Development Bank of the Philippines v. Mirang
REITERATIONFacts
The Antecedents: Dionisio Mirang (appellant) obtained a loan of P14,000.00 from the Rehabilitation Finance Corporation (RFC), later converted to Development Bank of the Philippines (DBP), secured by a first mortgage on his homestead. The loan was for the purchase of work animals, farm implements, construction of a farmhouse and laborers' quarters, and development of abaca land. The RFC released P13,000.00 of the loan. Further releases were refused because the abaca plantation was destroyed by mosaic disease. Mirang failed to pay yearly amortizations. The RFC extrajudicially foreclosed the mortgage under Act 3135, as amended. The mortgaged property was sold at public auction on July 30, 1957, for P2,010.00, with DBP as the highest bidder. At the time of the sale, Mirang's indebtedness, including interest, amounted to P19,714.35, plus P101.00 for auction sale and registration expenses. DBP acquired ownership of the property, and Mirang was informed of the sale and his right of redemption within one year from July 30, 1957. Mirang did not exercise this right. Procedural History: The DBP filed a complaint on May 29, 1962, seeking to recover the balance of the indebtedness. The Court of First Instance of Davao rendered a decision on May 14, 1963, ordering Mirang to pay P16,013.13 plus 6% interest from July 30, 1957, less P360.00 for the value of an engine, plus P500.00 as attorney's fees and costs. The decision was modified by an Order on July 1, 1963. The Petition: The case was appealed to the Court of Appeals, which certified it to the Supreme Court due to purely legal questions involved. The appellant assigned five errors, condensed into three main issues.
Issue(s)
Whether the creditor (DBP) has a right to recover the balance of the indebtedness after the mortgaged property was sold for less than the amount thereof under extrajudicial foreclosure pursuant to Act 3135, as amended. Whether the debtor (Mirang) may be exempted from paying the loan on the ground that the abaca crop, for which the loan was granted, was destroyed by mosaic disease, or, failing that, whether his obligation may be reduced. Whether the mortgage debtor who wishes to repurchase his homestead should pay therefor only the price paid by the purchaser at the auction sale, or the total obligation incurred by him and still outstanding.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance, with costs. The Court held that the DBP has the right to recover the deficiency balance, that Mirang is not exempted from paying the loan due to the destruction of the abaca crop, and that the redemption price should be the total outstanding obligation with interest.
Ratio Decidendi
On the first issue (Right to recover deficiency): The Court held that the creditor, DBP, has the right to recover the deficiency balance after the extrajudicial foreclosure sale. While Act 3135, as amended, is silent on this right, Article 2131 of the Civil Code mandates that matters not covered by the Chapter on Mortgages shall be governed by the Mortgage Law. Under the Mortgage Law, the mortgagee has the right to claim for the deficiency. Furthermore, Section 6, Rule 70 of the Rules of Court, although referring to judicial foreclosure, recognizes the principle that a mortgage is merely a security and not a satisfaction of the indebtedness. The Court distinguished this from provisions on pledge (Article 2115, Civil Code) and chattel mortgage (Article 1484(3), Civil Code), which expressly prohibit recovery of deficiency, indicating that such prohibition must be explicit. The Court reiterated the ruling in Philippine Bank of Commerce vs. Tomas de Vera, stating that resorting to extrajudicial foreclosure under Act 3135 is merely a proceeding for sale and not a waiver of the right to demand the full payment of the debt. On the second issue (Exemption or reduction of obligation due to disease): The Court ruled that the debtor, Mirang, cannot be exempted from paying the loan or have his obligation reduced due to the destruction of the abaca crop by mosaic disease. The loan agreement was clear and unconditional, and the appellant's predicament, while sympathetic, does not justify disregarding the terms of the contract. The obligation was not conditional or aleatory, and the terms were subject to no exception. The purpose of the loan was for the development of the abaca land, and the risk of crop failure, while unfortunate, was borne by the debtor. On the third issue (Redemption price): The Court clarified that the mortgage debtor wishing to repurchase his homestead after an auction sale must pay the total outstanding obligation on the date of the sale, with interest, not merely the price obtained at the auction sale. This was resolved in the case of Jesus Nepomuceno, et al. vs. RFC. Citing Section 31 of Com. Act No. 459, which applies to RFC loans, the Court stated that the mortgagor has the right to redeem by paying the amount owed to the Bank on the date of the sale, plus agreed interest. Therefore, the appellant must pay the entire amount owed to the Bank on the date of the sale, with interest thereon at the agreed rate.
Main Doctrine
In extrajudicial foreclosure of a mortgage under Act 3135, as amended, the mortgagee retains the right to recover the deficiency balance of the obligation after applying the proceeds of the foreclosure sale, as this right is not expressly prohibited by the Act and is recognized under the Mortgage Law and the Rules of Court. The debtor is not exempted from paying the loan due to the destruction of the mortgaged crop by disease, nor is the redemption price limited to the auction sale price; it includes the total outstanding obligation with interest.