Planters Development Bank v. Heirs of Delos Santos
CLARIFICATIONFacts
The Antecedents: On November 9, 1995, Spouses Nilo and Nenita Delos Santos executed a Real Estate Mortgage (REM) in favor of Planters Development Bank (PDB) over two properties in Davao City to secure a loan of PHP 1,000,000.00. On May 28, 1998, they executed a Promissory Note (PN) for the said amount. The Spouses failed to fully pay their loan obligation. Procedural History: PDB initiated extra-judicial foreclosure proceedings. On May 2, 2001, the properties were sold at a public auction where PDB was the highest bidder. On the same day, the Spouses filed a complaint in Davao City to nullify the mortgage and foreclosure, which was later dismissed for improper venue. PDB consolidated ownership over the properties. On October 25, 2012, the Heirs of Nilo Delos Santos re-filed the complaint for annulment of mortgage and foreclosure sale with the Regional Trial Court (RTC) of Makati City. The RTC dismissed the complaint, upholding the validity of the foreclosure. The Court of Appeals (CA) reversed the RTC, nullifying the foreclosure sale on the ground that PDB failed to make a demand before foreclosing, as required by the REM, despite the waiver of demand in the PN. The Petition: PDB filed a Petition for Review on Certiorari under Rule 45 before the Supreme Court. PDB argued that the CA erred in nullifying the foreclosure sale. It contended that the express waiver of demand in the Promissory Note should govern, making demand unnecessary for the Spouses to be in default. PDB asserted that the provision in the Real Estate Mortgage merely pertained to the address where correspondence should be sent, not a mandatory requirement for demand before default.
Issue(s)
Whether the Court of Appeals erred in nullifying the foreclosure sale on the ground that no demand was made by the petitioner. Whether the waiver of demand in the Promissory Note is distinct from the requirement of personal notice of foreclosure in the Real Estate Mortgage. Whether the petitioner complied with the contractual obligation to personally notify the mortgagors of the extrajudicial foreclosure. Whether the respondents' action to annul the foreclosure sale had already prescribed.
Ruling
The Petition for Review on Certiorari is GRANTED. The Decision dated July 26, 2019, and the Resolution dated June 11, 2020, of the Court of Appeals in CA-G.R. CV No. 109253 are REVERSED and SET ASIDE. The Decision dated April 17, 2017 of Branch 66, Regional Trial Court, Makati City in Civil Case No. 12-1049 is REINSTATED.
Ratio Decidendi
On Issue 1: The Supreme Court ruled that the CA erred. The Promissory Note contained an express stipulation where the Spouses Delos Santos waived the requirement of demand to be deemed in default. Citing Article 1169 of the Civil Code and jurisprudence like Bank of the Philippine Islands v. Court of Appeals, the Court affirmed that an express stipulation is one of the exceptions to the general rule that demand is necessary for a debtor to incur delay. The PN explicitly stated that upon failure to pay any amortization, the entire obligation shall immediately become due and payable, and the Spouses expressly waived any requirement for demand. Thus, the moment they failed to pay, PDB could declare them in default without prior demand. On Issue 2: The Court clarified that the requirement of demand to be in default is distinct and separate from the requirement of personal notice in the event of mortgage foreclosure. Demand relates to the principal obligation (the loan under the PN), while personal notice relates to the accessory obligation or security (the mortgage under the REM). Citing Global Holiday Ownership Corp. v. Metropolitan Bank & Trust Co., the Court held that the waiver of demand in the PN cannot be confused with the personal notice requirement for foreclosure under the REM. On Issue 3: The Court found that PDB complied with its contractual obligation to personally notify the Spouses of the foreclosure. The records show that PDB furnished the Spouses a copy of the Petition for Extra-Judicial Foreclosure of Mortgage on January 16, 2001. Crucially, the Spouses themselves admitted in their Davao Complaint that they received copies of the petition and foreclosure notices on April 28, 2001, which was before the auction sale on May 2, 2001. This receipt of the petition served as the personal notification required by the REM, affording them the opportunity to protect their rights, thus satisfying due process. Paragraph 12 of the REM created a separate contractual duty for PDB to send notification of any judicial or extra-judicial action to the mortgagors. On Issue 4: The Court held that the action had not prescribed. An action to annul an improper foreclosure is based on a constructive trust under Article 1456 of the Civil Code, which prescribes in ten (10) years under Article 1144(2). The prescriptive period began to run on May 2, 2001, when the Spouses had actual knowledge of the foreclosure sale. However, pursuant to Article 1155 of the Civil Code, the filing of their first complaint in Davao on the same day interrupted the prescriptive period. This interruption wiped out the period that had elapsed and started it anew from the finality of the dismissal of the first case (January 7, 2003). The second complaint, filed on October 25, 2012, was therefore within the fresh ten-year prescriptive period.
Main Doctrine
A waiver of demand for a debtor to be considered in default, as stipulated in a promissory note, is distinct and separate from a contractual obligation in a real estate mortgage to provide the mortgagor with personal notice of an extrajudicial foreclosure. The waiver of demand pertains to the principal obligation (the loan) and allows the creditor to declare the entire obligation due and payable upon non-payment without prior demand. However, it does not extinguish a separate, contractually-agreed-upon requirement in the accessory mortgage contract to personally notify the mortgagor of the foreclosure proceeding itself, which is a matter of contractual due process.