GR 170215; (August, 2007) (Digest)
G.R. No. 170215 ; August 28, 2007
SPS. ESMERALDO and ELIZABETH SUICO, Petitioners, vs. PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS, Respondents.
FACTS
Petitioners Spouses Suico obtained a loan from respondent Philippine National Bank (PNB), secured by a real estate mortgage. Upon default, PNB extrajudicially foreclosed the mortgaged properties. During the auction sale, PNB, as the sole bidder, offered a bid of ₱8,511,000.00. The petitioners alleged that their outstanding obligation as stated in the foreclosure petition was only ₱1,991,770.38. They filed a complaint for the nullity of the foreclosure, contending that PNB failed to deliver the bid price or the surplus proceeds to the sheriff, as required by law, and instead directly consolidated ownership of the properties.
PNB moved to dismiss the complaint on the ground of litis pendentia, citing a separate collection case it had filed against the spouses in another court (Civil Case No. CEB-15236) to recover a purported deficiency. The trial court denied the motion. After trial, it ruled in favor of the petitioners, declaring the foreclosure sale null and void due to PNB’s failure to comply with the mandatory procedure of depositing the bid price with the sheriff. The Court of Appeals reversed this decision, holding that the failure to deposit did not render the sale void but merely voidable, and that the petitioners were estopped from questioning the sale due to their inaction.
ISSUE
Whether the extrajudicial foreclosure sale is null and void due to PNB’s failure to deposit the bid price with the sheriff.
RULING
Yes, the Supreme Court ruled the foreclosure sale null and void. The legal logic is anchored on the mandatory nature of the procedure under Act No. 3135 , as amended. The law explicitly requires the purchaser at a foreclosure sale to make a deposit with the sheriff or clerk of court. This deposit serves a crucial public purpose: it ensures the sheriff has immediate funds to satisfy the mortgagor’s obligation and to deliver any surplus to the debtor. It also protects the mortgagor from further exposure if the purchaser fails to pay.
PNB’s failure to comply with this mandatory obligation was a fundamental flaw that vitiated the foreclosure proceedings from the start. The Court rejected the appellate court’s characterization of the sale as merely voidable. A voidable act presumes a valid act that can be ratified or attacked within a prescribed period. In contrast, an act executed in contravention of mandatory provisions of law is void ab initio; it produces no legal effect. The separate deficiency claim filed by PNB, which presupposed a valid foreclosure, could not cure this jurisdictional defect. Consequently, the Supreme Court reinstated the trial court’s decision nullifying the sale and the resulting certificates of title.