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    Metrobank V Chuy Lu Tan

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    Robert Rosales
    Metrobank provided loans to Chuy Lu Tan and Romeo Tanco that were secured by a mortgage on a property. When the borrowers failed to repay the loans, Metrobank foreclosed on the property but the proceeds did not fully cover the outstanding obligation, leaving a deficiency balance. Metrobank sued to recover this amount but the lower court ruled against Metrobank, finding the interest and penalties constituted unjust enrichment. However, the Supreme Court ruled that Metrobank has the right to claim the remainder from the borrowers after deducting the foreclosure sale proceeds, as creditors are generally allowed to recover any unpaid balance on the principal obligation resulting from a deficiency in an extrajudicial foreclosure.

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    Metrobank V Chuy Lu Tan

    Uploaded by

    Robert Rosales
    518 views1 page
    Metrobank provided loans to Chuy Lu Tan and Romeo Tanco that were secured by a mortgage on a property. When the borrowers failed to repay the loans, Metrobank foreclosed on the property but the proceeds did not fully cover the outstanding obligation, leaving a deficiency balance. Metrobank sued to recover this amount but the lower court ruled against Metrobank, finding the interest and penalties constituted unjust enrichment. However, the Supreme Court ruled that Metrobank has the right to claim the remainder from the borrowers after deducting the foreclosure sale proceeds, as creditors are generally allowed to recover any unpaid balance on the principal obligation resulting from a deficiency in an extrajudicial foreclosure.

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    Extra judicial foreclosure

    Original Title

    2. Metrobank v Chuy Lu Tan

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    Metrobank provided loans to Chuy Lu Tan and Romeo Tanco that were secured by a mortgage on a property. When the borrowers failed to repay the loans, Metrobank foreclosed on the property but the proceeds did not fully cover the outstanding obligation, leaving a deficiency balance. Metrobank sued to recover this amount but the lower court ruled against Metrobank, finding the interest and penalties constituted unjust enrichment. However, the Supreme Court ruled that Metrobank has the right to claim the remainder from the borrowers after deducting the foreclosure sale proceeds, as creditors are generally allowed to recover any unpaid balance on the principal obligation resulting from a deficiency in an extrajudicial foreclosure.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    518 views1 page

    Metrobank V Chuy Lu Tan

    Uploaded by

    Robert Rosales
    Metrobank provided loans to Chuy Lu Tan and Romeo Tanco that were secured by a mortgage on a property. When the borrowers failed to repay the loans, Metrobank foreclosed on the property but the proceeds did not fully cover the outstanding obligation, leaving a deficiency balance. Metrobank sued to recover this amount but the lower court ruled against Metrobank, finding the interest and penalties constituted unjust enrichment. However, the Supreme Court ruled that Metrobank has the right to claim the remainder from the borrowers after deducting the foreclosure sale proceeds, as creditors are generally allowed to recover any unpaid balance on the principal obligation resulting from a deficiency in an extrajudicial foreclosure.

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    © All Rights Reserved
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    GR No.

    202176, August 1, 2016


    Metrobank (Petitioner) v Chuy Lu Tan et al. (Respondents)
    Third Division
    Ponente: Peralta, J.
    Nature of Action: Complaint for collection of sum of money.
    FACTS:
    Respondents Chuy Lu Tan and Romeo Tanco obtained five loans from herein petitioner
    Metropolitan Bank & Trust Company. These loans are evidenced by five Promissory Notes executed by
    Chuy and Tanco on various dates. As security for the said loans, Chuy executed a Real Estate Mortgage
    over a parcel of land in Quezon City. Subsequently, Chuy and Tanco failed to settle their loans despite
    Metrobank's repeated demands for payment. Metrobank extrajudicially foreclosed the mortgage and the
    property was sold to it (Metrobank) as the highest bidder. After application of the bid price to the
    respondents' outstanding obligation and the payment of the costs of foreclosure, interests and other
    expenses, there remained a deficiency. As such, Metrobank demanded from respondents the payment of
    the said deficiency. For respondents failure to pay, Metrobank filed a suit for collection of a sum of
    money with the RTC of Makati. The RTC ruled in favor of petitioner and ordered respondents to pay the
    deficiency balance. On appeal however, the C reversed the ruling of the RTC ruled that to allow
    Metrobank to recover the amount it seeks from respondents would be iniquitous, as it is allegedly
    consisted almost entirely of interest and penalties, which is iniquitous, unconscionable and exorbitant,
    unconscionable and would amount to unjust enrichment.

    ISSUE:
    Whether or not petitioner has the right to claim from respondents the remainder of their
    obligation after deducting the amount obtained from the extrajudicial foreclosure sale.

    RULING:
    Yes. Settled is the rule that a creditor is not precluded from recovering any unpaid balance on the
    principal obligation if the extrajudicial foreclosure sale of the property subject of the real estate mortgage
    results in a deficiency.
    In Spouses Rabat v. Philippine National Bank, this Court held:
    x x x it is settled that if the proceeds of the sale are insufficient to cover the debt in an
    extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from
    the debtor. For when the legislature intends to deny the right of a creditor to sue for any
    deficiency resulting from foreclosure of security given to guarantee an obligation it expressly
    provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold
    on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial
    foreclosure of mortgages, while silent as to the mortgagee's right to recover, does not, on the
    other hand, p:ohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim
    arising from the extrajudicial foreclosure is allowed.
    Indeed, the fact that the mortgaged property was sold at an amount less than its actual market
    value should not militate against the right to such recovery. This Court has likewise ruled that in
    deference to the rule that a mortgage is simply a security and cannot be considered payment of an
    outstanding obligation, the creditor is not barred from recovering the deficiency even if it bought the
    mortgaged property at the extrajudicial foreclosure sale at a lower price than its market value
    notwithstanding the fact that said value is more than or equal to the total amount of the debtor's
    obligation.

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