GR 158755; (June, 2012) (Digest)
G.R. No. 158755 ; June 18, 2012
Spouses Francisco and Merced Rabat, Petitioners, vs. Philippine National Bank, Respondent.
FACTS
Spouses Rabat obtained a loan from PNB secured by real estate mortgages. Upon default, PNB extrajudicially foreclosed the properties. At the public auction, PNB was the highest bidder. The proceeds were insufficient to cover the total obligation, prompting PNB to file a collection case for the deficiency. The spouses contested the validity of the foreclosure sale, arguing the bid price was grossly inadequate and that they did not receive proper notices.
In the first case ( G.R. No. 134406 ), the Supreme Court ruled that the foreclosure was valid, noting the spouses did not appeal the trial court’s finding of validity except as to the bid price. The case was remanded to determine the exact deficiency. On remand, the Court of Appeals computed the deficiency. The spouses appealed anew, arguing the low bid price should invalidate the sale and absolve them from paying any deficiency.
ISSUE
Whether the alleged gross inadequacy of the bid price in the extrajudicial foreclosure sale invalidates the sale and precludes PNB from recovering a deficiency judgment.
RULING
The Supreme Court denied the petition and affirmed the deficiency judgment. The legal logic is twofold. First, inadequacy of the bid price, by itself, does not invalidate a foreclosure sale. For a sale to be annulled, the inadequacy must be so gross as to shock the conscience, coupled with evidence of fraud, collusion, or other irregularities. Mere low price is insufficient, especially where the mortgagor, as here, failed to redeem the property or to prove any procedural defect in the sale’s conduct.
Second, the right to recover a deficiency is a settled principle under Act No. 3135 . A mortgagee-creditor has two separate, cumulative remedies: to foreclose the mortgage and to proceed against the debtor for any deficiency. The foreclosure extinguishes the mortgage but not the personal obligation to pay the debt. The law explicitly allows an action to recover any balance due after applying the foreclosure proceeds. The spouses’ obligation arose from the principal loan contracts (promissory notes), which remain enforceable for the unpaid balance. The Court upheld the CA’s computation of the deficiency, emphasizing that parties are bound by the stipulations in their loan agreements, including interest and penalties, in the absence of any legal vice.