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SPS. FRANCISCO v. PHILIPPINE NATIONAL BANK

FACTS:

The case involves a dispute regarding the foreclosure sale of the petitioners' mortgaged properties. The respondents, spouses Francisco and Merced Rabat, borrowed a loan from Philippine National Bank (PNB), using twelve parcels of land as collateral. Due to their failure to settle their loan obligation, PNB filed a petition for extrajudicial foreclosure and subsequently sold the mortgaged properties at a public auction. However, the proceeds of the sale were insufficient to cover the entire debt. PNB then filed a complaint for a sum of money before the Regional Trial Court (RTC) of Manila. The RTC dismissed PNB's complaint, prompting PNB to appeal to the higher courts. The Court of Appeals (CA) upheld the RTC's decision to nullify the foreclosure sales on the ground that the Spouses Rabat did not receive personal notices about the foreclosure proceedings. PNB appealed to the Supreme Court, arguing that the CA should not have resolved an issue that was not raised during the appeal. The Supreme Court granted PNB's petition and instructed the CA to decide the case based on the errors raised by PNB. The CA then amended its decision but issued a second amended decision upon PNB's motion for reconsideration. PNB filed another appeal before the Supreme Court challenging the CA's second amended decision, but this appeal has not yet been resolved.

ISSUES:

  1. Whether the Court of Appeals erred in upholding the validity of the subject auction sales and adjudging payment of deficiency sum, interests, penalty and service charges, and attorney's fees.

  2. Whether the Court of Appeals erred in departing from its finding of facts and conclusions of law as stated in the earlier rendered first amended decision.

  3. Whether the inadequacy of the bid price at a forced sale nullifies the sale.

  4. Whether PNB is entitled to recover any deficiency from the Spouses Rabat.

  5. Whether the CA validly rendered its second amended decision.

RULING:

  1. The Court ruled that the Court of Appeals did not err in upholding the validity of the subject auction sales and in adjudging payment of deficiency sum, interests, penalty and service charges, and attorney's fees. The Court held that the alleged gross inadequacy of purchase price was not sufficient to set aside the auction sale since the mortgagors had the right to redeem the property, and the bid price was almost equivalent to the loan value of the mortgaged properties. The Court also ruled that PNB was entitled to recover the deficiency arising from the extrajudicial foreclosure sale.

  2. The inadequacy of the bid price at a forced sale does not nullify the sale. The Court held that in a forced sale, a low price is considered more beneficial to the mortgage debtor because it makes redemption of the property easier. The law governing extrajudicial foreclosure of real estate mortgage, Act No. 3135, does not require a minimum bid price or that the winning bid should be equal to the appraised value of the foreclosed property or to the amount owed by the mortgage debtor. In this case, other than the mere inadequacy of the bid price, the Spouses Rabat did not allege any irregularity in the foreclosure proceedings nor did they prove that a better price could be obtained for their property.

  3. PNB is entitled to recover the deficiency amount. The Court held that if the proceeds of the sale in an extrajudicial foreclosure are insufficient to cover the debt, PNB has the legal right to claim the deficiency from the Spouses Rabat. Act No. 3135 does not prohibit the recovery of deficiency. Therefore, PNB can recover the penalty charge and attorney's fees, as agreed upon in the loan and real estate mortgage documents.

PRINCIPLES:

  • Mere inadequacy of price per se will not set aside a judicial sale of real property, but if the inadequacy is shocking to the conscience, the sale may be declared null and void.

  • Alleged gross inadequacy of price is not material in extrajudicial foreclosure sales because the mortgagor has the right to redeem the property.

  • In extrajudicial foreclosure of mortgage, where the sale proceeds are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor.

  • Inadequacy of the bid price at a forced sale does not nullify the sale, as it is considered more beneficial to the mortgage debtor.

  • In an extrajudicial foreclosure, the mortgagee is entitled to claim the deficiency from the debtor if the proceeds of the sale are insufficient to cover the debt.

  • The contracting parties have the autonomy to include stipulations in their covenants, as long as they are not contrary to law, morals, good customs, public order or public policy.

  • Parties to a contract have the autonomy to include stipulations, clauses, terms, and conditions as they may want to include.

  • Courts of law have the power to alter, modify, or set aside their decisions before they become final and unalterable.

  • Once a judgment has attained finality, it becomes immutable and unalterable, even if there are erroneous conclusions of fact or law.

  • The doctrine of immutability and inalterability of a final judgment serves to avoid delay in the administration of justice and to put an end to judicial controversies.

  • The doctrine of immutability is not a mere technicality but a matter of public policy and a principle of procedural law.