Case Digest (G.R. No. 170606)
Facts:
Petitioners LCK Industries Inc., Chiko Lim, and Elizabeth T. Lim obtained a loan of P3,000,000.00 from respondent Planters Development Bank on 1 September 1995, secured by two Real Estate Mortgages over properties in Quezon City and Baguio City. After petitioners defaulted, respondent bank sent a final letter-demand dated 13 October 1997 and caused the extrajudicial foreclosure of both mortgaged properties, with the Baguio City property sold for P2,625,000.00 and the Quezon City property sold for P2,231,416.67.
Petitioners filed Civil Case No. Q-98-33835 for annulment of the foreclosure and auction sale, alleging noncompliance with Act No. 3135. In the RTC, the foreclosure was upheld, but the RTC ordered respondent bank to return P1,856,416.67 as overpayment; the Court of Appeals reversed this overpayment award for being raised only after the pre-trial, allegedly depriving respondent bank of due process.
Issues:
- Whether the excess amount acquired by respondent bank from the auction sale should be returned to petitioners.
- Whether the issue of overpayment was raised and included in the Pre-Trial Order.
Ruling:
The Court granted the Petition, reversed the Court of Appeals, and ordered respondent bank to return P1,893,916.67 with interest at 6% per annum from the filing of the complaint until full payment before finality of judgment, and 12% per annum from finality until fully satisfied.
The Court held that respondent bank had no right to retain the surplus bid price after petitioners’ obligation had been fully satisfied by the foreclosure sales, and that procedural technicalities could not defeat the clear obligation to return the excess.
Ratio:
The Court ruled that the parties’ pre-trial admissions and stipulations showed that after deducting the remaining loan balance of P2,962,500.00 from the total purchase price of the mortgaged properties (P4,856,416.67), an excess of P1,893,916.67 remained. Thus, overpayment could be inferred from the Pre-Trial Order, rendering its consideration proper as an implied issue integral to the agreed facts.
On the merits, the Court emphasized that under the rules on extrajudicial foreclosure, the surplus or residue after paying the mortgage debt due must be returned to the mortgagor (or those entitled), making the mortgagee a custodian of the proceeds with a clear duty to return the excess. The Court further invoked the principle of unjust enrichment under Art. 22 of the Civil Code to prevent respondent bank from retaining the surplus at petitioners’ expense.
Doctrine:
- A mortgagee who sells under the power of sale is a custodian of the foreclosure proceeds and must return any surplus to the person entitled to it.
- When the parties’ pre-trial admissions and stipulations plainly establish the existence of a surplus, the issue of overpayment is deemed inferable and integral to the pre-trial order, even if not expressly stated.
- The retention of a foreclosure surplus by the mortgagee without legal ground constitutes unjust enrichment, contrary to Art. 22 of the Civil Code.
- Interest is imposed at 6% per annum from the filing of the complaint until full payment before finality, and 12% per annum from finality until fully satisfied.