27 SPOUSES ESMERALDO AND ELIZABETH SUICO V PNB and CA
CHICO-NAZARIO, J | AUG 28 2007 defect invalidating the sale; SPS MR DENIED
FACTS
 SPS SUICO obtained a loan from PNB secured by a real estate mortgage on
their real properties
 Unable to pay their obligation – PNB extrajudicially foreclosed the mortgage (EJF)
before the City Sheriff of Mandaue
 SPS SUICO filed a complaint for Declaration of Nullity of Extrajudicial
Foreclosure of Mortgage before EJF constituted on the SPS’s properties for an
outstanding loan obligation amounting to P1,991,770.38 as of MAR 10 1992
o SPS SUICO: claims that during the foreclosure sale of the properties on OCT
30, PNB (lone bidder) offered a bid in the amount of P8,551,000; Certificate
of Sale was issued in favor of PNB HOWEVER, PNB did not pay the Sheriff
who conducted the auction sale the amount of its bid (P8,511,00) or give
an accounting of how amount was applied against SPS SUICO’s
outstanding loan which as of MAR 10, amounted only to P1,991,770.38
o Since amount of bid grossly exceeded amount of outstanding obligation stated
in the EJF of mortgage, it was the legal duty of PNB to deliver to the Sheriff
the bid price of what was left after deducting the amount of outstanding
obligation – PNB failed to deliver said amount
 1 year after the issuance of the Certificate of Sale, PNB secured a Certificate of
Final Sale (PNB transferred registration of all properties to its name)
 SPS SUICO filed a complaint praying for the EJF of Mortgage to be declared
null and void; and payment of moral and exemplary damages and attorney’s fees
from PNB
o PNB: Filed a Motion to Dismiss [DENIED] – pendency of another action
between the same parties before RTC Cebu (where PNB was seeking
payment of balance of SPS SUICO’s obligation not covered by the proceeds
of the auction sale held on OCT 30)
o PNB (Answer): SPS SUICO had other loans which had become due;
P1,991,770.38 as of MAR 10 1992 was exclusive of attorney’s fees and other
export related obligation which it did not consider due and demandable as of
said date – outstanding obligation of SPS under their regular and export-
related loans was already more than the bid price (no surplus proceeds)
 Claims that SPS were aware that their total principal outstanding
obligation on the date of the auction sale was P5,503,293.21
 Admitted to non-delivery of bid price to the sheriff and the execution of
the final deed of sale but it claims it had not transferred in it’s name the
properties because the petition to register in its name 2 TCTs were still
pending
 RTC: in favor of SPS SUICO, EJF of Mortgage including certificate of sale and final
deed of sale are null and void
o Given that SPS had other loan obligations which had not yet matured on MAR
10 but became due by the date of auction sale on OCT 30, 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
would constitute fraud (inadequate filing fee and misrepresentation of amount
of indebtedness to be paid in notice of sale)
 CA: RTC REVERSED AND SET ASIDE (EJF valid and binding) – SPOUSES
admitted outstanding obligation amounted to P5.4M (shown by letters) and even
offered to redeem the properties at P6.5M; failure to remit surplus if any, is not
tantamount to a non-compliance of statutory requisites that could constitute a
ISSUE: WON the Extrajudicial Foreclosure of the mortgage is null and void? NO
SPS: 2 REASONS – (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.
ON ALLEGED DEFECT OR MISREPRESENTATION
RULE: Statutory provisions governing publication of notice of mortgage foreclosure
sales must be strictly complied with, and even slight deviations will invalidate the notice
and render the sale at least voidable
PURPOSE OF PUBLICATION OF NOTICE OF SALE – To inform all interested parties
of the date, time and place of the foreclosure sale of the real properties subject thereof
 Not only requires the correct date, but also that any and all interested parties be
able to determine that what is about to be sold at the foreclosure sale is the real
property in which they have an interest
IN CASE AT BAR, discrepancy between amount of SPS’s obligation as reflected in the
Notice of Sale and the amount actually due and collected at the time of the action of
sale does not constitute fraud which renders the EJF sale null and void
 Notices are given for the purpose of securing bidders and to prevent a sacrifice of
the property – if attained, immaterial errors and mistakes will not affect the
sufficiency of the notice
 If mistakes or omissions occur in the notice 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, these will be fatal to the validity of the notice, and also the sale
made pursuant thereto
 IN CASE AT BAR – NOTICE OF SALE IS VALID (SPS failed to show how the
difference resulted in discouraging or misleading bidders, depreciating the value
or preventing it from commanding a fair price)
ON EFFECT ON NON-DELIVERY BY PNB OF BID PRICE OR SURPLUS
SEC 21 RULE 39 ROC - 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.
 If amount of loan is equal to amount of the bid, there is no need to pay the amount
in cash
 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 judgment; otherwise, he shall pay
only the excess
 RAISON D’ETRE: It would obviously be senseless for the Sheriff or Notary Public
conducting the 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 pointless application of the law in requiring that the creditor must
bid under the same conditions as any other bidder – rule holds true only when
the amount of bid represents the total amount of the mortgage debt
CONSIDERING THE AMOUNT OF PNB’S BID OF P8,511,000 AS AGAINST THE
AMOUNT OF OBLIGATION OF P1,991,770.38 IN THE NOTICE OF SALE, IS PNB
OBLIGED TO DELIVER THE EXCESS? YES
SEC 4 RULE 68 ROC – 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
 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.
 Even though the mortgagee is not strictly considered as a trustee in a purely
equitable sense, as far as concerns the unconsumed balance, the mortgagee is a
trustee for the mortgagor or owner of the equity of redemption
 If the mortgagee is retaining more than he is entitled to, this will not affect
the validity of the sale but simply give the mortgagor a cause of action to
recover such surplus

IN CASE AT BAR,
PNB: Claims that the loan obligation of SPS on the date of the auction sale were more
than the amount in Notice of Sale – P8,511,000
COURT: Evidence on record (SPS’ Statement of Account prepared by PNB attached
to its Answer with counterclaim) – states that the principal obligation with
interest/penalty and attorney’s fees as of OCT 30 already amounted to P6,409,814.92
 SPS merely denied amounts in Statement of Account, did not interpose any
defense to refuse computation
 Statement of Account is the only piece of evidence available for determination of
the outstanding obligations as of the date of the auction sale
 SPS wrote letters to PNB almost 2 years after the auction sale offering to redeem
the property (P9.5M) – cannot be used to support PNB’s claim that the obligation
was more than P8.5M (no showing of how the P9.5M was computed)
 Statement of Account being sole existing documentary evidence – shows
excess in bid price (P8,511,000 – P6,409,814.92) which PNB must return with
interest computed in accordance with guidelines in EASTERN SHIPPING
LINES V CA and PNB V CA

ON COMPUTATION OF LEGAL INTEREST

 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% - computed from time of filing
of complaint
 Once judgment becomes final and executory, the interim period from finality of
judgment awarding a monetary claim and until payment is deemed to be equivalent
to a forbearance of credit – rate of 12% per annum should be imposed computed
from time of finality of judgment until fully satisfied

CA DECISION MODIFIED – PNB DIRECTED TO RETURN TO SPS (P2,101,185.08)