GR 182769; (February, 2012) (Digest)
G.R. No. 182769; February 1, 2012
BANK OF THE PHILIPPINE ISLANDS, AS SUCCESSOR-IN-INTEREST OF FAR EAST BANK & TRUST COMPANY, Petitioner, vs. CYNTHIA L. REYES, Respondent.
FACTS
Respondent Cynthia L. Reyes obtained a loan from Far East Bank & Trust Company (FEBTC), petitioner BPI’s predecessor, secured by a real estate mortgage over twenty-two parcels of land. Upon default, the mortgaged properties were extrajudicially foreclosed and sold at public auction, with BPI as the highest bidder for ₱9,032,960.00. BPI then filed an action for sum of money to recover the alleged deficiency balance of over ₱24 million, claiming the auction proceeds were insufficient to cover the total obligation.
Respondent contested the deficiency claim, arguing that the bank’s own earlier appraisal valued the mortgaged properties at ₱47,436,000.00. She asserted that the foreclosure sale price was grossly inadequate and unconscionable, rendering the sale void and extinguishing any deficiency obligation. The Regional Trial Court ruled in favor of BPI, ordering Reyes to pay the deficiency. The Court of Appeals reversed, holding that the shockingly low auction price precluded any recovery of a deficiency.
ISSUE
Whether petitioner BPI is entitled to recover the deficiency from respondent despite the alleged gross inadequacy of the foreclosure sale price.
RULING
Yes, the Supreme Court reinstated the RTC decision, ruling that BPI is entitled to recover the deficiency. The legal logic is anchored on the principle that a mortgagee’s action to recover a deficiency after foreclosure is legally separate from the foreclosure sale itself. The Court emphasized that an extrajudicial foreclosure sale, conducted in accordance with Act No. 3135, is presumed valid. Mere inadequacy of price, unless it is so shocking as to justify the inference of fraud or collusion, is not a ground to nullify the sale.
The Court clarified that the bank’s internal appraisal value is not the determinative factor for the property’s market value at a forced sale. The right to recover a deficiency is explicitly recognized under Article 2115 of the Civil Code, provided the sale is made with the formalities prescribed by law. Respondent’s belated challenge to the validity of the foreclosure sale in a deficiency action, without having taken steps to annul the sale itself, was impermissible. Consequently, the gross inadequacy of price, by itself, does not invalidate the sale or bar the creditor’s claim for the unpaid balance of the obligation.