SPOUSES ESMERALDO and ELIZABETH SUICO, petitioners, vs.

PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS, respondents.

G.R. No. 170215 | August 28, 2007 | CHICO-NAZARIO, J.

FACTS:
1. Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties
in the name of the former.

2. Sps. Suico failed to pay the obligation prompting PNB to extrajudicially foreclose the mortgage
over the subject properties.

3. Petitioners, thereafter filed a complaint alleging that the extrajudicial foreclosure conducted
and the Certificate of Sale and the Certificate of Finality sale are null and void;
a. During the foreclosure sale, PNB was the lone bidder.
b. The amount of bid is P8,511,000.00.
c. Petitioners alleged that the outstanding obligation is only P1,991,770.38.
d. Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding
obligation as stated in the extrajudicial foreclosure of mortgage, it was the legal duty of
the winning bidder, PNB, to deliver to the Mandaue City Sheriff the bid price or what was
left thereof after deducting the amount of petitioners’ outstanding obligation.
e. PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very
least, the amount of such bid in excess of petitioners’ outstanding obligation.

4. PNB moved to dismiss citing the pendency of another action between the same properties
where PNB was seeking payment of the balance of petitioner’s obligation not covered by the
proceeds of the auction sale.

5. RTC denied the Motion to Dismiss.

6. PNB asserted, in its answer, that petitioners had other loans which had likewise become due.
PNB maintained that the outstanding obligation of the petitioners under their regular and export-
related loans was already more than the bid price of P8,511,000.00, contradicting the claim of
surplus proceeds due the petitioners. Petitioners were well aware that their total principal
outstanding obligation on the date of the auction sale was P5,503,293.21.

7. RTC – declared the extrajudicial foreclosure null and void.a. RTC reasoned that given that
petitioners had other loan obligations which had not yet matured on 10 March 1992 but became
due by the date of the auction sale on 30 October 1992, it does not justify the shortcut taken by
PNB and will not excuse it from paying to the Sheriff who conducted the auction sale the excess
bid in the foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the filing
fee in the saidforeclosure inadequate but, worse, the same constitutes a misrepresentation
regarding the amount of the indebtedness to be paid in the foreclosure sale as posted and
published in the notice of sale.[11] Such misrepresentation is fatal because in an extrajudicial
foreclosure of mortgage, notice of sale is jurisdictional. Any error in the notice of sale is fatal and
invalidates the notice.

8. CA – reversed.
a. Petitioners offered to redeem the properties several times from 6.5M to 7.5M.
b. All those offers made by the [petitioners] not only contradicted their very assertion
that their obligation is merely that amount appearing on the petition for foreclosure but
are also indicative of the fact that they have admitted the validity of the extra judicial
foreclosure proceedings and in effect have cured the impugned defect.
c. Even assuming that indeed there was a surplus and the [PNB] is retaining more than
the proceeds of the sale than it is entitled, this fact alone will not affect the validity of the
sale but simply gives the [petitioners] a cause of action to recover such surplus.
d. Such failure of PNB does not constitute jurisdictional defect.

ISSUE:
Whether or not the extrajudicial foreclosure is valid.

HELD:
YES Petitioners argue that since the Notice of Sheriff’s Sale stated that their obligation was only
P1,991,770.38 and PNB biddedP8,511,000.00, the said Notice as well as the consequent sale of
the subject properties were null and void.

It is true that statutory provisions governing publication of notice of mortgage foreclosure sales
must be strictly complied with, and that even slight deviations therefrom will invalidate the
notice and render the sale at least voidable. Nonetheless, we must not also lose sight of the fact
that the purpose of the publication of the Notice of Sheriff’s Sale is to inform all interested parties
of the date, time and place of the foreclosure sale of the real property subject thereof.

Logically, this not only requires that the correct date, time and place of the foreclosure sale
appear in the notice, but also that any and all interested parties be able to determine that what
is about to be sold at the foreclosure sale is the real property in which they have an interest.

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property.
If these objects are attained, immaterial errors and mistakes will not affect the sufficiency of the
notice; but if mistakes or omissions occur in the notices of sale, which are calculated to deter or
mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair
price, such mistakes or omissions will be fatal to the validity of the notice, and also to the sale
made pursuant thereto.

Petitioners failed to convince this Court that the difference between the amount stated in the
Notice of Sale and the amount of PNB’s bid resulted in discouraging or misleading bidders,
depreciated the value of the property or prevented it from commanding a fair price.
Considering the amount of PNB’s bid of P8,511,000.00 as against the amount of the petitioners’
obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess?

YES. Section 21 of Rule 39 emphasized that if the amount of loan is equal to the bid, there is no
need to pay the amount in cash. Same provision mandates that in the absence of a third-party
claim, the purchaser in an execution sale need not pay his bid if it does not exceed the amount
of the judgment; otherwise, he shall pay only the excess. The ratio is that it would be senseless
for the Sheriff conducting the foreclosure sale to go through the ceremony of receiving money
and giving it back to the creditor.

Under Rule 68, Section 4, 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.

Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first
mortgagee/senior mortgagee, the claim of the second mortgagee/junior mortgagee may be
satisfied from the surplus proceeds. 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.

Thus it has been held that 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.

Given that the Statement of Account from PNB, being the only existing documentary evidence to
support its claim, shows that petitioners’ loan obligations to PNB as of 30 October 1992
amounted to P6,409,814.92, and considering that the amount of PNB’s bid is P8,511,000.00,
there is clearly an excess in the bid price which PNB must return, together with the interest
computed in accordance with the guidelines laid down by the court in Eastern Shipping Lines v.
Court of Appeals : 6% interest – from the time of filing the complaint; 12% interest – once the
judgment becomes final and executory.

It must be emphasized, however, that our 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.