SPS Borromeo Vs CA
SPS Borromeo Vs CA
JD-1A
FACTS:
At the time of the dispute, Equitable Savings Bank (ESB) was a subsidiary of
Equitable PCI Bank (EPCIB), a domestic universal banking corporation. Spouses
Nestor and Nona Borromeo (Nestor and Nona) were client-depositors of EPCIB for
more than twelve (12) years. They applied for a loan of P4,000,000.00, which was
approved sometime in October 1999. To secure the payment of loan, Nestor and Nora
executed a Real Estate Mortgage (REM) over their land. They asserted that even if the
loan documents were signed in blank, it was understood that they executed the REM in
favor of EPCIB.
When the Nestor and Nora failed to pay for the loan in full by 30 September
2003, ESB sought to extra-judicially foreclose the REM. On 20 November 2003, Nestor
and Nora filed with the Regional Trial Court (RTC) a Complaint for Injunction,
Annulment of Mortgage with Damages and with Prayer for Temporary Restraining Order
and Preliminary and Mandatory Injunction against EPCIB and ESB. They also sought to
prevent the Extrajudicial Sale from taking place on 26 November 2003.
On 3 March 2004, the RTC granted Nestor and Nora’s motion for reconsideration
and ordered the issuance of a preliminary injunction after declaring that the validity of
the REM was yet to be determined. It found that Nestor and Nora were bound to suffer
grave injustice if they were deprived of their property before the RTC could rule on the
validity of the REM constituted on the same. The Court of Appeals (CA), on the other
hand, reversed the order of the RTC.
ISSUE:
RULING:
The Court explained that under Article 1311 of the Civil Code, contracts take
effect only between the parties who execute them. The civil law principle of relativity of
contracts provides that contracts can only bind the parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of such contract and has
acted with knowledge thereof.
In the instant case, Nestor and Nora assert that their creditor-mortgagee is
EPCIB and not ESB. While ESB claims that Nestor and Nora have had transactions
with it, particularly the five check payments made in the name of ESB, it fails to
categorically state that ESB and not EPCIB is the real creditor-mortgagor in this loan
and mortgage transaction. Records also show that Nestor and Nora repeatedly dealt
with EPCIB.