G.R. No. L-22533 - Ramos vs. Pepsi-Cola Bottling Co. of the Philippines

Case Summary (G.R. No. L-22533)

Factual Background

The facts adopted by the courts show that spouses Jose M. Lozano and Josefa P. Lozano owned the subject property and executed a mortgage on December 6, 1966 to secure a loan of PHP 75,000 to be obtained from respondent Philippine Bank of Commerce; on December 8, 1966 they executed a Deed of Sale with Assumption of Mortgage in favor of Honesto Bonnevie for PHP 100,000, of which PHP 25,000 was payable to the Lozanos and PHP 75,000 to the Bank; the promissory note for the loan was signed on December 12, 1966; Honesto made payments to the Bank totaling PHP 18,944.22 between April 28, 1967 and July 12, 1968; Honesto assigned his rights under the deed to his brother Raoul on May 4, 1968; the Bank applied for extrajudicial foreclosure on June 10, 1968, published notices on June 30, July 7 and July 14, 1968, and conducted the auction sale on August 19, 1968 when the Bank bought the property for PHP 84,387.

Procedural History

Honesto filed suit on January 26, 1971 in the Court of First Instance of Rizal seeking annulment of the mortgage and of the extrajudicial foreclosure and alleging lack of consideration and absence of ownership by the mortgagor, among other grounds; Raoul intervened after Honesto rested to assert rights under an assignment; the trial court dismissed the complaint on March 29, 1976 and denied reconsideration; petitioners appealed to the Court of Appeals which affirmed on August 11, 1978 and denied reconsideration on October 3, 1978; petitioners then filed the present petition for review on certiorari.

Issues Presented

The Supreme Court identified the controlling issues as: (I) whether the mortgage executed by the Lozanos in favor of the Bank was validly and legally executed; (II) whether the extrajudicial foreclosure was validly and legally effected under Act No. 3135; (III) whether petitioners had a right to redeem the foreclosed property; and (IV) if a right to redeem existed, whether the Bank was justified in refusing petitioners’ offers to repurchase.

Petitioners’ Contentions

Petitioners contended that the mortgage lacked consideration because the loan proceeds had not been received at the time the mortgage was executed; that subsequent renewals of the loan after the sale and assumption by petitioners rendered the mortgage void; that they received no notice of the extrajudicial foreclosure and that publication and posting of notices did not comply with Act No. 3135; and that equity required the Bank to accept their offers to redeem since they made payments and acted in good faith.

Respondent’s Contentions

The Bank denied material allegations and asserted affirmative defenses that it had not given written consent to the sale or substitution, that notices and demands were addressed to Jose Lozano at his address, that it had no notice of the sale prior to foreclosure, that payments need not be made personally by the debtor in banking practice, and that the mortgage was supported by consideration as an incident of the consensual loan contract and by the promissory note and disbursement of proceeds.

Trial Court and Court of Appeals Findings

Both the trial court and the Court of Appeals found that the Lozanos validly mortgaged the property on December 6, 1966 to secure the loan, that the Deed of Sale with Assumption of Mortgage was executed on December 8, 1966 and later assigned, that the Bank applied for extrajudicial foreclosure and complied with publication and posting requirements, that the property was sold at auction to the Bank on August 19, 1968, and that petitioners failed to exercise any right of redemption within the legal period. The Court of Appeals specifically found the factual recitations concerning dates, payments, assignments, publication and posting to be supported by the record.

Court’s Analysis on Validity of the Mortgage

The Supreme Court held that the mortgage was valid. The Court reasoned that the mortgage deed recited that it was executed for and on condition of the loan and that a contract of loan is consensual; hence the mortgage was perfected when executed despite the formal receipt of proceeds occurring later. The Court treated the promissory note of December 12, 1966 as evidence of indebtedness and not as proof of absence of consideration at the time of the mortgage. The Court further observed that the Deed of Sale expressly prohibited disposition without the Bank’s written consent and provided that a vendee must assume the mortgage, but petitioners admitted they did not secure the Bank’s consent and did not record their rights, so the Bank was entitled to rely on the certificate of title remaining in the Lozanos’ names. The Court applied the doctrine that an innocent mortgagee for value may rely on the title and that a mortgage follows the property as security for the obligation for which it was constituted. The Court concluded that petitioners who voluntarily assumed the mortgage were estopped from attacking its validity.

Court’s Analysis on Foreclosure Notice and Publication

The Court held that the extrajudicial foreclosure complied with Act No. 3135. It observed that the Act requires posting in at least three public places for not less than twenty days and publication once a week for at least three consecutive weeks in a newspaper of general circulation. The Court found that notices were published on June 30, July 7 and July 14, 1968 and were posted in several conspicuous places in Pasig and in the locality of the property. Relying on its prior interpretation in Basa v. Mercado, the Court construed the publication requirement to mean three consecutive weekly insertions and not three full weeks of publication, and it treated the affidavit of publication of the Luzon Weekly Courier as prima facie evidence of compliance under Sadang v. GSIS. The Court rejected petitioners’ challenge that the Luzon Weekly Courier was not a newspaper of general circulation, noting the criteria set forth in Basa v. Mercado and Banta v. Pacheco. The Court also ruled that the question whether notices were posted for the full period was a question of fact not subject to review on certiorari and that the single act of posting satisfied the statutory requirement in the absence of proof that the notices were removed prematurely.

Court’s Analysis on Right to Redeem

The Court held that petitioners had no right to redeem. It explained that petitioners did not obtain the Bank’s consent to the sale with assumption of mortgage and that their interest was not recorded, so the Bank was obliged to recognize only the Lozanos’ right of redemption. Even if petitioners had acquired a right to redeem, the Court found that petitioners failed to exercise it within the one-year period which ran from registration of the certificate of sale on September 2, 1968 and expired on September 3, 1969. Honesto’s first written offer to redeem was dated September 29, 1969 and thus was late. The Court therefore denied petitioners’ claim to redemption.

Court’s Analysis on Alleged Bad Faith

The Court rejected the allegation that the Bank acted in bad faith. It exami

Case Syllabus (G.R. No. L-22533)

Parties and Posture

Raoul S.V. Bonnevie and Honesto V. Bonnevie were petitioners seeking review by certiorari of the decision of the Court of Appeals and the denial of the motion for reconsideration.
The Honorable Court of Appeals was the respondent court whose decision in CA-G.R. No. 61193-R was directly challenged.
The Philippine Bank of Commerce was the private respondent and mortgagee against whom the original complaint for annulment of mortgage and nullity of extrajudicial foreclosure was filed.
The petition for review followed the trial court judgment dismissing petitioners' complaint and the appellate court's affirmation and denial of reconsideration.

Key Facts

Spouses Jose M. Lozano and Josefa P. Lozano executed a Deed of Mortgage on December 6, 1966 to secure a P75,000 loan from the Philippine Bank of Commerce.
The Lozanos executed a Deed of Sale with Assumption of Mortgage to Honesto Bonnevie on December 8, 1966 for P100,000 with P25,000 payable to the Lozanos and P75,000 payable to the Bank.
The promissory note for P75,000 was signed on December 12, 1966 by the Lozanos and their co-maker Alfonso Lim.
Honesto Bonnevie made payments totaling P18,944.22 between April 28, 1967 and July 12, 1968.
Honesto Bonnevie assigned his rights under the Deed of Sale to Raoul Bonnevie on May 4, 1968.
The Philippine Bank of Commerce applied for extrajudicial foreclosure on June 10, 1968, published notices on June 30, July 7 and July 14, 1968, and conducted auction on August 19, 1968 resulting in a sale to the Bank for P84,387.00.
The certificate of sale was registered on September 2, 1968 and an adverse claim annotation was made on October 9, 1969.
Honesto Bonnevie tendered an offer to redeem on September 29, 1969, after the one-year statutory redemption period had expired.

Trial and Appeals

The Court of First Instance of Rizal dismissed petitioners' complaint on March 29, 1976.
The Court of Appeals affirmed the trial court decision in a decision promulgated August 11, 1978 and denied a motion for reconsideration on October 3, 1978.
Petitioners filed the present petition for review on certiorari before the Supreme Court.

Issues Presented

Whether the Deed of Mortgage executed by the Lozanos in favor of the Philippine Bank of Commerce was validly and legally executed.
Whether the extrajudicial foreclosure of the mortgage under Act No. 3135 was validly and legally effected.
Whether petitioners had a right to redeem the foreclosed property.
Whether the Philippine Bank of Commerce acted in bad faith in foreclosing or refusing petitioners' offers to repurchase.

Contentions of Petitioners

Petitioners contended that the mortgage lacked consideration because the loan proceeds were not yet delivered when the mortgage was executed.
Petitioners argued that subsequent renewals of the loan while the property was sold to them rendered the mortgage void.
Petitioners asserted lack of notice of foreclosure and inadequate publication and posting of the notice of auction sale.
Petitioners claimed that equitable considerations entitled them to redeem despite procedural defects and alleged bad faith by the Bank.

Statutory Framework

Act No. 3135, Sec. 3 required posting notices of sale for not less than twenty days in at least three public places and publication once a week for at least three consecutive weeks in a newspaper of general circulation where the property was situated.