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RAMCAR v. HI-POWER MARKETING

FACTS:

Ramcar, Incorporated (Ramcar) is engaged in the distribution of batteries and respondent Leonidas Bohol (Bohol) is a distributor of Ramcar products in Quezon City and San Pablo City under the business name Hi-Power Marketing. On March 4, 1982, Ramcar and Bohol entered into a loan agreement wherein Ramcar allotted P300,000.00 as a trade credit line and P300,000.00 as a straight loan to Bohol. To secure the loan, Bohol executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 285976. Bohol also signed an undated promissory note specifying the payment schedule and breakdown of the principal amount and interest. Based on the claim of default by Bohol, Ramcar petitioned the sheriff of Quezon City to foreclose the mortgage. In response, Bohol and his wife filed a Petition for Prohibition with Preliminary Injunction to prevent the auction sale. The petition was dismissed by the RTC, and the spouses Bohol filed a Motion for Reconsideration and For New Trial which was denied. They then appealed to the Court of Appeals (CA). Pending the appeal, Ramcar requested the sheriff to proceed with the extrajudicial foreclosure and the auction sale was conducted, with Ramcar being the highest bidder. The spouses Bohol then filed a separate case praying for the extinguishment of their obligation and the release of their property from the mortgage. The CA eventually reversed the RTC decision, declaring the obligation of the spouses Bohol extinguished by payment and the extrajudicial foreclosure null and void.

ISSUES:

  1. Whether there was default in payment on the part of the spouses Bohol.

  2. Whether the extrajudicial foreclosure of the real estate mortgage is valid.

RULING:

  1. The Court of Appeals declared that the spouses Bohol were not in default in the payment of their loan obligation to Ramcar. The court found that the Bohols had overpaid their mortgaged obligation, and therefore, cannot be considered in default. The extrajudicial foreclosure proceedings instituted against them lack legal basis.

  2. The Court of Appeals declared the extrajudicial foreclosure of the real estate mortgage null and void. As a consequence, the appellate court set aside the writ of possession issued in favor of Ramcar, cancelled the latter's transfer certificate of title, and reinstated Bohol's original title.

PRINCIPLES:

  • In order to proceed with foreclosure of a mortgage, the mortgagee must prove the default in payment.

  • Overpayment of a loan obligation may prevent the creditor from considering the debtor in default.