RepublicofthePhilippines

SupremeCourt
Manila

SECONDDIVISION

METROPOLITAN BANK and G.R.No.180974
TRUSTCOMPANY,
Petitioner,
Present:

versus CARPIO,J.,Chairperson,
BRION,
PEREZ
CENTRO DEVELOPMENT SERENO,and
CORPORATION, CHONGKING REYES,JJ.
KEHYENG, MANUEL CO
KEHYENG and QUIRINO Promulgated:
KEHYENG,
Respondents. June13,2012

xx

DECISION

SERENO,J.:

[1] [2]
ThepresentPetitionforReview assailstheCourtofAppeals(CA)Decision promulgatedon
[3]
30 August 2007 and Resolution dated 26 November 2007 in CAG.R. CV No. 80778. The
antecedentfactsfollow.

On 20 March 1990, in a special meeting of the board of directors of respondent Centro

Development Corporation (Centro), its president Go Eng Uy was authorized to mortgage its
propertiesandassetstosecurethemediumtermloanof84millionofLuckyTwoCorporation
andLuckyTwoRepacking.Thepropertiesandassetsconsistedofaparceloflandwithabuilding

andimprovementslocatedatSalcedoSt.,LegaspiVillage,MakatiCity,andcoveredbyTransfer
andimprovementslocatedatSalcedoSt.,LegaspiVillage,MakatiCity,andcoveredbyTransfer

CertificateofTitle(TCT)Nos.139880and139881.Thisauthorizationwassubsequentlyapproved
[4]
on the same day by the stockholders. Maria Jacinta V. Go, the corporate secretary, issued a

SecretarysCertificatestating:

I,MARIAJACINTAV.GO,Filipinocitizen,oflegalage,marriedandwithofficeaddressat
SecondFloor,CENTRObuilding,180SalcedoStreet,LegaspiVillage,Makati,MetroManila,after
beingfirstdulysworn,deposeandsay:
xxxxxxxxx
2) That at a special meeting of the Board of Directors of the aforesaid corporation duly
calledandheldonMarch20,1990andwhereinaquorumwaspresent,thefollowingresolutionwas
unanimously approved pursuant to the Minutes of the Special Meeting of the Stockholders of
CentroDevelopmentCorporationdatedMarch16,1990
RESOLUTION:
RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of Centro
DevelopmentCorporation,beasheisherebyauthorizedtomortgageanduseascollateralthereal
estate property of the Corporation identified as a parcel of land with building and improvements
located at Salcedo St., Legaspi Village, Makati, Metro Manila covered by Transfer Certificate of
TitleNos.139880and139881tosecurethemediumtermloanofLUCKYTWOCORPORATION,
a corporation duly organized and existing under the Philippine laws, and LUCKY TWO
REPACKING,asingleproprietorshipwithprincipalofficeatConcepcion,Tarlac,withtheBankof
the Philippine Islands for EIGHTY FOUR (84) MILLION PESOS, Philippine Currency
(84,000,000.00)

RESOLVED FURTHER, that said GO ENG UY, be as he is hereby authorized to sign all
papers and documents needed and necessary to carry into effect the aforesaid purpose or
undertakingforthebenefitandtothecreditofLuckyTwoCorporationandLuckyTwoRepacking.

Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy, executed a

[5]
Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands (BPI). Under the
MTI, respondent Centro, together with its affiliates Lucky Two Corporation and Lucky Two
RepackingorGoEngUy,expresseditsdesiretoobtainfromtimetotimeloansandothercredit
[6]
accommodations from certain creditors for corporate and other business purposes. To secure
theseobligationsfromdifferentcreditors,respondentCentroconstitutedacontinuingmortgageon
allorsubstantiallyallofitspropertiesandassetsenumeratedaboveuntoandinfavorofBPI,the

trustee.ShouldrespondentCentrooranyofitsaffiliatesfailtopaytheirobligationswhendue,the
trusteeshallcausetheforeclosureofthemortgagedproperty.

[7]
Thereafter,themortgagewasdulyrecordedwiththeRegistryofDeedsofMakatiCity.

On31March1993,CentroandBPIamendedtheMTItoallowanadditionalloanof 36
millionandtoincludeSanCarlosMillingCompany,Inc.(SanCarlos)asaborrowerinadditionto
[8]
Centro,LuckyTwoCorp.andLuckyTwoRepacking. Then,on28July1994,CentroandBPI
again amended the MTI for another loan of 24 million, bringing the total obligation to 144
[9]
million.

Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner

MetropolitanBankandTrustCompany(Metrobank)sometimein1994andproposedthatthelatter
assumetheroleofsuccessortrusteeoftheexistingMTI.AfterpetitionerMetrobankagreedtothe
proposal, the board of directors of respondent Centro allegedly resolved on 12 August 1994 to
[10]
constitutepetitionerassuccessortrusteeofBPI.

[11]
Thereafter, on 27 September 1994, petitioner and respondent Centro executed the
[12]
assailedMTI, amendingthepreviousagreementsbyappointingtheformerasthesuccessor
trusteeofBPI.ItisworthnotingthatthisMTIdidnotamendtheamountofthetotalobligations
coveredbythepreviousMTIs.

It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel Co
KehyengandQuirinoKehyeng,allegedlydiscoveredthatthepropertiesofrespondentCentrohad
beenmortgaged,andthattheMTIthathadbeenexecutedappointingpetitionerastrustee.Notably,
respondent Chongking Kehyeng had been a member of the board of directors of Centro since
1989, while the two other respondents, Manuel Co Kehyeng and Quirino Keyheng, had been

stockholders since 1987. Respondents Kehyeng were minority stockholders who owned thirty
percent(30%)oftheoutstandingcapitalstockofrespondentCentro.
 Ondifferentdates,4September1998,9September1998and2October1998,theKehyengs
allegedlyquestionedthemortgageofthepropertiesthroughlettersaddressedtoGoEngUyand
[13]
JacintaGo. Theyallegedthattheywerenotawareofanyboardorstockholdersmeetingheld
on 12 August 1994, when petitioner was appointed as successortrustee of BPI in the MTI.
Respondents demanded a copy of the minutes of the meeting held on that date, but received no
response.

Thereafter,on14October1998and19November1998,theKehyengsallegedlywroteto
petitioner,informingitthattheywerenotawareofthe12August1994boardofdirectorsmeeting.
[14]
Petitionerdidnotrespondtotheletters.

Meanwhile,duringtheperiodApril1998toDecember1998,SanCarlosobtainedloansin
[15]
thetotalprincipalamountof812,793,513.23frompetitionerMetrobank.

SanCarlosfailedtopaytheseoutstandingobligationsdespitedemand.Thus,petitioner,as
trustee of the MTI, enforced the conditions thereof and initiated foreclosure proceedings,
denominated as Foreclosure No. S0411, on the mortgaged properties. On 22 June 2000,
petitionerMetrobankfiledaPetitionforExtrajudicialForeclosureofMortgagewiththeexecutive
judgeoftheRegionalTrialCourt(RTC)ofMakatiCity.Petitionerallegedthatthetotalamountof
the Promissory Notes that San Carlos executed in favor of the former amounted to
812,793,513.23.Asof30April2000,thetotaloutstandingobligation,inclusiveofinterestsand
[16]
penalties,was1,178,961,181.45.

WenotethattherearenodocumentsintherecordsevidencingtheamendmentoftheMTIto
accommodate these additional obligations. As of 27 September 1994, the date of the last

amendment as borne out by the records, the total outstanding obligation reflected in the MTI
amounted to only 144 million. The latest MTI merely referred to the amendments made on 31
March1993and28July1994.
March1993and28July1994.

Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed a
Complaint for the annulment of the 27 September 1994 MTI with a prayer for a temporary
restraining order (TRO) and preliminary injunction at Branch 138 of the RTC of Makati City.
DocketedasCivilCaseNo.00942,theComplaintwasagainstpetitioner,GoEngUy,Alexander
V.Go,RamonV.Go,MariaJacintaGoandEnriquetoMagpantay.

TheboneofcontentioninCivilCaseNo.00942wasthatsincethemortgagedproperties
constitutedallorsubstantiallyallofthecorporateassets,theamendmentoftheMTIfailedtomeet
therequirementsofSection40oftheCorporationCodeonnoticeandvotingrequirements.Under
thisprovision,inorderforacorporationtomortgageallorsubstantiallyallofitspropertiesand
assets, it should be authorized by the vote of its stockholders representing at least 2/3 of the
outstandingcapitalstockinameetingheldforthatpurpose.Furthermore,theremustbeawritten
noticeoftheproposedactionandofthetimeandplaceofthemeeting.Thus,respondentsalleged,
the representation of Go Eng Uy that he was authorized by the board of directors and/or
stockholdersofCentrowasfalse.

[17]
On 15 December 2003, after trial on the merits, the RTC dismissed the Complaint. It
heldthattheevidencepresentedbyrespondentswasinsufficienttosupporttheirclaimthatthere
werenomeetingsheldauthorizingthemortgageofCentrosproperties.Itnotedthatthestocksof
respondentsKehyengconstitutedonly30%oftheoutstandingcapitalstock,whiletheGofamily
ownedthemajority70%,whichrepresentedmorethanthe2/3voterequiredbySection40ofthe
Corporation Code. The trial court ruled that respondents Kehyeng, particularly Chongking
Kehyeng,whosatintheboardofdirectors,shouldhavedoneperiodicinquiriesandverifications
of documents pertaining to corporate properties. The RTC also held that laches had attached,

consideringthateight(8)yearshadlapsedbeforerespondentsquestionedthemortgageexecuted
in1990.

Thetrialcourtalsonotedtheabsenceofevidenceshowingthestepsrespondentshadtaken
 Thetrialcourtalsonotedtheabsenceofevidenceshowingthestepsrespondentshadtaken
to seek redress for the alleged misrepresentations of Go Eng Uy and Maria Jacinta Go. On the
other hand, the court found that no neglect could be imputed to petitioner for relying on the
Secretarys Certificate, which apparently established Go Eng Uys authority to mortgage Centros
propertiesandassets.

RespondentssubsequentlyfiledanappealwiththeCAdocketedasCAG.R.CVNo.80778.
On26February2004,theyfiledanUrgentMotionfortheIssuanceofaTemporaryRestraining
OrderandWritofPreliminaryInjunctionseekingtorestrainpetitioner,theclerkofcourt,theex
officiosheriffoftheRTC,andtheiragentsfromforeclosingandsellingatpublicauctionon4and
22March2004themortgagedpropertiessubjectofCivilCaseNo.00942.On3March2004,a
TROwasissuedbytheCAeffectiveforaperiodofsixty(60)days,unlessearliersetasidebya
[18]
resolution.

[19]
On19May2004,theCAissuedaResolution inCAG.R.CVNo.80778denyingthe
applicationfortheissuanceofawritofpreliminaryinjunction.

Not giving up, on 27 May 2004, respondents Centro and San Carlos filed a Complaint
docketedasCivilCaseNo.04612atBranch56oftheRTCofMakatiCity.Theyprayedforthe
nullification of the foreclosure proceedings and prayed for the issuance of a TRO/injunction.
Centro and San Carlos alleged that the total obligation due was only 657,000,000 and not
812,793,513.23 that the sale of the San Carlos properties found in Negros Occidental fully
satisfiedtheiroutstandingobligationsandthattheactiontoforeclosetheMakatipropertieswas
[20]
illegalandvoid.

WhileCivilCaseNo.04612waspending,theclerkofcourtandtheexofficiosheriffofthe
RTC of Makati City held an auction sale of the disputed property, during which petitioner was
adjudgedasthehighestbidderfor344,700,000.ACertificateofSalewasaccordinglyissuedon
[21]
3June2004,whichstates:
 [21]
3June2004,whichstates:

On June 2, 2004, a public auction sale was conducted and METROPOLITAN BANK &
TRUST CO. submitted a bid for the sale to him/it of the mortgaged property in the amount of
344,700,000xxx,whichwasthehighestbidhencedeclaredasthewinningbidderandbeingthe
creditorhe/itdidnotdeliveryorpaycash/moniestotheClerkofCourtandExOfficioSheriffthe
bid price of 344,700,000 xxx and the selling price was credited as partial/full satisfaction of
indebtednesssecuredbythemortgage.

In consideration thereof, the Certificate of Sale was issued in favor of METROPOLITAN

BANK&TRUSTCO.ofMetrobankPlaza,Sen.GilPuyatAve.,Makati.
Thissaleissubjecttoredemptioninthemannerprovidedbylaw.

Because of this development, the Complaint in Civil Case No. 04612 was amended, and
CentroandSanCarlosprayedfortheissuanceofawritofinjunctiontopreventtheregistrationof
the Certificate of Sale and the subsequent transfer to petitioner of the title to the properties.
However,Branch56oftheRTCofMakatiCitysubsequentlydeniedtheapplication.

RespondentCentrothereafterfiledbeforetheCAaPetitionforCertioraridocketedasCA
G.R.SPNo.84447.ThePetitionassailedtheOrderoftheRTCinCivilCaseNo.04612.

Duringthistime,CAG.R.CVNo.80778,whichinvolvedthelegalityoftheMTI,wasstill
pending.

On30August2007,theCApromulgatedtheassailedDecisioninCAG.R.CVNo.80778.
The appellate court first determined whether the requirements of Section 40 of the Corporation
Codeonthesaleofallorsubstantiallyallofthecorporationspropertywerecompliedwith.Based
onthe18August1994SecretarysCertificate,theCAfoundthatonlyaquorumwaspresentduring
the stockholders meeting on 12 August 1994. The appellate court thus held that the 2/3 vote
requiredbySection40wasnotmet.Itruledthattheminoritystockholdersweredeprivedoftheir

right to dissent from or to approve the proposed mortgage, considering that they had not been
notifiedinwritingofthemeetinginwhichthecorporateactionwastobediscussed.

TheCAalsoconsideredthetestimonyofPerlaSaballe,anofficerofpetitionerMetrobank,
whoopinedthatthetermquorummeantonlythemajorityofthestockholders.
whoopinedthatthetermquorummeantonlythemajorityofthestockholders.

Furthermore, the appellate court held that petitioner was dutybound to ensure that
respondentCentrosubmittedproofthattheproposedcorporateactionhadbeendulyapprovedbya
voteofthestockholdersrepresenting2/3oftheoutstandingcapitalstock.

Regarding the issue of whether laches had already attached, the CA ruled that the MTI
could not be ratified, considering that the requirements of the Corporation Code were not
compliedwith.

[22]
Thus,thedispositiveportionoftheCADecisioninCAG.R.CVNo.80778reads:

WHEREFORE,theAppealisPARTIALLYGRANTED.TheJudgmentdated15December
2003 of the Regional Trial Court of Makati City, Branch 138, is REVERSED and SET ASIDE
insofarasthedismissaloftheComplaintforAnnulmentofTrustIndentureAgreementis concerned.
The Trust Indenture executed on 27 September 1994 is hereby declared NULL and VOID.
Accordingly, the foreclosure of the mortgage and the sale at public auction involving the subject
properties are declared of no force and effect. The certificates of title issued in the name of
MetropolitanBankandTrustCompanyareCANCELLED.
Conformably with the foregoing discussion, the appellants prayer for damages is hereby
DENIED.

SOORDERED.

[23]
On14September2007,adifferentDivisionoftheCArenderedaDecision denyingthe
PetitioninCAG.R.SPNo.84447.ThatPetitionhadquestionedtheDecisionofBranch56ofthe
RTCofMakatiCitydenyingaPetitiontoenjointheforeclosureofthemortgagedpropertiesonthe
groundthatrespondentsCentroandSanCarloshadfailedtoshowanyclearrightoftheRTCto

issueaninjunctivewrit.TheCAfurtherruledthattheforeclosureofthepropertybecameamatter
ofrightonthepartofpetitionerbecauseofrespondentsfailuretopaytheloansdue.

On26November2007,theCAinCAG.R.CVNo.80778renderedtheassailedResolution
denyingpetitionersMotionforReconsideration.
 Hence,thisPetition.

Petitioner contends that the stockholders Resolution No. 005, s. 1994 did not constitute a
newmortgageinfavorofpetitioner.Instead,thestockholdersmerelyamendedtheexistingMTI
byappointingpetitionerasthenewtrusteefortheMTI,whichwasalreadyexistingandheldby
BPI.Thus,therewasnoneedtosecurea2/3votefromthestockholders.Petitionerpositsthatthe
authority to mortgage the properties was granted in 1990, upon the execution of the first MTI
betweenrespondentCentroandBPI.

Further,petitionerallegesthatrespondentsdonotdenyorquestionthepreviousMTIandits
subsequentamendments.ItfurtherallegesthattheconstitutedmortgageundertheMTIwasduly
annotatedwiththeRegistryofDeedsofMakatiCity.

Petitioner also maintains that the CA erred in interpreting the phrase at which meeting a
quorumwaspresentcontainedintheSecretarysCertificatedated18August1994.Thebankpoints
outthatthephraseindicatesthatatleastaquorumwaspresent,ratherthanthatonlyaquorumwas
present. Thus, the Secretarys Certificate did not in any way limit the number of those actually
present.

Additionally, petitioner argues that Perla Saballe, whose testimony was considered by the
CA,wasnotacompetentwitnesstointerpretthedirectorsResolution.Allegedly,shewasnever
presentduringthemeetingsofCentroregardingthepresentissue,andshewasnotinapositionto

answer the questions propounded to her in relation to the requirements of Section 40 of the
CorporationCode.

Moreover, petitioner cites the CA Decision in CAG.R. SP No. 84447, which upheld the
validityoftheforeclosureofthemortgage.ItalsochallengestheCArulingthattheformerfailed
to exercise due diligence in transacting with respondent Centro. Finally, petitioner insists that
to exercise due diligence in transacting with respondent Centro. Finally, petitioner insists that
lachesattachedwhenrespondentsfailedtoquestiontheMTIandthestockholdersResolutionat
theearliestpossibletime.

Ontheotherhand,respondentscontendthat,basedonthePreTrialBriefandtheAmended
PreTrialOrder,petitioneradmittedthatthesubjectpropertiesweremortgagedundertheMTIof
27September1994,andnotunderthatof21March1990.

Second,ontheissueofwhetherthe2/3votingrequirementwasmet,respondentsclaimthat
petitioner cannot impugn the testimony of its own officer and witness, Perla Saballe, on the
interpretationofthetermquorumasreferredtointheSecretarysCertificatedated18August1994.

Respondents also allege that petitioner failed to controvert the testimony of Chongking
Kehyeng, a member and vicechairperson of the board of directors, that he was unaware of any
stockholdersmeetingeverbeingheld,andthatheandtheotherKehyengswerenotinformedof
thatmeeting.Respondentsfurtherinsistthatpetitionerwasnegligentwhenitmerelyreliedonthe
SecretarysCertificate,insteadofexercisingduediligencetoensurethatalllegalrequirementshad
been complied with under the MTI. On the issue of laches, respondents contend that it was not
raisedbeforethetrialcourt,andisthusimproperlyinvokedinthepresentPetition.Nevertheless,
theyallegedlyundertookanumberofmeasurestoquestionthetransactionsbetweenpetitionerand
CENTRO.Moreover,theyarguethattheMTI,beingnullandvoid,cannotbegiveneffectthrough
laches.

TheCourtsRuling

Insummary,thisCourtistaskedtoresolvethefollowingissues:

1.WhethertherequirementsofSection40oftheCorporationCodewascompliedwith
intheexecutionoftheMTI

2.Whetherpetitionerwasnegligentorfailedtoexerciseduediligence
3.Whetherlacheshasalreadyattached,suchthatrespondentscannolongerquestionthe
MTI.
 MTI.

Weshallfirstdiscusstheissueoflaches.

Laches is defined as the failure or neglect for an unreasonable and unexplained length of
timetodothatwhich,byexercisingduediligence,couldorshouldhavebeendoneearlieritis
negligenceoromissiontoassertarightwithinareasonabletime,warrantingapresumptionthat
[24]
thepartyentitledtoassertiteitherhasabandoneditordeclinedtoassertit.

In the case at bar, the RTC in Civil Case No. 00942 held that laches attached when
respondents allowed eight (8) years to pass before questioning the mortgage, which was
constitutedin1990.Thus,thetrialcourtsaid:

Asitappearsnow,themortgageonthelandandbuildingofCentrowasfirstconstitutedin
1990infavorof[the]BankofthePhilippineIslands.Individualplaintiffsstatedthatdiscoveryofthe
mortgagewassometimein1998,(par.6,AffidavitofChongkingKehyeng).HewasintheBoardof
DirectorsofCentroandheholdsofficeatthefourthfloorofthebuildingonthemortgagedproperty.
There is evidence that the holding of meetings of the Board of Directors was irregular and purely
reportorial.

Consideringthatasshownbyplanitiffsevidence,conductofbusinessinCentrowasinformal,
vigilanceoveritspropertywasrequiredfromallindividualplaintiffs,particularlyplaintiffChongking
Kehyeng who sits in the Board of Directors. Periodic inquiries and verification of documents
pertaining to corporate properties should have been done and the existence of the mortgage was
verifiable.Asimpleinquiryaboutthestatusofthetitle,informationonthetitlenumberandactual
verification with the Register of Deeds a task which can be accomplished in an hour or two will
provideinformationabouttheexistenceofthemortgage.Noneoftheindividualplaintiffsdidthis.
The inaction of the plaintiffs for which no explanation was submitted resulted in the
acquisitionofrightsbythedefendantBankadversetothem.Suchneglect,takeninconjunctionwith
[25]
thelapseoftimeofabouteight(8)yearsoperatesasabar.

[26]
AperusaloftheTCTs ofthesubjectpropertieswouldrevealthatonlythevaluesofthe
mortgagesecuringtheloanstotalling144millionwereannotated,basedontheMTIsexecuted
on21March1990,31March1993and28July1994.Asforthelastannotation,itonlystatedthat
petitioner was the successortrustee to all obligations due to the creditors. Respondents, in their
Complaint,didnotquestionthesemortgagesconstitutedbytheMTIsexecutedon21March1990,
31 March 1993 and 28 July 1994, respectively. What they questioned was the additional loans
grantedtoSanCarlosaftertheexecutionofthe27September1994MTIandtheforeclosureof
grantedtoSanCarlosaftertheexecutionofthe27September1994MTIandtheforeclosureof
the mortgage resulting from the nonpayment of San Carlos obligations. Thus, contrary to the
findingofthetrialcourt,onlyfouryearshadlapsedfromtheexecutionofthe27September1994
MTIwhenrespondentsquestionedthemortgageallegedlyconstitutedtocovertheseloans.

Furthermore,asmentionedearlier,theTCTswerenotaccordinglyannotatedtocoverthese
additionalloans.Also,themortgageofthepropertysecuringalltheloanswerenotdisclosedin
[27]
Centros financial statements for the years 1991 to 1998. Thus, absent any proof that the
individualrespondentswerenotifiedofthestockholdersmeetingon12August1994orthatthey
werepresentduringthemeeting,theserespondentscouldnothavebeeninformedofthealleged
additionalloansandthecorrespondingmortgageconstitutedovertheproperties.

Itcannotthereforebesaidthatlacheshadattachedandthatrespondentswerealreadybarred
fromassailingtheMTIin1998.WenowproceedtodiscussthevalidityofthechallengedMTI.

The18August1994SecretarysCertificateissuedbyMariaJacintaV.Goreadsasfollows:
[28]

I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT CORPORATION, a

corporationdulyorganizedandexistingunderourlawswithprincipalofficelocatedatthe2ndFloorCentro
Buidling,180SalcedoSt.,LegaspiVillage,Makati,MetroManila,doherebycertifythatduringaspecial
meeting of the board of Directors of the Corporation held at its main office in Makati, Metro Manila on
August 12, 1994, at 3:00 p.m., at which meeting a quorum was present, the following resolution was
approvedandadopted:
ResolutionNo.005,s.1994

APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW

TRUSTEEFORTHEEXISTINGMTIOFCDCREALESTATEPROPERTY
RESOLVED,ASITISHEREBYRESOLVED,thatinconnectionwiththeexisting
Mortgage Trust Indenture of real estate property covered by Transfer Certificate of Title
Nos. 139880 and 139881 situated at 180 Salcedo St., Legaspi Village, Makati, Metro
Manila,withanareaof1,608squaremetersmoreorless,theCorporationbe[sic],asitis
hereby authorized, to appoint Metrobank Trust Banking Group (Metrobank) as the new
trustee for the existing mortgage trust indenture presently held by the Bank of the
PhilippinesIslands

RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is hereby,

authorizedandempoweredtosigntheRealEstateMortgageandalldocuments/instruments
with the said bank, for and in behalf of the Company which are necessary and pertinent
thereto
 RESOLVEDFINALLY,thatanyresolutionorresolutionsheretoforeadoptedbythis
Board, inconsistent with the provisions hereof be, as they hereby are amended and/or
revokedaccordingly.
ThatatthemeetingoftheStockholdersofsaidcorporationheldonAugust12,1994at4:00
p.m.,atwhichmeetingaquorumwaspresentandactingthroughout,thefollowingresolutionwas
unanimouslyapproved:

STOCKHOLDERSRESOLUTION
RESOLVED,thatthestockholdersapprove,ratifyandconfirm,astheyhavehereby
approved, ratified and confirmed, the board resolution dated August 12, 1994 appointing
Metrobank Trust Banking Group as the new trustee, presently held by the Bank of the
Philippine Islands, for the existing MTI of real estate property covered by Transfer
Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St., Legaspi Village,
Makati,MetroManilawithanareaof1,608squaremeters,andthatthePresident,Mr.Go
Eng Uy[,] to sign the Real Estate Mortgage and all documents/ instruments with the said
bank,forandinbehalfoftheCompanywhicharenecessaryandpertinenttheretoxxx.

ReadingcarefullytheSecretarysCertificate,itisclearthatthemainpurposeofthedirectors
Resolutionwastoappointpetitionerasthenewtrusteeofthepreviouslyexecutedandamended
MTI.GoingthroughtheoriginalandtherevisedMTI,wefindnosubstantialamendmentstothe
provisionsofthecontract.Weagreewithpetitionerthattheactofappointinganewtrusteeofthe
MTIwasaregularbusinesstransaction.Theappointmentnecessitatedonlyadecisionofatleasta
majorityofthedirectorspresentatthemeetinginwhichtherewasaquorum,pursuanttoSection
25oftheCorporationCode.

ThesecondparagraphofthedirectorsResolutionNo.005,s.1994,whichempoweredGo
EngUytosignthe Real Estate Mortgage and all documents/instruments with the said bank, for

and in behalf of the Company which are necessary and pertinent thereto, must be construed to
meanthatsuchpowerwaslimitedbytheconditionsoftheexistingmortgage,andnotthatanew
mortgagewastherebyconstituted.

Moreover, it is worthy to note that respondents do not assail the previous MTI executed
withBPI.Theydonotquestionthevalidityofthemortgageconstitutedoverallorsubstantiallyall
ofrespondentCentrosassetspursuanttothe21March1994MTIintheamountof84 million.
Nordotheyquestiontheadditionalloansincreasingthevalueofthemortgageto144millionor
theuseofCentrospropertiesascollateralfortheloansofSanCarlos,LuckyTwoCorporation,and
LuckyTwoRepacking.

[29]
Thus,Section40 of the Corporation Code finds no application in the present case, as
therewasnonewmortgagetospeakofundertheassaileddirectorsResolution.

Nevertheless, while we uphold the validity of the stockholders Resolution appointing

Metrobankassuccessortrustee,thisisnottosaythatweupholdthevalidityoftheextrajudicial
foreclosureofthemortgage.

Afteracarefulreviewoftherecordsofthiscase,wefindthatpetitionerfailedtoestablish
itsrighttobeentitledtotheproceedsoftheMTI.

Thereisnoevidencethatpetitioner,ascreditororastrustee,hadacauseofactiontomove
fortheextrajudicialforeclosureofthesubjectpropertiesmortgagedundertheMTI.

[30]
TheconditionsoftheMTIareveryclear.Section3.3oftheMTIprovides:

ItistheintentoftheCOMPANYthattheBORROWERSwillobtainadditionalloansorcredit
accommodationsfromcertainotherbankingorfinancialinstitutionsinaccordancewitharrangements
madebytheBORROWERSwiththeCREDITORS.
ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a Mortgage
Participation Certificate in the form of Schedule II hereof, the issuance of which by the

TRUSTEE to the participating CREDITOR/S shall be in accordance with Section 7 of this

INDENTURE, provided the aggregate LOAN VALUES of the COLLATERAL, based on the latest
appraisalthereof,arenotexceeded.(Emphasissupplied.)

Section1.11oftheMTIdefinesaMortgageParticipationCertificate(MPC)asacertificate
issued by the trustee to a creditor pursuant to the MTI, representing an aliquot interest in the
mortgagecreatedbytheMTI.ThefaceamountoftheMPCisthevalueinmoneyofitsholders
participationorinterestinthemortgagedproperty.

Toaddressthegapsinthefactsaspresentedbythepartiesandbythelowercourts,weissued
[31]
 [31]
a Resolution on 5 September 2011. We required petitioner to submit, among others, all
amendmentstotheMTIandalltheMPCsissued.Petitionerfailedtocomplywiththisdirective.
For one reason or another, instead of submitting MPCs evidencing its interest in the MTI, it
[32]
submitted to this Court documents referring to different instruments altogether. Petitioner
shouldhavebeenmorecarefulincomplyingwiththisCourtsOrders.

MoreglaringisthefactthattheassailedMTIisnotevenreferredtointhePromissoryNotes
executedbypetitionerinfavorofSanCarlos,evidencingtheloansextendedbythelattertothe
former. This omission violated Section 1.13 of the MTI, which requires that a promissory note
must be covered by an outstanding MPC and secured by the lien of the MTI. The Promissory
[33]
Notesrevealthefollowing:

PromissoryNoteNo. Date Amount Collateral

111333.69288.00.999 20April1998 328,000,000 Others Not
specified
111333.70316.00.999 19October1998 97,859,472.03 Unsecured
111333.70359.00.999 30October1998 82,849,981.44 Others Not
specified
111333.70464.000.99 17November1998 98,114,959.13 Others Not
specified
111333.70502.000.99 25November1998 40,150,059.85 Others Not
specified
111333.70618.000.99 9December1998 39,673,569.58 Others Not
specified
111333.70642.000.99 17December1998 126,145,471.20 Others Not
specified

PetitionerthusmiserablyfailedtoprovethatitwasentitledtothebenefitsoftheMTI.

EvenifweassumethatpetitionerwasindeedacreditorprotectedbytheMTI,wefindthat,
as trustee and as creditor, it failed to comply with the MTIs conditions for granting additional
loanstoSanCarlosadditionsthatbroughtthetotalloanamountto1,178,961,181.45whenitdid
notamendtheMTItoaccommodatetheadditionalloansinexcessof144million.

[34]
InitsapplicationforanextrajudicialforeclosureofCentrosproperties,petitionerstates:
 We have the honor to request your good Office to conduct/undertake extrajudicial foreclosure
saleproceedingsunderActNo.3135,asamended,andotherapplicablelaws,onthepropertiescovered
bytheMortgageTrustIndenture,datedMarch21,1990,asamendedonMarch31,1993andfurther
amendedonJuly28,1994executedbytheMortgagor,CENTRODEVELOPMENTCORPORATION,
infavoroftheFormerTrustee,BANKOFTHEPHILIPPINEISLANDSandTrustIndenture,dated
September27,1994,alsoexecutedbytheMortgagor,CENTRODEVELOPMENTCORPORATION,
in favor of the Mortgagee/Trustee, METROPOLITAN BANK AND TRUST COMPANYTRUST
BANKING GROUP, to secure among others, several obligations of SAN CARLOS MILLING CO.,
INC. under various Promissory Notes, with a total principal amount of EIGHT HUNDRED
TWELVE MILLION SEVEN HUNDRED NINETYTHREE THOUSAND FIVE HUNDRED
THIRTEEN PESOS AND TWENTYTHREE CENTAVOS (812,793,513.23), for breach of the
termsandconditionsofthesaidTrustIndenture.(Emphasisintheoriginal.)

[35]
However,Section9.4ofthe27September1994MTIclearlystates:

The written consent of the COMPANY, the TRUSTEE and all the CREDITORS shall be
required for any amendment of the terms and conditions of this INDENTURE. Additional
loans which will be covered by the INDENTURE shall require the written consent of the
[36]
MAJORITY CREDITORS and shall be within the loan value stipulated in Section 1.8 of
thisINDENTURE.(Emphasissupplied.)

The fact that the foreclosure of the mortgaged property was undertaken pursuant to the 27
September1994MTIisanindicationthatthepartieshadfailedtoamenditaccordingly.

Because the 27 September 1994 MTI was not amended to secure the loan granted to the
debtors, petitioner could not have applied for an extrajudicial foreclosure on the basis of all the

Promissory Notes granted to San Carlos. Instead, petitioner could have only applied for the

foreclosure of the property corresponding to 144 million, which was the maximum amount
embodiedinthe27September1994MTI.Inotherwords,asanaccommodationdebtor,Centros
propertiesmaynotbeliableforSanCarlosdebtsbeyondthismaximumamount,pursuanttothe
[37]
MTI executed with petitioner. In Caltex Philippines v. Intermediate Appellate Court, we

likewiseheldthatthevalueofthemortgageshouldbelimitedonlytotheamountprovidedbythe
contractbetweentheparties.

Section4ofRule68oftheRulesofCourtprovides:

DispositionofproceedsofsaleTheamountrealizedfromtheforeclosuresaleofthemortgaged
 DispositionofproceedsofsaleTheamountrealizedfromtheforeclosuresaleofthemortgaged
propertyshall,afterdeductingthecostsofthesale,bepaidtothepersonforeclosingthemortgage,and
whenthereshallbeanybalanceorresidue,afterpayingoffthemortgagedebtdue,thesameshallbe
paidtojuniorencumbrancersintheorderoftheirpriority,tobeascertainedbythecourt,oriftherebe
nosuchencumbrancersortherebeabalanceorresidueafterpaymenttothem,thentothemortgagoror
hisdulyauthorizedagent,ortothepersonentitledtoit.

WhileitistruethatsomeofthedocumentsrequiredbythisCourttobesubmittedbythe
partieswerenotpresentedatthetrialstage,whenthelegalissuesraisedbegsthereceptionofthat
evidenceespeciallyconsideringthatacase,likethepresentonehasbeenpendingformorethana
decadethen the Court may require the parties to submit such evidence in the interest of justice.
[38]
ThisisclearlyprovidedunderRule45,Section7oftheRulesofCourt.

Onafinalnote,RepublicActNo.8971,ortheGeneralBankingLawof2000,recognizes
thevitalroleofbanksinprovidinganenvironmentconducivetothesustaineddevelopmentofthe
nationaleconomyandthefiduciarynatureofbankingthus,thelawrequiresbankstohavehigh
standardsofintegrityandperformance.Thefiduciarynatureofbankingrequiresbankstoassume
[39]
adegreeofdiligencehigherthanthatofagoodfatherofafamily. Inthecaseatbar,petitioner
itselfwasnegligentintheconductofitsbusinesswhenitextendedunsecuredloanstothedebtors.
Worse,itwasinseriousbreachofitsdutyasthetrusteeoftheMTI.Itwasnotabletoprotectthe

interests of the parties and was even instrumental in violating the terms of the MTI, to the

detriment of the parties thereto. Thus, petitioner has only itself to blame for being left with
insufficientrecourseagainstpetitionerundertheassailedMTI.

WHEREFORE,inviewoftheforegoing,thePetitionisherebyPARTLYGRANTED.The
MortgageTrustIndentureisdeclaredVALID.Nonetheless,forreasonsstatedherein,theDecision
of the Court of Appeals in CAG.R. CV No. 80778, declaring the foreclosure proceedings in
Foreclosure No. S04011 over TCT Nos. 139880 and 139881 of no force and effect, is
AFFIRMED. Likewise, the cancellation of the Certificates of Title in the name of petitioner
Metropolitan Bank and Trust Company and the denial of the payment of damages are also
AFFIRMED.
 AFFIRMED.

SOORDERED.

MARIALOURDESP.A.SERENO
AssociateJustice


WECONCUR:



ANTONIOT.CARPIO
SeniorAssociateJustice
Chairperson

ARTUROD.BRIONJOSEPORTUGALPEREZ
AssociateJusticeAssociateJustice




BIENVENIDOL.REYES
AssociateJustice






CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation before the
casewasassignedtothewriteroftheopinionoftheCourtsDivision.




ANTONIOT.CARPIO
SeniorAssociateJustice
(PerSection12,R.A.296,
TheJudiciaryActof1948,asamended)

[1]
Rollo,pp.4782.
[2]
PennedbyAssociateJusticeJaparB.Dimaampao,withAssociateJusticesMarioL.GuariaIIIandRomeoF.Barzaconcurringrollo,
pp.at8499.
[3]
Rollo,pp.101102.
[4]
Id.at141.
[5]
Id.at110130.
[6]
FirstWHEREASclauseoftheMTI.
[7]
Rollo,pp.11091114.
[8]
Id.at131135.
[9]
Id.at136138.ThepertinentprovisionoftheSupplementalIndentureprovides:
SECTION1GRANTOFADDITIONALMORTGAGE
1.1TheCompanydoesherebyestablishandconstituteinfavoroftheTrustee,actinginbehalfandforthebenefitofall
the Creditors secured by the Indenture, as amended by this Supplemental Indenture, a continuing first real estate
mortgageandsecurityinterestinandtotheland,buildingandotherimprovementscoveredbyTransferCertificatesof
TitleNos.139880and139881oftheRegistryofDeedsfortheProvinceofRizal,tosecuretheamountofPESOS:
TWENTYFOURMILLION(24,000,000),PhilippineCurrency,inadditiontotheexistingmortgageobligationof
120,000,000oranaggregatetotalmortgageobligationof144,000,000.
[10]
Rollo,pp.139140.
[11]
TheMTIitselfisundated,butthepartiesandthelowercourtsrefertothedocumentaccordingtothedatewhenitwasnotarized,
thatis,on27September1994.
[12]
Rollo,pp.142168.
[13]
AppellantsBrief,rollo,pp.228229.
[14]
Id.at229.
[15]
Rollo,pp.10421056.
[16]
Id.at11151119.
[17]
Id.at169174.
[18]
Id.at.595.
[19]
Id.at595599.
[20]
Id.at188189.
[21]
Id.at1130.
[22]
Rollo,pp.9899.
[23]
Id.at182197pennedbyAssociateJusticeRamonM.Bato,Jr.,withAssociateJusticesAndresB.Reyes,Jr.andJoseC.Mendoza
[23]
Id.at182197pennedbyAssociateJusticeRamonM.Bato,Jr.,withAssociateJusticesAndresB.Reyes,Jr.andJoseC.Mendoza
concurring.
[24]
MunicipalityofCarcarv.CourtofFirstInstanceofCebu,204Phil.719(1982).
[25]
Rollo,p.174.
[26]
Id.at11091114.
[27]
Id.at924969.
[28]
Id.at139140.
[29]
Sec.40.Saleorotherdispositionofassets.Subjecttotheprovisionsofexistinglawsonillegalcombinationsandmonopolies,a
corporationmay,byamajorityvoteofitsboardofdirectorsortrustees,sell,lease,exchange,mortgage,pledgeorotherwisedisposeof
allorsubstantiallyallofitspropertyandassets,includingitsgoodwill,uponsuchtermsandconditionsandforsuchconsideration,
whichmaybemoney,stocks,bondsorotherinstrumentsforthepaymentofmoneyorotherpropertyorconsideration,asitsboardof
directorsortrusteesmaydeemexpedient,whenauthorizedbythevoteofthestockholdersrepresentingatleasttwothirds(2/3)ofthe
outstandingcapitalstock,orincaseofnonstockcorporation,bythevoteofatleasttotwothirds(2/3)ofthemembers,inastockholders
ormembersmeetingdulycalledforthepurpose.Writtennoticeoftheproposedactionandofthetimeandplaceofthemeetingshallbe
addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his
appraisalrightundertheconditionsprovidedinthisCode.
Asaleorotherdispositionshallbedeemedtocoversubstantiallyallthecorporatepropertyandassetsiftherebythecorporation
wouldberenderedincapableofcontinuingthebusinessoraccomplishingthepurposeforwhichitwasincorporated.
Aftersuchauthorizationorapprovalbythestockholdersormembers,theboardofdirectorsortrusteesmay,nevertheless,inits
discretion,abandonsuchsale,lease,exchange,mortgage,pledgeorotherdispositionofpropertyandassets,subjecttotherightsofthird
partiesunderanycontractrelatingthereto,withoutfurtheractionorapprovalbythestockholdersormembers.
Nothinginthissectionisintendedtorestrictthepowerofanycorporation,withouttheauthorizationbythestockholdersor
members,tosell,lease,exchange,mortgage,pledgeorotherwisedisposeofanyofitspropertyandassetsifthesameisnecessaryinthe
usualandregularcourseofbusinessofsaidcorporationoriftheproceedsofthesaleorotherdispositionofsuchpropertyandassetsbe
appropriatedfortheconductofitsremainingbusiness.
Innonstockcorporationswheretherearenomemberswithvotingrights,thevoteofatleastamajorityofthetrusteesinoffice
willbesufficientauthorizationforthecorporationtoenterintoanytransactionauthorizedbythissection.
[30]
Rollo,p.147.
[31]
Id,at916.
[32]
Rollo,pp.11391160.PetitionersubmittedthesefourMPCs:
1.MPCNo.1,seriesof1998for6.4millionwasissuedpursuanttoaMTIdated23March1998referringtoaloanextended
bySolidbankCorporationtoSanCarlosintheamountof105.5million.
2.MPCNo.2,seriesof1998for6.4millionwasissuedpursuanttoaMTIdated23March1998referringtoaloanextended
byUnitedCoconutPlantersBanktoSanCarlosintheamountof105.5million.
3.MPCNo.3,seriesof1998for2.2millionwasissuedpursuanttoaMTIdated23March1998referringtoaloanextended
byChinaBankingCorporationtoSanCarlosintheamountof105.5million.
4. MPC No. 4, series of 1998 for 642 million was issued pursuant to a MTI dated 23 March 1998 referring to a loan
extendedbypetitionertoSanCarlosintheamountof642million.
PetitioneralsosubmittedDeedsofAssignmentwherebycreditorsofSanCarlosassignedtotheformeron8and22June2001,
respectively,thelattersrightstotheloans.However,thesedeedsreferredtoanMTIdated17July1991.
[33]
Rollo,pp.10421056.
[34]
Id.at1036.
[35]
Id.at161.
[36]
LOANVALUEshallmean,withrespecttotherealproperties,70%oftheaggregatesoundvaluethereofusedascollateralunder
thisIndenture.
NotethatunderSection1.15oftheMTI,soundvalueismeanwhiledefinedasthecostofreproductionofthecollateral,lessdepreciation
(orinthecaseofland,thefairmarketvaluethereof),asdeterminedbyanindependentappraisermutuallyacceptabletothedebtor,the
trusteeandthemajoritycreditors,inaccordancewithgenerallyacceptedprinciplesofappraisaloftheRepublicofthePhilippinesrollo,
p.143.
[37]
257Phil.753(1989).
[38]
SECTION7.Pleadingsanddocumentsthatmayberequiredsanctions.Forpurposesofdeterminingwhetherthepetitionshould
bedismissedordeniedpursuanttoSection5ofthisRule,orwherethepetitionisgivenduecourseunderSection8hereof,theSupreme
Courtmayrequireorallowthefilingofsuchpleadings,briefs,memorandaordocumentsasitmaydeemnecessarywithinsuchperiods
andundersuchconditionsasitmayconsiderappropriate,andimposethecorrespondingsanctionsincaseofnonfilingorunauthorized
filingofsuchpleadingsanddocumentsornoncompliancewiththeconditionstherefor.
[39]
PhilippineBankingCorp.v.CourtofAppeals,464Phil.614(2004).