G.R. No. 200567 , June 22, 2015
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. CPR PROMOTIONS AND MARKETING, INC. and SPOUSES CORNELIO P. REYNOSO, JR. and LEONIZA F. REYNOSO, Respondents.

FACTS

Respondent CPR Promotions and Marketing, Inc., through its President Cornelio P. Reynoso, Jr. and Treasurer Leoniza F. Reynoso (spouses Reynoso), obtained fifteen (15) loans from petitioner Metropolitan Bank and Trust Company (MBTC) from February to October 1997, with a total principal amount of PhP 12,891,397.78, as evidenced by promissory notes. To secure the loans, the spouses Reynoso executed two deeds of real estate mortgage over several properties. On December 8, 1997, the spouses Reynoso also executed a continuing surety agreement, binding themselves solidarily with CPR Promotions to pay the loans up to PhP 13,000,000. Upon maturity, respondents defaulted. MBTC extrajudicially foreclosed the mortgaged properties. The properties were sold in two public auctions on May 5 and 6, 1998, with MBTC as the winning bidder for a total bid price of PhP 13,614,000. MBTC claimed a deficiency balance of PhP 2,628,520.73, plus interest and charges, and filed a collection case. The Regional Trial Court ruled in favor of MBTC, ordering respondents to pay the deficiency. The Court of Appeals reversed the RTC, dismissing MBTC’s claim and ordering it to refund PhP 722,602.22 to the respondents, representing an excess from the foreclosure sale. MBTC filed a petition for review.

ISSUE

1. Whether the Court of Appeals erred in not considering the continuing surety agreement and in ruling that MBTC failed to prove the solidary liability of the spouses Reynoso.
2. Whether the Court of Appeals erred in ruling that MBTC failed to prove a deficiency balance after the foreclosure and in ordering a refund to respondents.

RULING

The Supreme Court PARTIALLY GRANTED the petition.
1. On the first issue, the Supreme Court found that the continuing surety agreement was duly presented and marked as an exhibit during the trial. The Court of Appeals erred in stating it was not introduced in evidence. The agreement clearly established the solidary liability of the spouses Reynoso with CPR Promotions for the loans. Therefore, the spouses Reynoso are solidarily liable.
2. On the second issue, the Supreme Court agreed with the Court of Appeals that MBTC failed to sufficiently prove the exact amount of its claim for deficiency. MBTC’s evidence, particularly its Statement of Account, was self-serving and lacked corroboration. It did not clearly show how the claimed deficiency of PhP 2,628,520.73 was computed, especially after applying the total bid price of PhP 13,614,000 to the outstanding obligation. However, the Supreme Court also found that the Court of Appeals erred in ordering a refund to respondents. Respondents’ claim for refund was a compulsory counterclaim that was belatedly raised; it was not pleaded in their Answer or in a timely amended pleading. A compulsory counterclaim not set up in the answer is deemed barred. Consequently, while MBTC’s claim for deficiency was dismissed for lack of sufficient proof, respondents’ claim for refund was also barred.
The Supreme Court modified the Court of Appeals decision. The dismissal of MBTC’s complaint for collection of deficiency was affirmed, but the order for MBTC to refund PhP 722,602.22 to respondents was deleted. No pronouncement as to costs.