G.R. No. 165617 & G.R. No. 165837; February 25, 2011
SUPREME TRANSLINER, INC., MOISES C. ALVAREZ and PAULITA S. ALVAREZ, Petitioners, vs. BPI FAMILY SAVINGS BANK, INC., Respondent.

BPI FAMILY SAVINGS BANK, INC., Petitioner, vs. SUPREME TRANSLINER, INC., MOISES C. ALVAREZ and PAULITA S. ALVAREZ, Respondents.

FACTS

On April 24, 1995, Supreme Transliner, Inc., represented by spouses Moises C. Alvarez and Paulita S. Alvarez, obtained a loan of ₱9,853,000.00 from BPI Family Savings Bank, secured by a mortgage on a parcel of land owned by the spouses. Due to non-payment, the mortgage was extrajudicially foreclosed. The property was sold at public auction on August 7, 1996, with the bank as the highest bidder. A Certificate of Sale was issued and registered on October 1, 1996.
Before the expiration of the one-year redemption period, the mortgagors notified the bank of their intent to redeem. The bank provided a Statement of Account detailing the total redemption price as ₱15,704,249.12, which included the principal loan balance, interest, late payment charges, foreclosure expenses, attorney’s fees (15%), liquidated damages (15%), interest on the total amount from the auction date, and various “Asset Acquired Expenses” (documentary stamps, capital gains tax, foreclosure fee, registration fees, and interest thereon). The mortgagors objected to the inclusion of liquidated damages and attorney’s fees and requested a reduction, but the bank refused. Under threat of losing their right to redeem, and with financing from Orient Development Banking Corporation, the mortgagors conformed to a letter-agreement prepared by the bank and paid the full demanded amount on May 21, 1997. A Certificate of Redemption was issued on May 27, 1997.
Subsequently, on June 11, 1997, the mortgagors filed a complaint to recover the allegedly excessive charges, totaling ₱5,331,237.77. The Regional Trial Court dismissed the complaint, upholding the contract terms and finding the mortgagors estopped due to their voluntary conformity to the redemption agreement. The Court of Appeals reversed the trial court, ruling that the 15% attorney’s fees and 15% liquidated damages were already included in the bid price of ₱10,372,711.35, as stated in the Certificate of Sale, which covered “interest and penalty charges, cost of publication and expenses of the foreclosure proceedings.” The CA ordered the bank to refund ₱3,111,813.40 (representing the duplicate charges for attorney’s fees and liquidated damages) with interest, and to pay moral damages, exemplary damages, and attorney’s fees. Both parties filed petitions for review with the Supreme Court.

ISSUE

What is the correct redemption price payable to the mortgagee-bank as purchaser in a foreclosure sale, specifically regarding the propriety of charging: (1) attorney’s fees and liquidated damages, and (2) capital gains tax and documentary stamp tax as part of the “Asset Acquired Expenses”?

RULING

The Supreme Court partially granted the petitions. It modified the Court of Appeals’ decision, ruling on the components of the redemption price as follows:
1. On Attorney’s Fees and Liquidated Damages: The Court held that the bank could not collect these charges a second time as part of the redemption price. The Certificate of Sale explicitly stated that the bid price of ₱10,372,711.35 was paid to satisfy the mortgage debt, including “interest and penalty charges.” The term “penalty charges” encompasses both the stipulated 15% attorney’s fees and 15% liquidated damages. Since these were already deemed included in the bid price paid by the bank to itself as purchaser, requiring the mortgagors to pay them again upon redemption constituted unjust enrichment. The mortgagors were not estopped from questioning these charges as they had consistently objected to them prior to payment.
2. On Capital Gains Tax and Documentary Stamp Tax: The Court ruled that these taxes, categorized by the bank as “Asset Acquired Expenses,” were validly included in the redemption price. Citing the National Internal Revenue Code and related jurisprudence, the Court held that in a foreclosure sale where the mortgagee is the purchaser, the mortgagor who redeems the property steps into the shoes of the purchaser. As such, the mortgagor becomes liable for the taxes incident to the sale, specifically the capital gains tax (which is a tax on the gain presumed to have been realized by the seller-mortgagor) and the documentary stamp tax on the foreclosure sale. These are legitimate expenses incurred by the bank-purchaser which the redeeming mortgagor must reimburse to clear the title.
DISPOSITIVE:
The bank was ordered to return to the mortgagors the amount of ₱3,111,813.40, representing the erroneously collected attorney’s fees and liquidated damages, with legal interest from the date of extrajudicial demand (filing of the complaint). The awards for moral damages, exemplary damages, and attorney’s fees granted by the Court of Appeals were deleted. The bank’s right to collect the other components of the redemption price, including the capital gains tax and documentary stamp tax, was upheld.