SUICO v. PNB G.R. No.

170215
August 28, 2007 Chico-Nazario, J.
TOPIC IN SYLLABUS: Security Devices
SUMMARY: PNB foreclosed the REM of Sps. Suico after the latter failed to pay their obligation. Petitioners
filed a complaint to nullify the same for failure of PNB to pay them the excess proceeds (actual bid price
less outstanding obligation). RTC nullified the forecloseure. CA reversed. SC affirmed with modification.
The application of the proceeds from the sale of the mortgaged property to the mortgagor's obligation is
an act of payment, not payment by dacion; hence, it is the mortgagee's duty to return any surplus in the
selling price to the mortgagor.

FACTS:
• Sps. Esmeraldo and Elizabeth Suico obtained a loan from PNB secured by a real estate mortgage.
• Petitioners were unable to pay, prompting PNB to extrajudicially foreclose the REM.
• PNB secured the certificate of sale and certificate of final sale and transferred registration of the
properties to its name.
• Petitioners filed a complaint against PNB for the declaration of nullity of said foreclosure and the
certificates issued, alleging that since the amount of the bid (P8.51M) grossly exceeded the amount
of their outstanding obligation in the notice of sale (P1.99M), PNB has to deliver to them the excess.
However, PNB failed to deliver.
• PNB filed a motion to dismiss, citing pendency of another action between the same parties where
PNB was seeking payment of the balance of petitioners’ obligation not covered by the proceeds of the
auction sale. Petitioners opposed the MTD. RTC denied the MTD.
• RTC nullified the extrajudicial foreclosure including the certificates issued.
o Given that petitioners had other loan obligations which only became due by the date of the
auction sale, it does not justify the shortcut taken by PNB and will not excuse it from paying to the
sheriff the excess bid. To allow PNB to do so would constitute fraud (incorrect filing fee +
misrepresentation of the amount of indebtedness published in the notice of sale) and this is fatal
because in extrajudicial foreclosure of mortgage, notice of sale is jurisdictional.
• CA reversed the ruling and declared the extrajudicial foreclosure valid and binding.
o Petitioners themselves in various letters to PNB acknowledged their indebtedness to be more
than P1.99M (as indicated in the notice of sale) by offering to redeem the properties for as high
an offer as P9.50M.

ISSUES:
1) Whether there is a fatal defect in the notice of sale which would invalidate the extrajudicial
foreclosure. – No. Notice is valid.
2) Is PNB obliged to deliver the excess/surplus (actual bid less outstanding obligation)? – Yes.

HELD:
1) It is true that the statutory provisions governing publication of notice of mortgage foreclosure sales
must be strictly complied with and that even slight deviations will invalidate the notice and render the
sale at least voidable. Purpose of the notice – to inform all interested parties of the date, time
and place of the foreclosure sale of the real property.

We disagree with the RTC that the discrepancy between the amount in the notice and the amount
actually due and collected at the time of the auction sale constitute fraud which renders the
extrajudicial foreclosure sale null and void. Petitioners failed to convince the Court that it resulted in
discouraging or misleading bidders, depreciated the value of the property or prevented it from
commanding a fair price. The cases cited in the RTC decision do not apply: San Jose v. CA and
Community Savings and Loan Assoc. Inc. v. CA.

2) PNB should return the excess in the bid price with interest computed in accordance with the
guidelines laid down in Eastern Shipping Lines v. CA. But the Court’s holding in this case does not
preclude PNB from proving and recovering in a proper proceeding any deficiency in the amount of
petitioners’ loan obligation that may have accrued after the date of the auction sale.

Anna Isabella Galvez [CASE # 27]

 Rule 39, Sec. 21. Judgment obligee as purchaser. - When the purchaser is the judgment obligee, and no third-party claim
has been filed, he need not pay the amount of the bid if it does not exceed the amount of his judgment. If it does, he shall pay
only the excess.

Rule 39, Sec. 39. Obligor may pay execution against obligee. - After a writ of execution against property has been issued, a
person indebted to the judgment obligor may pay to the sheriff holding the writ of execution the amount of his debt or so much
thereof as may be necessary to satisfy the judgment, in the manner prescribed in section 9 of this Rule, and the sheriff's receipt
shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment obligee on the execution.

The raison de etre is that it would be senseless for the sheriff or the notary public conducting the
foreclosure sale to go through the idle ceremony of receiving the money and paying it back to the
creditor, under the truism that the lawmaking body did not contemplate such a pointless application of
the law in requiring that the creditor must bid under the same conditions as any other bidder. The rule
holds true only where the amount of the bid represents the total amount of the mortgage debt.

Rule 68, Sec. 4. Disposition of proceeds of sale. - The amount realized from the foreclosure sale of the mortgaged property
shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any
balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their
priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to
them, then to the mortgagor or his duly authorized agent, or to the person entitled to it.

Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:
(a) first, pay the costs
(b) secondly, pay off the mortgage debt
(c) thirdly, pay the junior encumbrancers, if any in the order of priority
(d) fourthly, give the balance to the mortgagor, his agent or the person entitled to it.

The application of the proceeds from the sale of the mortgaged property to the mortgagor's obligation
is an act of payment, not payment by dacion; hence, it is the mortgagee's duty to return any surplus in
the selling price to the mortgagor. Perforce, a mortgagee who exercises the power of sale contained
in a mortgage is considered a custodian of the fund and, being bound to apply it properly, is liable to
the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly
considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance,
the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption.

If the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will
not affect the validity of the sale but simply give the mortgagor a cause of action to recover such
surplus.

Based on the evidence presented:

a) The actual bid price is more than the petitioners’ outstanding obligation of P6.40M based on the
statement of account as prepared by PNB. Although petitioners denied the amounts reflected
therein, they did not interpose any defense to refute the computations. Petitioners' mere denials,
far from being compelling, had nothing to offer by way of evidence. This then enfeebles the
foundation of petitioners' protestation and will not suffice to overcome the computation of their
loan obligations as presented in the SOA.

b) The Court noted that petitioners wrote a number of letters to PNB almost two years after the
auction sale, offering to redeem the property. However, these letters by themselves cannot be
used as bases to support PNB's claim that petitioners' obligation is more than its bid of P8.50M,
without any other evidence. There was no computation presented to show how petitioners'
obligation already reached P9.50M. Petitioners could very well have offered such an amount on
the basis of the value of the foreclosed properties rather than their total obligation to PNB. We
cannot take petitioners' offer to redeem their properties in the amount of P9.5M on its face as an
admission of the amount of their obligation to PNB without any supporting evidence.

Anna Isabella Galvez [CASE # 27]