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SPS. FRANCISCO ONG v. BPI FAMILY SAVINGS BANK

FACTS:

Spouses Francisco Ong and Betty Lim Ong, as well as spouses Joseph Ong Chuan and Esperanza Ong Chuan, collectively known as the petitioners, were engaged in the printing business under the name "MELBROS PRINTING CENTER". In December 1996, managers from the Bank of Southeast Asia (BSA) visited the petitioners' office to discuss loan and credit facilities. The petitioners, believing the assurances made by BSA's managers and with the intention of expanding their business, applied for the credit facilities. In April 1997, the petitioners executed a real estate mortgage over their property to secure a P15,000,000.00 term loan and a P5,000,000.00 credit line, for a total of P20,000,000.00. However, BSA only released P10,444,271.49 for the term loan and P3,000,000.00 for the credit line. BSA promised to release the remaining P2,000,000.00 of the credit line upon payment of the initially released P3,000,000.00, but failed to do so. As a result, the petitioners refused to pay the amortizations on the term loan. Later on, BPI Family Savings Bank (BPI) merged with BSA and acquired its rights and obligations. BPI then filed a petition for extrajudicial foreclosure of the property due to the petitioners' default in payment. The petitioners, in turn, filed an action for damages against BPI to enjoin the foreclosure. The trial court ruled in favor of the petitioners, ordering BPI to pay damages. However, the Court of Appeals reversed the decision and dismissed the complaint for damages. This prompted the petitioners to file a petition for review before the Supreme Court.

ISSUES:

  1. Whether BPI is liable for the obligations of its predecessor, BSA, under the principle of merger and consolidation.

  2. Whether BPI can foreclose the mortgage on petitioner's property despite the violation of the terms of the contract by BSA.

  3. Whether the delay in releasing the omnibus line credit affected the petitioners' business.

  4. Whether the petitioners' refusal to continue paying the amortizations was justified due to the respondent's failure to release the amount covered by the omnibus line.

  5. Whether the respondent's foreclosure of the mortgage was premature.

  6. Whether or not the extrajudicial foreclosure of real estate mortgage is valid.

  7. Whether or not the amount of damages awarded by the trial court is excessive.

RULING:

  1. BPI is liable for the obligations of its predecessor, BSA, under the principle of merger and consolidation. The merger and consolidation resulted in BPI acquiring all the rights, privileges, assets, liabilities, and obligations of BSA. Therefore, BPI is responsible and liable for all the liabilities and obligations of BSA as if it had itself incurred them.

  2. BPI cannot foreclose the mortgage on petitioner's property because BSA violated the terms of the contract by incurring delay in the performance of its obligations and subsequently cancelling the omnibus line without petitioner's consent. BPI's right to foreclose the mortgage depends on the status of the contract, and since BSA breached the contract, BPI cannot enforce it.

  3. The delay in releasing the omnibus line credit significantly affected the petitioners' business.

  4. The petitioners' refusal to continue paying the amortizations was justified due to the respondent's failure to release the amount covered by the omnibus line.

  5. The respondent's foreclosure of the mortgage was premature.

  6. The extrajudicial foreclosure of real estate mortgage is declared void.

  7. The amount of damages awarded by the trial court is reduced to P300,000.00.

PRINCIPLES:

  • Under the principle of merger and consolidation, the surviving or consolidated corporation assumes all the liabilities and obligations of the constituent corporations as if it had incurred them itself.

  • The rights of creditors or liens upon the property of any constituent corporation shall not be impaired by the merger or consolidation.

  • A successor corporation cannot enforce a contract if its predecessor breached the contract prior to the refusal of the other party to continue performing its obligations.

  • A debtor cannot incur delay unless the creditor has fully performed its reciprocal obligation.

  • Foreclosure of a mortgage is dependent on the violation of the principal obligation.

  • A bank must comply with all the requirements of the law before foreclosing a mortgage.

  • A bank cannot claim ignorance of transactions entered into by its predecessor if it seeks to benefit from the foreclosure of the mortgage.

  • Actual damages may be awarded for the difference in interest paid due to the creditor's failure to comply with the terms of the agreement.

  • Exemplary damages may be awarded to set an example for the public good, especially when negligence or bad faith on the part of the bank is present.

  • Attorney's fees should be reasonable and proportionate to the services rendered.

  • Extrajudicial foreclosure of real estate mortgage may be declared void if certain legal requirements were not complied with.

  • The amount of damages awarded by the trial court may be reduced if found to be excessive.