Active Wood Products Co., Inc v. State Investment House, Inc. G.R. No. 240277 14 October 2020 Delos Santos, J.

Active Wood Products Co., Inc v. State Investment House, Inc.

G.R. No. 240277

14 October 2020 Delos Santos, J.:

Second Division

Nature of the Action: This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision and the Resolution of the Court of Appeals (CA) affirming the Joint Decision and the Order of the Regional Trial Court (RTC) which declared that: (1) the action of State Investment House, Inc. (SIHI) against Active Wood Products Co., Inc. (AWP) has not prescribed; (2) AWP failed to prove that it had fully paid its obligation with SIHI; and (3) SIHI is allowed to proceed with the extrajudicial foreclosure of real estate mortgage against AWP.

Facts:

AWP filed a complaint for injunction with a prayer of TRO and writ of Preliminary Injunction against the Respondent to prevent the extrajudicial foreclosure of the Real Estate mortgage it had executed in favor of SIHI.

AWP asserted that by allowing it to pay the interest and related charges even after the maturity dates of the promissory notes that it had executed in favor of SIHI, the latter has expressly novated the terms and conditions stipulated in those documents. Thus, it claimed that SIHI could not foreclose the mortgaged properties based on the stipulations in the original real estate mortgage contracts and promissory notes particularly the acceleration clause which rendered due and demandable the entire loan obligation if not paid on the maturity dates.

AWP filed an omnibus motion, among others, prayed that the 8 Real estate mortgages be declared barred by the statute of limitations. However, RTC denied such motion. Then it moved for reconsideratio but the same was denied. RTC issued a joint decision, holding among others, that the ten-year prescriptive period of the mortgage action has not lapsed.

Thus, AWP elevated the case to the Court of Appeals. However, it affirmed the RTC's joint decision. Hence, this petition.

Issue: 

Whether the extrajudicial foreclosure is a judicial action that interrupts the running of the prescriptive period in enforcing a right arising from a mortgage.

Ruling:

[A]n action to enforce a right arising from a mortgage should be enforced within 10 years from the time the right of action accrues; otherwise, it will be barred by prescription and the mortgage creditor will lose his rights under the mortgage. The right of action accrues when the mortgagor defaults in the payment of his obligation to the mortgagee.

In the instant case, it is settled that SIHI's right of action started to accrue in 1981, when AWP defaulted in paying its obligation. AWP's defaults can be gleaned from the following undisputed facts: (1) AWP paid interest and related charges even after the maturity dates; (2) the obligation had to be restructured several times upon the request of AWP; and (3) AWP sought extensions of payment on its unpaid obligation.

Under Article 1155, the prescription of action is interrupted when: (1) they are filed before the court; (2) there is a written extrajudicial demand by the creditors; and (3) there is any written acknowledgment of the debt by the debtor.

The Court agrees with the conclusion of the CA that the 10-year prescriptive period was interrupted on June 7, 1982 when AWP filed a complaint for injunction to restrain the intended foreclosure and commenced to run again on September 5, 2016 when the RTC dismissed the complaint and lifted the writ of preliminary injunction. In sum, the Court finds that SIHI's right to foreclose has not prescribed.