Under this circumstances, it would be inquitable to still grant the [BPI Family's] prayer for deficiency as it will be in effect allowing it to unjustly enrich itself at the expense of the [spouses Avenido).14

Hence, the RTC decreed:

Accordingly, the [BPI Family's] complaint and [spouses Avenido's] counterclaim are DISMISSED.15

Aggrieved by the RTC BPI Family filed an appeal before the Court of Appeals judgment, docketed as CA-G.R. CV No. 79008, with a lone assignment of error, to wit:

THE LOWER COURT ERRED IN NOT HOLDING [THE SPOUSES AVENIDO] LIABLE TO [BPI FAMILY] FOR DEFICIENCY OF THE MORTGAGE OBLIGATION.16

In its Decision promulgated on March 31, 2006, the Court of Appeals ruled:

A careful scrutiny of the arguments presented in the case at bar yield no substantial and convincing reason for us to depart from the ruling found by the trial court ***.

Indubitably, mortgagors whose properties a foreclosed and are purchased by the mortgagee as highest bidder at the auction sale are decidedly at a great disadvantage because almost invariably, mortgagors forefeit their properties at a great loss as they are purchased at a nominal cost by the mortgagee himself who or ordinarily bids in no more than his credit or the balance thereof at the auction sale.

More importantly, the mortgage contract is also one of adhesion as it was prepared solely by [BPI Family] and the only, participation of the [spouses Avendio] was the affixing of their signatures or adhesion thereto. Under such contracts, which are common in the Philippines and elsewhere, the lending institutions are free to require borrowers to provide assets, like real property, of much higher value than the desired loan amount, as collateral. Being a contract of adhesion, the mortgage is to be strictly construed against [BPI Family], the party which prepared the agreement.

In the case at bar, the intent of [BPI Family] is manifest that the [spouses Avenido] shall assume liability not only for the entire obligation mentioned in the mortgage but beyond, which is improper, as it will defeat the purpose of the foreclosure proceedings, which is to answer or satisfy the principal obligation in case of default or non payment thereof.

14 Id. at 77-78.

15 Id. at 78.

16 Id. at 81.

Moreover, for all intents and purposes, we hold that [spouses Avenido] shall not be liable to pay for the deficiency of their mortgage obligation because it will be at their great disadvantage considering that their property was purchased at a nominal cost by [BPI Family] at the auction sale. As a matter [of] fact, there, was an admission made by [BPI] Family's] witness that the amount of the bid was only 80% of the actual price of the property. This is unfair on the part of the [spouses Avenido].

Besides, if mortgagees were allowed such right, the debtors would be at the mercy of their creditors considering the summary nature of extrajudicial foreclosure proceedings. It is also worthy to note the limited readership of auction sale notices which lead to the sale.

Accordingly, We upheld the ruling of the court a quo in absolving the [spouses Avenido] from any liability corresponding to the amount of deficiency of mortgage obligation as it will effect be allowing [BPI Family] to unjustly enrich itself at the expense of the [spouses Avenido].17

The dispositive of the Court of Appeals judgment reads:

WHEREFORE, premises considered, the assailed Decision dated November 13, 2002 of the Regional Trial Court, Cebu City, 7th Judicial Region, Branch 58, in Civil Case No. CEB-25629, is hereby AFFIRMED. No pronouncement as to costs.18

In its Resolution dated November 16, 2006, the Court of Appeals denied the Motion for Reconsideration of BPI Family since the arguments set forth therein were but a rehash, repetition and/or reinstatement of the arguments/matters already passed upon and extensively discussed by the appellate court in its earlier decision.

Hence, the present Petition for Review of BPI Family with the following assignment of errors:

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RENDERING ITS DECISION (ANNEX “A”) AND RESOLUTION (ANNEX “B”)

17 Id. at 32-33. 18 Id. at 34.

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT BASED ITS FINDING THAT THERE IS NO MORE DEFICIENCY OF MORTGAGE OBLIGATION COMPARING THE

of interests, penalties, and charges, by March 8, 1999. The controversy herein now only revolves around the value to be attributed to the foreclosed property, which would be applied against the outstanding loan obligation of the spouses Avenido to BPI Family insists that it should be P2,142,616.00, its winning bid price for the foreclosed property at the public auction sale, which, being less than the outstanding loan obligation of the spouses Avenido, will still leave a deficiency collectible by BPI Family from the spouses Avenido in the amount of P455,836.80. The spouses Avenido maintain that, as the RTC and the Court of Appeals ruled, it should be

PROPERTY AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS-RESPONDENTS INSTEAD OF COMPARING THE ACTUAL BID PRICE AT THE AUCTION SALE AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS[SPOUSES AVENIDO].19

The primary issue posed before us is whether or not BPI Family is still entitled to collect the deficiency mortgage obligation from the spouses Avenido in the amount of P455,836.80, plus interest.

We answer in the affirmative.

It is settled that if "the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not discuss the mortgagee's right to recover the deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would expressly so provide. Absent such a provisions in Act No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose the real estate mortgage.'20

It is no longer challenged before us that the outstanding loan obligation of the spouses Avenido amounted to P2,598,452.80, inclusive

19 Id. at 15-16.

20 Cuñada v. Drilon, 476 Phil. 725, 734 (2004).

foreclosed property, which, being more than the outstanding loan obligation of the spouses Avendio, will already fully settle their indebtedness.

The spouses Avenido, the RTC, and the Court of Appeals may not have said it outright, but they actually consider the winning bid of BPI Family for the foreclosed property at the public auction sale to be insufficient. They took exception to the fact that the winning bid of BPI Family was equivalent to "only" 80% of the appraised value of the mortgaged property. The RTC and the Court of Appeals even went as far as to refer to the amount of the winning bid of BPI Family as "nominal" and "unfair" and would “unjustly enrich❞ the bank at the expense of the spouses Avenido. So the RTC and the Court of Appeals disregarded the winning bid of BPI Family and applied instead the fair market value of the foreclosed property against the outstanding loan obligation of the spouses Avenido.

According to Section 4 of Act No. 3135, an extrajudicial foreclosure sale of a mortgaged real property shall be conducted as follows:

SEC. 4. Public Auction.-The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon, and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos for each day of actual work performed, in addition to his expenses.

Notably, the aforequoted provision does not mention any minimum bid at the public

auction sale. There is no legal basis for requiring that the bid should at least be equal to the market value of the foreclosed property or the outstanding obligation of the mortgage debtor.

We have consistently held in previous cases that unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify the sale. In fact, in a forced sale, a low price is more beneficial to the mortgage debtor for its makes redemption of the property easier.

Section 6 of Act No. 3135 provides for

deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale as a result of the custody of said property less the income received from the property. However, the purchaser at the auction sale concerned in a judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale by the court and administer the same in accordance with law. (Emphasis ours.)

If the foreclosed property is registered, the mortgagor has one year within which to redeem the property from and after

Sec. 6. Redemption.-In all cases in which an extrajudicial sale is made under the special power herein before referred to, the debtor, his successorin-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. (Emphasis ours.)

Republic Act No. 337, the General Banking Act, as amended, in force at the time of the herein transactions, had a specific provisions on the redemption of property extrajudicially foreclosed by banks, which reads:

Sec. 78. Loans against real estate security shall not exceed seventy percent (70%) of the appraised value of the respective real estate security, plus seventy percent (70%) of the appraised value of the insured improvements, and such loans shall not be made unless title to the real estate shall be in the mortgagor. In the event of foreclosure, whether judicially or extrajudicially of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in order of execution, or the amount due under the mortgage

Deeds.21

We explained in Prudential Bank v. Martinez22 that:

[T]he fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. when there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. Generally, in forced sales, low prices are usually offered and the mere inadequacy of the price obtained at the sheriff's sale unless shocking to the conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a better price can be obtained.23 (Citations omitted.)

We elucidated further in New Sampaguita Builders Construction Inc. v. Philippine National Bank24 that:

In the accessory contract of real mortgage, in which immovable property or real rights thereto are used as security for the fulfillment of the principal loan obligation, the bid price may be lower than the property's fair market value. In fact, the loan value itself is only 70 percent of the appraised value. As correctly emphasized by the appellate court, a low bid price will make it easier for the owner to effect redemption by subsequently reacquiring the property or by the selling the right to redeem and thus recover alleged losses.*** 25

21 Union Bank of the Philippines v. Court of Appeals, 370 Phil. 837, 847 (1999).

22 G.R. No. 51768, September 14, 1990, 189 SCRA 612.

23 Id. at 617.

24 479 Phil. 483 (2004). 25 Id. at 514-515.

In Hulst v. PR Builders, Inc., 26 we reiterated that:

[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy or price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may reacquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. Thus, respondents stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption.***27

In line with the foregoing jurisprudence, we refuse to consider the question of sufficiency of the winning bid price of BPI Family for the foreclosed property; and affirm the application of said winning bid in the amount of P2,142.616.00 against the total outstanding loan obligation of the spouses Avenido by March 8, 1999 in the sum of P2,598,452.80, thus, leaving a deficiency of P455,836.80. BPI Family may still collect the said deficiency without violating the principle of unjust enrichment, as opined by the Court of Appeals.

"There is unjust enrichment 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 conscience. Article 22 of the Civil Code provides that every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another's expense or damage."28 There is no unjust

26 G.R. No. 156364, September 3, 2007, 532 SCRA 74.

27 Id. at 103-104.

28 Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, G.R. No. 138088, January 23, 2006, 479 SCRA 404, 412.

enrichment to speak of in this case. There is strong legal basis for the claim of BPI Family against the spouses Avenido for the deficiency of their loan obligation.

BPI Family made an extrajudicial demand upon the spouses Avenido for the deficiency mortgage obligation in a letter dated July 8, 2000 and received by the spouses Avenido on July 17, 2000. Consequently, we impose the legal interest of 12% per annum on the a deficiency mortgage obligation amounting to P455,836.80 from July 17, 2000 until the finality of this Decision. Thereafter, if the amount adjudged remains unpaid, it will be subject to interest at the rate of 12 per annum computed from the time the judgment became final and executory until fully satisfied.

WHEREFORE, the Petition is hereby GRANTED. The assailed Decision dated March 31, 2006 and Resolution dated November 16, 2006 of the Court of Appeals in CA-G.R. CV No. 79008, affirming the Decision dated November 13, 2002 of the Regional Trial Court, Branch 58 of Cebu City, in Civil Case No. CEB-25629, is REVERSED and SET ASIDE. Respondent spouses Ma. Arlyn T. Avenido and Pacifico A. Avenido are ORDERED to pay petitioner BPI Family Savings Bank, Inc, the deficiency of their mortgage obligation in the amount of P455,836.80, plus legal interest of 12% per annum from July 17, 2000 until the finality of this Decision. Thereafter, the amount adjudged shall be subject to legal interest of 12% per annum from the finality of this Decision up to its satisfaction. No costs.

SO ORDERED.

Corona, CJ., Bersamin, del Castillo, and Villarama, Jr., JJ.: concur.

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

(Sgd.) RENATO C. CORONA Chief Justice

[SP No. 111292. January 19, 2011] MARCELO RUBBER & LATEX PRODUCTS, INC., EDWARD T. MARCELO and DANILO IBAY, petitioners, VS. NATIONAL LABOR RELATIONS COMMISSION, ROSEMARIE BALUYOT, LIZA BALUYOT and EVELYN M. DE LUNA, respondents.

1. LABOR

TERMINATION

OF

LAW; EMPLOYMENT; ILLEGAL DISMISSAL; IN AN UNLAWFUL DISMISSAL CASE, THE EMPLOYER HAS THE BURDEN OF PROVING THE LAWFUL CAUSE SUSTAINING THE DISMISSAL OF THE EMPLOYEE.-For this Court, it is immaterial that the evidence of the petitioners against the private respondents were undisputed. A dismissed employee is not required to prove his innocence of the charges leveled against him by his employer. In an unlawful dismissal case, the employer has the burden of proving the lawful cause sustaining the dismissal of the employee. The employer must affirmatively show rationally adequate evidence that the dismissal was for a justifiable cause. Failure to do so would necessarily mean that the dismissal is not justified.

2. ID.; ID.; ID.; DUE PROCESS; TWO-NOTICE RULE; SERVICE OF TWO WRITTEN NOTICES MANDATORY BEFORE TERMINATION OF EMPLOYMENT CAN BE LEGALLY EFFECTED; FAILURE TO COMPLY WITH THE TWO-NOTICE RULE TAINTS THE DISMISSAL WITH ILLEGALITY.-The law further requires that the employer must furnish the worker sought to be dismissed with two written notices before termination of employment can be legally effected; (1) notice which apprises the employee of the particular acts or omissions for which his dismissal is sought; and (2) the subsequent notice which informs the employee of the employer's decision to dismiss him. Failure to comply with the requirements taints the dismissal with illegality.

3. ID.; ID.; ID.; CORPORATIONS; BAD FAITH DOES NOT AUTOMATICALLY ARISE JUST BECAUSE A CORPORATION FAILS

ΤΟ

COMPLY WITH THE NOTICE REQUIREMENT OF LABOR LAWS ON COMPANY CLOSURE OR DISMISSAL OF EMPLOYEES.-Neither does bad faith arise automatically just because a corporation fails to comply with the notice requirement of labor laws on company closure or dismissal of employees. The failure to give notice is not an unlawful act because the law does not define such failure as unlawful. Such failure to give notice is a violation of procedural due process but does not amount to an unlawful or criminal act. Such procedural defect is called illegal dismissal because it fails to comply with mandatory procedural requirements, but it is not illegal in the sense that it constitutes an unlawful or criminal act.

4. ID.; ID.; ID,; ID,; MERE FAILURE TO COMPLY WITH THE NOTICE REQUIREMENT OF LABOR LAWS ON COMPANY CLOSURE OR DISMISSAL OF EMPLOYEES DOES NOT AMOUNT ΤΟ A PATENTLY UNLAWFUL ACT.-For a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing approved or assented to by the director must be a patently unlawful act. Mere failure to comply with the notice requirement of labor laws on company closure or dismissal of employees does not amount to a patently unlawful act. Patently unlawful acts are those declared unlawful by law which imposes penalties for commission of such unlawful acts. There must be a law declaring the act unlawful and penalizing the act.