G.R. No. 175816 ; December 7, 2011
BPI FAMILY SAVINGS BANK, INC., Petitioner, vs. MA. ARLYN T. AVENIDO & PACIFICO A. AVENIDO, Respondents.

FACTS

Petitioner BPI Family Savings Bank, Inc. (BPI Family) filed a Complaint for Collection of Deficiency of Mortgage Obligation with Damages against respondent spouses Pacifico A. Avenido and Ma. Arlyn T. Avenido. The spouses obtained a loan of ₱2,000,000.00 secured by a real estate mortgage. Due to the spouses’ failure to pay, BPI Family extrajudicially foreclosed the mortgaged property. At the public auction on March 8, 1999, BPI Family was the highest bidder with a bid price of ₱2,142,616.00, which was applied to the total obligation of ₱2,937,381.43 as of that date, leaving a claimed deficiency of ₱794,765.43. The bank sought to recover this amount.
The spouses Avenido contended in their Answer that they had made substantial payments and that the bid price at the foreclosure sale already exceeded their indebtedness, which they claimed was less than ₱2,000,000.00 per the Notice of Extrajudicial Sale. They argued the suit was unjustified and sought damages.
The Regional Trial Court (RTC) dismissed the complaint. It found that BPI Family’s computation of the deficiency included charges and penalties that were either unconscionable or not duly proven. Specifically, the RTC disallowed the inclusion of attorney’s fees and liquidated damages amounting to ₱677,857.26, as these were deemed penal in nature and not compensatory. It also disallowed certain foreclosure expenses for lack of proof. The RTC concluded the actual deficiency was only ₱116,908.57, but further held that BPI Family was not entitled to recover this amount because it failed to account for and apply to the debt the ₱250,000.00 deposit made by the spouses. The Court of Appeals affirmed the RTC decision.

ISSUE

Whether the Court of Appeals erred in affirming the RTC’s dismissal of BPI Family’s complaint for the recovery of the deficiency balance after the extrajudicial foreclosure of the mortgage.

RULING

The Supreme Court PARTIALLY GRANTED the petition. The Court affirmed the existence of the right to recover a deficiency judgment after extrajudicial foreclosure, as the mortgage is merely a security and not a satisfaction of the debt. However, it modified the computation of the recoverable deficiency.
The Court upheld the RTC and CA’s disallowance of the attorney’s fees and liquidated damages (totaling ₱677,857.26) as these were deemed iniquitous and unconscionable penalties, not compensatory charges. It also sustained the disallowance of unproven foreclosure expenses (₱12,451.77).
The Court REVERSED the lower courts on the treatment of the spouses’ ₱250,000.00 deposit. It held that this amount should be applied to the principal obligation, as it was intended for that purpose. The failure of BPI Family to immediately credit this deposit did not mean it should be excluded from the computation of the total debt for determining the deficiency.
Final Computation:
Total Obligation as of March 8, 1999 (from bank’s computation): ₱2,937,381.43
Less: Disallowed attorney’s fees and liquidated damages: ₱677,857.26
Less: Disallowed foreclosure expenses: ₱12,451.77
Adjusted Total Obligation: ₱2,247,072.40
Less: Bid Price at Auction: ₱2,142,616.00
Tentative Deficiency: ₱104,456.40
Add: Unapplied Deposit of Spouses: ₱250,000.00
Add: Interest on said deposit (12% p.a. from 1998 to 2000): ₱101,380.40
Total Amount to be applied to Obligation (Deposit + Interest): ₱351,380.40
Final Deficiency (Tentative Deficiency – Total Application): ₱0.00
However, since the deposit and its interest (₱351,380.40) exceeded the tentative deficiency (₱104,456.40), the Court held the spouses were entitled to the excess. This excess, amounting to ₱246,924.00, should be set off against the interest that had accrued on the principal obligation from the date of foreclosure. After this set-off, a net deficiency of ₱455,836.80 remained.
DISPOSITIVE PORTION:
The CA decision was MODIFIED. Respondent spouses were ORDERED to pay petitioner the deficiency of their mortgage obligation in the amount of ₱455,836.80, plus legal interest of 12% per annum from July 17, 2000 until finality of the Decision, and thereafter at 12% per annum from finality until full satisfaction.