Title
Bank of the Philippine Islands vs. Reyes
Case
G.R. No. 182769
Decision Date
Feb 1, 2012
BPI foreclosed Reyes' mortgaged properties due to unpaid loan; auction proceeds left a deficiency. SC ruled BPI entitled to recover deficiency, upholding foreclosure sale despite low auction price.
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Case Digest (G.R. No. 182769)

Facts:

  1. Loan and Mortgage Agreement:

    • Respondent Cynthia L. Reyes borrowed, renewed, and received a principal amount of P20,950,000.00 from Far East Bank & Trust Company (FEBTC), which was later succeeded by Bank of the Philippine Islands (BPI).
    • To secure the loan, Reyes executed Real Estate Mortgage Agreements involving 22 parcels of land.
  2. Default and Foreclosure:

    • When the debt became due and demandable, Reyes failed to settle her obligation.
    • BPI foreclosed the mortgaged properties, which were sold at a public auction on December 20, 2001, for P9,032,960.00.
  3. Outstanding Obligation:

    • At the time of the foreclosure, Reyes' total obligation, including interest, amounted to P30,420,041.67.
    • After applying the auction proceeds, a deficiency of P24,545,094.67 remained.
  4. Appraisal Value:

    • Reyes claimed that the mortgaged properties were appraised at P47,436,000.00 as of January 6, 1998, which she argued was sufficient to cover her obligation.
  5. Trial Court Decision:

    • The Regional Trial Court (RTC) ruled in favor of BPI, ordering Reyes to pay the deficiency, plus interest and attorney’s fees.
  6. Court of Appeals Decision:

    • The Court of Appeals reversed the RTC decision, ruling that there was no deficiency since the properties were sold at a price significantly lower than their appraised value.

Issue:

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Ruling:

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Ratio:

  1. Legal Basis for Deficiency Recovery:

    • Under Act No. 3135, as amended, a creditor is not precluded from recovering any unpaid balance on the principal obligation if the foreclosure sale results in a deficiency.
  2. Mortgage as Security:

    • A mortgage is a security, not a payment of the obligation. The creditor’s right to recover the deficiency is not extinguished by the foreclosure sale, even if the creditor buys the property at a low price.
  3. Forced Sale and Right of Redemption:

    • In forced sales, inadequacy of price is not a ground to nullify the sale, especially when the debtor has the right to redeem the property. The low price benefits the debtor by making redemption easier.
  4. No Equity Considerations:

    • Equity cannot be applied to temper the debtor’s liability when the law and jurisprudence clearly support the creditor’s right to recover the deficiency.
  5. No Unjust Enrichment:

    • Upholding the foreclosure sale and allowing the recovery of the deficiency does not result in unjust enrichment, as the creditor’s claim is legally justified.


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