Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION
PHILIPPINE SAVINGS BANK,
Petitioner,

G.R. No. 193178

Present:

- versus -

SPOUSES ALFREDO M. CASTILLO AND

ELIZABETH C. CASTILLO, and SPOUSES
ROMEO B. CAPATI and AQUILINA M. LOBO,
Respondents.

CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:
May 30, 2011

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, seeking to
partially reconsider and modify the Decision [2] dated August 27, 2009 and the Resolution[3] dated
August 4, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 86445.
Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the registered
owners of a lot located in Tondo,Manila, covered by Transfer Certificate of Title (TCT) No.
233242. Respondent spouses Romeo B. Capati and Aquilina M. Lobo were the registered
owners of another lot, covered by TCT No. 227858, also located in Tondo, Manila.

On May 7, 1997, respondents obtained a loan, with real estate mortgage over the said
properties, from petitioner Philippine Savings Bank, as evidenced by a Promissory Note with a
face value of P2,500,000.00. The Promissory Note, in part, reads:
FOR VALUE RECEIVED, I/We, solidarily, jointly and severally, promise
to pay to the order of PHILIPPINE SAVINGS BANK, at its head office or at the
above stated Branch the sum of TWO MILLION FIVE HUNDRED THOUSAND
PESOS ONLY (P2,500,000.00), Philippine currency, with interest at the rate of
seventeen per centum (17%) per annum, from date until paid, as follows:
P43,449.41 (principal and interest) monthly for fifty nine (59) months
starting June 07, 1997 and every 7th day of the month thereafter with balloon
payment on May 07, 2002.
Also, the rate of interest herein provided shall be subject to review and/or
adjustment every ninety (90) days.
All amortizations which are not paid on due date shall bear a penalty
equivalent to three percent (3%) of the amount due for every month or fraction of
a months delay.
The rate of interest and/or bank charges herein stipulated, during the terms
of this promissory note, its extensions, renewals or other modifications, may be
increased, decreased or otherwise changed from time to time within the rate of
interest and charges allowed under present or future law(s) and/or government
regulation(s) as the PHILIPPINE SAVINGS BANK may prescribe for its debtors.
Upon default of payment of any installment and/or interest when due, all
other installments and interest remaining unpaid shall immediately become due
and payable. Also, said interest not paid when due shall be added to, and become
part of the principal and shall likewise bear interest at the same rate herein
provided.[4]

From the release of the loan in May 1997 until December 1999, petitioner had increased
and decreased the rate of interest, the highest of which was 29% and the lowest was 15.5% per
annum, per the Promissory Note.
Respondents were notified in writing of these changes in the interest rate. They neither
gave their confirmation thereto nor did they formally question the changes. However,

respondent Alfredo Castillo sent several letters to petitioner requesting for the reduction of the
interest rates.[5] Petitioner denied these requests.
Respondents regularly paid their amortizations until December 1999, when they defaulted
due to financial constraints. Per petitioners table of application of payment, respondents
outstanding balance was P2,231,798.11.[6] Petitioner claimed that as of February 11, 2000,
respondents had a total outstanding obligation of P2,525,910.29.[7] Petitioner sent them demand
letters. Respondents failed to pay.
Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties. The
auction sale was conducted on June 16, 2000, with the properties sold for P2,778,611.27 and
awarded to petitioner as the only bidder. Being the mortgagee, petitioner no longer paid the said
amount but rather credited it to the loan amortizations and arrears, past due interest, penalty
charges, attorneys fees, all legal fees and expenses incidental to the foreclosure and sale, and
partial payment of the mortgaged debt. On even date, a certificate of sale was issued and
submitted to the Clerk of Court and to the Ex-Officio Sheriff of Manila.
On July 3, 2000, the certificate of sale, sans the approval of the Executive Judge of the
Regional Trial Court (RTC), was registered with the Registry of Deeds of Manila.
Respondents failed to redeem the property within the one-year redemption
period. However, on July 18, 2001, Alfredo Castillo sent a letter to petitioner requesting for an
extension of 60 days before consolidation of its title so that they could redeem the properties,
offering P3,000,000.00 as redemption price. Petitioner conceded to Alfredo Castillos request,
but respondents still failed to redeem the properties.
On October 1, 2001, respondents filed a case for Reformation of Instruments, Declaration
of Nullity of Notarial Foreclosure Proceedings and Certificate of Sale, Cancellation of
Annotations on TCT Nos. 233242 and 227858, and Damages, with a plea for the issuance of a
temporary restraining order (TRO) and/or writ of preliminary prohibitory injunction, with the
RTC, Branch 14, Manila.
On October 5, 2001, the RTC issued a TRO. Eventually, on October 25, 2001, it issued a
writ of preliminary injunction.

After trial, the RTC rendered its decision dated July 30, 2005, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs, and
against the defendants in the following manner:
1.

Declaring the questioned increases of interest as unreasonable, excessive

and arbitrary and ordering the defendant Philippine Savings Bank to refund
to the plaintiffs, the amount of interest collected in excess of seventeen
percent (17%) per annum;

2.

Declaring the Extrajudicial Foreclosure conducted by the defendants on

June 16, 2000 and the subsequent proceedings taken thereafter to be voidab
initio. In this connection, defendant Register of Deeds is hereby ordered to
cause the cancellation of the corresponding annotations at the back of
Transfer Certificates of Title No. 227858 and 233242 in the name of Spouses
Alfredo and Elizabeth Castillo and Spouses Romeo Capati and Aquilina M.
Lobo;

3.

Defendant Philippine Savings Bank is adjudged to pay plaintiffs the

amount of Php50,000.00 as moral damages; Php50,000.00 as exemplary
damages; and attorneys fees in the amount of Php30,000.00 and
Php3,000.00 per appearance.

4.

Defendants counterclaims are hereby DISMISSED for lack of merit.

With costs against the defendant Philippine Savings Bank, Inc.
SO ORDERED.[8]

Petitioner filed a motion for reconsideration. The RTC partially granted the motion in its
November 30, 2005 Order, modifying the interest rate from 17% to 24% per annum.[9]
Petitioner appealed to the CA. The CA modified the decision of the RTC, thus
WHEREFORE, in view of the foregoing, the Decision of the Regional
Trial Court is hereby AFFIRMED WITH MODIFICATIONS. Thefallo shall
now read:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and against the defendants in the following manner:
1.

Declaring the questioned increases of interest as

unreasonable, excessive and arbitrary and ordering the
defendant Philippine Savings Bank to refund to the
plaintiffs, the amount of interest collected in excess of
seventeen percent (17%) per annum;

2.

Declaring the Extrajudicial Foreclosure conducted by

the defendants on June 16, 2000 and the subsequent
proceedings taken thereafter to be valid[;]

3.

Defendant Philippine Savings Bank is adjudged to

pay plaintiffs the amount of Php 25,000.00 as moral
damages; Php 50,000.00 as exemplary damages; and
attorneys fees in the amount of Php 30,000.00 and Php
3,000.00 per appearance;

4.

Defendants
counterclaims
hereby DISMISSED for lack of merit.

are

With costs against the defendant Philippine Savings Bank,

Inc.
SO ORDERED.[10]

Hence, this petition anchored on the contention that the CA erred in: (1) declaring that the
modifications in the interest rates are unreasonable; and (2) sustaining the award of damages and
attorneys fees.
The petition should be partially granted.
The unilateral determination and imposition of the increased rates is violative of the
principle of mutuality of contracts under Article 1308 of the Civil Code, which provides that
[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them.[11] A perusal of the Promissory Note will readily show that the increase or
decrease of interest rates hinges solely on the discretion of petitioner. It does not require the
conformity of the maker before a new interest rate could be enforced. Any contract which
appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable
result, thus partaking of the nature of a contract of adhesion, is void. Any stipulation regarding
the validity or compliance of the contract left solely to the will of one of the parties is likewise
invalid.
Petitioner contends that respondents acquiesced to the imposition of the modified interest
rates; thus, there was no violation of the principle of mutuality of contracts. To buttress its
position, petitioner points out that the exhibits presented by respondents during trial contained a
uniform provision, which states:

The interest rate adjustment is in accordance with the Conformity Letter

you have signed amending your accounts interest rate review period from ninety
(90) to thirty days.[12]

It further claims that respondents requested several times for the reduction of the interest rates,
thus, manifesting their recognition of the legality of the said rates. It also asserts that the
contractual provision on the interest rates cannot be said to be lopsided in its favor, considering
that it had, on several occasions, lowered the interest rates.
We disagree. The above-quoted provision of respondents exhibits readily shows that the
conformity letter signed by them does not pertain to the modification of the interest rates, but
rather only to the amendment of the interest rate review period from 90 days to 30 days. Verily,
the conformity of respondents with respect to the shortening of the interest rate review period
from 90 days to 30 days is separate and distinct from and cannot substitute for the required
conformity of respondents with respect to the modification of the interest rate itself.

Moreover, respondents assent to the modifications in the interest rates cannot be implied
from their lack of response to the memos sent by petitioner, informing them of the
amendments. The said memos were in the nature of a proposal to change the contract with
respect to one of its significant components, i.e., the interest rates. As we have held, no one
receiving a proposal to change a contract is obliged to answer the proposal. [13] Therefore,
respondents could neither be faulted, nor could they be deemed to have assented to the modified
interest rates, for not replying to the said memos from petitioner.
We likewise disagree with petitioners assertion that respondents recognized the legality
of the imposed interest rates through the letters requesting for the reduction of the rates. The
request for reduction of the interest does not translate to consent thereto. To be sure, a cursory
reading of the said letters would clearly show that Alfredo Castillo was, in fact, questioning the
propriety of the interest rates imposed on their loan, viz.:
The undersigned is a mortgagor of Philippine Savings Bank with an
outstanding balance of TWO MILLION FOUR HUNDRED THIRTY EIGHT
THOUSAND SIX HUNDRED SIX and 63/100 (P2,438,606.63) at an interest rate
of 26% per annum (as per April 6, 1997 inquiry to Leo of the Accounting Dept.)
and with a monthly amortization of FIFTY EIGHT THOUSAND THREE
HUNDRED FIFTY EIGHT AND 38/100 (P58,358.38).
I understand that the present interest rate is lower than the last months
27%. However, it does not give our company any break from coping with our
receivables. Our clients, Mercure Philippine Village Hotel, Puerto Azul Beach
Hotel, Grand Air Caterer, to name a few, did not settle their obligation to us
inspite of what was agreed upon during our meeting held last February
1998. Their pledge of paying us at least ONE MILLION PESOS PER
AFFILIATION, which we allocate to pay our balance to your bank, was not a
reliable deal to foresee because, as of this very day, not even half of the amount
assured to us was settled. This situation puts the company in critical condition
since we will again shoulder all the interests imposed on our loans, while, we
ourselves, did not impose any surcharge with our receivables.
In connection with this, may I request for a reduction of interest rate, in
my favor, i.e., from 26% to 21% per annum. If such appeal is granted to us, we
are assuring you of our prompt payment and keen observance to your rules and
regulations.[14]

The undersigned is a mortgagor of Philippine Savings Bank with an

outstanding balance of TWO MILLION FOUR HUNDRED THIRTY THREE

THOUSAND EIGHTY FOUR and 73/100 (P2,433,084.73) at an interest rate of

22.5% per annum (as per April 24, 1998 memo faxed to us) and with a monthly
amortization of FIFTY TWO THOUSAND FIVE HUNDRED FIFTY EIGHT
AND 01/100 (P52,55[8].01).
Such reduction of interest rate is an effect of our currencys
development. But based on our inquiries and research to different financial
institutions, the rate your bank is imposing to us is still higher compared to the
eighteen and a half percent (18.5%) others are asking. With this situation, we are
again requesting for a decrease on the interest rate, that is, from 22.5% to
18.5%. This figure stated is not fictitious since other banks advertising are
published to leading newspapers. The difference between your rate is visibly
greater and has an immense effect on our financial obligations.[15]

The undersigned is a mortgagor at Philippine Savings Bank with an

outstanding balance of TWO MILLION FOUR HUNDRED THOUSAND
EIGHT HUNDRED ELEVEN and 03/100 (Php 2,40[0],811.03) at an interest rate
of 21% per annum.
Letters of reconsideration were constantly sent to you to grant us lower
interest rate. However, no assistance with regard to that request has been
extended to us. In view of this, I am requesting for a transfer of our loan
from PSBank Head Office to PSBank Mabini Branch. This transfer is
purposely intended for an appeal [for] a lower interest rate.[16]

Being a mortgagor of PSBank, I have [been] repeatedly asking for a

reduction of your interest rate. However, my request has been denied since the
term I started. Many banks offer a much lower interest rate and fair business
transactions (e.g. Development Bank of Singapore [which] offers 13% p.a.
interest rate).
In this connection, once more, I am requesting for a reduction of the
interest rate applied to my loan to maintain our business relationship.[17]

Basic is the rule that there can be no contract in its true sense without the mutual assent of
the parties. If this consent is absent on the part of one who contracts, the act has no more
efficacy than if it had been done under duress or by a person of unsound mind. Similarly,
contract changes must be made with the consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification, especially when it affects an important aspect
of the agreement. In the case of loan contracts, the interest rate is undeniably always a vital

component, for it can make or break a capital venture. Thus, any change must be mutually
agreed upon, otherwise, it produces no binding effect.[18]
Escalation clauses are generally valid and do not contravene public policy. They are
common in credit agreements as means of maintaining fiscal stability and retaining the value of
money on long-term contracts. To prevent any one-sidedness that these clauses may cause, we
have held in Banco Filipino Savings and Mortgage Bank v. Judge Navarro[19] that there should be
a corresponding de-escalation clause that would authorize a reduction in the interest rates
corresponding to downward changes made by law or by the Monetary Board. As can be gleaned
from the parties loan agreement, a de-escalation clause is provided, by virtue of which,
petitioner had lowered its interest rates.
Nevertheless, the validity of the escalation clause did not give petitioner the unbridled
right to unilaterally adjust interest rates. The adjustment should have still been subjected to the
mutual agreement of the contracting parties. In light of the absence of consent on the part of
respondents to the modifications in the interest rates, the adjusted rates cannot bind them
notwithstanding the inclusion of a de-escalation clause in the loan agreement.
The order of refund was based on the fact that the increases in the interest rate were null
and void for being violative of the principle of mutuality of contracts. The amount to be
refunded refers to that paid by respondents when they had no obligation to do so. Simply put,
petitioner should refund the amount of interest that it has illegally imposed upon
respondents. Any deficiency in the payment of the obligation can be collected by petitioner in a
foreclosure proceeding, which it already did.
On the matter of damages, we agree with petitioner. Moral damages are not recoverable
simply because a contract has been breached. They are recoverable only if the party from whom
it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual
obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or
abusive. Likewise, a breach of contract may give rise to exemplary damages only if the guilty
party acted in a fraudulent or malevolent manner.[20]
In this case, we are not sufficiently convinced that fraud, bad faith, or wanton disregard of
contractual obligations can be imputed to petitioner simply because it unilaterally imposed the
changes in interest rates, which can be attributed merely to bad business judgment or attendant
negligence. Bad faith pertains to a dishonest purpose, to some moral obliquity, or to the

conscious doing of a wrong, a breach of a known duty attributable to a motive, interest or ill will
that partakes of the nature of fraud. Respondents failed to sufficiently establish this
requirement. Thus, the award of moral and exemplary damages is unwarranted. In the same
vein, respondents cannot recover attorneys fees and litigation expenses. Accordingly, these
awards should be deleted.[21]
However, as regards the above mentioned award for refund to respondents of their interest
payments in excess of 17% per annum, the same should include legal interest. In Eastern
Shipping Lines, Inc. v. Court of Appeals,[22] we have held that when an obligation is breached,
and it consists in the payment of a sum of money, the interest on the amount of damages shall be
at the rate of 12% per annum, reckoned from the time of the filing of the complaint.[23]
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Decision dated
August 27, 2009 and the Resolution dated August 4, 2010 of the Court of Appeals in CA-G.R.
CV No. 86445 are AFFIRMED WITH MODIFICATIONS, such that the award for moral
damages, exemplary damages, attorneys fees, and litigation expenses is DELETED, and the
order of refund in favor of respondents of interest payments made in excess of 17% per
annum shall bear interest of 12% per annum from the time of the filing of the complaint until its
full satisfaction.
SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

DIOSDADO M. PERALTA
Associate Justice

ROBERTO A. ABAD
Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATT E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

[1]

Rollo, pp. 12-29.

Penned by Associate Justice Priscilla J. Baltazar-Padilla, with Associate Justices Celia
C. Librea-Leagogo and Normandie B. Pizarro, concurring; id. at 30-52.
[3]
Id. at 53-54.
[4]
Cited in the CA Decision dated August 27, 2009; id. at 32.
[5]
Letters dated April 6, 1998, April 30, 1998, September 3, 1998, and July 23, 1999; id.
at 60-63.
[6]
Id. at 64-66.
[7]
Petition for Review on Certiorari; id. at 15.
[8]
Cited in CA Decision dated August 27, 2009; id. at 30-31.
[9]
Per the CA Decision dated August 27, 2009; id. at 35.
[10]
Id. at 50-51.
[11]
Floirendo, Jr. v. Metropolitan Bank and Trust Company, G.R. No. 148325, September
3, 2007, 532 SCRA 43, 50; New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine
National Bank, 479 Phil. 483, 497 (2004); Philippine National Bank v. Court of Appeals, G.R.
No. 88880, April 30, 1991, 196 SCRA 536, 544-545.
[12]
Supra note 1, at 19.
[13]
Philippine National Bank v. Court of Appeals, 328 Phil. 54, 63 (1996); Philippine
National Bank v. Court of Appeals, G.R. No. 107569, November 8, 1994, 238 SCRA 20, 26-27.
[14]
Letter dated April 6, 1998; rollo, p. 60.
[15]
Letter dated April 30, 1998; id. at 61.
[16]
Letter dated September 3, 1998; id. at 62.
[17]
Letter dated July 23, 1999; id. at 63.
[18]
Philippine National Bank v. Court of Appeals, supra note 12, at 25-26.
[19]
236 Phil. 370 (1987).
[20]
Philippine National Bank v. Rocamora, G.R. No. 164549, September 18, 2009, 600
SCRA 395, 411-412; Pilipinas Shell Petroleum Corporation v. John Bordman, Ltd. of Iloilo, Inc.,
509 Phil. 728, 751 (2005).
[21]
Philippine National Bank v. Rocamora, supra, at 412.
[22]
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
[23]
Id. at 95; see Banco Filipino Savings and Mortgage Bank v. Court of Appeals, G.R.
No. 129227, May 30, 2000, 332 SCRA 241.
[2]

Mortgage; extrajudicial foreclosure; deficiency judgment allowed - G.R. No.

175816
G.R. No. 175816

"x x x.

The primary issue posed before us is whether or not BPI Family is still entitled
to collect the deficiency mortgage obligation from the spouses Avenido in the
amount ofP455,836.80, plus interest.
We answer in the affirmative.
It is settled that if the proceeds of the sale are insufficient to cover the debt
in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to
claim the deficiency from the debtor. While Act No. 3135, as amended, does
not discuss the mortgagees right to recover the deficiency, neither does it
contain any provision expressly or impliedly prohibiting recovery. If the
legislature had intended to deny the creditor the right to sue for any
deficiency resulting from the foreclosure of a security given to guarantee an
obligation, the law would expressly so provide. Absent such a provision in Act
No. 3135, as amended, the creditor is not precluded from taking action to
recover any unpaid balance on the principal obligation simply because he
chose to extrajudicially foreclose the real estate mortgage.[20]
It is no longer challenged before us that the outstanding loan obligation of
the spouses Avenido amounted toP2,598,452.80, inclusive of interests,
penalties, and charges, by March 8, 1999. The controversy herein now only
revolves around the value to be attributed to the foreclosed property, which
would be applied against the outstanding loan obligation of the spouses
Avenido to BPI Family. BPI Family insists that it should beP2,142,616.00,
its winning bid price for the foreclosed property at the public auction sale,
which, being less than the outstanding loan obligation of the spouses
Avenido, will still leave a deficiency collectible by BPI Family from the
spouses Avenido in the amount of P455,836.80. The spouses Avenido
maintain that, as the RTC and the Court of Appeals ruled, it should
be P2,678,270.00, the fair market value of the foreclosed property, which,
being more than the outstanding loan obligation of the spouses Avenido, will
already fully settle their indebtedness.

The spouses Avenido, the RTC, and the Court of Appeals may not have said it
outright, but they actually consider the winning bid of BPI Family for the
foreclosed property at the public auction sale to be insufficient. They took
exception to the fact that the winning bid of BPI Family was equivalent to
only 80% of the appraised value of the mortgaged property. The RTC and
the Court of Appeals even went as far as to refer to the amount of the
winning bid of BPI Family as nominal and unfair and would unjustly
enrich the bank at the expense of the spouses Avenido. So the RTC and the
Court of Appeals disregarded the winning bid of BPI Family and applied
instead the fair market value of the foreclosed property against the
outstanding loan obligation of the spouses Avenido.
According to Section 4 of Act No. 3135, an extrajudicial foreclosure sale of a
mortgaged real property shall be conducted as follows:
SEC. 4. Public Auction. - The sale shall be made at public auction, between
the hours of 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 for each day of actual work performed, in addition to his expenses.
Notably, the aforequoted provision does not mention any minimum bid at the
public auction sale. There is no legal basis for requiring that the bid should at
least be equal to the market value of the foreclosed property or the
outstanding obligation of the mortgage debtor.
We have consistently held in previous cases that unlike in an ordinary sale,
inadequacy of the price at a forced sale is immaterial and does not nullify the
sale. In fact, in a forced sale, a low price is more beneficial to the mortgage
debtor for it makes redemption of the property easier.
Section 6 of Act No. 3135 provides for the redemption of an extrajudicially
foreclosed property within a one-year period, to wit:
Sec. 6. Redemption. In all cases in which an extrajudicial sale is made
under the special power herein before referred to, the debtor, his successorsin-interest or any judicial creditor or judgment creditor of said debtor, or any
person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any
time within the term of one year from and after the date of the sale; and
such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure, in so far as these are not inconsistent with the provisions of
this Act. (Emphasis ours.)

Republic Act No. 337, the General Banking Act, as amended, in force at the
time of the herein transactions, had a specific provision on the redemption of
property extrajudicially foreclosed by banks, which reads:
Sec. 78. Loans against real estate security shall not exceed seventy percent
(70%) of the appraised value of the respective real estate security, plus
seventy percent (70%) of the appraised value of the insured improvements,
and such loans shall not be made unless title to the real estate shall be in the
mortgagor. In the event of foreclosure, whether judicially or extrajudicially, of
any mortgage on real estate which is security for any loan granted before the
passage of this Act or under the provisions of this Act, the mortgagor or
debtor whose real property has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any bank,
banking or credit institution, within the purview of this Act shall have the
right, within one year after the sale of the real estate as a result of the
foreclosure of the respective mortgage, to redeem the property by paying
the amount fixed by the court in order of execution, or the amount due under
the mortgage deed, as the case may be, with interest thereon at the rate
specified in the mortgage, and all the costs, and judicial and other expenses
incurred by the bank or institution concerned by reason of the execution and
sale and as a result of the custody of said property less the income received
from the property. However, the purchaser at the auction sale concerned in a
judicial foreclosure shall have the right to enter upon and take possession of
such property immediately after the date of the confirmation of the auction
sale by the court and administer the same in accordance with law. (Emphasis
ours.)
If the foreclosed property is registered, the mortgagor has one year within
which to redeem the property from and after registration of sale with the
Register of Deeds.[21]
We explained in Prudential Bank v. Martinez[22] that:
[T]he fact that the mortgaged property is sold at an amount less than its
actual market value should not militate against the right to such recovery.
We fail to see any disadvantage going for the mortgagor. On the contrary, a
mortgagor stands to gain with a reduced price because he possesses the
right of redemption. When there is the right to redeem, inadequacy of price
should not be material, because the judgment debtor may reacquire the
property or also sell his right to redeem and thus recover the loss he claims
to have suffered by the reason of the price obtained at the auction sale.
Generally, in forced sales, low prices are usually offered and the mere
inadequacy of the price obtained at the sheriffs sale unless shocking to the
conscience will not be sufficient to set aside a sale if there is no showing that

in the event of a regular sale, a better price can be obtained.[23](Citations

omitted.)
We elucidated further in New Sampaguita Builders Construction Inc. v.
Philippine National Bank[24]that:
In the accessory contract of real mortgage, in which immovable property or
real rights thereto are used as security for the fulfillment of the principal loan
obligation, the bid price may be lower than the propertys fair market value.
In fact, the loan value itself is only 70 percent of the appraised value. As
correctly emphasized by the appellate court, a low bid price will make it
easier for the owner to effect redemption by subsequently reacquiring the
property or by selling the right to redeem and thus recover alleged losses. x
x x.[25]
In Hulst v. PR Builders, Inc.,[26] we reiterated that:
[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.[27]
In line with the foregoing jurisprudence, we refuse to consider the question of
sufficiency of the winning bid price of BPI Family for the foreclosed property;
and affirm the application of said winning bid in the amount of P2,142,616.00
against the total outstanding loan obligation of the spouses Avenido by
March 8, 1999 in the sum of P2,598,452.80, thus, leaving a deficiency
of P455,836.80. BPI Family may still collect the said deficiency without
violating the principle of unjust enrichment, as opined by the Court of
Appeals.
There is unjust enrichment when a person unjustly retains a benefit to the
loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience.
Article 22 of the Civil Code provides that every person who through an act of
performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal

ground, shall return the same to him. The principle of unjust enrichment
under Article 22 requires two conditions: (1) that a person is benefited
without a valid basis or justification, and (2) that such benefit is derived at
anothers expense or damage.[28] There is no unjust enrichment to speak
of in this case. There is strong legal basis for the claim of BPI Family against
the spouses Avenido for the deficiency of their loan obligation.
BPI Family made an extrajudicial demand upon the spouses Avenido for the
deficiency mortgage obligation in a letter dated July 8, 2000 and received by
the spouses Avenido on July 17, 2000. Consequently, we impose the legal
interest of 12% per annum on the deficiency mortgage obligation amounting
to P455,836.80 from July 17, 2000 until the finality of this Decision.
Thereafter, if the amount adjudged remains unpaid, it will be subject to
interest at the rate of 12% per annumcomputed from the time the judgment
became final and executory until fully satisfied.
x x x."