FACTS:
Lorenze Realty and Development Corporation obtained various loans and credit accommodations from China Banking Corporation in 1997. The loans amounted to a total of P71,050,000.00. It was stipulated in the promissory notes that Lorenze Realty agreed to pay an additional 1/10 of 1% per day as penalty for default, as well as an additional 10% of the total amount due as attorney's fees. To secure the obligations, Lorenze Realty executed Real Estate Mortgages over 11 parcels of land.
Due to default in payment, China Bank conducted an extrajudicial foreclosure of the properties and emerged as the highest bidder at the public auction. The sale resulted in a deficiency of P29,258,179.81. China Bank demanded payment of the remaining loan, but Lorenze Realty refused.
China Bank filed a collection suit against Lorenze Realty and its officers for the deficiency amount. The RTC ruled in favor of China Bank, holding that Lorenze Realty cannot be discharged from its obligations as stated in the surety agreements. The CA affirmed the decision but reduced the penalty surcharge from 24% per annum to 12% per annum and reduced the attorney's fees from 5% to 2% of the total amount due.
Lorenze Realty appealed to the Supreme Court, raising the issue of whether its obligation was fully settled when the mortgaged properties were sold at the public auction.