Bid price and appraisal value in extrajudicial foreclosure

Act No. 3135, which governs extrajudicial foreclosure of real estate mortgages, 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.Throughout a long line of jurisprudence, the Supreme Court has declared that 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.

Thus, even if the Court were to assume that the valuation of the property is correct, the Court still holds that the inadequacy of the price at which it was sold at public auction does not prevent the creditor from claiming any deficiency not covered by the said foreclosure sale.

In G.R. No. 202176, Court said it may not temper respondents' liability to the petitioner on the ground of equity. The Court is barred by its own often repeated admonition that equity, which has been aptly described as "justice outside legality," is applied only in the absence of, and never against, statutory law or judicial rules of procedure. For all its conceded merit, equity is available only in the absence of law and not as its replacement.The law and jurisprudence on the matter are clear enough to close the door on a recourse to equity, insofar as the present case is concerned.

Indeed, Article 1159 of the Civil Code expressly provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. In G.R. No. 202176, it is clear under the Promissory Notes, Real Estate Mortgage contract and the Continuing Surety Agreement executed by respondents that they voluntarily bound themselves to pay the amounts being claimed by petitioner.

Furthermore, there is no convincing evidence nor argument which would show that petitioner is not entitled to the deficiency it claims. The CA simply says that to allow petitioner to recover the amount it seeks, which is allegedly over and above the actual value of the property it bought at public auction, would amount to unjust enrichment. However, the High Court does not see any unjust enrichment resulting from upholding the right of the petitioner to collect any deficiency from respondents. Unjust enrichment exists 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 governance. As discussed above, there is a strong legal basis for petitioner's claim against respondents for the balance of their loan obligation.

Nonetheless, the Supreme Court does not totally agree with the creditor's contention that the rate of penalty charges which should be imposed on the deficiency claim, as well as the recoverable attorney's fees, should be that embodied in the contract entered into by the parties. As earlier mentioned, a contract is the law between the parties and courts have no choice but to enforce such contract. This principle, however, is subject to the condition that the contract is not contrary to law, morals, good customs or public policy.

In G.R. No. 202176, the Promissory Notes executed by respondents indicate that the interest rates were pegged at sixteen percent (16%) per annum, computed from the dates of execution thereof. Under settled jurisprudence, twenty-four percent (24%) interest rate is not considered unconscionable. Hence, the Court finds the sixteen percent (16%) interest rate imposed by petitioner as fair.

With respect to the penalty charge, the Court has held that the surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Article 2226 of the Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.

Nonetheless, under Article 2227 of the Civil Code, liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

In the same vein, Article 1229 of the same Code provides:
The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
In the instant case, the Court finds the eighteen percent (18%) penalty charge imposed by petitioner on the deficiency claim, computed from the time of default, as excessive and, accordingly, reduces it considering that petitioner was already able to recover a large portion of respondents' principal obligation. In consonance with prevailing jurisprudence, the Court finds it proper to reduce the rate of penalty charge imposed on the deficiency claim from eighteen percent (18%) per annum to twelve percent (12%) per annum.

As to the attorney's fees, the law allows a party to recover attorney's fees under a written agreement. In Barons Marketing Corporation v. Court of Appeals,  the Court ruled that:
[T]he attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney's fees so provided are awarded in favor of the litigant, not his counsel, x x x
The foregoing notwithstanding, even if such attorney's fees are allowed by law, as in the case of the above-discussed penalty charge, the courts still have the power to reduce the same if the said fees are unreasonable.

In G.R. No. 202176, the subject Promissory Notes provide for the payment of attorney's fees at the rate often percent (10%) of the amount due. The same must be equitably reduced taking into account the fact that: (1) petitioner has already recovered the principal amount it seeks during the foreclosure sale; (2) petitioner has likewise recovered a sizeable portion of the interest and penalty charges which were imposed on the principal amount due; (3) the attorney's fees are not an integral part of the cost of borrowing but a mere incident of collection; and (4) the attorney's fees were intended as penal clause to answer for liquidated damages, which is similar to the purpose of the imposition of penalty charge. Hence, the rate of ten percent (10%) of the total amount due, as suggested by petitioner, is too onerous. Under the premises, attorney's fees equivalent to ten percent (10%) of the deficiency claim is reasonable.

Lastly, pursuant to prevailing jurisprudence, the total monetary awards shall earn interest at the prevailing rate of six percent (6%) per annum from finality of this Decision until full satisfaction thereof, which takes the form of a judicial debt.