Case Summary (G.R. No. 198800)
Factual Background
Petitioner mortgaged two parcels of land in Marikina City covered by TCT Nos. N-10722 and N-23033 to respondent to secure a PHP 265,000 loan. The real estate mortgage contained paragraph N, which stipulated that all correspondence relative to the mortgage, including notifications of judicial or extrajudicial actions, shall be sent to the mortgagor at the address given and that sending correspondence by mail or personal delivery to that address shall constitute valid and effective notice notwithstanding nonreceipt or misdelivery.
Mortgage Provision at Issue
Paragraph N of the mortgage expressly required personal notice to the mortgagor at the address specified for any judicial or extrajudicial action, including demand letters and notifications of foreclosure. The provision further declared that the act of sending correspondence to that address would be valid notice even if the communication was not actually received.
Extrajudicial Foreclosure and Auction
Respondent initiated extrajudicial foreclosure proceedings through Atty. Hipolito Sanez on the ground of petitioner’s alleged failure to pay despite demands. A public auction was held on September 8, 1994, at which respondent was the only bidder and a certificate of sale was subsequently issued in its favor. In 2000 respondent demanded that petitioner vacate the properties.
Trial Court Proceedings
Petitioner filed an action for annulment of sale, alleging among other grounds that respondent violated paragraph N by failing to personally notify him of the foreclosure and auction sale. The Regional Trial Court, Branch 193, Marikina City, rendered judgment in favor of petitioner on June 30, 2003, declared the certificate of sale null and void, dismissed respondent’s counterclaim, and awarded moral damages of P100,000, exemplary damages of P50,000, attorneys’ fees of P50,000, and costs of suit.
Court of Appeals Decision
The Court of Appeals reversed the trial court and affirmed the validity of the certificate of sale. The CA held that absence of personal notice to the mortgagor as required by paragraph N did not invalidate the extrajudicial foreclosure sale because Section 3 of Act No. 3135 requires only posting in three public places and publication in a newspaper of general circulation and not personal notice unless stipulation to the contrary exists. The CA denied petitioner’s motion for reconsideration by resolution dated September 28, 2011.
Issue Presented
The sole issue presented to the Supreme Court was whether violation of paragraph N of the deed of mortgage, which required personal notice to the mortgagor, rendered the extrajudicial foreclosure and auction sale null and void.
Parties’ Contentions
Petitioner contended that the auction sale and certificate of sale were void because respondent failed to give the personal notice required by paragraph N. Respondent contended that personal notice was unnecessary under Section 3 of Act No. 3135 and that paragraph N did not impose an additional obligation to provide personal notice beyond statutory posting and publication.
Supreme Court Ruling
The Court granted the petition, reversed and set aside the Court of Appeals Decision and Resolution, and declared the extrajudicial foreclosure proceedings and auction sale conducted on September 8, 1994, and the Certificate of Sale in favor of respondent, null and void. Costs were imposed against The Manila Banking Corporation.
Legal Basis and Reasoning
The Court recognized the general rule that Section 3 of Act No. 3135 requires only posting of notices of sale in at least three public places and publication in a newspaper for properties worth more than PHP 400, and that personal notice is not statutorily required unless the parties stipulate otherwise. The Court distinguished that general rule from the present case because the parties had expressly stipulated in paragraph N that all correspondence, including notifications of extrajudicial actions, shall be sent to the mortgagor at the address given. The Court applied the principle that a valid contract is the law between the parties and must be enforced unless contrary to law or public policy. By failing to comply with paragraph N, respondent committed a contractual breach that was sufficient to invalidate the foreclosure sale. The Court relied on its prior decisions including Metropolitan Bank v. Wong, Global Holiday Ownership Corporation v. Metropolitan Bank and Trust Company, and Carlos Lim, et al. v. Development Bank of the Philippines in holding that a mortgage provision requiring personal notice, when breached by the mortgagee-bank, will render an extrajudicial foreclosure sale null and void.
Damages and Costs
The Court deleted the trial court’s awards of moral and exempl
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Case Syllabus (G.R. No. 198800)
Parties and Procedural Posture
- Jose T. Ramirez was the mortgagor and the petitioner before the Court.
- The Manila Banking Corporation was the mortgagee and the respondent before the Court.
- The petition was a Rule 45 petition for review on certiorari from the Court of Appeals Decision dated November 26, 2010 and Resolution dated September 28, 2011 in CA-G.R. CV No. 80616.
- The case arose from an action for annulment of sale filed by Ramirez in the Regional Trial Court, Branch 193, Marikina City, Civil Case No. 2001-701-MK.
- The Supreme Court rendered the dispositive judgment reversing the Court of Appeals and declaring the extrajudicial foreclosure and certificate of sale null and void.
Key Factual Allegations
- Ramirez mortgaged two parcels of land in Bayanbayanan, Marikina City covered by TCT Nos. N-10722 and N-23033 to The Manila Banking Corporation to secure a P265,000 loan.
- The real estate mortgage contained a clause denominated paragraph N that required that all correspondence, including notifications of extrajudicial actions, be sent to the mortgagor at the given address and declared that sending would constitute valid and effective notice.
- The Manila Banking Corporation requested extrajudicial foreclosure before Atty. Hipolito Sanez and conducted an auction sale on September 8, 1994.
- The bank was the sole bidder at the auction and a certificate of sale was issued in its favor.
- Ramirez alleged that he was not personally notified of the foreclosure and auction in violation of paragraph N and sought annulment of the certificate of sale.
Contractual Provision
- Paragraph N of the mortgage expressly stipulated that all correspondence and notifications of judicial or extrajudicial actions shall be sent to the mortgagor at the address given and that sending shall be valid notice even if not actually received.
- The mortgage clause operated as a contractual agreement between the parties and imposed a specific notice obligation on the mortgagee.
Procedural History
- The Regional Trial Court rendered judgment in favor of Ramirez, declared the certificate of sale null and void, and awarded moral damages, exemplary damages, attorney's fees, and costs of suit.
- The Court of Appeals reversed the trial court and affirmed the validity of the certificate of sale on the basis that personal notice is not required under Section 3, Act No. 3135.
- The Supreme Court granted the Rule 45 petition and reviewed the legal effect of violating paragraph N of the mortgage.
Issue
- The sole issue presented was whether violation of paragraph N of the deed of mortgage, which required personal notice to the mortgagor, renders the extrajudicial foreclosure sale null and void.
Contentions
- Ramirez contended that absence of personal notice in violation of paragraph N invalidated the foreclosure sale and rendered the certificate of sale void.
- The Manila Banking Corporation contended that Section 3, Act No. 3135 prescribes the exclusive notice requirements for extrajudicial fo