Title
Banco de Oro Unibank, Inc. vs. Spouses Locsin
Case
G.R. No. 190445
Decision Date
Jul 23, 2014
BDO failed to prove deficiency claim against Locsins after loan default and foreclosure; SC upheld CA ruling, emphasizing insufficient evidence and procedural leniency.
complaint
deficiency amount
foreclosure

Case Summary (G.R. No. 190445)

Factual Background

On 29 September 1995, the Locsin spouses obtained a loan of P700,000.00 from BDO, secured by a real estate mortgage on their property covered by TCT No. N-138739 (the first loan). The promissory note for this loan contained an acceleration clause, providing that upon default of the maker or co-maker, the unpaid principal, accrued interest, and other sums would become immediately due and payable without need for presentment, demand, protest, or notice, subject to a specific waiver arrangement.

On 6 November 1996, the Locsins obtained a credit line facility of P2.5 Million from BDO. The facility was secured by third-party real estate mortgages on properties of their business partners (Juanito and Anita Evidente) covered by TCT Nos. N-166336 and N-166637 (the Evidente properties). BDO’s approval letter included a cross-default provision under which a default on any availment under the credit line would automatically be treated as a default on the first loan, and vice versa.

Although BDO initially approved the credit line notwithstanding purported insufficiency of the Evidente properties’ value, approval was allegedly based on the Locsins’ prior good paying record. That record ceased in October 1997, when the Locsins defaulted on payments under the credit line facility. On 7 January 1998, BDO sent a demand letter asserting that this default triggered the first loan’s immediate due and demandable status by virtue of both the cross-default provision and the acceleration clause.

The Locsins attempted to restructure the loans but ultimately failed to produce the required amounts. On 24 August 1998, they filed a complaint for Specific Performance, Tort and Damages against BDO in Civil Case No. Q-98-35337 before the RTC, Branch 223, Quezon City, seeking to compel restructuring and to enjoin foreclosure. The trial court denied injunctive relief. Consequently, on 23 September 1998, BDO proceeded with extrajudicial foreclosure of the mortgages, covering both the Evidente properties and the property securing the first loan.

At the auction sale, BDO was the highest bidder with a bid of P3,879,406.80 for the properties. The Sheriff’s Certificate of Sale reflected a total outstanding balance of P3,460,363.97 at the time of foreclosure. On 5 February 1999, BDO demanded payment of an alleged deficiency of P1,259,166.21, representing the amount allegedly remaining after deduction of foreclosure expenses and registration costs from the bid. The narrative in the record indicated that BDO’s internal Bid Statement reflected a different deficiency computation, asserting it was P1,144,089.84.

Commencement of the Collection Case and Default Proceedings

On 29 November 1999, BDO filed the instant action for Collection of a Sum of Money before the RTC of Mandaluyong City, seeking payment of the claimed deficiency amount of P1,144,089.84. Instead of answering, the Locsins filed a Motion to Dismiss on 21 February 2000, contending that BDO’s deficiency claim should have been raised as a compulsory counterclaim in the earlier Civil Case No. Q-98-35337 initiated by the Locsins.

The RTC denied the motion on 18 September 2000, which prompted the Locsins to seek relief by certiorari in the CA. During the pendency of the incident, the RTC archived the case. Ultimately, the CA ruling favorable to the Locsins was reversed by the Supreme Court, which ordered remand and continuance of the case. The Supreme Court’s decision became final on 19 December 2005. After remand, the Locsins failed to file an answer to the original complaint.

BDO then moved to reinstate and to allow presentation of evidence ex parte due to respondents’ default. On 9 October 2006, the RTC granted the motion. BDO presented a Statement of Account showing the original deficiency purportedly increased to P3,709,961.00 by 24 November 2006. The record showed that the statement was prepared by Pham Arcenal, checked by Evelyn Magdangan, and noted by Paul Gasatan, Senior Manager-LAMU. However, none of these individuals were presented to identify or explain the document. Only BDO’s Vice-President, Ms. Agnes C. Tuason, testified in support of the complaint. The RTC later relied on this testimony as supported by documentary evidence.

RTC Judgment

On 20 February 2007, the RTC rendered judgment for BDO. The RTC held that, based on the testimony of BDO’s Vice-President and documentary evidence whose veracity was described as unchallenged due to respondents’ default, BDO’s allegations stood uncontroverted. The RTC ordered the Locsins to be jointly and severally liable for: (1) P3,709,961.00 representing the outstanding obligation as of 25 November 2006; (2) interest and charges at 12% per annum from 25 November 2006; and (3) P10,000.00 as attorney’s fees.

CA Proceedings and Ruling

The Locsins appealed to the CA, assigning errors that, among others, challenged the RTC’s award of the foreclosure deficiency and the treatment of their claims from Civil Case No. Q-98-35337 as an answer in the collection case. In the CA’s assailed Decision, the CA reversed the RTC. Although BDO had been allowed to present evidence ex parte due to respondents’ default, the CA held that BDO still failed to prove its entitlement by preponderance of evidence. The CA therefore dismissed BDO’s complaint. The CA denied BDO’s motion for reconsideration on October 28, 2009.

Issues Raised in the Petition

BDO advanced three principal grounds before the Supreme Court. First, BDO argued that the CA committed grave reversible error in granting the appeal based on a ground not raised in respondents’ appeal before the CA. Second, it contended that the CA erred in finding failure of proof by preponderance of evidence regarding the claimed deficiency amount of P3,709,961.00. Third, BDO maintained that the CA should have dismissed the appeal for procedural noncompliance, specifically: (A) alleged failure to meet the mandatory requirements in Section 7, Rule 44 of the Rules of Court; and (B) alleged failure to comply with Section 13(d) and (e), Rule 44.

Appellate Review and Consideration of Matters Not Specifically Assigned

On the first assigned error, BDO argued that the Locsins did not raise in their CA pleadings any issue on whether BDO proved by preponderance of evidence the claimed deficiency of P3,709,961.00, after foreclosure. BDO thus asserted that the CA’s ruling on evidentiary sufficiency was outside the assigned errors.

The Supreme Court rejected the contention. It invoked Section 8, Rule 51 of the Rules of Court, emphasizing the general rule that errors not affecting jurisdiction or judgment validity are not considered unless stated in the assignment of errors, closely related to assigned errors, properly argued, or falling under recognized exceptions. The Court identified that the case fit within exceptions allowing consideration of matters not specifically assigned where such consideration is pivotal in arriving at a just resolution and where it is closely related to assigned issues. The Court reasoned that the sufficiency of BDO’s evidence was pivotal to the determination of whether the RTC could properly award the deficiency amount sought by BDO, since BDO’s entitlement necessarily depended on proof by preponderance of evidence.

Evidence to Prove the Alleged Deficiency: The CA’s Findings Affirmed

On the second assigned error, BDO listed the documents it relied upon to recover the deficiency: the Application for Extrajudicial Foreclosure, the Amended Application for Extrajudicial Foreclosure, the Bid Statement, the Statement of Account, and Official Receipts for foreclosure expenses. The Supreme Court agreed with the CA that these documentary pieces were not only described as self-serving but also insufficiently supported by credible and competent evidence.

The Court noted internal contradictions in the figures. It stated that the principal sum allegedly owed appeared as P3,200,000.00 in the Application and Amended Application, but the Bid Statement reflected a principal sum of P2,949,035.59. BDO failed to explain this discrepancy.

More importantly, the Court held that BDO failed to submit competent supporting documents and testimony that would prove and explain the numbers appearing in the Bid Statement and the Statement of Account. It further observed that foreclosure-related legal fees totalling P117,157.00, claimed to have been paid by BDO, were not supported by official receipts. The official receipts submitted were said to cover only filing fees amounting to P6,288.32.

The Supreme Court also underscored a foundational evidentiary flaw. While BDO presented the Vice-President as its sole witness, both the Bid Statement and the Statement of Account were prepared by persons other than the Vice-President. Those persons were not presented as witnesses to identify, authenticate, or explain the documents. Nor did the record show that the Vice-President witnessed their preparation, that the preparers acknowledged the data to her, or that she could recognize the preparers’ signatures. For this reason, the Court agreed that the documents lacked a proven basis and could not be treated as reliable on their face.

The Supreme Court reiterated the settled allocation of the burden of proof in civil cases. It held that the party asserting an affirmative issue bears the burden of proving it and that mere allegations are not evidence. It further emphasized that, even where the defendant defaults and has no opportunity to present evidence, the plaintiff’s evidence must remain competent; a judgment against a defaulting defendant must still accord with the evidence required by law. The Court cited the principle in Otero v. Tan that default does not justify relying on legally incompetent evidence, and that if the plaintiff’s proof is insufficient, the complaint must be dismissed. It also stressed that a favorable judgment cannot exceed or vary the relief prayed for.

The Court found that BDO failed to meet its burden by p

...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms