Planters Bank v. Lubiya Agro
REITERATIONFacts
The Antecedents: Planters Development Bank (Planters Bank) granted two loans to Lubiya Agro Industrial Corporation (Lubiya) amounting to P6,500,000.00 and P5,000,000.00, secured by real estate mortgages over two parcels of land. Lubiya defaulted on its loan obligations. Planters Bank sent a demand letter dated June 8, 1998, and subsequently extrajudicially foreclosed the mortgaged properties on October 6, 1998, with Planters Bank emerging as the sole and highest bidder. A Certificate of Sale was issued, and after the redemption period expired, ownership was consolidated in Planters Bank's name. Procedural History: Lubiya filed a complaint for the nullification of the loan agreement, foreclosure proceedings, and damages, alleging that Planters Bank failed to furnish it with notices regarding the foreclosure and sale despite an obligation in their mortgage contract. Planters Bank admitted that the loan agreements were contracts of adhesion and that Lubiya was not notified of the extrajudicial foreclosure proceedings. The Regional Trial Court (RTC) dismissed Lubiya's complaint. The Court of Appeals (CA) partially granted Lubiya's appeal, declaring the loan agreements valid but nullifying the extrajudicial foreclosure proceedings, the certificate of sale, and the consolidation of title in favor of Planters Bank. The Petition: Planters Bank filed a Petition for Review on Certiorari, arguing that the CA erred in nullifying the foreclosure sale and in its interpretation of Paragraph 12 of the mortgage contracts, asserting that the demand letter constituted sufficient compliance.
Issue(s)
Whether the lack of personal notice of the extrajudicial foreclosure proceedings upon the mortgagor renders the same null and void. Whether the demand letter dated June 8, 1998, constituted sufficient compliance with the notice requirement stipulated in the mortgage contract.
Ruling
The petition is denied. The Decision of the Court of Appeals, which declared the extrajudicial foreclosure proceedings null and void, is affirmed.
Ratio Decidendi
On the issue of whether the lack of personal notice of the extrajudicial foreclosure proceedings upon the mortgagor renders the same null and void: The Court reiterated that while Act No. 3135, governing extrajudicial foreclosure, generally does not require personal notice to the mortgagor, it only mandates the posting and publication of the notice of sale. However, parties to a mortgage contract are not precluded from imposing additional stipulations, such as the requirement of personal notification. In this case, Paragraph 12 of the real estate mortgage contracts explicitly stated that "All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notification of any judicial or extra-judicial action, shall be sent to the Mortgagor at the above given address or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee." The failure to abide by this contractual stipulation renders the foreclosure proceedings null and void. The Court emphasized that the purpose of such stipulations is to apprise the mortgagor of any action the mortgagee might take on the mortgaged properties, affording the mortgagor an opportunity to safeguard their rights. Planters Bank's failure to send the notice of foreclosure sale to Lubiya constituted a contractual breach sufficient to invalidate the foreclosure sale. The Court further noted that since the loan agreements and mortgage contracts were standard contracts of adhesion prepared by Planters Bank, the inclusion of the personal notice requirement indicated an intent to require it in addition to statutory requirements. On the issue of whether the demand letter dated June 8, 1998, constituted sufficient compliance with the notice requirement stipulated in the mortgage contract: The Court found that Planters Bank's argument that the demand letter satisfied the notice requirement was unpersuasive. Paragraph 12 of the mortgage contract obligated Planters Bank to notify Lubiya of "any judicial or extra-judicial action." While the demand letter informed Lubiya of the intention to institute legal action, it did not constitute notice of the actual extrajudicial foreclosure sale itself. The Court reiterated its pronouncements in previous cases, such as Metropolitan Bank v. Wong, that a bank's violation of a stipulation requiring personal notice of foreclosure is sufficient to invalidate the sale. The Court stressed that a contract is the law between the parties and must be enforced as written, absent any contravention of law, morals, good customs, public order, or public policy. Therefore, Planters Bank's failure to provide personal notice of the foreclosure sale, as contractually agreed upon, was a breach that rendered the sale null and void.
Main Doctrine
Failure to provide personal notice of extrajudicial foreclosure proceedings to the mortgagor, when expressly stipulated in the mortgage contract, renders the foreclosure sale null and void, notwithstanding the provisions of Act No. 3135.