Cruz v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioners purchased a parcel of land from spouses Oscar and Eva De los Reyes, which was mortgaged to the Government Service Insurance System (GSIS). The mortgage contract stipulated that the mortgagor shall not sell, dispose of, mortgage, or encumber the property without the prior consent of the GSIS. Petitioners assumed the mortgage obligation of P20,000.00. Petitioners attempted to secure the GSIS's approval by submitting a deed of sale with assumption of mortgage and a letter request, but their request could not be acted upon due to missing records. Petitioners failed to make payments on the mortgage amortizations. Procedural History: The GSIS foreclosed the property extrajudicially due to unpaid amortizations. After the redemption period expired, the GSIS consolidated ownership and a new title was issued in its favor. The GSIS offered petitioners the opportunity to repurchase the property, which petitioners rejected, insisting on liquidating the mortgage indebtedness. Petitioners filed a complaint for annulment of foreclosure, reconveyance, and damages. The Regional Trial Court (RTC) dismissed the complaint. The Court of Appeals (CA) affirmed the RTC's decision. The Petition: Petitioners filed a petition for review on certiorari, raising the issue of whether the CA committed errors of law in affirming the dismissal of their complaint.
Issue(s)
Whether the deed of sale with assumption of mortgage is enforceable against the GSIS without its prior consent. Whether the extrajudicial foreclosure proceeding is invalidated by the lack of prior notice to the petitioners. Whether there is a legal requirement for special notice to alleged successors-in-interest in extrajudicial foreclosure sales. Whether petitioners established a cause of action against the GSIS. Whether petitioners are entitled to redeem the property by liquidating the mortgage indebtedness on the basis of equity.
Ruling
The petition is devoid of merit and is DISMISSED.
Ratio Decidendi
On Whether the deed of sale with assumption of mortgage is enforceable against the GSIS without its prior consent: The Court held that petitioners purchased the property subject to the mortgage without the prior consent of the GSIS, a condition explicitly stated in the mortgage contract. By entering into such a transaction, petitioners assumed a calculated risk. Consequently, the deed of sale with assumption of mortgage was not enforceable against the GSIS because the required prior consent was not obtained. The burden was on the petitioners to prove their allegations, which they failed to discharge. On Whether the extrajudicial foreclosure proceeding is invalidated by the lack of prior notice to the petitioners: The Court found this contention untenable. Since there was no privity of contract between the petitioners and the GSIS, the GSIS had no legal duty to notify the petitioners of the foreclosure proceeding. Furthermore, the prior publication of the extrajudicial foreclosure sale in a newspaper of general circulation served as constructive notice to the whole world, including the petitioners. On Whether there is a legal requirement for special notice to alleged successors-in-interest in extrajudicial foreclosure sales: The Court stated that Section 3 of Act No. 3135, governing extrajudicial foreclosure sales, requires notice by posting and publication but does not mandate any particular notice to the mortgagors, much less to their alleged successors-in-interest like the petitioners. Therefore, the foreclosure proceeding was not invalidated by the absence of special notice to the petitioners. On Whether petitioners established a cause of action against the GSIS: The Court affirmed the RTC's observation that petitioners had not established a cause of action against the GSIS because the prior written approval of the deed of sale with assumption of mortgage had not been secured. Although petitioners attempted to secure approval, it was never granted. Moreover, petitioners failed to take positive steps to pay the mortgage obligation, knowing that it was to be paid in monthly amortizations, thus contributing to the foreclosure. On Whether petitioners are entitled to redeem the property by liquidating the mortgage indebtedness on the basis of equity: The Court found no cogent basis to grant the petitioners' appeal on the ground of equity. Petitioners took the risk of entering into the transaction without the GSIS's prior consent and failed to pay the amortizations to prevent foreclosure. The Court suggested that the petitioners' recourse, if any, should be against the original mortgagors, the De los Reyes spouses, and not against the GSIS.
Main Doctrine
A deed of sale with assumption of mortgage executed without the prior written consent of the mortgagee, as required by the mortgage contract, is not enforceable against the mortgagee. The mortgagor's successors-in-interest, who purchased the property under such a deed, cannot compel the mortgagee to recognize their assumption of the mortgage obligation, especially when they failed to secure the required consent and to pay the mortgage amortizations, leading to a valid extrajudicial foreclosure sale.