G.R. No. L-32163 - People vs. Alonzo

Lorenze Realty and Development Corporation (represented by heirs Joel Tan and Eric Tan), borrower and mortgagor.
China Banking Corporation, lender and mortgagee.

In 1997, Lorenze Realty executed 17 promissory notes totaling ₱71,050,000.00, each stipulating:

1/10 of 1% per day penalty on the total obligation from default until full payment, and 10% of the total due as attorney’s fees.

To secure the loans, Lorenze Realty mortgaged 11 parcels of land (various TCT Nos.) by Real Estate Mortgages registered in Valenzuela City.

Upon default, China Bank extrajudicially foreclosed the mortgages; at public auction, it purchased the properties for ₱85,000,000.00.
As of August 10, 1998, the Statement of Account showed total indebtedness of ₱114,258,179.81 (principal, interest, penalties, registration and litigation expenses).
After applying the ₱85,000,000.00 proceeds, a balance of ₱29,258,179.81 remained.

China Bank sued for deficiency (₱29,258,179.81), 2% per month penalties, 5% attorney’s fees, litigation expenses and costs.
Defendants claimed: lack of true meeting of minds, usurious penalty, and that the sale fully extinguished the debt.
RTC (Dec. 29, 2003) found defendants jointly and severally liable for the deficiency, 2% per month surcharge, 5% attorney’s fees, expenses and costs.
CA (Oct. 14, 2011) affirmed with modification: reduced surcharge to 12% per annum and attorney’s fees to 2% of total due; denied reconsideration (Jan. 24, 2012).
Lorenze Realty filed a Petition for Review on Certiorari before the Supreme Court.

Whether Lorenze Realty’s obligation was fully settled when the mortgaged properties were sold at public auction for ₱85,000,000.00.