Spouses Juan Chuy Tan v. China Banking Corporation

Summary

This case involves the collection of a deficiency amount after foreclosure of mortgaged properties securing multiple loans. Lorenze Realty Corporation, through its officers Spouses Tan, borrowed P71,050,000.00 from China Banking Corporation. After default, the mortgaged properties were foreclosed and sold for P85,000,000.00. China Bank sought to collect the remaining deficiency of P29,258,179.81, arguing that the sale proceeds should first be applied to interest and penalties before the principal. The Supreme Court upheld the deficiency claim, ruling that foreclosure sale does not automatically extinguish the entire obligation. The Court applied Civil Code provisions on payment application, holding that when a debtor fails to direct how payment should be applied, the creditor may choose the application method. The penalty rate was reduced from the stipulated 24% to 12% per annum as unconscionable, consistent with jurisprudence on excessive interest rates.