Title
Spouses Suico vs. Philippine National Bank
Case
G.R. No. 170215
Decision Date
Aug 28, 2007
Spouses defaulted on a PNB loan; foreclosure occurred with a bid exceeding the stated debt. SC upheld the sale but ordered PNB to return the surplus with interest.

Case Summary (G.R. No. 42557)

Loan, Mortgage and Foreclosure Proceedings

The Suicos obtained loans from PNB secured by a real estate mortgage covering several named parcels. PNB filed a petition for extrajudicial foreclosure with the Mandaue City Sheriff (EJF Case No. 92-5-15). The published notice of sheriff’s sale stated the petitioners’ outstanding obligation as P1,991,770.38 (as of 10 March 1992). The foreclosure auction took place on 30 October 1992, at which PNB was the lone bidder and offered P8,511,000.00. A Certificate of Sale and, after one year, a Certificate of Final Sale were issued in favor of PNB; PNB thereafter transferred registration of the properties to its name.

Alleged Irregularities: Notice and Non-Delivery of Surplus

Petitioners challenged the foreclosure on two primary grounds: (1) that the notice of sheriff’s sale misrepresented the amount of indebtedness (showing only P1,991,770.38) and (2) that PNB, as winning bidder, failed to pay the bid price to the sheriff or, at the least, remit the surplus (the excess of the bid over the indebtedness shown in the notice). Petitioners contended that the discrepancy between the notice amount and PNB’s bid rendered the notice and the consequent sale null and void and that PNB’s failure to remit the surplus violated its duty to account for and return proceeds to the mortgagor.

Procedural Course in the Trial Court

Petitioners filed a complaint in RTC Mandaue City seeking declaration of nullity of the extrajudicial foreclosure, cancellation of titles issued in PNB’s name, and damages. PNB moved to dismiss citing a pending action in RTC Cebu City (PNB v. Sps. Suico, Civil Case No. CEB-15236) concerning the deficiency balance; the RTC denied the motion to dismiss. After pleadings, the RTC (Branch 55) rendered judgment on 2 February 1999 declaring the extrajudicial foreclosure, the certificate of sale, and the final deed of sale null and void, ordering cancellation of titles issued to PNB and directing PNB to commence a new foreclosure proceeding. The RTC’s nullification rested on the finding that the published amount in the notice materially misrepresented the indebtedness and that such misrepresentation was jurisdictional because notice of sale is a jurisdictional prerequisite in extrajudicial foreclosures.

Court of Appeals Ruling and Rationale

On appeal the Court of Appeals reversed the RTC. The CA found the notice of sale sufficient for its purpose—informing interested parties of the property, date, time and place of sale—and concluded that the discrepancy between the amount stated in the notice and PNB’s bid did not deter or mislead bidders or depress the property’s value. The CA also relied on post-auction conduct and communications (including letters from petitioners offering to redeem at substantially higher amounts) to infer that petitioners had effectively admitted the larger indebtedness or had otherwise cured the defect. The CA held that even if PNB retained surplus proceeds, that fact would give the mortgagor a separate cause of action to recover the surplus and would not invalidate the sale. The CA’s original decision declared the sale valid; an amended CA decision required PNB to pay any deficiency in filing fees computed on the actual mortgage debt.

Supreme Court: Analysis of Notice of Sale Requirement

The Supreme Court analyzed the function and scope of the published notice of sheriff’s sale. It emphasized that the principal purpose of such notice is to inform interested parties of the property and the sale’s particulars so that bidding is not deterred and the property receives a fair price. Given that object, immaterial errors not likely to mislead bidders or depress the price do not necessarily invalidate a notice. The Court distinguished prior authorities relied upon by the RTC where the notices contained substantive defects (e.g., incorrect title numbers) or where the foreclosure was tainted by fraud affecting the right to redeem. On the facts before it, the Court found petitioners did not demonstrate that the discrepancy in the stated indebtedness discouraged or misled bidders or depreciated the property’s value; accordingly, the notice was held valid and the sale not void for that ground.

Supreme Court: Analysis of Surplus, Payment and Mortgagee’s Duty

The Court turned to the undisputed mechanics governing proceeds distribution in foreclosure sales: costs first, then satisfaction of the mortgagee’s claim, junior encumbrancers in order of priority, and finally any balance to the mortgagor. Rule 39 (Sec. 21) permits a judgment obligee who is purchaser at execution sale to avoid payment of the bid where the bid does not exceed the judgment amount; if it exceeds the judgment, the obligee must pay only the excess. The Court stressed that a mortgagee who conducts the sale acts as custodian of the fund and is bound to apply proceeds properly; retention of surplus beyond what is due does not invalidate a valid sale but gives the mortgagor a cause of action to recover the excess.

PNB asserted that the indebtedness shown in the notice did not reflect additional loans, accrued interest, penalties and attorney’s fees that became due by the auction date—arguing that total obligations exceeded the bid. The Supreme Court examined the record and found the only documentary computation presented by PNB was its Statement of Account attached to its pleadings. That Statement of Account showed petitioners’ principal plus interest, penalties and attorney’s fees as of 30 October 1992 amounted to P6,409,814.92. Petitioners denied the figures but presented no contrary computation. The Court declined to treat petitioners’ later offers to redeem (let

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