Surety Bonds, Deficiency Claims, and the Burden of Proof in Collection Suits

The Supreme Court recently addressed a recurring question in collection suits: what makes a demand for payment legally effective, and what must a creditor prove to recover a deficiency after foreclosing on mortgaged property? In Asset Pool A (SPV-AMC) Inc. v. MEVCO Holdings Company, Inc. (G.R. No. 280513, April 7, 2026), the Court denied a creditor's petition and affirmed the dismissal of its collection complaint for lack of evidence. The ruling offers practical guidance on demand letters, statements of account, and the burden of proof in deficiency claims.

The Facts of the Case

MEVCO Holdings Company, Inc. obtained a PHP 3.6 million loan from Far East Bank and Trust Company, which later merged with the Bank of the Philippine Islands (BPI). Mel Velarde, Jr., MEVCO's president, executed a continuing suretyship agreement, binding himself jointly and severally liable for the loan. The loan was secured by real estate mortgages over two parcels of land.

When MEVCO defaulted, the properties were extrajudicially foreclosed and sold at public auction for PHP 2,314,080.00 and PHP 2,833,600.00. After applying the proceeds, BPI claimed a deficiency balance of PHP 1,806,912.44 remained unpaid. BPI filed a collection suit, and the account was later assigned to Asset Pool A (SPV-AMC) Inc.

The Procedural History

The Regional Trial Court dismissed the complaint as premature, ruling that BPI failed to prove it made a valid demand before filing suit. The Court of Appeals affirmed the dismissal, but on a different ground: it found that Asset Pool failed to present sufficient evidence establishing its entitlement to the deficiency amount. The statement of account submitted by Asset Pool merely listed figures without explaining how they were computed.

The Supreme Court's Ruling

The Supreme Court denied Asset Pool's petition, affirming the CA's dismissal. The Court rejected Asset Pool's argument that the CA erred by ruling on an issue—the amount of deficiency—that was not raised in MEVCO's answer.

The Court explained that the amount of the deficiency is the very core of the demand. MEVCO had claimed the demand was premature because the final amount was still being determined, so the issue of how the amount was computed was necessarily before the court. The Court cited Canlas v. Tubil and Del Rosario v. Bonga for the rule that while defenses not pleaded may not generally be raised for the first time on appeal, exceptions exist when the factual bases would not require further evidence from the adverse party.

The Requirement of a Valid Demand

The Court anchored its ruling on Article 1169 of the Civil Code, which states that obligors incur delay from the time the obligee judicially or extrajudicially demands fulfillment of the obligation. For a demand to be valid in a collection suit, it must:

• Specifically state the amount being collected
• Provide details on how that amount was arrived at

A vaguely stated amount cannot constitute a valid demand. The statement of account presented by Asset Pool, which listed amounts without supporting computations, was deemed an unsubstantiated assertion. The Court noted that a self-serving document favorable to the creditor's interest carries no evidentiary weight.

Practical Takeaways

• A demand must be specific. A demand letter that merely states a total figure, without showing how that figure was computed, may be invalid. Creditors should attach a detailed computation showing principal, interest, penalties, and the application of foreclosure proceeds.
• Statements of account are not self-proving. A creditor cannot simply submit a statement of account and expect the court to accept it. Supporting documents—loan agreements, payment records, foreclosure sale certificates, and computation sheets—are necessary.
• Deficiency claims require meticulous documentation. After foreclosure, creditors must be prepared to show exactly how the deficiency was calculated, including the amounts bid at auction and how those proceeds were applied to the debt.
• Issues may be considered on appeal when closely tied to pleaded defenses. The Court may entertain an issue raised for the first time on appeal if it is intertwined with a defense already pleaded and would not require additional evidence.
• Assignment does not cure evidentiary defects. An assignee like Asset Pool acquires no greater rights than its assignor and must still prove the claim with competent evidence.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.