55 SPS.
SUICO v PNB regarding the amount of the indebtedness to be paid in the foreclosure sale as
GRN 96410
JULY 3, 1992
TOPIC: Real Estate Mortgage
PETITIONERS/PLAINTIFFS: Sps. Esemraldo and Elizabeth Suico
RESPONDENTS/DEFENDANTS: Philippine National Bank and Hon. Court of Appeals
PONENTE: Chico-Nazario, J.
DOCTRINE:
1. Perforce, a mortgagee who exercises the power of sale contained in a mortgage is
considered a custodian of the fund and, being bound to apply it properly, is liable to the
persons entitled thereto if he fails to do so.
2. It has been held that if the mortgagee is retaining more of the proceeds of the sale than
he is entitled to, this fact alone will not affect the validity of the sale but simply give the
mortgagor a cause of action to recover such surplus.
FACTS:
 Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties
in the name of the former.
 Sps. Suico failed to pay the obligation prompting PNB to extrajudicially foreclose the mortgage
over the subject properties.
REGIONAL TRIAL COURT
 COMPLAINT: Petitioners, thereafter filed a complaint alleging that the extrajudicial foreclosure
conducted and the Certificate of Sale and the Certificate of Finality sale are null and void;
o During the foreclosure sale, PNB was the lone bidder.
o The amount of bid is P8,511,000.00.
o Petitioners alleged that the outstanding obligation is only P1,991,770.38.
o Since the amount of the bid grossly exceeded the amount of petitioners’
outstanding obligation as stated in the extrajudicial foreclosure of mortgage, it was
the legal duty of the winning bidder, PNB, to deliver to the Mandaue City Sheriff the
bid price or what was left thereof after deducting the amount of petitioners’
outstanding obligation.
o PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the
very least, the amount of such bid in excess of petitioners’ outstanding obligation.
 MOTION TO DISMISS: PNB moved to dismiss citing the pendency of another action between
the same properties where PNB was seeking payment of the balance of petitioner’s obligation
not covered by the proceeds of the auction sale.
o RTC denied the Motion to Dismiss.
 ANSWER: PNB asserted, in its answer, that petitioners had other loans which had likewise
become due. PNB maintained that the outstanding obligation of the petitioners under their
regular and export- related loans was already more than the bid price of P8,511,000.00,
contradicting the claim of surplus proceeds due the petitioners. Petitioners were well aware
that their total principal outstanding obligation on the date of the auction sale
was P5,503,293.21.
 DECISION – declared the extrajudicial foreclosure null and void.
o RTC reasoned that given that petitioners had other loan obligations which had not
yet matured on 10 March 1992 but became due by the date of the auction sale on
30 October 1992, it does not justify the shortcut taken by PNB and will not excuse it
from paying to the Sheriff who conducted the auction sale the excess bid in the
foreclosure sale.
o To allow PNB to do so would constitute fraud, for not only is the filing fee in the said
foreclosure inadequate but, worse, the same constitutes a misrepresentation
posted and published in the notice of sale.
o Such misrepresentation is fatal because in an extrajudicial foreclosure of mortgage,
notice of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates
the notice.
COURT OF APPEALS
 DECISION: reversed.
o Petitioners offered to redeem the properties several times from 6.5M to 7.5M.
o All those offers made by the [petitioners] not only contradicted their very assertion
that their obligation is merely that amount appearing on the petition for foreclosure
but are also indicative of the fact that they have admitted the validity of the extra
judicial foreclosure proceedings and in effect have cured the impugned defect.
o Even assuming that indeed there was a surplus and the [PNB] is retaining more than
the proceeds of the sale than it is entitled, this fact alone will not affect the validity
of the sale but simply gives the [petitioners] a cause of action to recover such
surplus.
o Such failure of PNB does not constitute jurisdictional defect.
ISSUES:
(1) WON the extrajudicial foreclosure is valid. (YES)
HELD AND RATIO:
(1) YES. THE EJ FORECLOSURE IS VALID.
 PETITIONER’S CONTENTIONS: Petitioners argue that since the Notice of Sheriff’s Sale stated
that their obligation was only P1,991,770.38 and PNB biddedP8,511,000.00, the said Notice as
well as the consequent sale of the subject properties were null and void.
 It is true that statutory provisions governing publication of notice of mortgage foreclosure sales
must be strictly complied with, and that even slight deviations therefrom will invalidate the
notice and render the sale at least voidable.
o Nonetheless, we must not also lose sight of the fact that the purpose of the
publication of the Notice of Sheriff’s Sale is to inform all interested parties of the
date, time and place of the foreclosure sale of the real property subject thereof.
o Logically, this not only requires that the correct date, time and place of the
foreclosure sale appear in the notice, but also that any and all interested parties be
able to determine that what is about to be sold at the foreclosure sale is the real
property in which they have an interest.
o Notices are given for the purpose of securing bidders and to prevent a sacrifice of
the property.
o If these objects are attained, immaterial errors and mistakes will not affect the
sufficiency of the notice; but if mistakes or omissions occur in the notices of sale,
which are calculated to deter or mislead bidders, to depreciate the value of the
property, or to prevent it from bringing a fair price, such mistakes or omissions will
be fatal to the validity of the notice, and also to the sale made pursuant thereto.
 IN THE CASE AT HAND, Petitioners failed to convince this Court that the difference between the
amount stated in the Notice of Sale and the amount of PNB’s bid resulted in discouraging or
misleading bidders, depreciated the value of the property or prevented it from commanding a
fair price.
o Considering the amount of PNB’s bid of P8,511,000.00 as against the amount of the
petitioners’ obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to
deliver the excess? YES.
o Section 21 of Rule 39 emphasized that if the amount of loan is equal to the bid, there
is no need to pay the amount in cash.
 o Same provision mandates that in the absence of a third-party claim, the purchaser
in an execution sale need not pay his bid if it does not exceed the amount of the
judgment; otherwise, he shall pay only the excess.
o The ratio is that it would be senseless for the Sheriff conducting the foreclosure sale
to go through the ceremony of receiving money and giving it back to the creditor.
o Under Rule 68, Section 4, the disposition of the proceeds of the sale in foreclosure
shall be as follows:
 (a) first, pay the costs
 (b) secondly, pay off the mortgage debt
 (c) thirdly, pay the junior encumbrancers, if any in the order of priority
 (d) fourthly, give the balance to the mortgagor, his agent or the person
entitled to it.
o Based on the foregoing, after payment of the costs of suit and satisfaction of the
claim of the first mortgagee/senior mortgagee, the claim of the second
mortgagee/junior mortgagee may be satisfied from the surplus proceeds.
o The application of the proceeds from the sale of the mortgaged property to the
mortgagor’s obligation is an act of payment, not payment by dacion; hence, it is the
mortgagee’s duty to return any surplus in the selling price to the mortgagor.
 Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered
a custodian of the fund and, being bound to apply it properly, is liable to the persons entitled
thereto if he fails to do so.
o And even though the mortgagee is not strictly considered a trustee in a purely
equitable sense, but as far as concerns the unconsumed balance, the mortgagee is
deemed a trustee for the mortgagor or owner of the equity of redemption.
o Thus, it has been held that if the mortgagee is retaining more of the proceeds of the
sale than he is entitled to, this fact alone will not affect the validity of the sale but
simply give the mortgagor a cause of action to recover such surplus.
 Given that the Statement of Account from PNB, being the only existing documentary evidence
to support its claim, shows that petitioners’ loan obligations to PNB as of 30 October 1992
amounted to P6,409,814.92, and considering that the amount of PNB’s bid is P8,511,000.00,
there is clearly an excess in the bid price which PNB must return, together with the interest
computed in accordance with the guidelines laid down by the court in Eastern Shipping Lines v.
Court of Appeals.
6% interest – from the time of filing the complaint
12% interest – once the judgment becomes final and executory.
 It must be emphasized, however, that our holding in this case does not preclude PNB from
proving and recovering in a proper proceeding any deficiency in the amount of petitioners’ loan
obligation that may have accrued after the date of the auction sale.

DISPOSITION: WHEREFORE, premises considered, the Decision of the Court of Appeals dated 12 April 2005
is MODIFIED in that the PNB is directed to return to the petitioners the amount of P2,101,185.08 with
interest computed at 6% per annum from the time of the filing of the complaint until its full payment
before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be
12% per annum computed from the time the judgment became final and executory until fully satisfied.
Costs against private respondent.