Suico v.

Philippine National Bank

GR 170215; Aug. 28, 2007
J. Chico-Nazario

Petitioners: SPS. ESMERALDO and ELIZABETH SUICO

Respondents: PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS
Topic: REM — Right to Surplus

Case Summary: Spouses Esmeraldo and Suico obtained a loan from PNB secured
by a real estate mortgage, but they eventually defaulted on their
payments. As such, PNB extrajudicially foreclosed on several of
their properties. PNB, as lone bidder, offered a bid of 8.5M for
the properties. A certificate of sale was then issued in its favor.
The spouses sought for the annulment of the foreclosure and
demanded that PNB return the excess of the proceeds of the sale
since their obligation only amounted to around 1.9M at the time
of the auction sale. However, PNB denied this and presented a
statement of account evidencing that several of their other loans
also fell due which totalled around 5.9M pesos, exclusive of fees
and other charges.

Upon elevation to the SC, the court ruled that while it is true that
the spouses are entitled to the return of the surplus of the
foreclosure sale, such however cannot be used as a ground to
annul an auction sale. Thus, the SC upheld the validity of the
foreclosure, and ordered PNB to return the surplus to the
spouses, plus interests.

Doctrine: A mortgagee who exercises the power of sale contained in a

mortgage is considered a custodian of the fund, and is liable to
the person entitled thereto if he fails to apply it properly to the
mortgagor’s outstanding obligations.

Sec. 4 Rule 68 in brief: 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.

Facts:
1. Sps. Esmeraldo and Suico obtained a loan from PNB secured by a real estate
mortgage on properties the spouses owned.
a. However, they were unable to pay their obligations so PNB extrajudicially
foreclosed the mortgaged before the Sheriff of Mandaue City.

b. As such, PNB foreclosed on the mortgage for an outstanding loan obligation

amounting 1,991,770.38 pesos, covering the ff. properties:
i. TCT 13196: a 2,078sqm parcel of land in Mandaue City;
ii. Tax Dec. 00553: A 200sqm parcel of land in Tabok, Mandaue;
iii. Tax Dec. 00721: 2 parcels of land (1,683sqm) in Tabok, Mandaue;
iv. Tax Dec. 0237: a 0.1785sq. ha parcel of land in Tabok, Mandaue;
v. Tax Dec. 9267: a 0.1785sq. ha parcel of land in Mandaue.
2. PNB, as lone bidder, offered a bid in the amount of 8,5111,000 pesos and a
certificate of sale was issued in its favor;
a. PNB then did not pay to the Sheriff the amount of its bid, nor did it give any
accounting as to how it was applied to the petitioner’s outstanding obligation
of around 1.9M pesos.

3. 1 year after, PNB was able to secure the certificate of final sale from the sheriff, which
transferred registration of all the subject properties to its name.

4. Aggrieved, the spouses then filed a complaint for declaration of nullity of

extrajudicial foreclosure of mortgage before the RTC of Mandaue City.
a. Claimed that the amount of bid grossly exceeded the amount of petitioners’
outstanding obligations as stated in the extrajudicial foreclosure:
b. Prayed for PNB to deliver the amount of their bid to the Sheriff, or, at the very
least, the amount of such bid in excess of petitioner’s outstanding loan
obligation.

5. PNB, for its part, disputed the factual narration and asserted that:
a. Spouses had other loans which had likewise become due as evidenced by a
statement of account;
i. In fact, they knew that at the time of auction sale, their obligation
ballooned to 5,503,293.21 pesos;
b. Petitioner’s outstanding obligation of 1.9M was exclusive of attorney’s fees
and other export relation obligations;
c. Put together, the amount due the spouses exceeded the bid price of 8.5M
which PNB placed on the subject properties.

6. RTC: Ruled in favor of the spouses and annulled the extrajudicial foreclosure of
mortgage.
a. The fact that other loan obligations the spouses had became due by the date
of the auction sale does not justify the shortcut taken by PNB and will not
excuse it from paying to the Sheriff the excess bid in the foreclosure sale.
b. To allow so would constitute fraud and misrepresentation regarding the
amount of the indebtedness to be paid in the foreclosure as posted and
published in the notice of sale.
c. Misrepresentation is fatal since notice of sale is jurisdictional in extrajudicial
foreclosure of mortgage.
d. PNB appealed.

7. CA: Reversed the RTC ruling and held that:

a. Records show that the spouses, thru a letter dated Jan. 12, 1994, admitted
that their outstanding principal obligation amounted to around 5.4M and
offered to redeem the same at 6.5M.
b. They eventually increased their offer at 7.5M and offered to pay the same in a
6-year installment period.
c. All those offers not only contradicted their assertion that their obligation was
merely to pay 1.9M, but also admits that they consented to the validity of the
foreclosure of the mortgage.
d. Moreover, and assuming that there was surplus, this fact alone will not affect
the validity of the sale but simply gives the spouse a cause of action to recover
such surplus.
i. In short, failure to remit surplus is not a jurisdictional defect that
could invalidate the auction sale.
 e. The spouses filed a MFR.
8. CA: denied the MFR, but amended their decision to order PNb to pay the deficiency
filing fees.
a. Hence, this petition for review filed by the spouses.
[IMPT] W/N PNB may
be compelled to deliver
the surplus — YES.
W/N there is surplus
from the foreclosure
that the spouses are
entitled to — YES.
Ratio Decidendi:
a. General rule: 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.
i. Thus, it is the mortgagee’s duty to return any surplus
in the selling price to the mortgagor.
ii. A mortgagee who exercises the power of sale
contained in a mortgage is considered a custodian of
the fund, and is liable to the person entitled thereto if
he fails to apply it properly to the mortgagor’s
outstanding obligations.
iii. In a loose sense, the mortgagee is deemed a trustee
for the mortgagor or owner of the equity of
redemption.
b. ITC, the CA is correct that retention of the surplus will not
affect the validity of the sale, but simply gives the mortgagor a
cause of action to recover such surplus from the mortgagee.
i. Sec. 4 Rule 68 RoC, which the Court summed up as
follows:
1. the disposition of the proceeds of the sale in
foreclosure shall be as follows:
a. (a) first, pay the costs
b. (b) secondly, pay off the mortgage
debt
c. (c) thirdly, pay the junior
encumbrancers, if any in the order
of priority
d. (d) fourthly, give the balance
to the mortgagor, his agent or
the person entitled to it.
a. Upon review of the records, the SC ruled that the Statement of
Account adduced by PNB was the only existing documentary
evidence to support its claim that the loan obligations
amounted to more than 1.9M at the time of auction sale.
i. Statement of Accounts: showed that petitioner’s loan
obligations as of the date of the auction sale (Oct. 10,
1992) amounted to 6,409,814.92, inclusive of other
charges.
ii. PNB cannot rely on the letters submitted by the
spouses almost 2 years after the auction sale which
offered to redeem the property for 9.5M, since such
was not substantiated by supporting evidence.
iii. In fact, the spouses could have just based the offer on
the value of the foreclosed properties, rather than
their total obligation to PNB.
b. Considering that PNB’s bid was at around 8.5M and
that the total loan obligation of the spouses amounted
to around 6.4M only, there is clearly an excess which
PNB must return.
i. This is together with interest as computed according
to the Eastern Shipping case:
1. 6% per annum from the time of filing of the
complaint until full payment before finality
of judgment;
2. If the amount adjudged remains unpaid, the
interest rate shall be 12% (old rate) per
 annum from finality of judgment until
satisfaction.

W/N the notice of sale
was valid — YES.
a. General Rule: 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.
i. Qlf: However, there are instances where the court
liberalizes the rules if no misrepresentation or fraud
obtain in the case.
ii. Ratio: Notices are given for the purpose of securing
bidders and to prevent a sacrifice of the property.
1. If these objectives are attained, immaterial
errors and mistakes will not affect the
sufficiency of the notice.

b. ITC, The Notice of Sale is valid, since the spouses failed to

convince the SC that the disparity between the amount stated
in the Notice of Sale and the amount of PNB’s bid resulted in
misleading bidders, depreciated the value of the property, or
prevented it from commanding a fair price.

Disposition: WHEREFORE, premises considered, the Decision of the Court of Appeals

dated 12 April 2005 is MODIFIED in that the PNB is directed to return to the petitioners the
amount of ₱2,101,185.08 with interest computed at 6% per annum from the time of the filing
of the complaint until its full payment before finality of judgment. Thereafter, if the amount
adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time
the judgment became final and executory until fully satisfied. Costs against private
respondent.