Philippine Supreme Court Jurisprudence > Year 2019 > September 2019 Decisions > G.R. No. 216029 - SHEMBERG CORPORATION, MARKETING PETITIONER, v. CITIBANK, N.A., NEMESIO SOLOMON, EX-OFFICIO SHERIFF AND SHERIFF-IN-CHARGE, RESPONDENTS:

We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision¹ dated October 23, 2012 and the Resolution² dated October 27, 2014 of the Court of Appeals (CA) in CA - G.R. CEB - CV No. 00974.

On December 10, 1996, petitioner Shemberg Marketing Corporation (Shemberg) executed a real estate mortgage over a parcel of land located in Mandaue City (Lot 1524-G-6), including all improvements, machineries, and equipment found thereon,³ in favor of respondent Citibank, N.A. (Citibank), to secure loan accommodations amounting to P28,242,000.00.⁴ The real estate mortgage was embodied in a deed, which the parties denominated as "First Party Real Estate Mortgage.�⁵

On February 13, 1998, Citibank sent a demand letter to Shemberg wherein it required the latter to pay its outstanding balance in the amount of US$390,000.00 under Promissory Note No. 8976267001;⁶ otherwise, it would be forced to initiate foreclosure proceedings on the mortgaged properties.⁷

Unfortunately, Shemberg defaulted in the payment of its outstanding obligation to Citibank.⁸ Consequently, Citibank commenced the extra-judicial foreclosure of the mortgaged properties on May 10, 1999.⁹ A Notice of Extra-Judicial Sale of Lot 1524-G-6, including all improvements thereon, was thereafter issued with the foreclosure sale scheduled on June 16, 1999.¹⁰

Upon learning of the foreclosure sale, Shemberg filed a Complaint¹¹ for rescission or declaration of nullity of the contract of real estate mortgage against Citibank before the Regional Trial Court (RTC), Branch 55, Cebu City.

In its Complaint, Shemberg alleged that: (a) in 1996, Citibank required Shemberg to execute a real estate mortgage for and in consideration of the increase and renewal of its credit line with the bank;¹² (b) relying on the representation that its credit line would be renewed, Shemberg executed the subject real estate mortgage in Citibank's favor;¹³ (c) however, despite the execution of the mortgage, Citibank refused to renew and increase Shemberg's credit line.¹⁴

Shemberg asserted that the real estate mortgage was void for lack of consideration,¹⁵ given Citibank's failure to comply with its commitment to renew and increase its credit line with the bank.¹⁶

For its part, Citibank countered that it required the execution of the real estate mortgage in order to provide additional security/collateral to augment Shemberg's subsisting chattel mortgage due to the latter's dire financial condition at the time.¹⁷ It also made clear to Shemberg that the bank would no longer extend any additional credit unless its financial standing improves.¹⁸

Citibank pointed out that the real estate mortgage secured the various obligations of Shemberg to the bank up to the extent of P28,242,000.00.¹⁹ This included Promissory Note No. 8976267001 in the amount of US$500,000.00, executed by Shemberg on September 13, 1996, with Shemberg defaulting in the payment of the outstanding balance of US$390,000.00 thereof at maturity.²⁰


In its Decision²¹ dated June 10, 2005, the RTC declared the real estate mortagage void for lack of consideration due to Citibank's failure to fulfill its commitment to renew Shemberg's credit line with the bank after it expired in June 1996.²²

Nevertheless, the RTC found Shemberg liable to pay Citibank the amount of P19,006,197.00, or the peso-equivalent of its US$390,000.00 outstanding obligation under Promissory Note No. 8976257-001,²³ payable within one (1) year from the date of finality of the Decision.²⁴

Both parties appealed before the CA.


In its Decision dated October 23, 2012, the CA reversed and set aside the RTC Decision. It declared the real estate mortgage, as well as the extra-judicial foreclosure proceedings initiated by Citibank, valid, and imposed the stipulated interest equivalent to 8.89% per annum on the unpaid balance of Promissory Note No. 8976267001 from the time of filing of the extra-judicial foreclosure until finality of the Decision.²⁵

The CA found that the subject real estate mortgage secured Shemberg's present and future obligations with Citibank to the extent of P28,242,000.00, or the liquidation value of the mortgaged properties.²⁶ It noted that at the time of execution of the mortgage, Shemberg had an existing loan obligation totaling P58,238,200.00.²⁷ Thus, it concluded that, contrary to the RTC's findings, the real estate mortgage was not without consideration.²⁸

The CA likewise ruled that Citibank had rightfully initiated the extra-judicial foreclosure of the mortgaged properties after Shemberg failed to pay its oustanding balance of US$390,000.00²⁹ under Promissory Note No. 8976267001.

Moreover, the CA held mat the RTC erred in granting an additional year for Shemberg to pay its obligation under the promissory note, considering that: first, Shemberg never prayed for the fixing of the period for the payment of its outstanding balance with Citibank;³⁰ and second, it was not necessary to fix the period for payment as the promissory note itself stated that the loan obligation was payable on September 8, 1997.³¹

Shemberg moved for reconsideration³² but the CA denied the motion in its Resolution dated October 27, 2014. As a consequence., Shemberg filed the present Petition for Review on Certiorari assailing the CA Decision and Resolution.


The sole issue for the Court's resolution is whether the real estate mortgage is indeed valid and binding between the parties.


The Petition is unmeritorious.

A careful perusal of the First Party Real Estate Mortgage shows that the subject real estate mortgage was executed to secure loan accommodations, as well as all past, present, and future obligations, of Shemberg to Citibank to the extent of P28,242,000.00,³³viz.:

This Real Estate Mortgage is hereby constituted to secure the following obligations (hereinafter referred to as the "Obligations"):

1.01 The Principal Obligations specified in the first premise of this Mortgage and any increase in the credit accommodations which MORTGAGEE may grant to MORTGAGOR;

x x x x

1.03 All obligations, whether past, present or future, whether direct or indirect, principal or secondary; whether or not arising out of or in consequence of this Mortgage, and of the credit accommodations owing the MORTGAGEE by MORTGAGOR as shown in this books and records of MORTGAGEE;³⁴

Shemberg itself admitted that when the real estate mortgage was executed on December 10, 1996, it had an outstanding obligation totaling P58,238,200.00 with Citibank.³⁵ The fact that Shemberg's outstanding obligation is significantly higher than the amount of secured obligations does not invalidate the real estate mortgage.³⁶ It only means that in case of default, Citibank can enforce the mortgage to the maximum amount of P28,242,000.00, which, notably, is simply the total liquidation value of the mortgaged properties.³⁷

There is thus no question that the subject real estate mortgage covered the US$500,000.00 loan obtained by Shemberg from Citibank on September 13, 1996 under Promissory Note No. 8976267001. Considering Shemberg's failure to pay the balance of US$390,000.00, or its peso-equivalent of P19,006,197.00, under this promissory note, Citibank was well within its rights under the real estate mortgage to initiate the foreclosure proceedings on the mortgaged properties.

The Court further finds no merit in Shemberg's contention that the real consideration for the real estate mortgage was the renewal and increase of its credit line with Citibank.

Section 9, Rule 130 of the Rules of Court provides:

SEC. 9. Evidence of written agreements. � When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

x x x

Section 9, or what is commonly known as the Parol Evidence Rule, "forbids any addition to or contradiction of the terms of a written instrument by testimony purporting to show that, at or before the signing of the document, other terms were orally agreed on by the parties."³⁸ Under the Parol Evidence Rule, the terms of a written contract are deemed conclusive between the parties and evidence aliunde is inadmissible to change the terms embodied in the document.³⁹

This rule, however, is not absolute. Thus, a party may present evidence aliunde to modify, explain or add to the terms of a written agreement if he puts in issue in his pleading any of the four exceptions to the Parol Evidence Rule:

"The first exception applies when the ambiguity or uncertainty is readily apparent from reading the contract."⁴¹ The second exception pertains to instances where "the contract is so obscure that the contractual intention of the parties cannot be understood by mere inspection of the instrument."⁴²

Under the third exception, the Parol Evidence Rule does not apply "where the purpose of introducing the evidence is to show the invalidity of the contract."⁴³ And, the fourth exception involves a situation where the parties agreed to other terms after the execution of the written agreement.

Here, the first and second exceptions obviously do not apply as the real estate mortgage contract clearly and succinctly stated the terms of the mortgage, leaving no doubt as to the contractual intention of the parties by a mere reading of the document. The third exception, too, is inapplicable since Shemberg's purpose for introducing evidence aliunde is not to invalidate the contract; rather, it was meant to prove that Citibank had reneged on its alleged commitment to renew and increase its credit line with the bank which was supposedly the consideration for the execution of the real estate mortgage. Finally, the fourth exception likewise does not apply as it was never alleged that the parties had agreed to other terms after the execution of the real estate mortgage contract.

Based on these considerations, the Court sees no cogent reason to overturn the CA's factual findings and conclusions. Simply stated, it is clear that the terms agreed upon in the subject real estate mortgage are binding and conclusive between the parties.

WHEREFORE, the Petition is DENIED. The Decision dated October 23, 2012 and the Resolution dated October 27, 2014 of the Court of Appeals in CA-G.R. CEB-CV No. 00974 are AFFIRMED.

SO ORDERED.

Peralta, (Chairperson), Leonen, A. Reyes, Jr., and Hernando, JJ., concur.