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Suico Rattan & Buri Interiors, |
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G.R. No. 138145 |
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Inc. and Spouses Esmeraldo |
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and Elizabeth D. Suico |
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Present: |
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Petitioners, |
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PANGANIBAN,
CJ., Chairperson, |
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YNARES-SANTIAGO, |
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- versus - |
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AUSTRIA-MARTINEZ, |
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CALLEJO,
SR. and |
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CHICO-NAZARIO, JJ. |
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Court of Appeals and |
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Metropolitan Bank and Trust |
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Promulgated: |
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Co., Inc., |
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Respondents. |
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June
15, 2006 |
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D E C I S I O N
AUSTRIA-MARTINEZ,
J.:
The facts of the case are as
follows:
Suico Rattan & Buri Interiors,
Inc. (SRBII) is a domestic corporation engaged in the business of export of
rattan and buri products. Spouses Esmeraldo and Elizabeth Suico (Suico spouses)
are officers of SRBII. On the other
hand, Metropolitan Bank and Trust Co., Inc. (Metrobank) is a commercial banking
corporation duly organized and existing under the laws of the
In the course of its business, SRBII
applied for a credit line with Metrobank. On September 5, 1991, SRBII and
Metrobank, Mandaue branch, entered into a Credit Line Agreement (Agreement)
wherein the latter granted the former a discounting line amounting to P7,000,000.00
and an export bills purchase or draft against payment line (EBP/DP line) P10,000,000.00
for a maximum aggregate principal amount of P17,000,000.00.[4] As provided for under the Agreement, drawings
on the credit line are secured by a Continuing Surety Agreement for the sum of P17,500,000.00
executed by the Suico spouses,[5]
a Real Estate Mortgage executed on September 5, 1991 by SRBII and the Suico
spouses over properties located at Brgy. Tabok, Mandaue City, Cebu and
covered by Transfer Certificate of Title (TCT) Nos. 21663 and 21665, and Fire
Insurance policies over the properties duly endorsed in favor of Metrobank. The Agreement
expressly provides that the EBP/DP line is “clean”.[6]
Previous to the execution of the Agreement, the Suico spouses
had already incurred loan obligations from Metrobank which are secured by
separate Real Estate Mortgages executed on P12,218,866.23.[10]
As a consequence of these negotiations,
Metrobank issued various checks in favor of petitioners totaling P12,194,443.23,[11]
the last one of which was dated
Subsequently, SRBII and the Suico spouses were unable to pay
their obligations prompting Metrobank to extra-judicially foreclose the four
mortgages constituted over the subject properties. Metrobank, being the lone
and highest bidder, acquired the said properties during the auction sale. A Certificate of Sale dated
On
On
After trial, the RTC rendered judgment
on
WHEREFORE, foregoing premises considered, the Complaint is hereby dismissed. All obligations of defendants to plaintiffs incurred by the former either as principal, surety or guarantor, which matured and had become due and demandable on the date of the foreclosure of the Real Estate Mortgage are hereby declared already fully paid by the mortgage security.
SO ORDERED.[17]
Aggrieved by the decision of the RTC, Metrobank filed an
appeal with the CA.
On
WHEREFORE, the appealed decision is hereby REVERSED and SET
ASIDE, and a new one rendered ordering appellees, jointly and severally, to pay
appellant the sum of P16,585,286.27 representing the principal
obligations and interests as of October 31, 1992, plus interest on the
principal sum of P12,218,866.23 at the rate of P26% per annum from
November 1, 1992 until the said amounts are fully paid, the sum equivalent to
two percent (2%) of the total amount due as and for attorney’s fees, and to pay
the costs.
SO ORDERED.[18]
While the
CA affirmed the trial court’s ruling that under the provisions of the real
estate mortgage contracts executed by herein petitioners, the clear intent of
the contracting parties is that the mortgages shall not be limited to the
amount secured under the said contracts but shall extend to other obligations
that they may obtain from Metrobank, including renewals or extensions thereof,
the CA ruled that since the proceeds from the foreclosure sale of the mortgaged
properties amounted only to P10,383,141.63, the same is not sufficient
to answer for the entire obligation of petitioners to Metrobank and that the
latter may still recover the deficiency of
P16,585,286.27 representing the value of the export bills
purchased by herein petitioners.
SRBII and the Suico spouses filed a
Motion for Reconsideration but the same was denied by the CA through its
Resolution issued on
Hence, the present petition with the
following Assignment of Errors:
I
THE RESPONDENT COURT OF APPEALS
ERRED IN NOT HOLDING THAT THE REAL ESTATE MORTGAGE DATED
II
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECIDING THE CASE BASED ON AN ISSUE NOT RAISED IN THE PLEADINGS OR ADMISSIONS OF THE PARTIES.
III
THE RESPONDENT COURT OF APPEALS
ERRED IN NOT TAKING COGNIZANCE THAT RES JUDICATA HAD ALREADY SET IN, IN VIEW OF
THE TERMINATION OF THE PROCEEDINGS IN EXTRAJUDICIAL FORECLOSURE
IV
THE RESPONDENT COURT OF APPEALS
ERRED IN ORDERING THE PETITIONERS TO PAY SOLIDARILY THE AMOUNT OF P16,585,286.27
REPRESENTING THE PRINCIPAL OBLIGATION AND INTEREST AS OF OCTOBER 31, 1992 AND
TO PAY AN INTEREST ON THE PRINCIPAL SUM OF P12,218,866,23 AT THE RATE OF
26% PER ANNUM FROM NOVEMBER 1, 1992 UNTIL THE SAID AMOUNTS ARE FULLY PAID.
V
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS SUICO SPOUSES ARE SOLIDARILY LIABLE WITH PETITIONER CORPORATION FOR PAYMENT OF INTEREST PRIOR TO THE FILING OF THE COMPLAINT.
VI
THE RESPONDENT COURT OF APPEALS
ERRED IN ORDERING PETITIONERS TO PAY THE SUM EQUIVALENT TO TWO PERCENT (2%) OF THE TOTAL AMOUNT DUE AS AND FOR ATTORNEY’S FEES AND TO PAY THE
COSTS.[20]
As to the
first assigned error, petitioners claim that the Real Estate Mortgage executed
on
With
respect to the second assigned error, petitioners contend that the CA erred in
ruling that the bank’s cause of action is based on its claim for a deficiency
judgment arising from insufficient proceeds of the foreclosure sale of the
mortgaged properties; Metrobank’s cause of action is for a sum of money; at the
time of the filing of the complaint, there is no deficiency judgment to speak
of because the complaint was filed on November 5, 1992 while the foreclosure
sale was only held on November 18, 1992; the complaint was not amended to
include recovery of the deficiency as part of its cause of action.
Anent the
third assignment of error, petitioners assert that Metrobank is guilty of
splitting a single cause of action when it filed its complaint for a sum of
money on
As to the fourth
assigned error, petitioners contend that the CA erred in holding that they are
still liable to pay the deficiency in their obligation which was not covered by
the proceeds of the sale of the foreclosed mortgaged properties. Petitioners assert that in bidding and in
subsequently buying the subject mortgaged properties during the foreclosure
sale for a price which is much lower than their market value, Metrobank
effectively prevented petitioners from paying their entire obligation. Petitioners claim that they are not interested
in the redemption of the foreclosed properties, rather they are more concerned
with the payment of their obligation considering that these properties are the
only ones with which they expect to settle their indebtedness. Hence, since Metrobank, in buying the
foreclosed properties at a very low price, prevented petitioners from paying
their entire obligation, it is already barred by the principle of estoppel,
equity and fair play from recovering the remaining balance of petitioners’
obligation to it.
With
respect to the fifth assigned error, the Suico spouses contend that the CA
committed error in holding them solidarily liable with SRBII for the payment of
the remaining balance of the latter’s obligation plus interest on the ground
that they are mere sureties and as such they can only be held liable if the
principal does not pay. Absent any
showing that SRBII cannot pay, petitioners contend that they are not liable to
pay. The Suico
spouses also contend that, as sureties, they are liable to pay interest only at
the time of the filing of the complaint.
As to the
last assigned error, petitioners contend that the CA erred in awarding
attorney’s fees equivalent to 2% of the total amount due because petitioners
did not act in bad faith nor did they willfully refuse to pay their obligation,
which allegedly prompted Metrobank to litigate. Moreover, petitioners argue that the award of
attorney’s fees by the CA is contrary to the general rule that attorney’s fees
cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate.
In its Comment, respondent bank contends that the export
bills purchases made by petitioners are not secured by any real estate
mortgage. To support its argument
respondent bank cites the stipulation contained in the Credit Line Agreement
that the export bills purchases are clean or unsecured. Respondent bank further argues that the export
bills purchases were availed of by petitioners through the bank’s Cebu Downtown
Center Branch (otherwise referred to in the records as the Plaridel Branch)
while the other loan obligations of petitioners, which were secured by real
estate mortgages, were obtained from its Mandaue City Branch. Moreover, respondent bank asserts that
petitioners’ obligations with the former’s Mandaue City Branch are evidenced by
documents which are distinct and separate from the documents representing
petitioners’ export bills purchases with the Metrobank Cebu Downtown Center
Branch. In any case, respondent bank
contends that even if the real estate mortgage contracts executed by
petitioners be considered as securing all of the latter’s obligations,
including their export bills purchases, the fact remains that the foreclosure
of the mortgaged properties generated an amount which is insufficient to answer
for all the obligations of petitioners to respondent bank. Respondent bank contends that under the law,
it is not prevented from claiming the balance of petitioners’ obligation which
was not covered by the proceeds of the foreclosure sale. Respondent bank also argues that it is
erroneous for petitioners to claim that just because it (Metrobank) did not
require petitioners to put up additional security when they availed of
subsequent loans, the previous mortgages are already sufficient to secure all
their subsequent obligations.
Respondent bank further contends that the CA is correct in
ruling that it (Metrobank) is entitled to deficiency judgment considering that
petitioners themselves raised the issue that the real estate mortgages they
executed secured all their obligations with respondent bank. Respondent argues that the issue on deficiency
judgment necessarily arose because the proceeds of the foreclosure sale are not
sufficient to answer for all the obligations of petitioners to respondent bank.
In any case, respondent bank contends
that the CA is clothed with ample authority to resolve an issue even if it is
not raised if such resolution is necessary in arriving at a just decision.
Respondent bank asserts that there is no splitting of cause
of action because the complaint it filed against petitioners is simply for the
purpose of collecting the balance of the latter’s obligation which was not
covered by the proceeds of the sale of the mortgaged properties.
Respondent bank also contends that the Suico spouses are
solidarily liable with SRBII because by reason of their execution of the
Continuing Surety Agreement, the spouses’ liability became direct, primary and
absolute.
As to the attorney’s fees awarded by the CA, respondent bank
counters that petitioners are guilty of fraud and misrepresentation when they
gave their assurance and warranty that documents such as letters of credit and
commercial invoices are valid and existing when, in fact, they are not, thereby
inducing respondent bank to grant and approve its transactions with petitioners
involving the export bills purchases. By
reason of such fraud and misrepresentation, respondent bank contends that it
was compelled to incur expenses to protect its interest and enforce its claims.
The Court finds the petition partly meritorious.
The issues raised boil down to two basic questions: first,
whether the mortgage contract executed on September 5, 1991 serves as security
for all the obligations of petitioners to respondent bank; and second, whether
the foreclosure of the mortgaged properties precludes respondent bank from
claiming the sum of P16,585,286.27 representing
the amount covered by the export bills purchased by herein petitioners between
June and July 1991.
As to the first question, the Court agrees with petitioners
that all their obligations, including their indebtedness arising from their
purchase of export bills, are secured by the Real Estate Mortgage contract
executed on
The
following provisions appear in the Agreement:
…
WHEREAS, the CLIENT is desirous of obtaining credit accommodations from the BANK and the latter is willing to extend such credit accommodations to the CLIENT upon the terms and conditions hereinafter stipulated.
NOW, THEREFORE, the CLIENT and the BANK, in consideration of the following terms and conditions have agreed and covenanted as follows:
1. The BANK hereby grants and shall make available to
the CLIENT a credit line up to the aggregate principal amount of PESOS:
SEVENTEEN MILLION ONLY (P17,000,000.00) PESOS in lawful currency of the
Republic of the Philippines, to be availed as follows:
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- DISCOUNTING
LINE (REM) for one (1) |
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year, interest at prevailing rate, available by way of PNs not more than 360 days, discounted. |
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10,000,000.00 |
- EBP/DP LINE
(CLEAN) for one (1) year, |
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interest at prevailing rate. |
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2. Drawings on the line shall be secured by:
1.
Continuing Suretyship of Spouses Esmeraldo Suico and
Elizabeth D. Suico.
2.
REM for P7.0 MM over TCT Nos. 21663 & 21665 w/
an aggregate area of 10,318 sq. m. and situated at Brgy. Tabok, Mandaue City,
for item 1 only
3.
Fire Insurance policy(ies) duly
endorsed in bank’s favor.
…[21] (Emphasis supplied)
It is true
that the terms contained in the Agreement provide that the EBP/DP LINE is
“clean” and that it is only those drawings made on the DISCOUNTING LINE which
are secured by the mortgage constituted by petitioners spouses Suico over the subject properties. However, a perusal of the entire Agreement
shows that the credit line extended to petitioners refers only to transactions
that the latter may enter into after the execution of the said Agreement. There is nothing in the said document which
shows that the credit line covered the export bill purchases incurred prior to
the execution of the Agreement. In other
words, the provision that the EBP/DP LINE is clear or not covered by real
estate mortgage simply refers to credit accommodations which petitioners may
avail from respondent bank subsequent to the execution of the Agreement. It does not, in any way, refer to credit
accommodations which were already extended by respondent bank to petitioners prior
to P10,000,000.00
while the outstanding obligation of petitioners for the export bills purchases
as of July 1991 already totaled US$441,279.25 which, at the time of the transactions,
had a peso equivalent of P12,218,866.23.
On the other hand, pertinent portions of the Real Estate
Mortgage executed on the same date as the Agreement provide as follows:
…
That for and in consideration of certain loans and
other credit accommodations obtained from the Mortgagee amounting to SIX
MILLION TWO HUNDRED FIFTY THOUSAND (P6,250,000.00) PESOS ONLY
Philippine Currency, and to secure the payment of the same and those others
that the Mortgagee may heretofore have extended or hereafter extend to the
Mortgagor and/or SUICO RATTAN & BURI INTERIORS, INC., a domestic
corporation with principal office and place of business at Tabok, Mandaue City,
Philippines, hereinafter referred to, regardless of number, as the Borrower,
including interest at the rate specified in the promissory note(s) or other
evidence of indebtedness secured by this mortgage and expenses, and all
other obligations of the Mortgagor/Borrower to the Mortgagee of whatever kind
or nature, whether direct or indirect, principal or secondary, as appear in the
accounts, books and records of the
Mortgagee, whether such obligations have been contracted before, during or
after the constitution of this mortgage, the Mortgagor does hereby transfer
and convey by way of mortgage unto the Mortgagee, its successors or assigns,
the parcels of land which are described in the list inserted at the back of
this document, or in a supplementary list attached hereto, together with all
the buildings and improvements now existing or which may hereafter be erected
or constructed thereon and all easements, sugar quotas, agricultural or land
indemnities, aids or subsidies, including all other rights or benefits annexed
to or inherent therein, now existing or which may hereafter exist, and also
other assets acquired with the proceeds of the loan hereby secured, all of
which the Mortgagor declares that he is the absolute owner free from all liens
and encumbrances.
…[22] (emphasis supplied)
From the language of the contract, it is clear that the
mortgaged properties were intended to secure all loans, credit accommodations
and all other obligations of herein petitioners to Metrobank, whether such
obligations have been contracted before, during or after the constitution of
the mortgage.
The Court
finds no conflict between the provisions of the Agreement and the Real Estate
Mortgage contract both dated
Neither is the
Court persuaded by respondent bank’s contention that petitioners’ obligations
arising from their purchase of export bills is separate and distinct from their
other loan obligations with respondent bank because the export bills purchases
were availed by petitioners through the bank’s Cebu Downtown Center/Plaridel
branch while the other loan obligations of petitioners were obtained from its Mandaue
City branch.
The Court
quotes, with approval, the trial court’s ratiocination on this matter:
…
It matters not that the
EBP/DP line was availed of by defendants with the Plaridel branch, because the
Credit Line Agreement and the Real Estate Mortgages clearly indicate that
defendants were indebted to plaintiff bank and not to its Mandaue or Plaridel
branch. This is clearly evident in the opening paragraph of the Credit Line
Agreement and the Real Estate Mortgages when plaintiff defines itself as a
“Commercial Banking Corporation organized and existing under and by virtue of
the laws of the Republic of the
…[23]
It bears to note that the complaint for a sum of money was
filed in the name of Metrobank alone, without impleading its Plaridel or
Mandaue branches. By not impleading either of these branches, it only goes to show
that respondent bank, itself, insofar as the present case is concerned,
considers the whole Metrobank corporation as the
aggrieved party. Hence, it is now
estopped from claiming that the mortagaged properties secure only those
transactions entered into with its Mandaue branch simply because the mortgage
contracts were entered into through the said branch. It does not matter that
the export bills purchases of petitioners were entered into through the
facility of respondent bank’s Plaridel
branch and evidenced by separate and distinct documents because in all these
transactions there is only one creditor, which is the corporate entity known as
Metrobank.
On the other hand, the Court is not persuaded by petitioners’
claim that the foreclosed properties command a market price of P50,000,000.00 at the time of the foreclosure sale. No evidence appears on record to prove this
allegation. Granting that the mortgaged
properties were sold during the auction for an amount which is way below their
market price, the same does not place the petitioners at a disadvantage. On the contrary, the low price works to their
advantage because it would be easier for them to redeem the property sold. The Court agrees with the CA when it cited the
case of Prudential Bank v. Martinez where the Court held as follows:
“Moreover, the fact that the mortgaged property is
sold at an amount less than its actual market value should not militate against
the right to such recovery. We fail to
see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain
with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy
of price should not be material, because the judgment debtor may reacquire the
property or also sell his right to redeem and thus recover the loss he claims
to have suffered by the reason of the price obtained at the auction sale. (De Leon v. Salvador,
L-30871, December 28, 1970 and Bernabe v. Cruz, et. al., L-31603, December 28,
1970; 36 SCRA 567). Generally, in
forced sales, low prices are usually offered and the mere inadequacy of the
price obtained at the sheriff’s sale unless shocking to the conscience will not
be sufficient to set aside a sale if there is no showing that in the event of a
regular sale, a better price can be obtained (Ponce de Leon v. Rehabilitation
Finance Corporation, L-24571, December 18, 1970, 36 SCRA 289).[24]
Hence, it is wrong for petitioners to conclude that when
respondent bank supposedly bought the foreclosed properties at a very low
price, the latter effectively prevented the former from satisfying their whole
obligation. Petitioners still had the
option of either redeeming the properties and, thereafter, selling the same for
a price which corresponds to what they claim as the properties’ actual market
value or by simply selling their right to redeem for a price which is
equivalent to the difference between the supposed market value of the said
properties and the price obtained during the foreclosure sale. In either case,
petitioners will be able to recoup the loss they claim to have suffered by
reason of the inadequate price obtained at the auction sale and, thus, enable
them to settle their obligation with respondent bank. Moreover, petitioners are not justified in
concluding that they should be considered as having paid their obligations in
full since respondent bank was the one who acquired the mortgaged properties
and that the price it paid was very inadequate. The fact that it is respondent bank, as the
mortgagee, which eventually acquired the mortgaged properties and that the bid
price was low is not a valid reason for petitioners to refuse to pay the
remaining balance of their obligation. Settled
is the rule that a mortgage is simply a security and not a satisfaction of
indebtedness.[25]
As to
petitioners’ contention that they are not liable to pay since there is no
showing that the principal debtor cannot pay, the time-honored rule is that the
surety obligates himself to pay the debt if the principal debtor will not pay,
regardless of whether or not the latter is financially capable to fulfill his
obligation.[26]
Thus, a creditor can go directly against the surety although the principal
debtor is solvent and is able to pay or no prior demand is made on the
principal debtor.[27]
Although a surety contract is secondary to the principal obligation, the
liability of the surety is direct, primary and absolute; or equivalent to that
of a regular party to the undertaking.[28]
A surety is considered in law to be on
the same footing as the principal debtor in relation to whatever is adjudged
against the latter.[29]
Equally
settled is the principle that contracts have the force of law between the parties
and are to be complied with in good faith.[30]
From the moment the contract is
perfected, the parties are bound to comply with what is expressly stipulated as
well as with what is required by the nature of the obligation in keeping with
good faith, usage and the law.[31]
In the present case, it is clear from
the Continuing Surety Agreement[32]
executed by the Suico spouses that they hold themselves solidarily liable with
SRBII in the payment of the latter’s obligations to respondent bank to the
extent of P17,500,000.00, plus interests and
other incidental charges such as penalties, costs and expenses in collecting
their obligation. The same principle
applies with respect to the payment of interest. It is clear from the various letters executed
by SRBII in favor of respondent bank that it agreed to pay interest in favor of
respondent bank at the rate of 26% per annum based on the value of the draft,
the same to be reckoned after twelve days from the date of purchase or from the
date of dishonor, whichever is earlier, up to the date of
final payment.[33] Since the Suico
spouses obligated themselves to be solidarily bound with SRBII, it follows that
they are also liable to pay interest as stipulated in the above-cited letters.
Having
settled that the mortgaged properties served as security for all the
petitioners’ obligations to Metrobank and that the former’s liability is
solidary, the next question to be resolved is whether, under the facts and
circumstances obtaining in the present case, the respondent bank is precluded
from recovering the amount representing the value of the export bills purchased
by petitioners from it in June and July, 1991.
The rule is settled that a mortgage creditor may, in the
recovery of a debt secured by a real estate mortgage, institute against the
mortgage debtor either a personal action for debt or a real action to foreclose
the mortgage.[34]
These remedies available to the mortgage
creditor are deemed alternative and not cumulative. An election of one remedy operates as a
waiver of the other.[35] In sustaining the rule that prohibits
mortgage creditors from pursuing both the remedies of a personal action for
debt or a real action to foreclose the mortgage, the Court held in the case of Bachrach
Motor Co., Inc. v. Esteban Icarangal, et al. that a rule which would
authorize the plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged property,
would result not only in multiplicity of suits so offensive to justice and obnoxious
to law and equity, but also in subjecting the defendant to the vexation of
being sued in the place of his residence or of the residence of the plaintiff,
and then again in the place where the property lies.[36] Hence, a remedy is deemed chosen upon the
filing of the suit for collection or upon the filing of the complaint in an
action for foreclosure of mortgage, pursuant to the provisions of Rule 68 of
the Rules of Court.[37] As to extrajudicial foreclosure, such remedy
is deemed elected by the mortgage creditor upon filing of the petition not with
any court of justice but with the office of the sheriff of the province where
the sale is to be made, in accordance with the provisions of Act No. 3135, as
amended by Act No. 4118.[38]
Records show that the complaint for a sum of money was filed
with the RTC on
The Certificate of Sale executed by the Ex-Officio Provincial
Sheriff indicates that the extrajudicial foreclosure sale was conducted on
Sec. 3. Notice shall be given by posting notices of
the sale for not less than twenty days in at least three public places of
the municipality or city where the property is situated and if such property is
worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation
in the municipality or city. (Emphasis
supplied)
Hence, it is reasonable to assume that the requirements
regarding notice and publication prior to the conduct of the sale have been
complied with. Going back 20 days from
The question
that remains then is: may the complaint for a sum of money filed by respondent
bank be considered as a suit for the recovery of deficiency in petitioners’
obligation?
The Court
rules in the negative.
It is
undisputed that the suit filed by respondent bank with the trial court was a personal
action for the collection of a sum of money. The complaint was premised on the refusal of
herein petitioners’ buyers to pay and accept the value of the drafts or bills
of exchange and the subsequent failure of petitioners to answer for the value
of the said drafts plus interest upon notice and demand sent by respondent
bank. There was no mention, either in
the body of the complaint or in the prayer, for the recovery of the balance of
petitioners’ obligations which were not covered by the foreclosure sale. In fact, the foreclosure sale was not even
mentioned. In other words, in filing the
complaint with the RTC, respondent bank was not suing for any deficiency. Understandably, the respondent bank could not have
claimed such deficiency because, as correctly observed by petitioners, at the
time of the filing of the complaint on
Given the fact that the proceeds of the auction sale were not
sufficient to answer for the entire obligation of petitioners to respondent
bank, the latter still has the right to recover the balance due it after
applying the proceeds of the sale. We
agree with the CA that where the mortgage creditor chooses the remedy of
foreclosure and the proceeds of the foreclosure sale are insufficient to cover
the debt, the mortgagee is entitled to claim the deficiency from the debtor.[41] The law gives the mortgagee the right to claim
for the deficiency resulting from the price obtained in the sale of the
property at public auction and the outstanding obligation at the time of the
foreclosure proceedings.[42] This rule is based on the principle earlier
mentioned that the mortgage is only a security and not a satisfaction of the
mortgagor’s entire obligation. Moreover,
unlike in pledge[43]
and chattel mortgage on a thing sold on installment,[44] where the Civil Code
expressly forecloses the right of creditors to sue for any deficiency resulting
from the sale of the property given as a security for the obligation, there is
nothing in Act. No. 3135,[45] the law governing
extrajudicial foreclosures, which expressly or impliedly prohibits the recovery
of such deficiency. If the
legislature had intended to deny the creditor the right to sue for any
deficiency resulting from the foreclosure of a security given to guarantee an
obligation, the law would expressly so provide.[46] Absent such a provision in
Act. No. 3135, as amended, the creditor is not precluded from taking
action to recover any unpaid balance on the principal obligation simply because
he chose to extrajudicially foreclose the real estate mortgage.[47] Hence, in the present case, the Court’s
dismissal of the complaint should be without prejudice to the filing of another
action for the recovery of the balance left in petitioners’ obligation after
the foreclosure sale of the mortgaged properties.
The CA or this Court has no jurisdiction to rule on the
amount of deficiency that is yet to be claimed and proved in the proper forum
by Metrobank.
WHEREFORE, the petition is partially GRANTED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 48320 are REVERSED and SET ASIDE.
The Decision of the Regional Trial Court
of Cebu, Branch 8 in Civil Case No. CEB-13156 is REINSTATED with MODIFICATION
to the effect that the portion of the RTC Decision, declaring that “all
obligations of defendants to plaintiffs incurred by the former either as
principal, surety or guarantor, which matured and had become due and demandable
on the date of the foreclosure of the Real Estate Mortgage are considered fully
paid by the mortgage security”, is DELETED subject to the right of
Metropolitan Bank and Trust Co., Inc. to recover the amount of deficiency in a
proper action in the proper court.
No pronouncement as to cost.
SO ORDERED.
MA.
ALICIA AUSTRIA-MARTINEZ
Associate
Justice
WE CONCUR:
Chief Justice
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CONSUELO YNARES-SANTIAGO Associate Justice |
ROMEO J. CALLEJO, SR. Associate Justice |
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MINITA V. CHICO-NAZARIO Associate Justice |
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution, it is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
ARTEMIO V.
PANGANIBAN
Chief Justice
[1] Penned by Justice Artemon D. Luna (now retired) and concurred in by Justices Delilah Vidallon-Magtolis (now retired) and Rodrigo V. Cosico.
[2] Penned by Judge Victorino U. Montecillo.
[3] CA rollo, p. 142.
[4] Exhibit “UUUU”, records, p. 287;
TSN,
[5] Exhibit “GGGG”, records, p. 105/Exhibit “2”, records, p. 315; “UUUU-1-A”, records, p. 287.
[6] Exhibit “UUUU”, records, p. 287.
[7] Exhibit “VVVV”, records, p. 288.
[8] Exhibit “WWWW”, records, p. 291.
[9] Exhibit “YYYY”, records, p. 296.
[10] Exhibits “D”, “K”, “R”, “Y”, “FF”, “MM”, “TT”, “AAA”, “HHH”, “OOO”, “VVV”, “CCCC”, “JJJJ”, records, pp. 24, 31, 38, 45, 52, 59, 66, 73, 80, 87, 94, 101, 108.
[11] Exhibits “F”, “M”, “T”, “AA”, “HH”, “OO”, “VV”, “CCC”, “JJJ”, “QQQ”, “XXX”, records, pp. 26, 33, 40, 47, 54, 61, 68, 75, 82, 89, 96.
[12] Exhibit “FFFF”, records, p. 104.
[13] Exhibit “ZZZZ”, records, p. 300.
[14] Records, p. 1.
[15]
[16]
[17]
[18] CA rollo, p. 103.
[19]
[20] Rollo, pp. 13-14.
[21] Exhibit “UUUU”, records, p. 287.
[22] Exhibit “XXXX”, records, p. 295.
[23] Records, pp. 385-386.
[24] G.R. No. 51768,
[25] Philippine Bank of Commerce v. De Vera, 116 Phil. 1326, 1329 (1962).
[26] Ong v. Philippine Commercial International Bank, G.R. No. 160466, January 17, 2005, 448 SCRA 705, 709.
[27]
[28] International Finance Corporation v. Imperial Textile Mills Inc., G.R. No. 160324, November 15, 2005, 475 SCRA 149, 160.
[29]
[30] Twin Towers Condominium Corporation v. Court of Appeals, et. al., 446 Phil. 280, 312 (2003).
[31]
[32] Exhibit “GGGG”, records, p. 105.
[33] Exhibits “E”, “L”, “S”, “Z”, “GG”, “NN”, “UU”, “BBB”, “III”, “PPP”, “WWW”, “DDDD”, records, pp. 25, 32, 39, 46, 53, 60, 67, 74, 81, 88, 95, 102.
[34] Bank of America NT & SA v. American Realty Corporation and Court of Appeals, 378 Phil. 1279, 1290-1291, (1999), 321 SCRA 659, 668.
[35]
[36] 68 Phil. 287, 294-295 (1939).
[37] Bank of America NT & SA v. American Realty Corporation and Court of Appeals, supra.
[38]
[39] Exhibit “ZZZZ”, records, p. 300.
[40] Sections 3 (m) and (q), Rule131, Rules of Court.
[41] Cuñada v. Drilon, G.R. No.
159118,
[42] Quirino Gonzales Logging Concessionaire v. Court of Appeals, 450 Phil. 218, 230 (2003), 402 SCRA 181, 190.
[43] Article 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary.
[44] Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee’s failure to pay cover two or more installments;
(3) Foreclose the chattel
mortgage on the thing sold, if one has been constituted, should the vendee’s
failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the
price. Any agreement to the contrary shall be void. (emphasis
supplied).
[45] An Act to Regulate the
[46] Cuñada v. Drilon, supra.
[47]