G.R. No. 170606 - LCK Industries Inc. vs. Planters Development Bank

Petitioners: LCK Industries Inc. (a domestic corporation), and spouses Chiko Lim and Elizabeth T. Lim.
Respondent: Planters Development Bank, a duly authorized banking institution engaged in banking business under Philippine laws.

On 1 September 1995, LCK obtained a loan of ₱3,000,000.00 from respondent bank, evidenced by two promissory notes.
As security, spouses Chiko and Elizabeth Lim executed two Real Estate Mortgages:

LCK defaulted on its loan payment obligations, prompting respondent bank’s demands for payment.
On 13 October 1997, respondent bank issued a final demand letter for payment of ₱2,962,500.00.
LCK failed/refused to pay despite several demands.
Respondent bank foreclosed extrajudicially on the Baguio City property; sold at public auction on 29 January 1998 for ₱2,625,000.00 with the bank as highest bidder.
Since proceeds were insufficient, the Quezon City property was foreclosed and sold at public auction on 18 March 1998 for ₱2,231,416.67, again with respondent bank as highest bidder.

On 12 March 1998, prior to Quezon City property sale, petitioners filed an action with RTC Quezon City (Civil Case No. Q-98-33835) for annulment of foreclosure and sale, alleging non-compliance with posting, publication, and filing requirements under Act No. 3135.
Petitioners sought temporary restraining order (TRO) to enjoin the foreclosure and ownership transfer; TRO was deemed abandoned due to failure of parties' counsel to appear at hearing.
Pre-trial conference held; parties admitted facts including loan amounts, auction sales, and bidding prices; issues defined:

Parties waived attorney’s fees claims and agreed to submit the case for resolution based on stipulations.

In a memorandum after submission of the case, petitioners raised an overpayment claim amounting to ₱1,856,416.67 based on the difference between auction proceeds (₱4,856,416.67) and loan balance (₱2,962,500.00).
Respondent bank argued that the overpayment issue was not raised during pre-trial and thus barred from being considered.
RTC rendered a decision on 3 September 2001:

Declared foreclosure and auction of Quezon City property valid.
Ordered respondent bank to pay petitioners ₱1,856,416.67 representing overpayment.
Dismissed attorney’s fees and claims against the notary public.

Respondent bank’s motion for reconsideration denied.
Respondent bank appealed to the Court of Appeals, which reversed the award for overpayment on the ground that the issue was raised belatedly and not included among the issues in pre-trial; thus, RTC could not dispose of it without violating due process.
Petitioners’ motion for reconsideration was denied by the Court of Appeals.
Petitioners filed a Petition for Review on Certiorari before the Supreme Court.

Whether the excess amount of ₱1,893,916.67 derived from the auction sale of petitioners' mortgaged properties should be returned to them.
Whether the issue of overpayment was raised by the parties and included in the Pre-Trial Order, thus allowing the RTC to adjudicate it.