Belo vs. PNB

An accommodation mortgagor or their assignee is not required to pay the principal debtor's entire outstanding obligation to redeem foreclosed property, but only the winning bid price at the auction sale, because the term "mortgagor" in Section 25 of P.D. No. 694 refers only to a debtor-mortgagor, and the liability of an accommodation mortgagor extends only up to the loan value of the mortgaged property.

Eduarda Belo leased her agricultural land in Capiz to respondents Spouses Eslabon for their sugar plantation business. To finance the venture, the Eslabons obtained a loan from respondent PNB, securing it with a real estate mortgage over their own four residential lots and over Belo's agricultural land, the latter made possible through a special power of attorney (SPA) Belo executed in favor of Marcos Eslabon.

• The Accommodation Mortgage: Eduarda Belo owned agricultural land leased to Spouses Eslabon. On June 15, 1982, Belo executed an SPA in favor of Marcos Eslabon, authorizing him to mortgage her land. Using the SPA, the Eslabons executed a real estate mortgage over their four residential lots and Belo's land in favor of PNB to secure a loan. The mortgage contract fixed the initial consideration at P229,000.00 but allowed for future advancements.
• Foreclosure and Auction: The Eslabons defaulted on the loan. PNB initiated extrajudicial foreclosure proceedings under Act No. 3135. At the auction sale on June 10, 1991, PNB was the highest bidder at P447,632.00. PNB notified Belo of the sale and her right to redeem the property within one year.
• Tender of Redemption Price: Belo sold her redemption rights to petitioners Spouses Belo. Before the redemption period expired, the Belos tendered P484,482.96, representing the bid price plus interest and expenses under Act No. 3135. PNB rejected the tender, demanding P2,779,978.72, which represented the total claim of the bank on the date of the auction sale, inclusive of the Eslabons' entire debt, interests, and charges under Section 25 of P.D. No. 694.

• Validity of the SPA and Mortgage: Petitioners argued that the SPA was void for lacking a specified loan amount and for being used for the Eslabons' benefit rather than Belo's, thereby vitiating consent and consideration.
• Bad Faith and Fraud: Petitioners maintained that PNB connived with the Eslabons to obtain Belo's consent through fraud, noting that Belo signed the SPA in blank upon the PNB manager's assurance that the loan would not exceed the value of the Eslabons' residential lots.
• Waiver: Petitioners contended that Belo's letter manifesting intent to redeem was not a waiver of her right to question the mortgage's validity, as she expressly reserved her rights in the tender of payment.
• Redemption Price: Petitioners asserted that the redemption price should be based on the winning bid price plus interest and expenses under Act No. 3135, not the total bank claim under P.D. No. 694.
• Subrogation and Reimbursement: Petitioners argued that if forced to pay the entire bank claim, they should succeed to all of PNB's rights against the Eslabons.

• Redemption Price under P.D. No. 694: Respondent PNB countered that Section 25 of P.D. No. 694 and Section 78 of the General Banking Act mandate that the redemption price is the total claim of the bank against the mortgagor on the date of the sale, plus interests and expenses.
• Estoppel: Respondent argued that Belo was estopped from questioning the validity of the SPA and mortgage after she manifested her intent to redeem the property.
• Indivisibility of Mortgage: Respondent maintained that allowing the redemption of only Belo's property without paying the entire debt violates the principle of indivisibility of mortgage contracts under Article 2089 of the Civil Code.

• Validity of Contracts and Proceedings: Whether the SPA, the real estate mortgage contract, the foreclosure proceedings, and the auction sale involving Eduarda Belo's property are valid.
• Applicable Redemption Price: Whether petitioners, as assignees of an accommodation mortgagor, are required to pay the entire claim of respondent PNB as the redemption price.

• Validity of Contracts and Proceedings: The SPA, mortgage, foreclosure, and auction sale were upheld as valid. Petitioners are estopped from assailing the validity of the SPA and mortgage because they failed to appeal the trial court's ruling affirming their validity, having only pursued their alternative cause of action. Furthermore, Belo's offer to redeem constituted a recognition of the contracts' validity. The factual finding that Belo freely consented to the SPA was affirmed, and an accommodation mortgage is expressly permitted under Article 2085 of the Civil Code.
• Applicable Redemption Price: Petitioners are not required to pay the entire bank claim. The term "mortgagor" in Section 25 of P.D. No. 694, which requires payment of "all claims of the Bank against him," pertains only to a debtor-mortgagor, not an accommodation mortgagor against whom the bank has no personal claim. Interpreting the statute to include accommodation mortgagors would lead to the absurdity of punishing them for the principal debtors' obligations. Moreover, the mortgage contract specified Act No. 3135 as the governing law for foreclosure, estopping PNB from invoking P.D. No. 694 to demand a higher redemption price. The principle of indivisibility of mortgage does not apply to an accommodation mortgagor who did not participate in constituting the principal obligation; their liability is limited to the value of their mortgaged property. Thus, the redemption price is the winning bid price less the loan value of the Eslabons' foreclosed properties.

• Accommodation Mortgage — A mortgage executed by a third person who does not receive the loan proceeds to secure the principal obligation of another. It is valid under Article 2085 of the Civil Code. The liability of an accommodation mortgagor is merely subsidiary and extends only up to the loan value of the mortgaged property, not to the entire principal debt.
• Statutory Construction Against Absurdity — Where a word used in a statute has both a restricted and a general meaning, the general must prevail over the restricted unless it leads to absurd consequences. The term "mortgagor" in Section 25 of P.D. No. 694 must be restricted to debtor-mortgagors to avoid the absurd and unjust result of forcing accommodation mortgagors to pay the entire debt of the principal borrowers.
• Indivisibility of Mortgage — The principle that a pledge or mortgage is indivisible even though the debt may be divided among successors in interest does not apply to a third-party accommodation mortgagor who did not participate in the constitution of the principal obligation. The accommodation mortgagor's liability is limited to their specific property.

• "It is well settled that courts are not to give a statute a meaning that would lead to absurdities. If the words of a statute are susceptible of more than one meaning, the absurdity of the result of one construction is a strong argument against its adoption, and in favor of such sensible interpretation."
• "The liability of the accommodation mortgagors extends only up to the loan value of their mortgaged property and not to the entire loan itself. Hence, it is only just that they be allowed to redeem their mortgaged property by paying only the winning bid price thereof (plus interest thereon) at the public auction sale."

• China Banking Corporation v. Court of Appeals, 265 SCRA 327 (1996) — Followed. Held that where parties stipulate Act No. 3135 as the controlling law in case of foreclosure, the manner of sale and redemption must be governed by said Act, respecting the principle that contracts are the law between the parties.
• Philippine National Bank v. Agudelo, 58 Phil. 655 (1933) — Followed. Established that the indivisibility of a mortgage does not extend to a third person who did not take part in the constitution of the principal obligation, limiting their liability to the specific property acknowledged.
• Sy v. Court of Appeals, 172 SCRA 125 (1989) — Distinguished. While Sy ruled that the redemption price equals the total amount of indebtedness under the General Banking Act, that case involved debtor-mortgagors or their assignees, not accommodation mortgagors.

• Article 2085, Civil Code — Provides that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. Applied to uphold the validity of the accommodation mortgage executed by Eduarda Belo.
• Article 2089, Civil Code — States that a pledge or mortgage is indivisible. Ruled inapplicable to an accommodation mortgagor who is a stranger to the principal obligation.
• Section 25, Presidential Decree No. 694 — PNB Revised Charter provision requiring the mortgagor to redeem the property by paying all claims of the bank against him. Interpreted to apply only to debtor-mortgagors, excluding accommodation mortgagors.
• Section 78, General Banking Act (Republic Act No. 337, as amended) — Requires the mortgagor to redeem by paying the amount due under the mortgage deed with interest. Ruled inapplicable to accommodation mortgagors.
• Section 6, Act No. 3135 — Governs extrajudicial foreclosure and allows redemption by paying the purchase price of the winning bidder. Applied to determine the proper redemption price for the accommodation mortgagor, consistent with the mortgage contract's stipulation.

Bellosillo, Mendoza, Quisumbing, and Buena.