The Supreme Court ruled that for an action to foreclose a real estate mortgage (REM) to prosper, the creditor-mortgagee must establish the terms and conditions of the mortgage contract, particularly the maturity date of the loan secured. The failure to allege and prove these details renders the action dismissible. This decision clarifies that the prescriptive period for mortgage actions begins when the loan becomes due and demandable or from the date of demand, not merely from the date of the mortgage’s inscription on the title.

Unraveling Mortgage Prescription: When Does the Clock Start Ticking?

This case, Philippine National Bank vs. Elenita V. Abello, et al., revolves around a complaint filed by the respondents seeking the cancellation of mortgage liens annotated on their Transfer Certificates of Title (TCTs). The respondents argued that the petitioner, Philippine National Bank (PNB), had not taken action to foreclose the mortgages since 1975, and therefore, the action had prescribed. The central legal question is whether the respondents sufficiently established the prescription of the mortgage action to warrant the cancellation of the encumbrances.

The factual backdrop involves several real estate mortgages constituted by Spouses Manuel and Elenita Abello in favor of PNB between 1963 and 1975. These mortgages were annotated on TCT Nos. T-127632, T-82974, and T-58311. After Manuel Abello’s death in 1998, his heirs filed a complaint seeking the cancellation of these encumbrances, arguing that PNB’s inaction for an extended period had resulted in the prescription of the mortgage action. The Regional Trial Court (RTC) and the Court of Appeals (CA) initially ruled in favor of the respondents, ordering the cancellation of the mortgage liens. However, the Supreme Court reversed these decisions, holding that the respondents failed to adequately demonstrate that the mortgage action had prescribed.

The Supreme Court emphasized the distinction between “failure to state a cause of action” and “lack of cause of action.” Failure to state a cause of action pertains to the insufficiency of allegations in the pleading, while lack of cause of action refers to the insufficiency of the factual basis for the action. The Court explained that a complaint should contain an averment of three essential elements: a right in favor of the plaintiff, an obligation on the part of the defendant, and an act or omission by the defendant violating the plaintiff’s right. In this case, the Court found that the respondents’ complaint lacked critical details necessary to establish their cause of action.

Building on this principle, the Court clarified that determining the commencement of the prescriptive period for REMs is crucial in establishing a cause of action. The prescriptive period runs from the time the loan became due and demandable, or from the date of demand. This is rooted in the accessory nature of a REM, which secures the principal contract of loan. The right to foreclose arises only upon the debtor’s failure to pay, triggering the operation of the mortgage contract. Therefore, the creditor-mortgagee must allege and prove the terms and conditions of the mortgage contract, including the maturity date of the loan.

The Court cited Mercene v. Government Service Insurance System to reinforce that prescription in a mortgage contract does not begin from the time of its execution but from when the loan becomes due and demandable, or from the date of demand. This ruling underscores the importance of establishing when the debtor defaulted on the loan obligation. Without this information, the mortgagor cannot successfully argue for the cancellation of the mortgage encumbrances.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In analyzing the respondents’ complaint, the Court noted the absence of any mention of the loan’s particulars, specifically the maturity date. The respondents anchored their argument on the date of the latest entry related to the loan, which the Court deemed irrelevant. The critical detail for determining prescription is the date of maturity or demand, which was not provided in the complaint. Consequently, the Court concluded that the complaint failed to state a cause of action.

Furthermore, the Court noted that although the petitioner had raised the failure to state a cause of action as an affirmative defense, the RTC’s power to dismiss on this ground had lapsed when the parties proceeded to trial. However, even during trial, the respondents failed to present evidence establishing when the loan became due. This failure to adduce sufficient evidence to establish prescription led the Court to dismiss the complaint for lack of cause of action. The contracts evidencing the loan and mortgage were crucial to the respondents’ case, and their absence proved fatal.

The implications of this decision are significant for both mortgagors and mortgagees. Mortgagors seeking to cancel mortgage liens based on prescription must provide concrete evidence of the loan’s maturity date or the date of demand. Mortgagees, on the other hand, must meticulously maintain records of loan terms and any demands made to ensure their right to foreclose is preserved. The absence of such records could jeopardize their ability to enforce the mortgage contract.

FAQs

What was the key issue in this case?	The key issue was whether the respondents sufficiently established the prescription of a mortgage action to warrant the cancellation of encumbrances on their property titles. The Supreme Court found that they did not.
What is the difference between “failure to state a cause of action” and “lack of cause of action”?	“Failure to state a cause of action” refers to the insufficiency of allegations in the pleading, while “lack of cause of action” refers to the insufficiency of the factual basis for the action. The former is determined based on the complaint’s averments, while the latter is determined after considering the evidence presented during trial.
When does the prescriptive period for a real estate mortgage begin to run?	The prescriptive period begins to run from the time the loan becomes due and demandable, or from the date of demand. It does not begin from the date of the mortgage’s execution or inscription.
What evidence is necessary to prove that a mortgage action has prescribed?	To prove prescription, the mortgagor must present evidence establishing the maturity date of the loan or the date of demand. This information is crucial for determining when the prescriptive period began to run.
Why was the respondents’ complaint dismissed in this case?	The respondents’ complaint was dismissed because they failed to allege the maturity date of the loan and failed to present evidence during trial to establish when the loan became due. This made the action dismissable for the failure to state the cause of action.
What is the significance of the case of Mercene v. Government Service Insurance System?	Mercene v. GSIS reinforces that the prescriptive period for REMs begins when the loan becomes due and demandable or from the date of demand, not merely from the mortgage’s execution. This highlights the importance of establishing the date of default.
What happens if a complaint fails to state a cause of action?	A complaint that fails to state a cause of action can be dismissed by the court. This is a procedural remedy to resolve a complaint without incurring the costs of a full trial.
Is the date of annotation of the mortgage relevant to determining prescription?	No, the date of annotation is not relevant to determining prescription. The crucial dates are when the loan became due and demandable or when demand was made.

In conclusion, the Supreme Court’s decision in Philippine National Bank vs. Elenita V. Abello, et al. emphasizes the critical importance of establishing the loan’s maturity date or the date of demand when arguing for the prescription of a mortgage action. This ruling provides clarity on the necessary elements for a successful claim and underscores the need for meticulous record-keeping by both mortgagors and mortgagees.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Philippine National Bank, vs. Elenita V. Abello, G.R. No. 242570, September 18, 2019