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SPS. ESMERALDO v. PHILIPPINE NATIONAL BANK

FACTS:

The petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank (PNB) secured by a real estate mortgage on properties owned by the petitioners. They were unable to pay their obligation, leading PNB to extrajudicially foreclose the mortgage on the properties. The petitioners filed a Complaint before the Regional Trial Court (RTC) of Mandaue City, seeking the nullification of the extrajudicial foreclosure of the mortgage. They alleged that PNB filed a petition for extrajudicial foreclosure of the mortgage on their properties, and during the foreclosure sale, PNB made the highest bid but failed to deliver the amount of its bid to the sheriff or account for how the bid amount was applied against their outstanding loan. PNB eventually obtained a Certificate of Final Sale and transferred the properties to its name. The petitioners claimed that the foreclosure, as well as the certificates of sale, and finality of sale, were null and void. PNB filed a motion to dismiss, but it was denied. PNB then filed an answer disputing the petitioners' factual allegations.

In another version of the facts, the petitioners obtained regular and export-related loans from PNB and defaulted on their obligations. PNB initiated foreclosure proceedings on their mortgaged properties and held an auction sale. The RTC later declared the foreclosure null and void, but the Court of Appeals reversed the ruling, holding that the surplus in the foreclosure sale gave rise to a cause of action for the petitioners to recover it from PNB. The petitioners sought a reconsideration, but the Court of Appeals maintained the validity of the foreclosure sale.

In yet another version, the petitioners argue that the foreclosure was null and void due to a defect in the notice of sheriff's sale and because PNB failed to pay and tender the price of its bid or the surplus thereof to the sheriff. They claim that these grounds render the notice and the sale of the properties null and void. The petitioners assert that strict compliance with the statutory provisions governing the publication of notice of mortgage foreclosure sales is necessary.

(Note: The excerpts provided are from different versions of the facts and should not be combined into a single paragraph.)

ISSUES:

  1. Whether the discrepancy between the amount stated in the Notice of Sale and the amount of PNB's bid renders the extrajudicial foreclosure sale null and void.

  2. Whether PNB's failure to pay its bid or deliver the surplus to the petitioners affects the validity of the foreclosure sale.

  3. Whether PNB is obliged to deliver the excess amount of its bid.

  4. Whether the evidence presented by PNB is sufficient to support its claim that petitioners' loan obligations exceeded the amount of its bid.

  5. Whether the Philippine National Bank (PNB) should return the excess amount of the bid price.

  6. What is the applicable interest rate for the amount to be returned by PNB.

RULING:

  1. The discrepancy between the amount stated in the Notice of Sale and the amount of PNB's bid does not render the extrajudicial foreclosure sale null and void. The purpose of the Notice of Sheriff's Sale is to inform interested parties of the date, time, place, and property being sold. While statutory provisions governing the publication of notice must be strictly complied with, slight deviations will not invalidate the notice. In this case, the discrepancy did not discourage or mislead bidders, depreciate the value of the property, or prevent it from commanding a fair price, therefore the Notice of Sale is valid.

  2. PNB's failure to pay its bid or deliver the surplus to the petitioners does not affect the validity of the foreclosure sale. The law provides that when the purchaser is the judgment obligee, and no third-party claim has been filed, the purchaser need not pay the amount of the bid if it does not exceed the amount of the judgment. If it exceeds the judgment amount, the purchaser shall only pay the excess. In this case, PNB was not required to pay the bid amount since it did not exceed the petitioners' outstanding obligation. Therefore, PNB's failure to pay or deliver the surplus is not a ground to invalidate the foreclosure sale.

  3. Yes. Under Rule 68, Section 4 of the Rules of Court, after deducting the costs of the sale and paying off the mortgage debt due, any balance or residue shall be paid to junior encumbrancers, if any, in the order of priority, and if there is still a balance or residue, it shall be given to the mortgagor or the person entitled to it. Therefore, the mortgagee has a duty to return any surplus in the selling price to the mortgagor. A mortgagee who fails to do so is liable to the persons entitled to the surplus. In this case, since the evidence shows that the petitioners' loan obligations did not exceed the amount of PNB's bid, PNB is obliged to deliver the excess amount.

  4. No. The evidence presented by PNB, which is the Statement of Account prepared by PNB, is insufficient to support its claim. Although the petitioners denied the amounts reflected in the Statement of Account, they did not provide any evidence or defense to refute the computations. Petitioners' mere denials without supporting evidence cannot overcome the computation of their loan obligations presented by PNB. Therefore, the evidence is not sufficient to support PNB's claim that petitioners' loan obligations exceeded the amount of its bid.

  5. The Court held that PNB must return the excess amount of the bid price, together with interest computed in accordance with the guidelines laid down in Eastern Shipping Lines v. Court of Appeals.

  6. The Court ruled that the proper interest rate for the amount to be returned by PNB is 6% per annum from the time of the filing of the complaint until its full payment before finality of judgment. After the judgment becomes final and executory, the interest rate shall be 12% per annum until fully satisfied.

PRINCIPLES:

  • Statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, but slight deviations will not invalidate the notice.

  • The purpose of the Notice of Sheriff's Sale is to inform all interested parties of the foreclosure sale, including the property being sold.

  • Immaterial errors and mistakes in the notice of sale will not affect its sufficiency if they do not deter or mislead bidders, depreciate the value of the property, or prevent it from bringing a fair price.

  • When the judgment obligee is the purchaser in a foreclosure sale and no third-party claim has been filed, the purchaser need not pay the bid amount if it does not exceed the judgment amount. If it exceeds the judgment amount, the purchaser shall only pay the excess.

  • The mortgagee in a foreclosure sale is considered a custodian of the fund from the sale and is obligated to return any surplus to the mortgagor.

  • The mortgagee is liable to the persons entitled to the surplus if it fails to properly apply the proceeds of the sale.

  • Mere denials without supporting evidence are insufficient to overcome the computation of obligations presented by the mortgagee.

  • The interest rate of 12% per annum applies to cases involving loan or forbearance of money.

  • When an obligation not constituting a loan or forbearance of money is breached, the interest rate of 6% per annum may be imposed at the discretion of the court.

  • No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.

  • The base for the computation of legal interest shall be on the amount finally adjudged.

  • Once the judgment becomes final and executory, the interim period until payment is deemed to be equivalent to a forbearance of credit, and the interest rate of 12% per annum shall be imposed until fully satisfied.

  • The judgment does not preclude PNB from proving and recovering any deficiency in the amount of petitioners' loan obligation after the auction sale.