G.R. No. 90169, April 7, 1993.
CAMPOS, JR., J:
On November 3, 1976, Petitioner Pilar Pagsigiban obtained a loan from Respondent Planters Development Bank ("Bank") for P4,500.00, secured by a mortgage over a parcel of land.
The Promissory Note for the said loan stipulated for the first payment to be made on May 3, 1977 and payments every six months thereafter at P1,018.14 with 19% interest for unpaid amortizations. It also contained an acceleration clause.
Initial payment was made in July 6, 1977, followed by several payments in the total amount of P11,900.00. However, only four of these payments were applied to the loan, while the rest were "temporarily lodged to accounts payable since the account was already past due".
In 1984, the property was foreclosed extrajudicially upon Petition by the bank for failure to pay an outstanding balance of P29,554.81. This resulted in the property being sold to the bank for P8,163.00, and later claimed a deficiency of P21,391.81.
Petitioner filed an action for annulment of sale by Petitioner, which the lower court granted. However, it was overturned by CA.
1st Issue: W/N the auction sale is valid.
The respondent bank had the right to foreclose the mortgage upon the first default of petitioner on May 3, 1977, but it did not. When it received payment of petitioner on July 6, 1977, the respondent bank had clearly waived its right under the acceleration clause since instead of claiming penalty charges on the entire amount of P4,500.00, it only computed the penalty based on the defaulted amortization payment which is P1,018.14.
Further, for more than four years, the bank made petitioner believe that it was applying her payment on the loan and interest. It is now bound by estoppel to apply the payments to petitioner's debt and from foreclosing the property.
Accordingly, the legality of the foreclosure cannot be sustained because of substantial performance on the part of petitioner (Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.) and acceptance of payment by the bank (Article 1235: when the creditor accepts performance, knowing its incompleteness and irregularity without protest or objection, the obligation is deemed complied with.).
2nd Issue: W/N Petitioner is entitled to recover damages.
Moral damages are warranted for the mental anguish, sleepless nights and serious anxiety that the bank's acts have caused petitioner. The bank succeeded in taking advantage of the ignorance of petitioner by lodging the bulk of petitioner's payment to account payable based on the flimsy reason that she had been in default, and then considering the entire debt pursuant to an acceleration clause as earning interest and penalty charges at an exorbitant rate of 19% each from the date of first default up to the date of foreclosure, thus bringing the obligation to an astronomical amount of P29,554.81 instead of just P11,000.00.
Exemplary damages are also proper, to serve as a deterrent for the bank from repeating similar acts and to set an example and correction for the public good.