SHEMBERG CORPORATION, MARKETING PETITIONER, v. CITIBANK

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SHEMBERG CORPORATION, MARKETING PETITIONER, v. CITIBANK, N.A.,

NEMESIO SOLOMON, EX-OFFICIO SHERIFF AND SHERIFF-IN-CHARGE,
RESPONDENTS.
G.R. No. 216029, September 04, 2019
Ponente: INTING, J.: THIRD DIVISION

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Nature of Action:
This is an action for recission or declaration of nullity of the contract of real estate
mortgage against Citibank instituted by Shemberg Corporation because of
alleged breach of agreement to renew and increase the credit line of the latter by
the former.
Facts:
Petitioner Shemberg Marketing Corporation (Shemberg) executed a real estate

mortgage over a parcel of land located in Mandaue City, including all
improvements, machineries, and equipment found thereon, in favor of
respondent Citibank, N.A. (Citibank), to secure loan accommodations. The real
estate mortgage was embodied in a deed, which the parties denominated as
"First Party Real Estate Mortgage.”
Citibank sent a demand letter to Shemberg wherein it required the latter to pay its
outstanding balance under Promissory Note. Otherwise, it would be forced to
initiate foreclosure proceedings on the mortgaged properties.
Unfortunately, Shemberg defaulted in the payment of its outstanding obligation to

Citibank. Consequently, Citibank commenced the extra-judicial foreclosure of the
mortgaged properties.
Upon learning of the foreclosure sale, Shemberg filed a Complaint for rescission
or declaration of nullity of the contract of real estate mortgage against Citibank
before the Regional Trial Court of Cebu City.
In its Complaint, Shemberg alleged that 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. However, despite the execution of the mortgage,
Citibank refused to renew and increase Shemberg's credit line.
Shemberg asserted that the real estate mortgage was void for lack of
consideration, given Citibank's failure to comply with its commitment to renew
and increase its credit line with the bank.
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.
It also made clear to Shemberg that the bank would no longer extend any
additional credit unless its financial standing improves.
In its Decision, the RTC declared the real estate mortgage 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. On appeal, the Court of
Appeals reversed and set aside the RTC Decision. It declared the real estate
mortgage, as well as the extra-judicial foreclosure proceedings initiated by
Citibank is valid.
Issue:
Whether or not the real estate mortgage was void for lack of consideration due to
the fact that Citibank did not comply with its commitment to renew and increase
the credit line of the petitioner Shemberg Corporation.
Held:
Negative. The Court 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.
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. The fact that Shemberg's outstanding obligation is significantly
higher than the amount of secured obligations does not invalidate the real estate
mortgage. 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.
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.
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.

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SHEMBERG CORPORATION, MARKETING PETITIONER, v. CITIBANK, N.A.,

G.R. No. 216029, September 04, 2019

Ponente: INTING, J.: THIRD DIVISION

Petitioner Shemberg Marketing Corporation (Shemberg) executed a real estate

Unfortunately, Shemberg defaulted in the payment of its outstanding obligation to

In its Complaint, Shemberg alleged that Citibank required Shemberg to execute a

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