Cortes v. Intermediate Appellate Court
REITERATIONFacts
The Antecedents: Petitioners Guillermo and Florencia Cortes obtained a loan from respondent Development Bank of the Philippines (DBP) in the sum of P1,700.00, secured by a mortgage over a parcel of land. Petitioners failed to pay the installments due after June 23, 1959, and after demand letters were sent, DBP applied for the foreclosure of the mortgage. The property was sold at an extrajudicial auction sale on April 6, 1966, to Mr. Arsenio Reyes as the highest bidder. Petitioners alleged that in 1968, after the auction sale had become final and a new title was issued in Reyes' name, they constructed a new house on the property without knowledge of the sale. They filed a complaint for declaration of nullity of the extrajudicial foreclosure sale, reconveyance, etc., with damages, upon learning of the sale when they received a Writ of Possession. Procedural History: The trial court dismissed petitioners' complaint. The Intermediate Appellate Court (IAC) affirmed the trial court's decision. Petitioners appealed to the Supreme Court. The Petition: Petitioners argued that the extrajudicial foreclosure was invalid due to lack of personal notice, that they should have been allowed to redeem the property, that they are owners of the new house constructed, and that they should be considered builders in good faith.
Issue(s)
Whether the extrajudicial foreclosure sale is invalid and irregular due to the absence of personal notice to the petitioners. Whether petitioners should have been allowed to redeem their property even after the consolidation of title in the purchaser's name, in view of the alleged absence of personal notice. Whether petitioners must be considered the owners of the new residential house erected on the property after the foreclosure sale. Whether petitioners, in case the foreclosure is invalid, must be considered builders in good faith and entitled to the benefits under Article 448 of the Civil Code.
Ruling
The Supreme Court denied the petition and affirmed the ruling of the respondent Intermediate Appellate Court. The extrajudicial foreclosure sale was held valid, and petitioners' claims were dismissed.
Ratio Decidendi
On the validity of the extrajudicial foreclosure sale and the requirement of personal notice: The Court held that personal notice to the mortgagor is not necessary for the validity of an extrajudicial foreclosure sale under Act No. 3135, as amended. Section 3 of the Act only requires posting notices in public places and, if the property is worth more than P400.00, publication once a week for at least three consecutive weeks in a newspaper of general circulation. The Court found that these requirements were met. While the Deed of Mortgage contained a stipulation for sending correspondence to the mortgagor's address, it did not specifically require personal notice of foreclosure sale. The Court emphasized that a particular intent (governance by Act 3135) controls a general one (sending correspondence), and Act 3135 does not mandate personal notice. The findings of the lower courts that notices were duly posted and published were given great weight, estopping petitioners from denying knowledge of the sale. On the right to redeem after consolidation of title: The Court ruled that petitioners were not entitled to redeem the property after the consolidation of title. This was based on the finding that there was proper notice to petitioners in compliance with Act 3135, distinguishing the case from Perez v. PNB where the mortgagor had died, necessitating personal notice to heirs for reasons of justice and equity. In the present case, the mortgagors were alive and aware of their default, making the foreclosure sale dependent on their actions. The Court also noted that the IAC's findings of fact, which were conclusive upon the Supreme Court, did not support the claim of lack of notice. On the ownership of the new residential house: The Court denied petitioners' plea to be considered owners of the new house. The IAC found no evidence that petitioners constructed a new house in 1968 other than their own self-serving testimony. They did not declare the house for taxation, pay taxes thereon, nor inform DBP or secure its consent for construction, which violated paragraph 9 of the Mortgage Contract requiring prior written consent for alterations or demolition of mortgaged buildings. On the applicability of Article 448 of the Civil Code: The Court stated that even assuming petitioners acted in good faith, the option under Article 448 of the Civil Code, with respect to useful improvements, is given to the owner of the land (the private respondent), not to the petitioners. The private respondent had not yet exercised any option regarding the alleged improvements.
Main Doctrine
Personal notice to the mortgagor is not required for the validity of an extrajudicial foreclosure sale under Act No. 3135, as amended; compliance with the posting and publication requirements of the law is sufficient. Inadequacy of the auction sale price, where there is a right to redeem, does not invalidate the sale unless it is shocking to the conscience and there is a showing that a better price could be obtained.