Case Summary (G.R. No. 165617)
Preparation of Redemption Statement of Account
Upon mortgagors’ notice to redeem within the one‐year period, the bank prepared a Statement of Account as of April 7, 1997, detailing:
• Principal balance and accrued interest
• Late payment charges and foreclosure expenses
• Attorney’s fees (15% of amount due) and liquidated damages (15%)
• Post‐auction expenses (taxes, registration fees) and interest thereon
Total redemption due: P15,704,249.12
Redemption Payment and Subsequent Complaint
On May 21, 1997, the mortgagors paid P15,704,249.12 and received a Certificate of Redemption. On June 11, 1997, they sued the bank for recovery of allegedly excessive charges (P5,331,237.77), claiming unlawful attorney’s fees, liquidated damages, and asset‐acquired expenses.
Trial Court Findings
The Regional Trial Court dismissed the mortgagors’ complaint and the bank’s counterclaim, finding:
• Contractually stipulated rates (18% p.a. interest, 3% post‐default penalty, 15% attorney’s fees, 15% liquidated damages) were valid and freely agreed upon
• Mortgagors negotiated the final redemption price with legal counsel and Orient Bank, signifying informed consent
• No estoppel prevented mortgagors from contesting charges, since all terms were explicitly set in the mortgage contract and letter agreement
Court of Appeals Ruling
The Court of Appeals reversed, holding that:
• The Certificate of Sale’s P10,372,711.35 bid price already covered “penalty charges” (attorney’s fees and liquidated damages), so they could not be added again to compute redemption
• Only principal, interest, costs, and expenses incurred after sale should be included, yielding a correct redemption of P12,592,435.72
• Mortgagors were not estopped, having consistently disputed these charges and paying under compulsion to preserve redemption rights
• Ordered the bank to refund P3,111,813.40 plus damages and attorney’s fees
Issues on Redemption Computation
Two petitions ensued:
- Mortgagors (G.R. 165617) challenged inclusion of asset‐acquired expenses (documentary stamps, capital gains tax, foreclosure and registration fees) totaling P906,142.79. They sought return with interest.
- Bank (G.R. 165837) contested the CA’s exclusion of attorney’s fees and liquidated damages from the redemption price and the award of damages against it.
Statutory Framework for Mortgagee-Bank Foreclosures
Under R.A. 337, Sec. 78, a mortgagor may redeem within one year by paying:
• Amount fixed by court or due under mortgage deed (principal and interest at contractual rate)
• All costs and judicial or other expenses incurred by the bank, less any income from the property
Contractual Provisions on Fees and Expenses
Mortgage Loan Agreement and Loan Disclosure Statement expressly provided:
• Attorney’s fees: 15% of amount claimed upon enforcement
• Liquidated damages: 15% of amount due
• Foreclosure and registration expenses to be borne by borrower
These items are distinct from the bid price, which represents unpaid principal and interest.
Legal Basis for Exclusion of Capital Gains Tax
Revenue Regulations and Memoranda classify extrajudicial foreclosure sales as conditional sales subject to capital gains tax only upon actual transfer of title. Since mortgagors red
Case Syllabus (G.R. No. 165617)
Factual Background
- On April 24, 1995, Supreme Transliner, Inc., represented by Moises C. Alvarez and Paulita S. Alvarez, borrowed ₱9,853,000.00 from BPI Family Savings Bank, Inc., pledging a 714-sqm lot under TCT No. T-79193 as collateral.
- Due to non-payment, the mortgage was extrajudicially foreclosed. The property was auctioned by the Provincial Sheriff of Lucena City; BPI Family Savings Bank was the highest bidder.
- Certificate of Sale was issued on August 7, 1996 (registered October 1, 1996). Before the one-year redemption period expired, the mortgagors gave notice to redeem.
- BPI prepared a Statement of Account showing, as of April 7, 1997, total redemption due of ₱15,704,249.12, itemizing:
• Balance of principal, interest, late charges, foreclosure expenses
• Attorney’s fees (15%), liquidated damages (15%), interest to redemption date
• Asset-acquired expenses: documentary stamps (₱155,595.00), capital gains tax (₱518,635.57), foreclosure fee, registration and filing fees - Mortgagors sought waiver of liquidated damages and reduction of attorney’s fees; bank refused. On May 21, 1997, they paid ₱15,704,249.12 and received Certificate of Redemption on May 27, 1997.
Procedural History
- June 11, 1997: Mortgagors filed Civil Case No. 97-72 in the RTC of Lucena City, Branch 57, to recover allegedly unlawful charges (₱5,331,237.77) plus damages and attorney’s fees.
- The bank answered, asserting the redemption price was contractually valid and estoppel. Motions to dismiss (Sept. 1997) were denied (Jan. 8, 1998).
- RTC decision (Feb. 14, 2002): Complaint dismissed; found mortgagors bound by contract terms providing 18% interest, 3% post-default penalty, 15% liquidated damages, 15% attorney’s fees. Mortgagors estopped.
- CA (CV No. 74761) on April 6, 2004 reversed: reinstated complaint; ordered return of ₱3,111,813.40 (invalid attorney’s fees and liquidated damages) with 6% interest; awarded moral (₱100,000.00), exemplary (₱100,000.00) damages and attorney’s fees (₱100,000.00). Denied motions for reconsideration (Oct. 12, 2004).
- Supreme Court consolidation: G.R. No. 165617 (mortgagors’ petition on capital gains tax and asset-acquired expenses) and G.R. No. 165837 (bank’s petition challenging CA ruling on penalty charges, estoppel and damages).
Issues Presented
- Whether the redemption price may separately include attorney’s fees and liquidated damages beyond