TOPIC Art.

2131; Mortgage
CASE NO. GR No. 126568 (2003)
CASE NAME Quirino Gonzales Logging Concessionaire, Quirino Gonzales & Eufemia
Gonzales v. Court of Appeals, and Republic Planters Bank
MEMBER *ɸloud-io-
Digester’s Note: The case is a bit nuanced. The doctrines here were merely used for argument’s sake. The primary rule used remains hinged on the
contractual obligations due 1964; Not the mortgage action, which was due 1965. Furthermore, the case did NOT say that a foreclosure notice cannot
tolls the prescription period; rather, it impliedly said that the contents of the foreclosure notice must show that such would be the equivalent of “a
written extrajudicial demand by the creditors” contemplated under Art. 1155.

DOCTRINE
Digester’s Note: I reworded/formulated some doctrines for clarity.
1. [Recovery of Deficiency is in the Nature of a Mortgage Action]
The recovery of the deficient amount of the obligation after the foreclosure of the mortgage is in the nature
of a mortgage action because its purpose is precisely to enforce the mortgage contract.
(See: Caltex v. IAC, 1989)
2. [Mortgage Action Prescribes After 10 years from the Foreclosure]
A mortgage action prescribes after 10 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 as applied to the outstanding obligation at the time of the foreclosure proceedings.

RECIT-READY DIGEST
Quirino Gonzales Logging Concessionaire (QGLC) entered into a Credit Line agreement with Republic Planters
Bank (the Bank). QCLG defaulted on their obligations under the Credit Line which were all due in 1964. So, in 1965, the
Bank foreclosed the mortgage. Despite the foreclosure, a balance on the debt remained to be paid. Yet, it was only in 1977
(13 years after) that the Bank filed a complaint for Sum of Money to collect the deficiency. QGLC counters by saying that
the action has prescribed. Issue: W/N the Bank’s causes of action have already prescribed. Held: Yes, the action has
prescribed. The recovery of the deficient amount of the obligation after the foreclosure of the mortgage is in the nature of a
mortgage action because its purpose is precisely to enforce the mortgage contract. A mortgage action prescribes after 10
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 as applied to the outstanding obligation at the time of
the foreclosure proceedings.

FACTS
I omitted the facts and issues concerning Evidence and Promissory Notes surrounding this case.
1. In 1962, Quirino Gonzales Logging Concessionaire (QGLC) entered into a Credit Line agreement with Republic
Planters Bank (the Bank), where the bank would provide QGLC a Credit Line of P900K broken into (a) an overdraft
line, and (b) a letter of credit – trust receipt line.
 QGLC’s obligations under Credit Line was secured by a Real Estate Mortgage on four parcels of land.
2. In 1964, QGLC executed a promissory note in favor of the Bank to secure certain advances from the Bank in
connection with QGLC's exportation of logs. The promissory note was due 30 days from issue.
3. QCLG defaulted on their obligations under the Credit Line.
 So, in 1965, the Bank foreclosed the mortgage and eventually won the bid for the properties.
o Ownership over the properties was later consolidated in the Bank; thus, new titles were issued to it.
o Despite the foreclosure, a balance on the debt remained to be paid.
4. In 1977, the Bank filed a complaint for <Sum of Money> alleging that there was non-payment of the balance of
QGLC's obligation after the proceeds of the foreclosure sale were applied to its debt. 6 of 10 causes of action were:
Cause of Action
1st Under the overdraft line, there was still a balance of P1.2M due 1964.
2nd Under the letter of credit – trust receipt agreement, the Bank delivered the tractors and equipment subject
3rd of the letters of credit to QGLC, who has not reimbursed the Bank for the value of the drafts the Bank paid
4th to the beneficiary-seller; all due 1964.
5th (The only pieces of evidence for these were the letters of credit themselves.)
6th The 1964 promissory note was still unpaid.

1
 5. The RTC ruled in favor of QGLC when the trial court held that the Bank’s causes of action were already barred by
prescription because 10 years have already lapsed under Art. 1144 of the Civil Code.
o The CA reversed the RTC and held that the notices of foreclosure sale were "tantamount" to demand letters
upon the petitioners which interrupted the running of the prescriptive period.

ISSUE/S and HELD

1. W/N the Bank’s causes of action one to six have already prescribed – YES

RATIO
1. YES, the causes of action have prescribed.
 RULE 1: Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten (10) years
from the time the right of action accrues.
 RULE 2: Art. 1150 of the Civil Code states that prescription starts to run from the day the action may be brought.
 APPLICATION: The obligations allegedly created by the written contracts or documents supporting the Bank’s
first to the sixth causes of action were demandable at the latest in 1964. When the complaint was filed in
1977, 13 years from 1964 had already lapsed. The first to the sixth causes of action are thus barred by
prescription.
o BANK’S CONTENTION: “the notices of foreclosure sale in the foreclosure proceedings of 1965 are
tantamount to formal demands upon petitioners for the payment of their past due loan obligations
with the Bank, hence, said notices of foreclosure sale interrupted/forestalled the running of the
prescriptive period.”
 THE COURT CLARIFIES:
RULE 3: Under Art. 1155 of the Civil Code, Prescription of actions is interrupted…
(a) when they are filed before the court,
(b) when there is a written extrajudicial demand by the creditors, and
(c) when there is any written acknowledgment of the debt by the debtor.

APPLICATION: In this case, a written extrajudicial demand by the creditors is absent. The
contention that the notices of foreclosure are "tantamount" to a written extrajudicial demand
cannot be appreciated, BECAUSE the contents of said notices were not presented.

ASSUMING ARGUENDO… that the foreclosure notices interrupted the running of the
prescriptive period, the argument would still not lie for the following reasons:

Regarding the 1st to 5th Cause of Action

 RULE 4: The recovery of the deficient amount of the obligation after the foreclosure
of the mortgage is in the nature of a mortgage action because its purpose is
precisely to enforce the mortgage contract. (See: Caltex v. IAC, 1989)
 RULE 5: A mortgage action prescribes after 10 years from the time the right of action
accrued.
 RULE 6: 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.
(See: DBP v. Tomeldan, 1980)
 APPLICATION: The Bank, as mortgagee, had the right to claim payment of the
deficiency after it had foreclosed the mortgage in 1965. More than ten years had
already elapsed when it filed the complaint in 1977. Thus, the action had by then
prescribed.
Regarding the 6th Cause of Action
 It was not shown that it was covered by the Mortgage contract.

DISPOSTIVE PORTION
WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION. Republic Bank's Complaint with respect to its first to sixth causes of
action is hereby DISMISSED. Its complaint with respect to its seventh to ninth causes of action is REMANDED to the court of origin, the Manila
Regional Trial Court, Branch 36, for it to determine the amounts due the Bank thereunder.