CREDIT CASE DIGEST AY 13-14 | G01

059 SPOUSES FRANCISCO and MERCED RABAT v. PNB

G.R. No. 158755 June 18, 2012
TOPIC: Extrajudicial Foreclosure Conduct of Sale
PONENTE: BERSAMIN, J.
FACTS:
1. Parties are before the court a second time. First case: PNB v. Rabat, decided in Nov. 15, 2000, G.R. Np. 134406. Facts
are based on above mentioned case.
2. Aug. 25, 1979: Spouses Rabat (RABATS) applied, and were granted a loan by PNB on 01/14/80, a medium term loan of
Php4M, to mature in 3 years.
3. January 28, 1980: (1) RABATS signed a credit agreement; (2) executed a real estate mortgage over 12 parcels of land.
4. Loan stipulation states interest = 17% per year, plus service charge, and penalty of 3% on amount unpaid or not
renewed when due.
5. September 25, 1980: RABATS executed an Amendment of the Credit Agreement to increase interest rate from 17 to
21%. Also executed another real estate mortgage on 9 parcels of land located in Davao Oriental (agricultura, commercial,
and residential) as additiona security for their Php4M loan.
6. Loans of RABATS reached total amount of Php3,517,380, due 3/14/83, evidenced by several PNs.
7. RABATS failed to pay their outstanding balance when it became due.
8. July 24, 1986: PNB responded with a denial to request of RABAT for extension of time for settlement. PNB have a
deadline of until 4/30/86 for settlement, which they sent to address at Wilson St, San Juan, MM.
9. PNB filed for extrajudicial foreclosure of mortgage executed by RABATS.
10. Parcels of land were sold at Public auction, with PNB as highest bidder at Php3,874,800.
11. Proceeds were inadequate to satisfy entire obligation, so PNB sent additional demand letters to RABAT (2 at Wilson,
San Juan on 11/15/90, and 8/30/91, and another at Davao Oriental)
12. PNB filed with RTC of Manila a complaint for a sum of money, due to failure by RABATS to settle obligation which had
already amounted to Php14,745,398.25 (with interest, penalties, and other charges).
13. RABATS: (1) admitted loan availments and default in payment, but (2) assailed validity of the auction sales, for want
of notice to them before and after the foreclosure sales.
14. RABATS also claim: (1) They have been residents of Mati, Davao Oriental since 1970-present; (2) received nor heard
about the foreclosure proceedings, in spite of PNBs claim of publication in San Pedro Times; (3) Latter is not a
newspaper of general circulation; (4) bid price was grossly inadequate and unconscionable; (5) accumulated interest and
penalty charges were invalid because properties were sold in 87, but PNB waited till 92 to file the case. Therefore, they
should not be made to suffer payment of interest and penalty charges from May 87 to present, because such would
allow PNB to profit from its questionable scheme
15. RTC dismissed the complaint; Auction sales of the properties were set aside, and PNB was ordered to reconvey to
RABATS the remaining properties after sufficient sale of properties to satisfy the obligation.
16. PNB appealed to CA, which upheld RTCs decision for nullification of foreclosure sales.
17. PNB appealed to SC (G.R. No. 134406). SC granted petition. Case was remanded to CA to DECIDE on the basis of the
errors raised by petitioner PNB in its brief. CA amended its decision, resolving errors assigned by PNB, but still affirmed
RTC decision. On MR, however, CA found for PNB.
18. RABATS moved for reconsideration, but was denied, hence appeal by them to SC.
ISSUE: (1) W/N the inadequacy of PNBs bid price renders the forced sale of the properties invalid; (2) W/N PNB was
entitled to recover any deficiency from the RABATS.

HELD: (1) NO; SC ruled against spouses Rabat. Auction bid was valid. (2) YES; PNB is entitled to recover from the RABATS.




CREDIT CASE DIGEST AY 13-14 | G01


RATIO:
1. The mode of forced sale utilized by petitioner was an extrajudicial foreclosure of real estate mortgage which is
governed by Act No. 3135, as amended. Law reveals nothing to the effect that there should be a minimum bid price or
that the winning bid should be equal to the appraised value of the foreclosed property or to the amount owed by the
mortgage debtor. What is clearly provided is that a mortgage debtor is given the opportunity to redeem the foreclosed
property "within the term of one year from and after the date of sale." In the case at bar, other than the mere
inadequacy of the bid price at the foreclosure sale, respondent did not allege any irregularity in the foreclosure
proceedings nor did she prove that a better price could be had for her property under the circumstances.
2.PNBs bid price of P 3,874,800.00 not outrageously low as to be shocking to the conscience. Bid price was almost equal
to both the P 4M applied for by RABATS, to the total sum of P 3,517,380.00 of their actual availment from PNB.
3.In Bank of the Philippine Islands, etc. v. Reyes: unlike in an ordinary sale, inadequacy of the price at a forced sale is
immaterial and does not nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage debtor for it
makes redemption of the property easier.
4.Hulst v. PR Builders: *G+ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of
equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks ones
conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect
redemption. When there is a right to redeem, inadequacy of price should not be material because the judgment
debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have
suffered by reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than be harmed
by the low sale value of the auctioned properties because it possesses the right of redemption. x x x
SECOND ISSUE:

1.PNB was legally entitled to recover the penalty charge of 3% per annum and attorneys fees equivalent to 10% of the
total amount due. The documents relating to the loan and the real estate mortgage showed that the Spouses Rabat had
expressly conformed to such additional liabilities; hence, they could not now insist otherwise. To be sure, the law
authorizes the contracting parties to make any stipulations in their covenants provided the stipulations are not contrary
to law, morals, good customs, public order or public policy. Equally axiomatic are that a contract is the law between the
contracting parties, and that they have the autonomy to include therein such stipulations, clauses, terms and conditions
as they may want to include.
2. Inasmuch as the Spouses Rabat did not challenge the legitimacy and efficacy of the additional liabilities being charged
by PNB, they could not now bar PNB from recovering the deficiency representing the additional pecuniary liabilities that
the proceeds of the forced sales did not cover.
3.Prudential Bank v. Martinez,
23
the fact that the mortgaged property was sold at an amount less than its actual market
value should not militate against the right to such recovery.
CASE LAW/ DOCTRINE: Inadequacy of the bid price at a forced sale, unlike that in an ordinary sale, is immaterial and
does not nullify the sale; in fact, in a forced sale, a low price is considered more beneficial to the mortgage debtor
because it makes redemption of the property easier.

The inadequacy of the bid price in an extrajudicial foreclosure sale of mortgaged properties will not per se invalidate the
sale. Additionally, the foreclosing mortgagee is not precluded from recovering the deficiency should the proceeds of the
sale be insufficient to cover the entire debt.