Banco De Oro Unibank, Inc. vs. Spouses Locsin

A party seeking a deficiency judgment must prove the existence and amount of the deficiency by preponderance of evidence, even if the defendant has been declared in default, and the Sheriff's Certificate of Sale prevails over the bank's unauthenticated internal documents in determining the outstanding obligation.

Spouses Enrique Gabriel and Ma. Geraldine Locsin obtained a ₱700,000 loan from Banco de Oro Universal Bank (BDO), secured by a real estate mortgage, and later a ₱2.5 million credit line facility secured by a third-party mortgage on their business partners' properties. The credit line approval contained a cross-default provision linking default on the credit line to default on the first loan, which contained an acceleration clause. When the Locsins defaulted on the credit line in October 1997, BDO declared both loans due and demandable.

On September 29, 1995, spouses Enrique Gabriel and Ma. Geraldine Locsin obtained a ₱700,000 loan from Banco de Oro Universal Bank (BDO), secured by a real estate mortgage on their property covered by TCT No. N-138739. The promissory note contained an acceleration clause rendering the outstanding principal and accrued interest immediately due upon default. On November 6, 1996, the Locsins secured a ₱2.5 million credit line facility from BDO, secured by a third-party real estate mortgage on properties owned by their business partners, Juanito and Anita Evidente. The credit line approval included a cross-default provision stipulating that a default on the credit line would automatically mean a default on the first loan, and vice versa.

In October 1997, the Locsins defaulted on the credit line facility. On January 7, 1998, BDO sent a demand letter informing the Locsins that their default triggered the cross-default provision and acceleration clause, making the first loan immediately due and demandable. The Locsins failed to restructure the loans. On August 24, 1998, the Locsins filed a complaint for specific performance and damages against BDO to enjoin the foreclosure, but the trial court denied the injunctive relief.

Consequently, on September 23, 1998, BDO extrajudicially foreclosed the mortgages on both the Locsin and Evidente properties. BDO was the highest bidder at ₱3,879,406.80. The Sheriff's Certificate of Sale indicated the total outstanding balance on the two loans at the time of foreclosure was ₱3,460,363.97. On February 5, 1999, BDO demanded payment of ₱1,259,166.21 as a deficiency, though its own Bid Statement computed the deficiency at only ₱1,144,089.84.

On November 29, 1999, BDO filed a collection suit for the ₱1,144,089.84 deficiency before the RTC of Mandaluyong City. The Locsins moved to dismiss, arguing it should have been a compulsory counterclaim in their earlier specific performance case. The motion was denied, and after a certiorari proceeding that reached the Supreme Court, the case was remanded. The Locsins failed to file an answer upon remand, leading the RTC to declare them in default and allow BDO to present evidence ex parte. BDO presented a Statement of Account showing the deficiency had ballooned to ₱3,709,961.00, but the persons who prepared the document were not presented as witnesses; only BDO's Vice-President testified. The RTC ruled in favor of BDO, awarding the ₱3,709,961.00. On appeal, the CA reversed the RTC, finding that BDO failed to prove its claim by preponderance of evidence, as its documents were unauthenticated, contradictory, and the Sheriff's Certificate of Sale showed no deficiency.

• Unassigned Error: Petitioner argued that the CA erred in resolving the issue of sufficiency of evidence because respondents never raised this matter as an error in their appeal before the CA.
• Sufficiency of Evidence: Petitioner maintained that it presented enough documentary evidence, such as the Application for Extrajudicial Foreclosure, Bid Statement, Statement of Account, and Official Receipts, to prove its right to recover the deficiency amount of ₱3,709,961.00.
• Procedural Lapses of Respondents: Petitioner argued that the CA should have dismissed the appeal due to respondents' failure to comply with mandatory requirements under Section 7, Rule 44 (serving only one instead of two copies of the brief) and Section 13(d) and (e), Rule 44 (lack of page references and statement of issues) of the Rules of Court.

• RTC Judgment Error: Respondents ascribed error to the RTC for rendering judgment in favor of BDO and declaring them jointly and severally liable for the deficiency resulting from the foreclosure sale.
• Unconsidered Claims: Respondents argued that the RTC erred in not considering their claim for moral, exemplary damages, and attorney's fees contained in their complaint in Civil Case No. Q-98-35337, which they attached to their Motion to Dismiss, and treating the same as their Answer to the complaint in the instant case.

• Appellate Review of Unassigned Errors: Whether the CA erred in granting the appeal based on the insufficiency of evidence, a ground not raised by respondents in their appeal.
• Sufficiency of Evidence: Whether the CA erred in ruling that petitioner failed to prove by a preponderance of evidence its right to recover the deficiency amount of ₱3,709,961.00.
• Compliance with Procedural Rules: Whether the CA erred in failing to dismiss the appeal considering respondents' failure to comply with Section 7, Rule 44 and Section 13(d) and (e), Rule 44 of the Rules of Court.

• Appellate Review of Unassigned Errors: No. The CA did not err in resolving the question on the sufficiency of evidence, as it falls under exceptions allowing appellate courts to consider unassigned errors necessary to arrive at a just decision and closely related to the assigned errors.
• Sufficiency of Evidence: No. Petitioner failed to prove its claim by preponderance of evidence because its documentary evidence was unauthenticated, contradictory, and insufficient, and the Sheriff's Certificate of Sale showed no deficiency.
• Compliance with Procedural Rules: No. The grounds for dismissal of an appeal under Section 1, Rule 50 are discretionary upon the CA, and technical rules of procedure should be relaxed when they hinder substantial justice.

• Appellate Review of Unassigned Errors: Under Section 8, Rule 51 of the Rules of Court, while only assigned errors are generally considered, appellate courts have broad discretionary power to waive this requirement. Exceptions include matters whose consideration is necessary to arrive at a just decision, matters closely related to assigned errors, and matters whose determination is necessary to rule on properly assigned errors. The sufficiency of BDO's evidence was pivotal in determining the main issue of whether the RTC was correct in awarding the deficiency amount, falling under the third, fifth, and sixth exceptions.
• Sufficiency of Evidence: BDO's evidence—the Application for Extrajudicial Foreclosure, Bid Statement, Statement of Account, and Official Receipts—were self-serving, unsupported by credible evidence, and contained contradictory figures. The persons who prepared the Bid Statement and Statement of Account were not presented to authenticate them, and BDO's sole witness, its Vice-President, did not explain how the figures were arrived at. Furthermore, the burden of proof rests on the party asserting an affirmative issue, even against a defaulted defendant. The Sheriff's Certificate of Sale, presumed regularly executed, showed an outstanding obligation of ₱3,460,363.97 and a bid price of ₱3,879,706.80, proving there was no deficiency.
• Compliance with Procedural Rules: The failure to serve the required number of copies of an appellant's brief is a discretionary ground for dismissal, not a mandatory one. Dismissing the appeal for serving only one copy instead of two would be an overemphasis on technicality, as BDO suffered no material injury. The lack of page references and statement of issues were formal defects cured by substantial compliance, as the citations enabled the appellate court to locate the records and apprise it of the facts and issues. Technical rules are mere tools to facilitate justice and should be relaxed to resolve cases on the merits.

• Burden of Proof in Default Proceedings — The burden of proof rests upon the party asserting an affirmative issue, even if the opposing party has been declared in default. A defaulting defendant leaves himself at the mercy of the court, but any judgment against him must still be in accordance with legally competent evidence. The plaintiff is not automatically entitled to relief and must prove the allegations in the complaint by preponderance of evidence.
• Evidentiary Weight of Sheriff's Certificate of Sale — A Sheriff's Certificate of Sale, accomplished by an officer of the court in the performance of official duty, is presumed to have been regularly executed in the absence of evidence to the contrary. It is a more reliable proof of the actual outstanding obligation than a party's unauthenticated internal documents.
• Exceptions to the Rule on Assignment of Errors — An appellate court may consider grounds not raised as errors when: (1) affecting jurisdiction; (2) plain or clerical errors; (3) necessary for a just decision; (4) matters of record ignored by the lower court; (5) closely related to assigned errors; or (6) necessary to rule on properly assigned errors.
• Discretionary Nature of Dismissal of Appeal — The grounds for dismissal of an appeal under Section 1, Rule 50 of the Rules of Court, such as failure to serve the required number of copies or formal defects in the brief, are directory and discretionary upon the appellate court, not mandatory.

• "While it may be said that by defaulting, the defendant leaves himself at the mercy of the court, the rules nevertheless see to it that any judgment against him must be in accordance with the evidence required by law." — This passage articulates the doctrine that a default judgment must still be supported by competent evidence, protecting defendants from unproven claims.
• "Indeed, it is settled that technical rules of procedure are mere tools designed to facilitate the attainment of justice. Their strict and rigid application should be relaxed when they hinder rather than promote substantial justice." — This is a canonical formulation of the principle favoring substantial justice over technicalities, frequently cited in Philippine jurisprudence.

• Otero vs. Tan, G.R. No. 200134, August 15, 2012 — Cited to elucidate the rule that judgment against a defaulted defendant must be based on legal and competent evidence.
• Philippine National Bank vs. Philippine Milling Co., Inc., 136 Phil. 212 (1969) — Cited for the doctrine that the failure to serve the required number of copies of an appeal brief confers a discretionary power to dismiss, rather than imposing a mandatory duty.
• Spouses Mario and Julia Campos vs. Republic of the Philippines, G.R. No. 184371, March 5, 2014 — Cited for the rule on questions that may be decided on appeal and the exceptions to the assignment of errors requirement.

• Section 8, Rule 51 of the Rules of Court — Governs questions that may be decided on appeal, stating that no error will be considered unless stated in the assignment of errors, save as the court may pass upon plain errors and clerical errors. Applied to justify the CA's consideration of the sufficiency of evidence despite it not being assigned as an error.
• Section 7, Rule 44 of the Rules of Court — Requires the appellant to serve two copies of the appellant's brief to the appellee. Applied in determining whether failure to serve two copies warrants dismissal of the appeal.
• Section 13(d) and (e), Rule 44 of the Rules of Court — Requires a statement of facts with page references and a clear statement of issues in the appellant's brief. Applied to assess whether formal defects in the respondents' brief justified dismissal.
• Section 1(f), Rule 50 of the Rules of Court — Lists grounds for dismissal of appeal, including absence of specific assignment of errors or page references. Applied as discretionary rather than mandatory grounds for dismissal.

Presbitero J. Velasco, Jr. (Chairperson), Martin S. Villarama, Jr., Bienvenido L. Reyes, Marvic Mario Victor F. Leonen.