FACTS:

Petitioner Quirino Gonzales Logging Concessionaire (QGLC) and respondent Republic Bank entered into a credit accommodation agreement in 1962, wherein the Bank approved a credit line of P900,000 for QGLC. The credit line was secured by a real estate mortgage on four parcels of land. QGLC executed promissory notes to secure specific advances from the Bank. However, QGLC defaulted on its obligations, prompting the Bank to foreclose the mortgage and acquire ownership of the properties. The Bank subsequently filed a complaint against QGLC for the collection of a sum of money, encompassing the unpaid overdraft line and unpaid promissory notes. QGLC, on the other hand, denied availing the credit accommodations, receiving the value of the promissory notes, and physically obtaining the tractors and equipment linked to the credit line. In response, the trial court ruled in favor of QGLC, rejecting the Bank's claims due to prescription and lack of valid grounds.

ISSUES:

1. Whether the Bank's first to sixth causes of action have prescribed.

2. Whether the Bank's seventh to ninth causes of action have a valid ground and sufficient evidence.

3. Whether the petitioners are barred from seeking the return of their properties due to prescription.

4. Whether the petitioners are entitled to an award of attorney's fees.

5. • Whether the notices of foreclosure sale interrupted the running of the prescriptive period
6. • Whether the action on the first to fifth causes of action has prescribed
7. • Whether the promissory note subject of the sixth cause of action is covered by the mortgage contract
8. • Whether the promissory notes were signed in blank and lacked consideration
9. • Whether the real properties foreclosed should be returned to the petitioners
10. • Whether the petitioners are entitled to moral and exemplary damages

11. Whether the issue of attorney's fees can be considered even if it was not raised before the lower courts.

12. Whether the complaint with respect to the first to sixth causes of action should be dismissed.

13. Whether the complaint with respect to the seventh to ninth causes of action should be remanded to the lower court.

RULING:

1. The Court of Appeals (CA) held that the notices of foreclosure sale served as demand letters that interrupted the running of the prescriptive period for the Bank's first to sixth causes of action. Therefore, the CA held that these causes of action have not prescribed.

2. The CA upheld the validity of the written agreements (promissory notes) over the oral testimony of petitioner Quirino Gonzales. The CA found that the seventh to ninth causes of action have a valid ground and sufficient evidence.

3. The CA reversed the trial court's ruling that the petitioners' counterclaim was barred by prescription. The CA held that the trial court's failure to determine the authenticity and genuineness of the Bank's documentary evidence made it impossible to conclude that the obligation foreclosed was fictitious. Therefore, the petitioners are not barred from seeking the return of their properties.

4. The CA struck down the trial court's award of attorney's fees for lack of legal basis.

5. • The notices of foreclosure sale do not interrupt the running of the prescriptive period because there was no written extrajudicial demand by the creditors.
6. • The action on the first to fifth causes of action has prescribed because more than ten years had already elapsed from the time the right of action accrued.
7. • It is not clear whether the promissory note subject of the sixth cause of action is covered by the mortgage contract.
8. • The promissory notes are deemed to have been issued for consideration as they meet the requirements of the Negotiable Instruments Law.
9. • The real properties foreclosed should not be returned to the petitioners because the foreclosure proceedings were not irregular.
10. • The claim for moral and exemplary damages cannot be considered as it was not raised as an issue before the lower courts.

11. The issue of attorney's fees cannot be considered since it was not raised as an issue before the lower courts.

12. The complaint with respect to the first to sixth causes of action is dismissed.

13. The complaint with respect to the seventh to ninth causes of action is remanded to the court of origin for the determination of the amounts due.

PRINCIPLES:

• The prescriptive period for actions upon a written contract, an obligation created by law, and a judgment is ten years from the time the right of action accrues. (Civil Code)

• Notices of foreclosure sale can be considered tantamount to demand letters that interrupt the running of the prescriptive period.

• Written agreements (promissory notes) prevail over oral testimony in determining the validity of causes of action.

• Courts must render verdicts based on their findings of facts.

• The failure to determine the authenticity and genuineness of documentary evidence affects the conclusion of whether an obligation foreclosed is fictitious.

• A counterclaim for reconveyance of properties is not barred by prescription when the obligation foreclosed is not proven to be fictitious.

• Attorney's fees may be awarded if there is a legal basis for such an award.

• Prescription of actions is interrupted when there is a written extrajudicial demand by the creditors.

• A mortgage action prescribes after ten years from the time the right of action accrued.

• Promissory notes that meet the requirements of the Negotiable Instruments Law are deemed to have been issued for consideration.

• The person in possession of negotiable instruments has prima facie authority to fill in blanks.

• The issue not raised before the lower courts cannot be considered on appeal.

• Attorney's fees must have a legal basis to be awarded.

• The court has the power to dismiss a complaint if it fails to state a valid cause of action.

• The court may remand a case to the lower court for further proceedings or determination.