Title
Metropolitan Bank and Trust Co. vs. CPR Promotions and Marketing, Inc.
Case
G.R. No. 200567
Decision Date
Jun 22, 2015
MBTC failed to prove deficiency balance post-foreclosure; SC deleted CA’s refund award due to respondents’ belated counterclaim. Burden of proof unfulfilled.
foreclosure
mortgaged properties
deficiency balance
A

Case Summary (G.R. No. 60714)

Factual Background

Between February and October 1997, CPR Promotions obtained loans from MBTC evidenced by fifteen (15) promissory notes aggregating PhP 12,891,397.78 as principal. The spouses Reynoso signed the promissory notes in their corporate capacities. To secure obligations, the spouses executed two deeds of real estate mortgage: one on February 2, 1996 securing PhP 6,500,000 over land under TCT No. 624835, and another on July 18, 1996 securing PhP 2,500,000 over lands under TCT Nos. 565381, 263421, and 274682. On December 8, 1997 the spouses executed a Continuing Surety Agreement binding them solidarity with CPR Promotions up to PhP 13,000,000. The borrowers defaulted. In a petition dated March 6, 1998 for extrajudicial foreclosure under Act No. 3135, MBTC stated that the total amount due as of February 10, 1998 was PhP 11,216,783.99. The mortgaged properties were sold at public auctions on May 5 and May 6, 1998, where MBTC submitted the highest bids of PhP 10,374,000 and PhP 3,240,000 respectively, yielding aggregate proceeds of PhP 13,614,000 and certificates of sale dated July 15 and 16, 1998. Thereafter MBTC alleged a deficiency of PhP 2,628,520.73, plus interest and charges, and sued in an action for collection docketed as Civil Case No. 99-230.

Trial Court Proceedings

The Regional Trial Court, Branch 59, Makati City, in a decision dated October 11, 2007, found for MBTC and entered judgment against the spouses for PhP 2,628,520.73 plus stipulated interest and penalty charges from September 18, 1998, and costs. The trial court relied on petitioner's evidence, including the promissory notes and the continuing surety agreement, to hold the spouses solidarity liable. A motion for reconsideration was denied by order dated February 7, 2008. The spouses appealed to the Court of Appeals.

Court of Appeals Ruling

The Court of Appeals reversed in a decision dated September 28, 2011 and ordered MBTC to refund PhP 722,602.22 to the spouses with legal interest of six percent per annum from March 26, 1999, until paid. The CA premised reversal on what it perceived as an unexplained shift in terminology from a stated “total amount due” of PhP 11,216,783.99 in the foreclosure petition to a “principal amount” of PhP 12,891,397.78 in the certificates of sale, and inferred that the latter figure represented principal plus interest and charges. The CA further found that MBTC failed to prove the claimed deficiency and noted that the continuing surety agreement had not been introduced in evidence. A motion for reconsideration was denied in a resolution dated February 13, 2012.

Issues Presented to the Supreme Court

The petition raised principal questions: whether the CA gravely abused its discretion in holding that MBTC failed to prove the continuing surety agreement and hence that the spouses were not solidarity liable with CPR Promotions; and whether the CA gravely abused its discretion in finding that MBTC failed to prove a deficiency balance after extrajudicial foreclosure given the promissory notes, mortgages, petition for foreclosure, certificates of sale and statement of account in evidence.

Parties' Contentions

MBTC urged that the CA erred in finding the continuing surety agreement was not introduced and that the spouses were not solidarity liable. MBTC also contended that the CA erred in ordering a refund because respondents did not file a counterclaim for refund, and because the correct outstanding obligation as of February 10, 1998 was PhP 11,216,783.99 and not PhP 12,891,397.78. MBTC further sought reimbursement for foreclosure expenses it claimed to have incurred amounting to PhP 1,373,238.04 and PhP 419,166.67 for the first and second sales. Respondents maintained that they had adequately raised the excess-bid issue in their pleadings and Answer with Compulsory Counterclaim and that the increase from PhP 11,216,783.99 to PhP 12,891,397.78 reflected interest, penalties and other charges.

Applicable Law on Counterclaims and Review

The Supreme Court reviewed the governing rules on mandatory counterclaims, citing the definition of compulsory counterclaim under Rule 11 and Section 7 and the bar under Rule 9, Section 2. The Court reiterated the jurisprudential tests for compulsoriness — whether the issues and evidence overlap, whether res judicata would bar a subsequent suit, whether a logical relation exists to avoid duplication of effort — and treated recovery of excess bid price in a deficiency action as a matter that must be raised as a compulsory counterclaim. The Court also recalled that under Rule 45 only questions of law are properly before it but that factual findings of the Court of Appeals may be reviewed when they are contrary to the trial court or fall within recognized exceptions.

Analysis on Compulsory Counterclaim

Applying the tests, the Court held that a claim for recovery of an excess of the auction proceeds over the unpaid obligation arises out of the same transaction as an action for deficiency and requires the same evidence. Accordingly such claim is compulsory and must be asserted in the answer. The Court found that respondents did not timely interpose that claim in their Answer but instead initially sought moral and exemplary damages and attorney’s fees, and only advanced a claim for refund in their appellate brief. The Court held the belated assertion failed to cure the omission and was therefore barred.

Analysis on the Amount Due and the CA's Finding of Excess

The Supreme Court found error in the CA’s conclusion that PhP 12,891,397.78 represented principal plus interest and charges as of May 1998. The Court demonstrated that the PhP 12,891,397.78 figure literally equaled the aggregate principal amounts stated in the fifteen promissory notes, thereby rebutting the CA’s inference. Consequently, the CA’s arithmetic leading to a purported excess of PhP 722,602.22 was erroneous.

Analysis on Proof of Deficiency and Foreclosure Expenses

Notwithstanding the CA’s error, the Supreme Court held that MBTC failed to prove the existence and exact amount of any deficiency. The Court emphasized that under Section 4, Rule 68, Rules of Court, a deficiency exists only if the sale proceeds, after deducting the costs of sale, do not cover the mortgage debt inclusive of interest and penalties at the time of foreclosure. To establish that, the mortgagee bore the burden of proving the amount due as of the foreclosure date and the actual foreclosing expenses. The Court pointed to MBTC’s inconsistent figures: an admission that outstanding obligations inclusive of interest and penalties were PhP 11,216,783.99 as of February 10, 1998, and a Statement of Account, dated May 5, 1998, that produced conflicting totals. The Court found MBTC’s computations irreconcilable and unsupported by documentary proof of the asserted foreclosure expenses.

Evidence on Foreclosure Expenses and Attorney’s Fees

The Court rejected MBTC’s request to take judicial notice of claimed foreclosure expenses, including attorney’s fees at ten percent, publication costs, Sheriffs’ commission, registration and insurance, because no receipts or standard rates were presented. The Court reiterated precedents that attorney’s

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