Case Summary (G.R. No. 232004)
Provisions of the Promissory Note
Paragraph 19 empowered the bank to foreclose “without need of notice or demand” under Act No. 3135. Paragraph 60 stipulated that all correspondence, including demand letters and notifications of any judicial or extrajudicial actions, would be sent to the mortgagor’s specified address, and that nonreceipt would not excuse the mortgagor.
Extrajudicial Foreclosure and Auction
After Co defaulted, PSBank complied with Act No. 3135’s public notice requirements—posting the sale notice in three public places for 20 days and publishing it in a newspaper for three weeks—and held a public auction on September 14, 2006. PSBank was the sole and highest bidder, resulting in TCT No. 281141 issued in its favor.
Proceedings in the Regional Trial Court
On February 27, 2013, Co filed for annulment of the foreclosure, alleging lack of personal notice. At trial, she initially denied executing the note but later admitted default and expectation of a demand letter. PSBank presented evidence of loan execution, mailing of a demand letter, and compliance with Act No. 3135’s posting and publication.
Ruling of the Regional Trial Court
In its April 27, 2015 Decision, the RTC dismissed Co’s complaint, holding that Act No. 3135 requires only public notice unless the parties agree otherwise. Finding no agreement for personal notice, it upheld the foreclosure and awarded attorney’s fees to the bank.
Court of Appeals Decision
The Court of Appeals reversed on December 8, 2016, holding that Paragraph 60 constituted an undertaking to personally notify Co before foreclosure. Citing Global Holiday Ownership Corp. v. MBTC, it ruled PSBank’s failure to send personal notice rendered the foreclosure and related titles null and void, reinstating TCT No. 271203 in Co’s name and deleting the attorney’s fees award.
Standpoints before the Supreme Court
PSBank argued Paragraph 19’s waiver of notice governed, that Paragraph 60 did not impose a notice obligation, and that registered-mail notice sufficed. Co maintained that Paragraph 60 mandated personal notification of judicial and extrajudicial actions, and PSBank’s noncompliance violated both the Note and Act No. 3135.
Issue Presented
Whether PSBank’s failure to personally notify Co of the extrajudicial foreclosure invalidated the sale.
Supreme Court Ruling on Act No. 3135 and Due Process
The Court reaffirmed that Act No. 3135 requires only public notice but emphasized that due process under the 1987 Constitution and principles of fairness in banking may, by contract or regulation, demand personal notice to a mortgagor faced with loss of property.
Reconsideration of Extrajudicial Foreclosure Requirements
While prior decisions (e.g., Bonnevie) denied personal notice requirements, the Court recognized that extrajudicial foreclosure deprives owners of property without their knowledge, warranting a reexamination of procedural safeguards and
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Procedural History
- Petition for Review under Rule 45 seeks to reverse and set aside the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 105507.
- Regional Trial Court (RTC) Branch 28, Manila, the trial court, dismissed Josephine Co’s complaint for annulment of foreclosure for lack of personal notice.
- On appeal, the Court of Appeals granted Co’s appeal, voided the extrajudicial foreclosure and related titles for failure to provide personal notice.
- Philippine Savings Bank (PSBank) filed a petition for certiorari before the Supreme Court.
Facts
- On January 25, 2006, Josephine Co borrowed ₱10,000,000.00 from PSBank.
- The loan was secured by a real estate mortgage on a parcel of land in Manila (TCT No. 259982).
- The loan and mortgage were evidenced by a Promissory Note with Real Estate Mortgage.
- Co defaulted after paying two months of installments.
- PSBank sent a demand letter to the address stipulated in the Promissory Note and proceeded with extrajudicial foreclosure under Act No. 3135.
- PSBank was the sole bidder at the public auction; title was transferred and a new TCT No. 281141 was issued in favor of PSBank.
- On February 27, 2013, Co filed a complaint for annulment of foreclosure, alleging lack of prior personal notice.
Contractual Provisions
- Paragraph 19.6 of the Promissory Note grants PSBank power to foreclose “without need of notice or demand” pursuant to Act No. 3135.
- Paragraph 60 mandates that “all correspondents relative to this AGREEMENT, including demand letters, summons, subpoenas or notification of any judicial or extra-judicial actions” be sent to Co’s address as given in the note, and that mailing or personal delivery to such address constitutes valid notice.
Trial Court Ruling
- RTC Decision (April 27, 2015) dismissed Co’s complaint.
- Held that Act No. 3135 requires only posting and publication of sale notices, not personal notice to the mortgagor.
- Found no contractual agreement entitling Co to personal notice.
- Ordered Co to pay PSBank attorney’s fees.
Court of Appeals Ruling
- Court of Appeals (December 8, 2016) reversed the