G.R. No. 202176, August 1, 2016
Metropolitan Bank & Trust Company, Petitioner, vs. Chuy Lu Tan, Mr. Romeo Tanco, Dr. Sy Se Hiong, and Tan Chu Hsiu Yen, Respondents.

FACTS

Between February 26, 1996 and May 8, 1996, respondents Chuy Lu Tan and Romeo Tanco obtained five loans from petitioner Metropolitan Bank & Trust Company (Metrobank) totaling ₱19,900,000.00, evidenced by promissory notes. The loans were secured by a Real Estate Mortgage executed by Chuy Lu Tan over a parcel of land in Quezon City and a Continuing Surety Agreement executed by respondents Sy Se Hiong and Tan Chu Hsiu Yen, binding themselves solidarily liable for the obligation. Chuy Lu Tan and Romeo Tanco failed to settle the loans. After demand, Metrobank extrajudicially foreclosed the mortgage on December 14, 1999, and the property was sold to Metrobank as the highest bidder for ₱24,572,268.00. Metrobank claimed that after applying the bid price to the outstanding obligation, which included principal, interest, penalties, and costs, a deficiency of ₱1,641,815.00 remained as of January 15, 2000. Metrobank demanded payment of this deficiency and, upon respondents’ failure to pay, filed a collection case. The Regional Trial Court (RTC) ruled in favor of Metrobank, ordering respondents to pay the deficiency jointly and severally. Both parties appealed. The Court of Appeals (CA) reversed the RTC, dismissing Metrobank’s complaint on the ground that allowing recovery of the deficiency, which allegedly consisted almost entirely of interest and penalties, would be iniquitous, unconscionable, and amount to unjust enrichment. Metrobank filed a petition for review before the Supreme Court.

ISSUE

Whether the Court of Appeals erred in reversing the RTC’s decision and dismissing Metrobank’s deficiency claim against the respondents.

RULING

Yes, the Court of Appeals erred. The Supreme Court ruled in favor of Metrobank, reinstating the RTC’s decision. The Court held that a mortgagee is entitled to claim any deficiency resulting from the extrajudicial foreclosure of a real estate mortgage if the proceeds of the sale are insufficient to cover the debt. Act No. 3135, governing extrajudicial foreclosure, does not prohibit the recovery of a deficiency. The fact that the mortgaged property was sold for less than its alleged market value does not bar such recovery, as a mortgage is merely a security and not a satisfaction of the indebtedness. The debtor has the option to redeem the property and sell it at a higher price or sell the right of redemption to recoup any loss from the inadequate auction price. The Court also found that the respondents, in their pleadings before the lower courts, never disputed the specific amount or computation of the deficiency claimed by Metrobank; they only contested the right to recover any deficiency based on the alleged inadequacy of the bid price. Consequently, Metrobank is entitled to recover the deficiency amount. The Supreme Court reversed the CA decision and reinstated the RTC judgment ordering respondents to pay Metrobank ₱1,641,815.00 with legal interest from January 16, 2000, until fully paid.