Fiestan v. Court of Appeals
REITERATIONFacts
1. The Antecedents: Petitioners Dionisio Fiestan and Juanita Arconada mortgaged their property, Lot No. 2B, to the Development Bank of the Philippines (DBP) as security for a P22,400.00 loan. Due to their failure to pay the loan, DBP initiated an extrajudicial foreclosure sale of the property. DBP emerged as the highest bidder at the auction held on August 6, 1979. Subsequently, the petitioners executed a Deed of Sale in favor of DBP, and upon their failure to redeem the property within the one-year period, DBP's title was consolidated. DBP then sold the lot to Francisco Peria, who subsequently mortgaged it to the Philippine National Bank (PNB) to secure a P115,000.00 loan. The petitioners remained in possession of the property, leading to an order for them to vacate. 2. Procedural History: The petitioners filed a complaint against DBP, PNB, Francisco Peria, and the Register of Deeds of Ilocos Sur, seeking the annulment of the sale, mortgage, and cancellation of transfer certificates of title. The Regional Trial Court (RTC) of Vigan, Ilocos Sur, dismissed their complaint, upholding the validity of the extrajudicial foreclosure sale by DBP, the subsequent sale to Peria, and the mortgage to PNB. The Court of Appeals affirmed the RTC's decision. After their motion for reconsideration was denied, the petitioners filed the instant petition for review on certiorari with the Supreme Court. 3. The Petition: The petitioners seek reversal of the Court of Appeals' decision, primarily arguing that the extrajudicial foreclosure sale conducted by the Provincial Sheriff of Ilocos Sur was null and void because it was carried out without a prior levy on the property. They contend that without a valid levy, the certificate of sale to DBP, the subsequent sale to Peria, and the mortgage to PNB are all void. The petitioners also argue that DBP, as the mortgagee, was prohibited from purchasing the property at the foreclosure sale under Articles 1491 and 1409 of the Civil Code.
Issue(s)
Whether the extrajudicial foreclosure sale conducted under Act No. 3135, as amended, requires a levy on the property as an essential requisite for its validity. Whether a mortgagee-creditor is prohibited from purchasing the mortgaged property at an extrajudicial foreclosure sale.
Ruling
The petition is DENIED for lack of merit, and the decision of the Court of Appeals dated June 20, 1987, is AFFIRMED. No costs.
Ratio Decidendi
On the requirement of levy for extrajudicial foreclosure sales: The Court held that the formalities of a levy, as an essential requisite for a valid execution sale under Section 15 of Rule 39 and a valid attachment lien under Rule 57 of the Rules of Court, are not basic requirements before an extrajudicially foreclosed property can be sold at public auction. The Court emphasized the distinction between ordinary execution sales, judicial foreclosure sales, and extrajudicial foreclosure sales, each governed by different sets of laws. Specifically, extrajudicial foreclosure sales are governed by Act No. 3135, as amended, which is a special law and must prevail over the general provisions of Rule 39 of the Rules of Court concerning ordinary execution sales. The Court clarified that Act No. 3135, as amended, does not expressly require a levy before an extrajudicially foreclosed property can be sold at public auction. The essence of a mortgage is that the property is already set apart as security, and the mortgagor, by virtue of the special power in the mortgage contract, authorizes the mortgagee to sell the property under Act No. 3135, as amended. The Court found that the formalities prescribed under Sections 2, 3, and 4 of Act No. 3135, as amended, were substantially complied with in this case, including the posting and publication of notices of sale. On the prohibition of a mortgagee purchasing the mortgaged property: The Court ruled that the prohibition under paragraph (2) of Article 1491 in relation to Article 1409 of the Civil Code does not apply to extrajudicial foreclosure sales conducted under Act No. 3135, as amended. This is because Act No. 3135, as amended, is a special law that specifically allows the mortgagee-creditor to participate in the bidding and purchase the property under the same conditions as any other bidder, as provided in Section 5 of the Act. This provision creates an exception to the general rule that an agent cannot purchase property entrusted to them for administration or sale. The Court explained that the power to foreclose is not an ordinary agency but an authority conferred upon the mortgagee for their own protection, forming an essential part of the bilateral mortgage agreement. Therefore, the title of the mortgagee-creditor over the property cannot be impeached on the ground that the mortgagee cannot be a purchaser at their own sale.
Main Doctrine
The formalities of a levy, as an essential requisite of a valid execution sale under Section 15 of Rule 39 and a valid attachment lien under Rule 57 of the Rules of Court, are not basic requirements before an extrajudicially foreclosed property can be sold at public auction under Act No. 3135, as amended. Act No. 3135, as amended, being a special law governing extrajudicial foreclosure proceedings, must prevail over the provisions on ordinary execution sale under Rule 39 of the Rules of Court. Furthermore, a mortgagee-creditor is allowed to participate in the bidding and purchase the mortgaged property at the extrajudicial foreclosure sale under the same conditions as any other bidder, as provided in Section 5 of Act No. 3135, as amended.