SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA v.

EQUITABLE PCI BANK, INC.

572 SCRA 245 (200!
A mortgage must sufficiently describe the debt sought to be secured, which description must
not be such as to mislead or deceive. An obligation is not secured by a mortgageunless it comes
fairly within the terms of the mortgage
Spouses Leopoldo and Mercedita Viola of Leo-Mers Commercial, Inc. obtained a loan through
a credit line facility from the Philippine Commercial International Ban !PCI Ban", #hich #as
later merged #ith $%uitable Ban and became no#n as $%uitable PCI Ban, Inc. &o secure the
payment of the loan, a '(eal $state Mortgage in fa)or of PCI Ban #as
e*ecuted. Spouses Viola made partial payments therein+ PCI Ban contends ho#e)er,
that Spouses Viola made no further payments despite demands. &hus, PCI Ban e*tra,udicially
foreclosed the mortgage before the (egional &rial Court !(&C" and that the mortgaged
properties #ere sold at a public auction.
Spouses Viola filed a complaint for annulment of foreclosure sale, accounting and damages
before the (&C. &hey alleged that they had made substantial payments of P-,../,012..3,
receipts of #hich #ere issued #ithout PCI Ban specifying 4#hetherthe payment #as for
interest, penalty or the principal obligation5. Based on PCI Ban6s statement of account, not a
single centa)o of their payments #as applied to the principal obligation, that the foreclosure
proceedings and auction sale #ere null and )oid because the mortgage debt is only
P0,007,23-.-1, for the principal obligation, and P1,788,1-3.-., on the interest, but the
mortgaged properties #ere sold to satisfy an inflated of P7,39-,087../, plus -: penalty fee per
month year and 18: interest per year, #hich amounted to P17,207,.0-.00.
&he (&C upheld the position of the PCI Ban but reduced the interest of the
principal. Spouses Viola filed a Motion for (econsideration but it #as denied. ;n appeal,
the Court of <ppeals !C<" dismissed the petition for lac of merit.
ISSUE"
=hether or not the mortgage contract also secured the penalty fee per month on the outstanding
amount as stipulated in the Credit Line <greement.
#ELD"
< mortgage must sufficiently describe the debt sought to be secured, #hich description must not
be such as to mislead or decei)e, and an obligation is not secured by a mortgage unless it comes
fairly #ithin the terms of the mortgage.
In the case at bar, the parties e*ecuted t#o separate documents on March -1, 1//3 > the Credit
Line <greement granting the Client a loan through a credit facility in the ma*imum amount of
P7,322,222.22, and the (eal $state Mortgage contract securing the payment thereof.
<s the Credit Line <greement specifically defined 'a penalty fee of three percent !-:" per
month of the outstanding amount to be computed from the day deficiency is incurred up to the
date of full payment thereon, the pro)ision of the mortgagecontract does not specifically
mention that.
Since an action to foreclose 'must be limited to the amount mentioned in themortgage and the
penalty fee of -: per month of the outstanding obligation is not mentioned in the mortgage, it
must be e*cluded from the computation of the amount secured by the mortgage.
'Penalty fee is entirely different from 'ban charges. &he phrase 'ban charges is
normally understood to refer to compensation for ser)ices. < 'penalty fee is liened to a
compensation for damages in case of breach of the obligation. Being penal in nature, such fee
must be specific and fi*ed by the contracting parties, unlie in the present case #hich slaps a -:
penalty fee per month of the outstanding amount of the obligation.
Moreo)er, the 'penalty fee does not belong to the species of obligation enumerated in
the mortgage contract, namely? 4loans, credit and other baning facilities obtained * * * from
the Mortgagee, . . . including the interest and ban charges, . . . the costs of collecting the same
and of taing possession of and eeping the mortgaged properties, and all other e*penses to
#hich the Mortgagee may be put in connection #ith or as an incident to this mortgage . . .5
In Philippine Ban of Communications ). Court of <ppeals #hich raised a similar issue, the
Court held that there is also sufficient authority to declare that any ambiguity in a contract
#hose terms are susceptible of different interpretations must be read against the party #ho
drafted it.