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Philippine Savings Bank v.

Castillo
G.R. No. 193178, May 30, 2011
Nachura, J.
FACTS
- Spouses Castillo and Spouses Capati are lot owners in Tondo, Manila
- Obtained a loan secured by mortgage from Phil Savings Bank (2.5M)
o Solidarily bound
o 17% p.a. interest
o Rate subject to adjustment every 90 days
- 1997-1999 – interest was adjusted from 15.5-29%
- Notices were given in writing. Respondents did not confirm or formally question.
- However, Castillo sent numerous letters requesting for reduction of interest rates, which were denied
- 2000- extrajudicial foreclosure sale, and winner and only bidder was PSB
- petitioner no longer paid the said amount but rather
credited it to the loan amortizations and arrears, past due interest, penalty
charges, attorney's fees, all legal fees and expense
o Failed to redeem in the 1-year period
- Respondents filed case for Reformation of Instruments,
Declaration of Nullity of Notarial Foreclosure Proceedings and Certificate of Sale, Cancellation of Annotations
- RTC:
o The increases are unreasonable, and arbitrary
o Refund plaintiffs amount in excess of 17% p.a.
o Foreclosure void ab initio
o Damages to PSB
o In MR, increased rate to 24%
- CA:
o The increases are unreasonable, and arbitrary
o Refund plaintiffs amount in excess of 17% p.a
o Foreclosure valid
o Reduced damages to PSB
RATIO
1.
- The unilateral determination and imposition of the increased rates is violative of
the principle of mutuality of contracts under Article 1308 of the Civil Code,
- A perusal of the Promissory Note will readily show that the increase or decrease of
- interest rates hinges solely on the discretion of petitioner.
- It does not require the conformity of the maker before a new interest rate could be enforced.
- Any contract which appears to be heavily weighed in favor of one of the parties so
as to lead to an unconscionable result, thus partaking of the nature of a
contract of adhesion, is void. Any stipulation regarding the validity or
compliance of the contract left solely to the will of one of the parties is likewise invalid
2.
- Petitioner contends that respondents acquiesced to the imposition of the
modified interest rates; thus, there was no violation of the principle of mutuality of contracts.
o Conformity letter signed by them does not pertain to the
modification of the interest rates, but rather only to the amendment of the
interest rate review period from 90 days to 30 days.
- Moreover, respondents' assent to the modifications in the interest rates cannot
be implied from their lack of response to the memos sent by petitioner, informing them of the amendments.
o The said memos were in the nature of a
proposal to change the contract with respect to one of its significant components, i.e., the interest rates.
o As we have held, no one receiving a proposal to change a contract is obliged to answer the proposal
- We likewise disagree with petitioner's assertion that respondents recognized
the legality of the imposed interest rates through the letters requesting for the reduction of the rates.
o The request for reduction of the interest does not translate to consent thereto.
- Basic is the rule that there can be no contract in its true sense without the
mutual assent of the parties. If this consent is absent on the part of one who
contracts, the act has no more efficacy than if it had been done under duress or by a person of unsound mind.
o Similarly, contract changes must be made with
the consent of the contracting parties. The minds of all the parties must meet
as to the proposed modification, especially when it affects an important aspect of the agreement.
 In the case of loan contracts, the interest rate is undeniably always a vital component
 Any change must be mutually agreed upon, otherwise, it produces no binding effect.
HELD:
Affirmed
Damages deleted

Case Digest: Carabeo vs. Spouses Dingco


G.R. No. 190823 : April 4, 2011

DOMINGO CARABEO, Petitioner, v. SPOUSES NORBERTO and SUSAN DINGCO, Respondents.

CARPIO MORALES, J.:


FACTS:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as “Kasunduan sa Bilihan ng
Karapatan sa Lupa” (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby petitioner agreed to
sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog, Orani, Bataan to
respondents for P38,000.
Upon the signing of the contract, the respondents paid an initial amount of P10,000 and the remaining balance would be
paid on September 1990. However, when the respondents were about to pay the balance, the petitioner refused to accept
the amount due to an on-going dispute over the land. Nevertheless, the respondents occasionally gave the petitioner small
sums of money which totaled P9,100. These amounts were allegedly given due to the request of the petitioner.

Despite the respondents insistence of paying the remaining balance of P19,800, the petitioner remained firm in his refusal.
He reasoned that he would register the land first. However, when the dispute was finally settled and the registration of the
land was made, the petitioner still declined to accept the payment. Thus, forcing the respondents to file a complaint before
the Katarungan Pambarangay. Nevertheless, the parties were not able to reach a settlement. Hence, the filing of a
complaint for specific performance before the RTC.

In the petitioner’s answer in the complaint, he alleged that the sale was void for lack of object certain. The kasunduannot
having specified the metes and bounds of the land. In addition to that, he alleged that assuming that the validity of the
kasunduan is upheld, the respondent failed to comply with their reciprocal obligation in paying the balance of the P28,000
on September 1900. Thus, forcing him to accept the installment payments.

After the case was submitted for decision, the petitioner passed away. However, the records do not show that petitioner’s
counsel informed the lower court of his death and that proper substitution was effected. The RTC ruled in favor of the
respondents ordering them to sell their rights over the land and to pay the costs of suit. The CA affirmed the decision of
the lower court.

ISSUES:

Whether or not the elements of a valid contract are present in this case.
Whether or not there is a valid contract despite the absence of spousal consent
Whether or not the death of the petitioner causes dismissal of the action filed by the respondents.
HELD:

Petition is denied

CIVIL LAW : Contracts

FIRST ISSUE : The elements of a valid contract are present in this case.

Even though the kasunduan did not specify the technical boundaries of the property, it does not render the sale a nullity.
The requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is
entered into, the object of the sale is capable of being made determinate without the necessity of a new or further
agreement between the parties.

REMEDIAL LAW : Appeal

SECOND ISSUE: An issue raised only on appeal will not be considered by the courts.

The issue as to whether or not there is a valid contract despite the absence of spousal consent was raised only on appeal,
hence, will not be considered, in the present case, in the interest of fair play, justice and due process.

REMEDIAL LAW: Cause of Action

THIRD ISSUE: When the wrong complained of affects property rights, the death of the petitioner does not cause
the dismissal of the case

The death of the petitioner would not cause the dismissal of the action. In Bonilla v. Barcena, it was held that,

The question as to whether an action survives or not depends on the nature of the action and the damage sued for. In the
causes of action which survive, the wrong complained [of] affects primarily and principally property and property rights,
the injuries to the person being merely incidental, while in the causes of action which do not survive, the injury
complained of is to the person, the property and rights of property affected being incidental. (emphasis and underscoring
supplied)

Thus, in the present case, the respondents are pursuing a property right arising from the kasunduan, whereas petitioner is
invoking nullity of the kasunduan to protect his proprietary interest. Since the action involves property rights, it survives.
Assuming arguendo, however, that the kasunduan is deemed void, there is a corollary obligation of petitioner to return the
money paid by respondents.

It bears noting that trial on the merits was already concluded before petitioner died. Since the trial court was not informed
of petitioner’s death, it may not be faulted for proceeding to render judgment without ordering his substitution. Its
judgment is thus valid and binding upon petitioner’s legal representatives or successors-in-interest, insofar as his interest
in the property subject of the action is concerned.

Therefore, the petition is denied.

Republic of the Philippines


Supreme Court
Manila

FIRST DIVISION

BPI FAMILY SAVINGS BANK, INC., G.R. No. 175816


Petitioner,
Present:
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
- versus - BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

Promulgated:
MA. ARLYN T. AVENIDO & PACIFICO
A. AVENIDO,
December 7, 2011
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

LEONARDO-DE CASTRO, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the Decision[1] dated March 31,
2006 of the Court of Appeals in CA-G.R. CV No. 79008, which affirmed the Decision[2] dated November 13, 2002 of the
Regional Trial Court (RTC), Branch 58 of Cebu City, in Civil Case No. CEB-25629. The RTC dismissed the Complaint
for Collection of Deficiency of Mortgage Obligation with Damages filed by petitioner BPI Family Savings Bank (BPI
Family) against respondent spouses Pacifico A. Avenido and Ma. Arlyn T. Avenido (spouses Avenido), following the
extrajudicial foreclosure of the property given by the latter as security for their loan. The instant Petition likewise
challenges the Resolution[3] dated November 16, 2006 of the Court of Appeals in the same case denying the Motion for
Reconsideration of BPI Family.

The controversy arose from the following facts.

On September 20, 2000, BPI Family filed with the RTC a Complaint for Collection of Deficiency of Mortgage
Obligation with Damages against the spouses Avenido, docketed as Civil Case No. CEB-25629.

BPI Family alleged in its Complaint that pursuant to a Mortgage Loan Agreement [4] dated April 25, 1996, the
spouses Avenido obtained from the bank a loan in the amount of P2,000,000.00, secured by a real estate mortgage on a
parcel of land situated in Bais City, which is covered by Transfer Certificate of Title (TCT) No. T-1216
(mortgaged/foreclosed property). The spouses Avenido failed to pay their loan obligation despite demand, prompting BPI
Family to institute before the Sheriff of Bais City extrajudicial foreclosure proceedings over the mortgaged property, in
accordance with Act No. 3135, otherwise known as an Act to Regulate the Sale of Property under Special Powers Inserted
in or Annexed to Real Estate Mortgages. At the public auction sale held on March 8, 1999, BPI Family was the highest
bidder for the foreclosed property. The bid price of P2,142,616.00 of BPI Family was applied as partial payment of the
mortgage obligation of the spouses Avenido, which had amounted to P2,917,381.43 on the date of the public auction sale,
thus, still leaving an unpaid amount of P794,765.43. The Certificate of Sale dated March 8, 1999 was registered on TCT
No. T-1216 on May 25, 1999.[5]

BPI Family prayed that the RTC order the spouses Avenido to pay the deficiency of their mortgage obligation
amounting to P794,765.43, plus legal interest thereon from the date of the filing of the Complaint until full payment; 15%
as contractual attorneys fees; P50,000.00 as litigation expenses; and costs of the suit.[6]
The spouses Avenido filed their Answer with Special/Affirmative Defenses and Counterclaims on September 18,
2001. The spouses Avenido averred therein that they had already paid a substantial amount to BPI Family, which could
not be less than P1,000,000.00, but due to the imposition by BPI Family of unreasonable charges and penalties on their
principal obligation, their payments seemed insignificant. Per the Notice of Extrajudicial Sale dated February 4, 1999, the
spouses Avenidos indebtedness to BPI Family only amounted to less than P2,000,000.00, and such amount was already
fully covered when the foreclosed property was sold at the public auction for P2,142,616.00. The spouses Avenido sought
the dismissal of the Complaint for lack of merit, plus the award of P500,000.00 as moral damages and P300,000.00 as
exemplary damages given the prejudice and unnecessary expenses they suffered because of the unjustified suit of BPI
Family.[7]

Failing to reach an amicable settlement during the pre-trial conference, trial ensued.

BPI Family submitted the following computation in support of its claim for deficiency mortgage obligation from
the spouses Avenido:

AUCTION SALE: MARCH 8, 1999

Principal Balance P 1,918,722.47


Interest 266,754.66
Fire Insurance 1997-1998 6,725.00
1998-1999 6,725.00
Unpaid MRI 10,720.00
Late Charges 37,425.46
Less: Unapplied (0.18)

Sub-total 2,247,072.41

Foreclosure Expenses

Filing Fee P 5,719.60


Sheriffs Fee 1,500.00
Cost of Publication 5,000.00
Interest on Litigation Expenses 232.17 12,451.77

2,259,524.18

Contractual Penalties

Attorneys fees 338,928.63


Liquidated Damages 338,928.63

Total 2,937,381.43

Total Appraised Value as of 03/05/99 2,678,270.00


80% of TAV 2,142,616.00

Summary:

Total Exposure as of 03/08/99 2,937,381.43


Bid Price 2,142,616.00
(lower amt. between total exposure or 80% of TAV)

Deficiency 794,765.43

Portion of Principal covered by bid price to be retained in IL 0.00[8]

BPI Family presented as witness Alfred Rason (Rason), the Assistant Manager for Operation, who was in charge
of keeping track and collecting unpaid obligations of the bank. Rason testified that in the Petition for Extrajudicial
Foreclosure, BPI Family reported that the loan obligation of the spouses Avenido amounted to P1,918,722.47, inclusive of
interest, penalty charges, insurance, foreclosure expenses, and others, as of November 16, 1998. However, as of the public
auction sale of the foreclosed property on March 8, 1999, the total loan obligation of the spouses Avenido already
reached P2,937,381.43. The foreclosed property was awarded to BPI Family as the highest bidder at the public auction
sale for P2,142,616.00. The bid price was arrived at by BPI Family following bank policy, i.e., total exposure of claim or
80% of the total appraised value of the foreclosed property, whichever is lower. In a letter dated July 8, 2000, sent to the
spouses Avenido through registered mail, counsel for BPI family demanded payment of the deficiency balance
of P794,766.43 on the loan obligation of said spouses.[9]
When respondent Ma. Arlyn T. Avenido (Arlyn) took the witness stand, she admitted that she and her husband,
co-respondent Pacifico A. Avenido (Pacifico), obtained from BPI Family a Motor Vehicle Loan in 1995 and a Home
Mortgage Loan in 1996. The Home Mortgage Loan was for P2,000,000.00, payable in 15 years through debit memos (or
automatic debit arrangement), instead of post-dated checks. The spouses Avenido failed to make some payments in
1998. The spouses Avenido subsequently deposited with their account at BPI Family branch in Bais City, Negros
Occidental, the amount of P250,000.00, which would have been sufficient to cover their arrears; as well as made
arrangements with Dumaguete City Rural Bank to buy out their loan from BPI Family. Yet, in February 1999, the spouses
Avenido learned of the foreclosure proceedings over their mortgaged property only from court personnel. BPI Family
never communicated with the spouses Avenido about the foreclosure proceedings except when the former sent the latter a
demand letter in July 2000 for the P700,000.00 deficiency. Counsel for the spouses Avenido answered BPI Family
through a letter dated August 2, 2000, stating that the demand of the bank for deficiency was not only surprising, but
lacked basis in fact and in law, for the mortgaged property was already foreclosed and sold at the public auction
for P2,142,616.00, which was more than the P1,918,722.47 loan obligation of the spouses Avenido. Next thing the
spouses Avenido knew, BPI Family had filed Civil Case No. CEB-25629 against them. In addition, the spouses Avenido
had already fully paid their Motor Vehicle Loan in 1999, but BPI Family refused to release the Hi-Lux from the mortgage
constituted thereon. BPI Family attached the Hi-Lux to cover the deficiency of the spouses Avenido on their home loan
obligation. Due to the aforementioned acts of BPI Family, Arlyn suffered sleepless nights and humiliation. Hence, she
prayed for the award of moral and exemplary damages and attorneys fees and the release of the Hi-Lux.[10]

The RTC rendered its Decision on November 13, 2002.

According to the RTC, the principal issue to be resolved was whether or not [BPI Family] is entitled to deficiency
judgment, which includes a determination of the existence of the right to recover deficiency, and how much, if any.[11]

At the outset, the RTC recognized that in an extrajudicial foreclosure, the mortgagee has a right to recover
deficiency where the proceeds of the sale are insufficient to cover the debt:
Although Act 3135 is silent on the mortgagees right to recover the deficiency where the proceeds of the
sale is insufficient to cover the debt, it is now well-settled that said mortgagee has the right to recover the
deficiency. (PB Com v. De Vera, 6 SCRA 1026; DBP v. Vda. de Noel, 43 SCRA 82; DBP v. Zaragosa,
84 SCRA 668.). The reasons advanced are 1) Although Act 3135 discusses nothing as to the mortgagees
right to recover such deficiency, neither is there any provision thereunder which expressly or impliedly
prohibits such recovery; and 2) now Rule 68 on judicial foreclosure expressly grants to the mortgagee the
right to recover deficiency and the underlying principle is the same for extra-judicial foreclosure that the
mortgage is but a security and not a satisfaction of indebtedness.

In the case of DBP v. Tomeldon, 101 SCRA 171, the Supreme Court ruled that the action to recover the
deficiency prescribes after ten (10) years from the time the right to action accrues x x x.
Thus, in the case at bar the mortgagees right and the period the said right is enforced are not
contested. What is essentially in controversy is whether there is a deficiency and how much.[12]

The RTC then determined the total amount of the loan obligation of the spouses Avenido as follows:

In the Mortgage Loan Agreement (Exhibits A and I) the due execution and genuineness of which are
admitted by both parties, the [spouses Avenido] obligated themselves as Borrower-Mortgagor to pay [BPI
Family] the aggregate principal amount of TWO HUNDRED TWO MILLION PESOS
(P202,000,000.00) and interest on the unpaid balance from the date thereof until paid in full on the
repayment dates. It further provides that in case the mortgagee fails to pay any of the sums secured, the
mortgagor has the right to declare the entire obligation due and payable and to foreclose the
mortgage. Moreover, Exhibit A-2 shows that the proceeds of sale of the mortgaged property shall be
applied as follows: a) to the payment of the expenses and cost of foreclosure and sale, including the
attorneys fees as herein provided; b) to the satisfaction of all interest and charges accruing upon the
obligation herein and hereby secured; c) to the satisfaction of the principal amount of the obligation
herein and hereby secured; d) to the satisfaction of all other obligation then owed to the bank or any of its
subsidiaries. The balance, if any, to be due to the mortgagor. Finally, the attorneys fees stipulated is 15%
of the total amount claimed by the bank (Exhibit A-3). The Court, however, finds no stipulation as
regards liquidated damages.

xxxx

This Court is not convinced that [spouses Avenidos] total indebtedness should only be ONE MILLION
NINE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED TWENTY[-]TWO [PESOS] AND
FORTY[-]SEVEN [CENTAVOS] (P1,918,722.47) because the Notice of Extra-Judicial Sale (Exhibit 3)
itself states x x x to satisfy the mortgaged indebtedness which as of November 16, 1998 amount to ONE
MILLION NINE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED TWENTY[-]TWO AND
FORTY[-]SEVEN CENTAVOS (P1,918,722.47) plus interest and penalty charges thereon from June 30,
1998 to date of the foreclosure sale, attorneys fees and necessary expenses for foreclosure x x x.
Foreclosure is not a single process and it is not therefore correct to conclude that what is material
is the petition for extra-judicial sale nor the date of the filing of the application.

Thus, the Court gives credence to [BPI Familys] Exhibit C but not including the claim for liquidated
damages in the sum of THREE HUNDRED THIRTY[-]EIGHT THOUSAND NINE HUNDRED
TWENTY PESOS AND SIXTY[-]THREE CENTAVOS (P330,920.63) because it has no basis
whatsoever. Thus the total amount due is TWO MILLION FIVE HUNDRED NINETY[-]EIGHT
THOUSAND FOUR HUNDRED FIFTY[-]TWO PESOS AND EIGHTY CENTAVOS (P2,598,452.80).
x x x.[13]

More than just reducing the total loan obligation of the spouses Avenido to P2,598,452.80, the RTC, in the end,
denied the claim for deficiency of BPI Family based on the following ratiocination:
[T]he Court finds very significant the admission by [BPI Familys] witness that the appraised value of the
foreclosed property is actually TWO MILLION SIX HUNDRED SEVENTY[-]EIGHT THOUSAND
TWO HUNDRED SEVENTY PESOS (P2,678,270.00) but [BPI Family] bidded only for 80% of the
value as a matter of bank policy (TSN Afredo Rason, Aug. 6, 2002, p. 17). In other words, the actual
market value of the property is more than the amount of TWO MILLION FIVE HUNDRED NINETY[-
]EIGHT THOUSAND FOUR HUNDRED FIFTY[-]TWO PESOS AND EIGHTY CENTAVOS
(P2,598,452.80).

Under this circumstance, it would be inequitable to still grant the [BPI Familys] prayer for deficiency as it
will be in effect allowing it to unjustly enrich itself at the expense of the [spouses Avenido]. [14]

Hence, the RTC decreed:

Accordingly, the [BPI Familys] complaint and [spouses Avenidos] counterclaim are
DISMISSED.[15]

Aggrieved by the RTC judgment, BPI Family filed an appeal before the Court of Appeals, docketed as CA-G.R.
CV No. 79008, with a lone assignment of error, to wit:

THE LOWER COURT ERRED IN NOT HOLDING [THE SPOUSES AVENIDO] LIABLE TO [BPI
FAMILY] FOR DEFICIENCY OF THE MORTGAGE OBLIGATION.[16]

In its Decision promulgated on March 31, 2006, the Court of Appeals ruled:

A careful scrutiny of the arguments presented in the case at bar yields no substantial and
convincing reason for us to depart from the ruling found by the trial court x x x.

xxxx

Indubitably, mortgagors whose properties a foreclosed and are purchased by the mortgagee as
highest bidder at the auction sale are decidedly at a great disadvantage because almost invariably,
mortgagors forfeit their properties at a great loss as they are purchased at a nominal cost by the mortgagee
himself, who ordinarily bids in no more than his credit or the balance thereof at the auction sale.
More importantly, the mortgage contract is also one of adhesion as it was prepared solely by [BPI
Family] and the only participation of the [spouses Avenido] was the affixing of their signatures or
adhesion thereto. Under such contracts, which are common in the Philippines and elsewhere, the lending
institutions are free to require borrowers to provide assets, like real property, of much higher value than
the desired loan amount, as collateral. Being a contract of adhesion, the mortgage is to be strictly
construed against [BPI Family], the party which prepared the agreement.

In the case at bar, the intent of [BPI Family] is manifest that the [spouses Avenido] shall assume
liability not only for the entire obligation mentioned in the mortgage but beyond, which is improper, as it
will defeat the purpose of the foreclosure proceedings which is to answer or satisfy the principal
obligation in case of default or non payment thereof.

Moreover, for all intents and purposes, we hold that [spouses Avenido] shall not be liable to pay
for the deficiency of their mortgage obligation because it will be at their great disadvantage considering
that their property was purchased at a nominal cost by [BPI Family] at the auction sale. As a matter [of]
fact, there was an admission made by [BPI Familys] witness that the amount of the bid was only 80% of
the actual price of the property. This is unfair on the part of the [spouses Avenido].

Besides, if mortgagees were allowed such right, the debtors would be at the mercy of their
creditors considering the summary nature of extrajudicial foreclosure proceedings. It is also worthy to
note the limited readership of auction sale notices which lead to the sale.

Accordingly, We upheld the ruling of the court a quo in absolving the [spouses Avenido] from
any liability corresponding to the amount of deficiency of mortgage obligation as it will in effect be
allowing [BPI Family] to unjustly enrich itself at the expense of the [spouses Avenido].[17]

The dispositive of the Court of Appeals judgment reads:

WHEREFORE, premises considered, the assailed Decision dated November 13, 2002 of the
Regional Trial Court, Cebu City, 7th Judicial Region, Branch 58, in Civil Case No. CEB-25629, is
hereby AFFIRMED. No pronouncement as to costs.[18]

In its Resolution dated November 16, 2006, the Court of Appeals denied the Motion for Reconsideration of BPI
Family since the arguments set forth therein were but a rehash, repetition and/or reinstatement of the arguments/matters
already passed upon and extensively discussed by the appellate court in its earlier decision.

Hence, the present Petition for Review of BPI Family with the following assignment of errors:
I

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A


REVERSIBLE ERROR IN RENDERING ITS DECISION (ANNEX A) AND RESOLUTION (ANNEX
B) DECLARING THAT [BPI FAMILY] IS NOT ENTITLED TO ITS CLAIM AGAINST THE
[SPOUSES AVENIDO] FOR DEFICIENCY OF MORTGAGE OBLIGATION DESPITE THE
EXPRESS PROVISIONS OF THE MORTGAGE LAW AND NUMEROUS JURISPRUDENCE
ENTITLING THE MORTGAGEE-[BPI FAMILY] TO THE SAME.

II

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A


REVERSIBLE ERROR WHEN IT BASED ITS FINDING THAT THERE IS NO MORE DEFICIENCY
OF MORTGAGE OBLIGATION BY COMPARING THE MARKET VALUE OF THE FORECLOSED
PROPERTY AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS-RESPONDENTS
INSTEAD OF COMPARING THE ACTUAL BID PRICE AT THE AUCTION SALE AGAINST THE
LOAN OBLIGATION OF THE MORTGAGORS-[SPOUSES AVENIDO].[19]

The primary issue posed before us is whether or not BPI Family is still entitled to collect the deficiency mortgage
obligation from the spouses Avenido in the amount of P455,836.80, plus interest.

We answer in the affirmative.

It is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not
discuss the mortgagees right to recover the deficiency, neither does it contain any provision expressly or impliedly
prohibiting recovery. 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. 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. [20]

It is no longer challenged before us that the outstanding loan obligation of the spouses Avenido amounted
to P2,598,452.80, inclusive of interests, penalties, and charges, by March 8, 1999. The controversy herein now only
revolves around the value to be attributed to the foreclosed property, which would be applied against the outstanding loan
obligation of the spouses Avenido to BPI Family. BPI Family insists that it should be P2,142,616.00, its winning bid
price for the foreclosed property at the public auction sale, which, being less than the outstanding loan obligation of the
spouses Avenido, will still leave a deficiency collectible by BPI Family from the spouses Avenido in the amount
of P455,836.80. The spouses Avenido maintain that, as the RTC and the Court of Appeals ruled, it should
be P2,678,270.00, the fair market value of the foreclosed property, which, being more than the outstanding loan
obligation of the spouses Avenido, will already fully settle their indebtedness.

The spouses Avenido, the RTC, and the Court of Appeals may not have said it outright, but they actually consider
the winning bid of BPI Family for the foreclosed property at the public auction sale to be insufficient. They took
exception to the fact that the winning bid of BPI Family was equivalent to only 80% of the appraised value of the
mortgaged property. The RTC and the Court of Appeals even went as far as to refer to the amount of the winning bid of
BPI Family as nominal and unfair and would unjustly enrich the bank at the expense of the spouses Avenido. So the RTC
and the Court of Appeals disregarded the winning bid of BPI Family and applied instead the fair market value of the
foreclosed property against the outstanding loan obligation of the spouses Avenido.

According to Section 4 of Act No. 3135, an extrajudicial foreclosure sale of a mortgaged real property shall be
conducted as follows:

SEC. 4. Public Auction. - The sale shall be made at public auction, between the hours of nine in
the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the
justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary
public of said municipality, who shall be entitled to collect a fee of five pesos for each day of actual work
performed, in addition to his expenses.

Notably, the aforequoted provision does not mention any minimum bid at the public auction sale. There is no
legal basis for requiring that the bid should at least be equal to the market value of the foreclosed property or the
outstanding obligation of the mortgage debtor.

We have consistently held in previous cases that unlike in an ordinary sale, inadequacy of the price at a forced
sale is immaterial and does not nullify the sale. In fact, in a forced sale, a low price is more beneficial to the mortgage
debtor for it makes redemption of the property easier.

Section 6 of Act No. 3135 provides for the redemption of an extrajudicially foreclosed property within a one-year
period, to wit:

Sec. 6. Redemption. In all cases in which an extrajudicial sale is made under the special power
herein before referred to, the debtor, his successors-in-interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any time within the term of one year
from and after the date of the sale; and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so
far as these are not inconsistent with the provisions of this Act. (Emphasis ours.)

Republic Act No. 337, the General Banking Act, as amended, in force at the time of the herein transactions, had a
specific provision on the redemption of property extrajudicially foreclosed by banks, which reads:

Sec. 78. Loans against real estate security shall not exceed seventy percent (70%) of the appraised
value of the respective real estate security, plus seventy percent (70%) of the appraised value of the
insured improvements, and such loans shall not be made unless title to the real estate shall be in the
mortgagor. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real
estate which is security for any loan granted before the passage of this Act or under the provisions of this
Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution,
within the purview of this Act shall have the right, within one year after the sale of the real estate as a
result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by
the court in order of execution, or the amount due under the mortgage deed, as the case may be, with
interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses
incurred by the bank or institution concerned by reason of the execution and sale and as a result of the
custody of said property less the income received from the property. However, the purchaser at the
auction sale concerned in a judicial foreclosure shall have the right to enter upon and take possession of
such property immediately after the date of the confirmation of the auction sale by the court and
administer the same in accordance with law. (Emphasis ours.)

If the foreclosed property is registered, the mortgagor has one year within which to redeem the property from and
after registration of sale with the Register of Deeds.[21]

We explained in Prudential Bank v. Martinez[22] that:

[T]he 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. Generally, in forced sales,
low prices are usually offered and the mere inadequacy of the price obtained at the sheriffs 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.[23] (Citations omitted.)

We elucidated further in New Sampaguita Builders Construction Inc. v. Philippine National Bank[24] that:
In the accessory contract of real mortgage, in which immovable property or real rights thereto are
used as security for the fulfillment of the principal loan obligation, the bid price may be lower than the
propertys fair market value. In fact, the loan value itself is only 70 percent of the appraised value. As
correctly emphasized by the appellate court, a low bid price will make it easier for the owner to effect
redemption by subsequently reacquiring the property or by selling the right to redeem and thus recover
alleged losses. x x x.[25]

In Hulst v. PR Builders, Inc.,[26] we reiterated that:

[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a
transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks
ones conscience as to justify the courts to interfere; such does not follow when the law gives the owner
the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the
easier it is for the owner to effect redemption. When there is a right to redeem, inadequacy of price should
not be material because the judgment debtor may re-acquire the property or else sell his right to redeem
and thus recover any loss he claims to have suffered by reason of the price obtained at the execution
sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned
properties because it possesses the right of redemption. x x x.[27]

In line with the foregoing jurisprudence, we refuse to consider the question of sufficiency of the winning bid price
of BPI Family for the foreclosed property; and affirm the application of said winning bid in the amount of P2,142,616.00
against the total outstanding loan obligation of the spouses Avenido by March 8, 1999 in the sum of P2,598,452.80, thus,
leaving a deficiency of P455,836.80. BPI Family may still collect the said deficiency without violating the principle of
unjust enrichment, as opined by the Court of Appeals.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good conscience. Article 22 of the
Civil Code provides that every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall return the same to
him. The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is benefited without a
valid basis or justification, and (2) that such benefit is derived at anothers expense or damage.[28]There is no unjust
enrichment to speak of in this case. There is strong legal basis for the claim of BPI Family against the spouses Avenido
for the deficiency of their loan obligation.

BPI Family made an extrajudicial demand upon the spouses Avenido for the deficiency mortgage obligation in a
letter dated July 8, 2000 and received by the spouses Avenido on July 17, 2000. Consequently, we impose the legal
interest of 12% per annum on the deficiency mortgage obligation amounting to P455,836.80 from July 17, 2000 until the
finality of this Decision. Thereafter, if the amount adjudged remains unpaid, it will be subject to interest at the rate of
12% per annum computed from the time the judgment became final and executory until fully satisfied.

WHEREFORE, the Petition is hereby GRANTED. The assailed Decision dated March 31, 2006 and Resolution
dated November 16, 2006 of the Court of Appeals in CA-G.R. CV No. 79008, affirming the Decision dated November 13,
2002 of the Regional Trial Court, Branch 58 of Cebu City, in Civil Case No. CEB-25629, is REVERSED and SET
ASIDE. Respondent spouses Ma. Arlyn T. Avenido and Pacifico A. Avenido are ORDERED to pay petitioner BPI
Family Savings Bank, Inc. the deficiency of their mortgage obligation in the amount of P455,836.80, plus legal interest of
12% per annum from July 17, 2000 until the finality of this Decision. Thereafter, the amount adjudged shall be subject to
legal interest of 12% per annum from the finality of this Decision up to its satisfaction. No cost.

SO ORDERED.
DPWH vs. RONALDO QUIWA
G.R. No. 183444 February 8, 2012

FACTS:
After the Mt. Pinatubo tragedy in 1991, DPWH engaged a number of contractors, including the
respondents, for the urgent rehabilitation of the affected river systems. Save for Chiara Construction
and Ardy Construction, respectively owned by Efren N. Rigor and Romeo R. Dimatulac, the
contractors signed written agreements with Engineer Philip Meñez, Project Manager II of the DPWH.
It is undisputed that the contractors have completed their assigned rehabilitation works. But
DPWH refused to pay the contractors for the reason that the contracts were invalid due to non-
compliance with legal requirements. As such, respondents filed an action for a sum of money against
DPWH.
The Regional Trial Court (RTC) and the Court of Appeals (CA) upheld the validity of the
contracts and thus directed payment of compensation to the contractors.

ISSUES:
Whether respondents did not come to court with clean hands to assert their money claims
against petitioner in view of their failure to comply with the legal requirements concerning
government contracts and in ascertaining the extent of authority of the public official with whom they
contracted.
Whether the omissions made the contracts void ab initio and, as a consequence, petitioner
should not be made liable.

HELD:
Petitioner unsuccessfully established the applicability of the clean hands doctrine.
Respondents’ purported omissions, standing alone, cannot be construed as fraudulent or deceitful.
While petitioner is correct in saying that one who seeks equity must do equity, and one who comes
into equity must come with clean hands, it is equally true that an allegation of fraud and dishonesty to
come within the doctrine’s purview must be substantiated. Petitioner did not present evidence of
actual fraud and merely inferred that because of the omissions, the respondent contractors were in
bad faith. Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are
serious accusations that can be so conveniently and casually invoked, and that is why they are never
presumed. They amount to mere slogans or mudslinging unless convincingly substantiated by
whoever is alleging them.
Even with the respondents’ supposed failure to ascertain the validity of the contract and the
authority of the public official involved in the construction agreements, there is no such confusion as
to the matter of the contract’s validity and the equivalent compensation. As found by the court a quo,
petitioner had assured the contractors that they would be paid for the work that they would do, as
even DPWH Undersecretary Teodoro T. Encarnacion had told them to “fast-track” the project.
Hence, respondents cannot by any stretch of logic, be deprived of compensation for their services
when - despite their ostensible omissions - they only heeded the assurance of DPWH and proceeded
to work on the urgent project.
Lest it be forgotten, our courts are courts of both law and equity. The petitioner merely claims
that the omissions of respondents amount to fraud, while the records show that the public benefitted
from the services of respondents. Given these, this Court will remain true to the rule of substantial
justice and direct the payment of compensation to the contractors, who have completed their services
for the government’s Mt. Pinatubo Rehabilitation Project. Otherwise, urgent actions for emergency
work in the future would be discouraged.
After the unfounded clean hands doctrine resorted to by petitioner DPWH is cleared up, all
that remains is its repeated arguments. Petitioner reiterates that the contracts are void, without legal
effect, and cannot be cured by ratification. In the same Motion, it claims that the contracts were
unenforceable, as they were entered into beyond the authority of Engineer Meñez. Petitioner also
stresses that since the construction contracts with Rigor and Dimatulac are unwritten, DPWH cannot
be held liable. It raises the point that the writing of government contracts is a requirement for
existence, validity and enforceability. Citing the treatise of Bartolome C. Fernandez, petitioner DPWH
further asserts that the government, being an artificial person, cannot verbally consent to the
contract.
It has been settled in several cases that payment for services done on account of the
government, but based on a void contract, cannot be avoided. The government is unjustified in
denying what it owes to contractors and in leaving them uncompensated after it has benefitted from
the already completed work. Jurisprudence recognizes the principle of quantum meruit. Accordingly,
in the interest of substantial justice, the contractor’s entitlement to compensation has been and is
hereby directed.
G.R. No. 173349 February 9, 2011

SAMUEL U. LEE and PAULINE LEE and ASIATRUST DEVELOPMENT BANK, INC., Petitioners,
vs.
BANGKOK BANK PUBLIC COMPANY, LIMITED, Respondent.
FACTS:
Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI) entered into two
separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank Public Company, Limited
(Bangkok Bank) on November 29, 1995 and April 17, 1996, respectively. MDEC and MHI are owned
and controlled by the Lee family: Thelma U. Lee, Maybelle L. Lim, Daniel U. Lee and Samuel U. Lee
(Samuel). Both corporations have interlocking directors and management led by the Lee family.
Bangkok Bank required guarantees from the Lee family for the two CLAs. Consequently, the Lee
family executed guarantees in favor of Bangkok Bank for the CLA of MDEC and for the CLA of MHI.
Under the guarantees, the Lee family irrevocably and unconditionally guaranteed, as principal
debtors, the payment of any and all indebtedness of MDEC and MHI with Bangkok Bank. MDEC was
likewise granted a loan facility by Asiatrust Development Bank, Inc. (Asiatrust). MDEC availed itself of
the omnibus credit line granted by Asiatrust and when MDEC had defaulted in the payment of its loan
that matured, Asiatrust initiated negotiations with MDEC and the negotiation was concluded when
Asiatrust had agreed to Samuel’s proposition that he would mortgage the subject “Antipolo
properties” to secure the loan, and therefore execute a Rescission of Real Estate Mortgage (REM)
over the properties.
MDEC, MHI, and three other corporations owned by the Lee family filed before the Securities and
Exchange Commission (SEC) a Consolidated Petition for the Declaration of a State of Suspension of
Payments and for Appointment of a Management Committee/Rehabilitation Receiver. Said petition
acknowledged, among others, MDEC and MHI’s indebtedness with Bangkok Bank, and admitted that
matured and maturing obligations could not be met due to liquidity problems. Notably, the list of
properties attached to the petition indicated that the subject Antipolo properties of the spouses Lee
had already been earmarked, or that they had already served as security, for MDEC’s unpaid
obligation with Asiatrust. The SEC then issued a Suspension Order enjoining the Lee corporations
from disposing of their property in any manner except in the ordinary course of business, and from
making any payments outside the legitimate expenses of their business during the pendency of the
petition.

Bangkok Bank instituted an action before the RTC, Branch 141 in Makati City to recover the loans
extended to MDEC and MHI under the guarantees. Bangkok Bank’s application for the issuance of a
writ of preliminary attachment was granted, covering the properties of the Lee family in Antipolo,
Cavite, Quezon City, and Baguio, among others but Bangkok Bank discovered that the spouses Lee
had executed a REM over the subject Antipolo properties in favor of Asiatrust; and that the REM had
previously been annotated on the titles. Thus, the writs of preliminary attachment were also inscribed
at the back of the TCTs covering the subject Antipolo properties, next to the annotation of the REM.
Bangkok Bank filed an instant case before the RTC, Branch 73 in Antipolo City, for the rescission of
the REM over the subject properties, annulment foreclosure sale, cancellation of the new TCTs
issued in favor of Asiatrust, and damages amounting to PhP 600,000. In its action, Bangkok Bank
alleged, among others, that the presumption of fraud under Article 1387 of the Civil Code applies,
considering that a writ of preliminary attachment was issued in January 1998 in favor of SBC against
Samuel. It also claimed that collusion and fraud transpired between the spouses Lee and Asiatrust in
the execution of the REM. After due hearing with the parties presenting their evidence, RTC rendered
a Decision dismissing the case. Aggrieved, Bangkok Bank appealed the trial court’s decision before
the CA; and the appellate court rendered the assailed decision, which granted the appeal, and
reversed and set aside the RTC decision. Hence, this Petition for Review on Certiorari.

ISSUE:

Whether or not the properties owned by private individuals should be covered by a suspension order
issued by the SEC in an action for suspension of payments.

RULING:
No, the properties are not covered under the suspension order of SEC.

The Supreme Court GRANTED the petition and the CA’s Decision are REVERSED and SET ASIDE
thereby REINSTATING the RTC’s Decision.

Under Sec. 5.2 of RA 8799, the SEC’s original and exclusive jurisdiction over all cases enumerated
under Sec. 5 of PD 902-A was transferred to the appropriate RTC. RA 8799, Sec. 5.2, however,
expressly stated as an exception, that "[t]he Commission shall retain jurisdiction over pending
suspension of payment/rehabilitation cases filed as of 30 June 2000 until finally disposed."
Accordingly, the Consolidated Petition for the Declaration of a State of Suspension of Payments and
for Appointment of a Management Committee/Rehabilitation Receiver filed on February 16, 1998 by
MDEC, MHI and three other corporations owned by the Lee family, remained under the jurisdiction of
the SEC until finally disposed of pursuant to the last sentence of Sec. 5.2 of RA 8799.

PD 902-A vested the SEC with jurisdiction on petitions for suspension of payments only on
corporations, partnerships and associations; not on individual persons

The SEC’s jurisdiction is evident from the statutorily vested power of jurisdiction, supervision and
control by the SEC over all corporations, partnerships or associations, which are grantees of primary
franchise, license or permit issued by the government to operate in the Philippines, and its then
original and exclusive jurisdiction over petitions for suspension of payments of said entities. Secs. 3
and 5 of PD 902-A pertinently provides this.

It can be clearly gleaned that in cases of petitions for the suspension of payments, the SEC has
jurisdiction over corporations, partnerships and associations, which are grantees of primary
franchise or license or permit issued by the government to operate in the Philippines, and
their properties. And it is indubitably clear from the aforequoted Sec. 5(d) that only corporations,
partnerships and associations—NOT private individuals—can file with the SEC, petitions for
declaration in a state of suspension of payments. Thus, it logically follows that the SEC does not
have jurisdiction to entertain petitions for suspension of payments filed by parties other than
corporations, partnerships or associations. Indeed, settled is the rule that it is axiomatic that
jurisdiction is the authority to hear and determine a cause, which is conferred by law and not by the
policy of any court or agency.
Private individuals and their privately owned properties cannot be placed under the jurisdiction of the
SEC in a petition for suspension of payments.

In Chung Ka Bio v. Intermediate Appellate Court, Supreme Court resolved in the negative the
issue of whether private individuals can file with the SEC petitions for declaration in a state of
suspension of payments. We held that Sec. 5(d) of PD 902-A clearly does not allow a mere
individual to file the petition, which is limited to "corporations, partnerships or associations."

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