim of signing the notes in blank does not lie.
Notwithstanding this, they raise want of consideration. The notes appear to be
negotiable under Section 1 of the NIL, hence they are prima facie issued for
consideration. No sufficient evidence to the contrary was shown. As to the
necessity of the credit lines, they are merely claims for a possible settlement of