Decision: Sycamore Ventures Corp. vs. Metropolitan Bank and Trust Co.
Sycamore Ventures Corp. vs. Metropolitan Bank and Trust Co.
Issue: Whether the determination of the mortgaged properties’ appraisal value constitutes a prejudicial question that warrants the suspension of the foreclosure proceedings.
The Court’s Ruling
We deny the petition for lack of merit. The CA did not err when it set aside the RTC’s order granting the motion for appointment of independent commissioners.
Remedies of a secured creditor
A secured creditor may institute against the mortgage debtor either:
a personal action for the collection of the debt,
a real action to judicially foreclose the real estate mortgage, or
an extrajudicial judicial foreclosure of the mortgage.
The remedies, however, are alternative, not cumulative, and the election or use of one remedy operate as a waiver of the others.18
We discussed these legal points in Bachrach Motor Co., Inc. v. Icarangal and ruled that:
[I]n the absence of express statutory provisions, a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he may pursue either of the two remedies, but not both. By such election, his cause of action can by no means be impaired, for each of the two remedies is complete in itself. Thus, an election to bring a personal action will leave open to him all the properties of the debtor for attachment and execution, even including the mortgaged property itself. And, if he waives such personal action and pursues his remedy against the mortgaged property, an unsatisfied judgment thereon would still give him the right to sue for a deficiency judgment, in which case, all the properties of the defendant, other than the mortgaged property, are again open to him for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of action undiminished, and any advantages attendant to the pursuit of one or the other remedy are purely accidental and are all under his right of election.
In the present case, Metrobank elected the third remedy – the extrajudicial foreclosure of the real estate mortgage.
Extrajudicial foreclosure under Act No. 3135
Extrajudicial foreclosure is governed by Act No. 3135, as amended by Act No. 4118.
It provides in its Section 1 that:
SECTION 1. When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following election shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power.
In brief, Act No. 3135 recognizes the right of a creditor to foreclose a mortgage upon the mortgagor’s failure to pay his/her obligation. In choosing this remedy, the creditor enforces his lien through the sale on foreclosure of the mortgaged property. The proceeds of the sale will then be applied to the satisfaction of the debt. In case of a deficiency, the mortgagee has the right to recover the deficiency resulting from the difference between the amount obtained in the sale at public auction, and the outstanding obligation at the time of the foreclosure proceedings.
Certain requisites must be established before a creditor can proceed to an extrajudicial foreclosure, namely:
first, there must have been the failure to pay the loan obtained from the mortgagee-creditor;
second, the loan obligation must be secured by a real estate mortgage; and
third, the mortgagee-creditor has the right to foreclose the real estate mortgage either judicially or extrajudicially.
Act No. 3135 outlines the notice and publication requirements and the procedure for the extrajudicial foreclosure which constitute a condition sine qua non for its validity. Specifically, Sections 2, 3 and 4 of the law prescribe the formalities of the extrajudicial foreclosure proceeding, which we quote:
SECTION 2. Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is subject to stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated.
SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.
SECTION 4. The sale shall be made at public auction, between the hours or nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos each day of actual work performed, in addition to his expenses.
Act No. 3135 does not require
determination of appraised value
All the above provisions are quoted verbatim to stress that Act No. 3135 has no requirement for the determination of the mortgaged properties’ appraisal value. Nothing in the law likewise indicates that the mortgagee-creditor’s appraisal value shall be the basis for the bid price. Neither is there any rule nor any guideline prescribing the minimum amount of bid, nor that the bid should be at least equal to the properties’ current appraised value. What the law only provides are the requirements, procedure, venue and the mortgagor’s right to redeem the property. When the law does not provide for the determination of the property’s valuation, neither should the courts so require, for our duty limits us to the interpretation of the law, not to its augmentation.
Under the circumstances, we fail to see the necessity of determining the mortgaged properties’ current appraised value. We likewise do not discern the existence of any prejudicial question, anchored on the mortgaged properties’ appraised value, that would warrant the suspension of the foreclosure proceedings.
For greater certainty, a prejudicial question is a prior issue whose resolution rests with another tribunal, but at the same time is necessary in the resolution of another issue in the same case. For example, there is a prejudicial question where there is a civil action involving an issue similar or intimately related to the issue raised in a criminal action, and the resolution of the issue in the civil action is determinative of the outcome of the criminal action.
As so defined, we do not see how the motion for the appointment of independent commissioners can serve as a prejudicial question. It is not a main action but a mere incident of the main proceedings; it does not involve an issue that is intimately related to the foreclosure proceedings; and lastly, the motion’s resolution is not determinative of the foreclosure’s outcome.
On this point alone, the petition should be denied. But even if Metrobank’s reduced appraised value were lesser than the mortgaged properties’ current valuation, the petition would still fail. There is no question in this case that Sycamore and the spouses Paz failed to settle their loan obligations to Metrobank as they fell due. (In fact, there were multiple or repeated failures to pay.) There is likewise no dispute on the total amount of their outstanding loan obligation. Sycamore and the spouses Paz also acknowledged Metrobank’s right to foreclose when they asked for the sale’s postponement, to quote:
The undersigned mortgagor(s) hereby acknowledged(s) that the publication and posting of the Notice of Auction Sale have been completely and regularly complied with the request(s) that republication and reposting of the same be dispensed with at the discretion of the mortgagee bank and agreed that all expenses incurred by the said mortgagee bank in connection herewith shall be chargeable to his/her/their account(s) and secured by the said mortgage(s).
The undersigned mortgagor(s) likewise stipulate(s) that, in consideration of the mortgagee’s having acceded and agreed to this postponement, he/she/they hereby waive(s), forego(es), quitclaim(s) and set(s) over unto the said mortgagee any and all his/her/their cause or causes of action, claims or demands arising out of or necessarily connected with the Promissory Note(s),
Real Estate Mortgage Contract(s) and other credit documents mentioned in the above entitled Petition for Foreclosure of Real Estate Mortgage.
What Sycamore and the spouses Paz only assail in the present petition is the validity of Metrobank’s appraisal of the mortgaged properties. Even that issue, if the quoted terms above were to be considered, appears to have been waived "in consideration of the mortgagee’s having acceded and agreed to this postponement."
Under these facts, how and why to petitioners would still insist on the appraisal valuation as an issue boggles the mind and this is a puzzle that only they have a key to. But whatever may that key or answer be, it is not one that is material to the case below or to the present petition.
Determination of mortgaged
properties’ appraisal value is not
material to the foreclosure’s validity
We have held in a long line of cases that mere inadequacy of price per se will not invalidate a judicial sale of real property. It is only when the inadequacy of the price is grossly shocking to the conscience or revolting to the mind, such that a reasonable man would neither directly nor indirectly be likely to consent to it, that the sale shall be declared null and void. This rule, however, does not strictly apply in the case of extrajudicial foreclosure sales where the right of redemption is available.
In Bank of the Philippine Islands v. Reyes, involving a similar question arising from the correctness of the mortgaged properties’ valuation, we held that the inadequacy of the price at which the mortgaged property was sold does not invalidate the foreclosure sale.
In that case, the winning bid price was ₱9,032,960.00 or merely 19% of the alleged current appraisal value of the property pegged at ₱47,536,000.00. Despite the relatively sizeable discrepancy, the Court ruled that the level of the bid price is immaterial in a forced sale because a low price is more beneficial to the mortgage debtor.
We quote from the relevant portion of this decision:
In the case at bar, the winning bid price of ₱9,032,960.00 is nineteen percent (19%) of the appraised value of the property subject of the extrajudicial foreclosure sale that is pegged at ₱47,536,000.00 which amount, notably, is only an arbitrary valuation made by the appraising officers of petitioner’s predecessor-in-interest ostensibly for loan purposes only. Unsettled questions arise over the correctness of this valuation in light of conflicting evidence on record. xxxx
xxx. 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.
Thus, even if we assume that the valuation of the property at issue is correct, we still hold that the inadequacy of the price at which it was sold at public auction does not invalidate the foreclosure sale."
In Hulst v. PR Builders, Inc., we explained that when there is a right of redemption, the inadequacy of the price becomes immaterial because the judgment debtor may still re-acquire the property or even sell his right to redeem and thus recover the loss he might have suffered by reason of the "inadequate price" obtained at the execution sale. In this case, the judgment debtor even stands to gain rather than be harmed.
These rulings were also applied in Rabat v. Philippine National Bank, where the Court used the same reasoning and arrived at the same conclusion:
It bears also to stress that 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.
An examination of the said 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, however, 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.
At any rate, we consider it notable enough that PNB’s bid price of ₱3,874,800.00 might not even be said to be outrageously low as to be shocking to the conscience. As the CA cogently noted in the second amended decision, that bid price was almost equal to both the ₱4,000,000.00 applied for by the Spouses Rabat as loan, and to the total sum of ₱3,517,380.00 of their actual availment from PNB.
We find no reason to depart from these sound and established rulings. We also need not rule on the validity of Metrobank’s valuation. Whether Metrobank’s reduced valuation is valid or not, or whether the valuation is outrageously lower than its current value, has nothing to do with the foreclosure proceedings.
From this perspective, we cannot but conclude that that the recourses sought in this case have been intended solely to delay the inevitable – the foreclosure sale and the closure of the collection action -and are an abuse of the processes of this Court. Under these circumstances the maximum allowable triple costs should be imposed on the petitioners for this abuse in accordance with Section 3 Rule 142 of the Rules of Court to be paid by counsel for the petitioners. Let counsel also be warned that what happened in this case is a practice that in a proper administrative proceeding may be found violative of their duties to the Court.
WHEREFORE, the petition is DENIED for lack of merit; the appealed decision of the Court of Appeals dated May 3, 2006 is AFFIRMED. Let a copy of this Decision be furnished the Board of Governors Integrated Bar of the Philippines for its information. Triple costs against the petitioners Sycamore Ventures Corporation and the spouses Simon D. Paz and Leng Leng Paz to be paid by their counsel of record.
SO ORDERED.
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