DBP v. SPS. LICUANAN | G.R. No. 150097 | Feb. 26, 2007 | Corona, J.

Recit Ready: Sps. Licuanan took out 3 piggery loans from DBP, each secured by different REMs. For failure
of Sps. to pay on the different due dates, DBP extrajudicially foreclosed the properties and won as the highest
bidder for a total of only Php 16,340 (note that properties were worth more than 100k). DBP informed Sps.
that they will sell the properties in a public auction but there were no bidders. DBP then wrote Sps. informing
them that they can repurchase in a negotiated sale but before the letter was sent, DBP sold the properties to
Peralta. Sps. filed an action to recover real properties. SC ruled that no demand was ever made, so the loans
were not legally demandable. Hence, it could not foreclose. Since the foreclosure was void, it cannot recover
any deficiency.

Facts:
DBP granted Sps. Licuanan several loans:

Loans Evidenced by Promissory Note. Secured by REM Due Date

(all registered property)
1st Loan = 4,700 980 sqm parcel of land w/ 2-storey building Sept. 23, 1979
(piggery loan)
2nd Loan – 12,000 4 parcels of land in Pangasinan Jun. 22, 1979  Jun. 22, 1982
(because it was restructured)
3rd Loan – 22,000 3 parcels of land in Pangasinan Oct. 3, 1985

Timeline of extrajudicial foreclosure (EJF):

Jul. 6, 1981 DBP filed an application for EJF
Dec. 16, 1981 Properties were sold in a public auction, DBP
was the highest bidder and purchased the
properties for Php 16, 340.
Jan. 25, 1982 Certificate of sale was registered
Feb. 4, 1983 DBP consolidated ownership

On Oct. 16, 1984, DBP wrote to Sps. Licuanan via registered mail informing that the properties (now assets
of the bank) would be disposed of by public auction. Nov. 11, 184, DBP published an advertisement stating
that properties would be sold on Nov. 14, 1984 by oral bidding. On said date, no bidders.

On Nov 16, 1984, DBP sent Sps. a letter informing them that the properties could be reacquired by
negotiated sale for cash/installment. 3 days later, on Nov. 19, 1984, DBP sold properties by negotiated sale to
Emelita Peralta. DBP informed the Sps. of the sale on Dec. 6, 1984. On the same day, DVP executed a deed
of conditional sale in favor of Peralta.

Sps. offered to purchase the properties on Dec. 11, by informing the bank that it would pay in cash as these
were the only properties owned by his family and their house is located inside the property. As the properties
were already sold, Sps. filed a complaint for recovery of real properties + damages. RTC and CA ruled in
favor of Sps.

Whether a demand for payment of the loans was made before the mortgage was foreclosed? YES
Whether demand is necessary to make respondents guilty of default? YES (Discussed together)
The issue of whether demand was made before the foreclosure was effected is essential. If demand was made
and duly received by the respondents and the latter still did not pay, then they were already in default and
foreclosure was proper. However, if demand was not made, then the loans had not yet become due and
demandable. This meant that respondents had not defaulted in their payments and the foreclosure by
petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his
obligation

Petitioners assert that demand was unnecessary because the maturity dates of all loans were specified on the
promissory notes. However, unless demand is proven, one cannot be held in default. Petitioner's cause of
action did not accrue on the maturity dates stated in the promissory notes. It is only when demand to pay is
made and subsequently refused that respondents can be considered in default and petitioner obtains the right
to file an action to collect the debt or foreclose the mortgage.

The Court has previously ruled that: The cause of action cannot be said to accrue on the uniform
maturity date of the… Notes as petitioner posits because at that point, the third essential element of a
cause of action, namely, an act or omission on the part of petitioner violative of the right of private
respondent or constituting a breach of the obligation of petitioner to private respondent, had not yet
occurred. (Cause of action has 3 elements: (1) right in favor of plaintiff; (2) obligation on part of defendant
to respect the right; and (3) act/omission by defendant violative of plaintiff’s right constituting a breach of
obligation.)

The promissory notes even state in its acceleration clause the entire obligation shall become due and
demandable ON DEMAND in case of non-payment. Hence, maturity dates ONLY indicate WHEN payment
can be DEMANDED. It is the refusal to pay AFTER DEMAND that gives the creditor a cause of action
against the debtor.

Since no demand was ever made, CA and RTC correctly ruled that foreclosure was premature  null &
void.

An offer to repurchase should not be construed as a waiver of the right to question the sale, which puts the
Sps. in estoppel. Instead, it must be taken as an intention to avoid further litigation and thus is in the nature of
an offer to compromise. By offering to redeem the properties, respondents can attain their ultimate objective:
to pay off their debt and regain ownership of their lands. Moreover, it was petitioner, in its November 16,
1984 letter, which informed respondents that the properties were available for sale. Respondents merely
took up petitioner's offer for them to reacquire their properties.

Whether Sps. Licuanan are liable for the deficiency claim of DBP? NO.
Respondents cannot be held liable for the deficiency claim. While it is true that in extrajudicial foreclosure of
mortgage, the mortgagee has the right to recover the deficiency from the debtor, this presupposes that the
foreclosure must first be valid.

Whether DBP is liable for damages? YES, for acting in BAD FAITH.
1. Purchased only at Php 16,430 even if they knew that property was appraised for more. In fact, Peralta
purchased it at 104k. DBP’s purchase at said price was revolting considering that DBP is a
government financial institution capitalized with money of the people & created principally to assist
agricultural producers in developing their farms.
2. DBP gave Sps. fall sense of security that the entire loan accommodation will mature in 1985 when it
restructured the 2nd loan.
3. They gave priority to recover the properties to Sps. then sold it to Peralta even before the letter was
sent to Sps.