THIRD
DIVISION
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SPS. ESMERALDO and ELIZABETH SUICO,
Petitioners, - versus
- PHILIPPINE NATIONAL BANK and HON.
COURT OF APPEALS, Respondents. |
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G.R. No. 170215 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ,
CHICO-NAZARIO, NACHURA, and REYES, JJ. Promulgated: |
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CHICO-NAZARIO, J.:
Herein petitioners, Spouses Esmeraldo
and Elizabeth Suico, obtained a loan from the
Philippine National Bank (PNB) secured by a real estate mortgage[1] on
real properties in the name of the former. The petitioners were unable to pay
their obligation prompting the PNB to extrajudicially
foreclose the mortgage over the subject properties before the City Sheriff of Mandaue City under EJF Case No. 92-5-15.
The petitioners thereafter filed a
Complaint against the PNB before the Regional Trial Court (RTC) of
The
Complaint alleged that on 6 May 1992, PNB filed with the Office of the Mandaue City Sheriff a petition for the extrajudicial
foreclosure of mortgage constituted on the petitioners’ properties (subject
properties) for an outstanding loan obligation amounting to P1,991,770.38
as of 10 March 1992. The foreclosure
case before the Office of the Mandaue City Sheriff, which
was docketed as EJF Case No. 92-5-15, covered the following properties:
TCT NO. 13196
“A parcel of land (
TAX
DECL. NO. 00553
“A parcel of land
situated at Tabok,
TAX
DECL. NO. 00721
“Two (2) parcels of
land situated at Tabok,
TAX
DECL. NO. 0237
“A parcel of land
situated at Tabok,
TAX
DECL. NO. 9267
“A parcel of land
situated at Tabok,
Petitioners
claimed that during the foreclosure sale of the subject properties held on P8,511,000.00. By virtue of the said bid, a Certificate of
Sale of the subject properties was issued by the Mandaue
City Sheriff in favor of PNB. PNB did
not pay to the Sheriff who conducted the auction sale the amount of its bid
which was P8,511,000.00 or give an accounting of how said amount was
applied against petitioners’ outstanding loan, which, as of P1,991,770.38.
Since the amount of the bid grossly exceeded the amount of petitioners’
outstanding obligation as stated in the extrajudicial foreclosure of mortgage,
it was the legal duty of the winning bidder, PNB, to deliver to the Mandaue City Sheriff the bid price or what was left thereof
after deducting the amount of petitioners’ outstanding obligation. PNB failed to deliver the amount of their bid
to the Mandaue City Sheriff or, at the very least,
the amount of such bid in excess of petitioners’ outstanding obligation.
One
year after the issuance of the Certificate of Sale, PNB secured a Certificate
of Final Sale from the Mandaue City Sheriff and, as a
result, PNB transferred registration of all the subject properties to its
name.
Owing
to the failure of PNB as the winning bidder to deliver to the petitioners the
amount of its bid or even just the amount in excess of petitioners’ obligation,
the latter averred that the extrajudicial foreclosure conducted over the
subject properties by the Mandaue City Sheriff, as
well as the Certificate of Sale and the Certificate of Finality of Sale of the
subject properties issued by the Mandaue City
Sheriff, in favor of PNB, were all null and void.
Petitioners,
in their Complaint in Civil Case No. MAN-2793, prayed for:
a) Declaring the Nullity of Extra-judicial Foreclosure of Mortgage under EJF Case No. 92-5-15 including the certificate of sale and the final deed of sale of the properties affected;
b) Order[ing] the cancellation of the certificates of titles and tax declaration already in the name of [herein respondent] PNB and revert the same back to herein [petitioners’] name;
c) Ordering the [PNB] to pay [petitioners]
moral damages amounting to more than P1,000,000,00; Exemplary damages of
P500,000.00; Litigation expenses of P100,000.00 and attorney’s
fees of P300,000.00.[4]
PNB
filed a Motion to Dismiss[5]
Civil Case No. MAN-2793 citing the pendency of
another action between the same parties, specifically Civil Case No. CEB-15236 before
the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo
and Elizabeth Suico where PNB was seeking the
payment of the balance of petitioners’ obligation not covered by the proceeds
of the auction sale held on
PNB
disputed petitioners’ factual narration.
PNB asserted that petitioners had other loans which had likewise become
due. Petitioners’ outstanding obligation
of P1,991,770.38 as of P8,511,000.00, contradicting the
claim of surplus proceeds due the petitioners.
Petitioners were well aware that their total principal outstanding
obligation on the date of the auction sale was P5,503,293.21.
PNB
admitted the non-delivery of the bid price to the sheriff and the execution of
the final deed of sale, but claimed that it had not transferred in its name all
the foreclosed properties because the petition to register in its name Transfer
Certificates of Title (TCT) No. 37029 and No. 13196 were still pending.
On
WHEREFORE, based on the foregoing, judgment is rendered in favor of [herein petitioners] Sps. Esmeraldo & Elizabeth Suico and against [herein respondent], Philippine National Bank (PNB), declaring the nullity of Extrajudicial Foreclosure of Mortgage under EJF Case No. 92-5-15, including the certificate of sale and the final deed of sale of the subject properties; ordering the cancellation of the certificates of titles and tax declaration already in the name of [respondent] PNB, if any, and revert the same back to the [petitioners’] name; ordering [respondent] PNB to cause a new foreclosure proceeding, either judicially or extra-judicially.
Furnish parties thru counsels copy of this order.[10]
In
granting the nullification of the extrajudicial foreclosure of mortgage, the
RTC reasoned that given that petitioners had other loan obligations which had
not yet matured on 10 March 1992 but became due by the date of the auction sale
on 30 October 1992, it does not justify the shortcut taken by PNB and will not
excuse it from paying to the Sheriff who conducted the auction sale the excess
bid in the foreclosure sale. To allow
PNB to do so would constitute fraud, for not only is the filing fee in the said
foreclosure inadequate but, worse, the same constitutes a misrepresentation
regarding the amount of the indebtedness to be paid in the foreclosure sale as
posted and published in the notice of sale.[11] Such misrepresentation is fatal because in an
extrajudicial foreclosure of mortgage, notice of sale is jurisdictional. Any error in the notice of sale is fatal and
invalidates the notice.[12]
When
the PNB appealed its case to the Court of Appeals,[13]
the appellate court rendered a Decision[14]
dated
WHEREFORE,
premises considered, the instant appeal is GRANTED. The questioned decision of the
In
justifying reversal, the Court of Appeals held:
A
careful scrutiny of the evidence extant on record would show that in a letter
dated P5.4
Million and in fact offered to redeem the properties at P6.5
Million. They eventually increased their
offer at P7.5 Million as evidenced by that letter dated
Even assuming that indeed there was a surplus and the [PNB] is retaining more than the proceeds of the sale than it is entitled, this fact alone will not affect the validity of the sale but simply gives the [petitioners] a cause of action to recover such surplus. In fine, the failure of the [PNB] to remit the surplus, if any, is not tantamount to a non-compliance of statutory requisites that could constitute a jurisdictional defect invalidating the sale. This situation only gives rise to a cause of action on the part of the [petitioners] to recover the alleged surplus from the [PNB]. This ruling is in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made.[16]
Petitioners
filed a Motion for Reconsideration[17]
of the foregoing Decision, but the Court of Appeals was not persuaded. It maintained the validity of the foreclosure
sale and, in its Amended Decision dated
WHEREFORE,
Our decision dated
Unflinching,
petitioners elevated the case before this Court via the present Petition for Review essentially seeking the
nullification of the extrajudicial foreclosure of the mortgage constituted on
the subject properties. Petitioners
forward two reasons for declaring null and void the said extrajudicial
foreclosure: (1) the alleged defect or misrepresentation in the notice of
sheriff’s sale; and/or (2) failure of PNB to pay and tender the price of its
bid or the surplus thereof to the sheriff.
Petitioners
argue that since the Notice of Sheriff’s P1,991,770.38 and PNB bidded P8,511,000.00,
the said Notice as well as the consequent sale of the subject properties were
null and void.
It
is true that statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with, and that even slight
deviations therefrom will invalidate the notice and
render the sale at least voidable.[19] Nonetheless, we must not also lose sight of
the fact that the purpose of the publication of the Notice of Sheriff’s
Considering
the purpose behind the Notice of Sheriff’s Sale, we disagree with the finding
of the RTC that the discrepancy between the amount of petitioners’ obligation
as reflected in the Notice of Sale and the amount actually due and collected
from the petitioners at the time of the auction sale constitute fraud which
renders the extrajudicial foreclosure sale null and void.
Notices
are given for the purpose of securing bidders and to prevent a sacrifice of the
property. If these objects are attained,
immaterial errors and mistakes will not affect the sufficiency of the notice;
but if mistakes or omissions occur in the notices of sale, which are calculated
to deter or mislead bidders, to depreciate the value of the property, or to
prevent it from bringing a fair price, such mistakes or omissions will be fatal
to the validity of the notice, and also to the sale made pursuant thereto.[21]
All
these considered, we are of the view that the Notice of Sale in this case is
valid. Petitioners failed to convince
this Court that the difference between the amount stated in the Notice of Sale
and the amount of PNB’s bid resulted in discouraging
or misleading bidders, depreciated the value of the property or prevented it
from commanding a fair price.
The
cases cited by the RTC in its Decision do not apply herein. San
Jose v. Court of Appeals[22]
refers to a Notice of Sheriff’s
We
now proceed to the effect of the non-delivery by PNB of the bid price or the
surplus to the petitioners.
The
following antecedents are not disputed:
For
failure to pay their loan obligation secured by a real estate mortgage on the
subject properties, PNB foreclosed the said mortgage. In its petition for foreclosure sale under
ACT No. 3135 filed before the Mandaue City Sheriff,
PNB stated therein that petitioners’ total outstanding obligation amounted to P1,991,770.38.[24] PNB bidded the
amount of P8,511,000.00.
Admittedly, PNB did not pay its bid in cash or deliver the excess either
to the City Sheriff who conducted the bid or to the petitioners after deducting
the difference between the amount of its bid and the amount of petitioners’
obligation in the Notice of Sale. The
petitioners then sought to declare the nullity of the foreclosure, alleging
that their loan obligation amounted only to P1,991,770.38 in the Notice
of Sale, and that PNB did not pay its bid in cash or deliver to petitioner the
surplus, which is required under the law.[25]
On
the other hand, PNB claims that petitioners’ loan obligation reflected in the
Notice of Sale dated
Pertinent
provisions under Rule 39 of the Rules of Court on extrajudicial foreclosure
sale provide:
SEC. 21. Judgment obligee as purchaser. – When the purchaser is the judgment obligee, and no third-party claim has been filed, he need not pay the amount of the bid if it does not exceed the amount of his judgment. If it does, he shall pay only the excess. (Emphasis supplied.)
SEC. 39. Obligor may pay execution against obligee. – After a writ of execution against property has been issued, a person indebted to the judgment obligor may pay to the sheriff holding the writ of execution the amount of his debt or so much thereof as may be necessary to satisfy the judgment, in the manner prescribed in section 9 of this Rule, and the sheriff’s receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment obligee on the execution.
Conspicously emphasized under Section 21 of Rule 39 is that
if the amount of the loan is equal to the amount of the bid, there is no need
to pay the amount in cash. Same
provision mandates that in the absence of a third-party claim, the purchaser in
an execution sale need not pay his bid if it does not exceed the amount of the
judgment; otherwise, he shall pay only the excess.[27]
The raison de etre
is that it would obviously be senseless for the Sheriff or the Notary Public
conducting the foreclosure sale to go through the idle ceremony of receiving
the money and paying it back to the creditor, under the truism that the
lawmaking body did not contemplate such a pointless application of the law in
requiring that the creditor must bid under the same conditions as any other
bidder. It bears stressing that the rule
holds true only where the amount of the bid represents the total amount of the
mortgage debt.[28]
The
question that needs to be addressed in this case is: considering the amount of PNB’s
bid of P8,511,000.00 as against the amount of the petitioners’
obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to
deliver the excess?
Petitioners
insist that the PNB should deliver the excess.
On the other hand PNB counters that on the date of the auction sale on P1,991,770.38
in the Notice of Sale.
Rule 68, Section 4 of the
Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it.
Under
the above rule, the disposition of the proceeds of the sale in foreclosure
shall be as follows:
(a) first, pay the costs
(b) secondly, pay off the mortgage debt
(c) thirdly, pay the junior encumbrancers, if any in the order of priority
(d) fourthly, give the balance to the mortgagor, his agent or the person entitled to it.[29]
Based
on the foregoing, after payment of the costs of suit and satisfaction of the
claim of the first mortgagee/senior mortgagee, the claim of the second
mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The application of the proceeds from the sale
of the mortgaged property to the mortgagor’s obligation is an act of payment,
not payment by dacion;
hence, it is the mortgagee’s duty to return any surplus in the selling price to
the mortgagor. Perforce, a mortgagee who
exercises the power of sale contained in a mortgage is considered a custodian
of the fund and, being bound to apply it properly, is liable to the persons
entitled thereto if he fails to do so.
And even though the mortgagee is not strictly considered a trustee in a
purely equitable sense, but as far as concerns the unconsumed balance, the
mortgagee is deemed a trustee for the mortgagor or owner of the equity of
redemption.[30]
Thus
it has been held that if the mortgagee is retaining more of the proceeds of the
sale than he is entitled to, this fact alone will not affect the validity of
the sale but simply give the mortgagor a cause of action to recover such
surplus.[31]
In
the case before us, PNB claims that petitioners’ loan obligations on the date
of the auction sale were already more than the amount of P1,991,770.38
in the Notice of Sale. In fact, PNB claims
that on the date of the auction sale, petitioners’ principal obligation, plus penalties,
interests, attorneys fees and other charges were already beyond the amount of
its bid of P8,511,000.00.
After a careful review of the
evidence on record, we find that the same is insufficient to support PNB’s claim. Instead,
what is available on record is petitioner’s Statement of Account as prepared by
PNB and attached as Annex A[32]
to its Answer with counterclaim.[33] In this Statement of Account, petitioners’
principal obligation with interest/penalty and attorney’s fees as of P6,409,814.92.
Although petitioners denied the
amounts reflected in the Statement of Account from PNB, they did not interpose
any defense to refute the computations therein.
Petitioners’ mere denials, far from being compelling, had nothing to
offer by way of evidence. This then
enfeebles the foundation of petitioners’ protestation and will not suffice to
overcome the computation of their loan obligations as presented in the
Statement of Account submitted by PNB.[34]
Noticeably, this Statement of
Account is the only piece of evidence available before us from which we can
determine the outstanding obligations of petitioners to PNB as of the date of
the auction sale on
It
did not escape the attention of this Court that petitioners wrote a number of
letters to PNB almost two years after the auction sale,[35] in
which they offered to redeem the property.
In their last letter, petitioners offered to redeem their foreclosed
properties for P9,500,000.00.
However, these letters by themselves cannot be used as bases to support PNB’s claim that petitioners’ obligation is more than its
bid of P8,500,000.00, without any other evidence. There was no computation presented to show
how petitioners’ obligation already reached P9,500,000.00. Petitioners could very well have offered such
an amount on the basis of the value of the foreclosed properties rather than
their total obligation to PNB. We cannot
take petitioners’ offer to redeem their properties in the amount of P9,500,000.00
on its face as an admission of the amount of their obligation to PNB without
any supporting evidence.
Given that the Statement of Account
from PNB, being the only existing documentary evidence to support its claim,
shows that petitioners’ loan obligations to PNB as of 30 October 1992 amounted to
P6,409,814.92, and considering that the amount of PNB’s
bid is P8,511,000.00, there is clearly an excess in the bid price which
PNB must return, together with the interest computed in accordance with the guidelines laid down by the court in Eastern Shipping Lines v. Court of Appeals,[36]
regarding the manner of computing legal interest, viz:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
In
Philippine National Bank v. Court of
Appeals,[37]
it was held that:
The rate of 12% interest referred to in Cir. 416 applies only to:
Loan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any, money, goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank. When an obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of money, hence the proper imposable rate of interest is six (6%) per cent.
Using
the above rule as yardstick, since the responsibility of PNB arises not from a
loan or forbearance of money which bears an interest rate of 12%, the proper rate
of interest for the amount which PNB must return to the petitioners is only
6%. This interest according to Eastern Shipping shall be computed from
the time of the filing of the complaint.
However, once the judgment becomes final and executory,
the "interim period from the finality of judgment awarding a monetary
claim and until payment thereof, is deemed to be equivalent to a forbearance of
credit.” Thus, in accordance with the
pronouncement in Eastern Shipping,
the rate of 12% per annum should be
imposed, to be computed from the time the judgment becomes final and executory until fully satisfied.
It
must be emphasized, however, that our holding in this case does not preclude
PNB from proving and recovering in a proper proceeding any deficiency in the
amount of petitioners’ loan obligation that may have accrued after the date of
the auction sale.
WHEREFORE, premises considered, the
Decision of the Court of Appeals dated P2,101,185.08
with interest computed at 6% per annum from the time of the filing of
the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains
unpaid, the interest rate shall be 12% per
annum computed from the time the judgment became final and executory until fully satisfied. Costs against private respondent.
SO ORDERED.
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MINITA V. CHICO-NAZARIOAssociate Justice |
WE
CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
Associate Justice
Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest 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.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, and the Division Chairperson’s Attestation, 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.
REYNATO S.
PUNO
Chief Justice
[1] Rollo, p. 93.
[2] Records, pp. 1-6.
[3]
[4]
[5]
[6]
[7]
[8]
[9] Penned by Judge Ulric R. Cañete.
[10] Records, p. 182.
[11]
[12] Rollo, p. 15.
[13] Docketed as CA-G.R. CV No. 65905.
[14] Penned by Associate Justice Vicente L. Yap with Associate Justices Isaias P. Dicdican and Enrico A. Lanzanas, concurring; rollo, pp. 18-26.
[15] Rollo, p. 25.
[16]
[17]
[18]
[19] Tambunting v. Court of Appeals, G.R. No. L-48278,
[20]
[21] Olizon v. Court of Appeals, G.R. No. 107075,
[22] Supra note 20 at 454.
[23] G.R. No. L-75786,
[24] Records, p. 146.
[25]
[26] PNB further brings
to the attention of this Court that during the pendency
of this case, the RTC of Cebu City, Branch 6,
promulgated its Decision dated P1,750,000 and an
export advance loan of P3,360,293.21. The RTC of Cebu
City, Branch 6, took note as well of EJF Case No. 92-5-15, before the Mandaue City Sheriff’s Office which is the extrajudicial
foreclosure of mortgage now subject of the present Petition, where PNB bidded the amount of P8,511,000.00. The RTC of P9,118,481.85 and the proceeds of the
extrajudicial foreclosure of mortgage in EJF Case No. 92-5-15 amounted only to P8,511,000.00,
clearly, petitioners still had a loan balance in the amount of P607,481.85. The RTC of Cebu
City thus declared that petitioners are liable to PNB for its deficiency claim.
The dispositive portion of Civil Case No.
CEB-15236 provides:
WHEREFORE,
this Court renders judgment in favor of plaintiff and against the defendants,
as follows:
1) Ordering defendants, jointly and severally,
to pay plaintiff P607,481.85 plus interest thereon of 12% per year
beginning
2) Ordering defendants to pay plaintiff, jointly
and severally a penalty of 12% per year on that deficiency beginning
3) Ordering defendants, jointly and severally, to pay plaintiff attorney’s fees in the amount equivalent to 10% of that deficiency;
Ordering defendants to pay the costs. (Rollo, p. 149.)
Per verification
with RTC,
[27]
[28] Ruiz
v. Sheriff of
[29] Paras, Rules of Court, Vol. 2 (1990 ed.), p. 141.
[30] Sulit v. Court of Appeals, 335 Phil. 914, 931 (1997).
[31]
[32] Records, p. 71.
[33]
[34] Ladignon v. Court of Appeals, 390 Phil. 1161, 1170 (2000).
[35] Dated 12 January 1994, Annex B, records, p. 74; dated 4 February 1994, Annex B-4, records, p. 79.
[36] G.R. No. 97412,
[37] 331 Phil. 1079, 1083-1084 (1996).