Title
Spouses Flavio P. Bautista and Zenaida L. Bautista vs. Premiere Development Bank
Case
G.R. No. 201881
Decision Date
Jul 15, 2024
Petitioners challenged the validity of an extrajudicial foreclosure due to non-compliance with legal requirements. The court ruled that the action to foreclose had prescribed, and thus the petitioners are not liable for the loan obligation.
mortgage
foreclosure
extra judicial sale

Case Summary (G.R. No. 201881)

Factual Background

Petitioners obtained the loan from Premiere Bank on January 7, 1994, and executed the REM over the subject property as security. They later defaulted. Premiere Bank then filed, sometime in 1995, an application for extrajudicial foreclosure. A notice of the foreclosure sale scheduled for November 17, 1995 was received by petitioners on October 17, 1995. Petitioners requested postponements, and the sale initially did not proceed. In their postponement letters, petitioners acknowledged receipt of a computation sheet as of December 14, 1995, showing an outstanding debt of PHP 451,709.38, but they challenged the correctness of various charges and fees as unauthorized. From December 1995 to August 1996, the parties exchanged letters on the alleged impropriety of penalties, fees, and other charges. Communication later ceased.

Petitioners later received notice that another extrajudicial foreclosure sale was scheduled for January 15, 2002. The sale did not push through because Premiere Bank representatives did not appear, so the foreclosure was rescheduled to February 18, 2002. The record showed that while the January 15 notice was published and posted, there was no publication and posting of the notice for the rescheduled February 18, 2002 sale. Despite this, the sheriff proceeded with the rescheduled sale on February 18, 2002. The subject property was sold to Premiere Bank as the lone bidder, and a certificate of sale was issued in its favor. At that time, petitioners’ statement of account indicated an outstanding obligation of PHP 2,062,254.26 as of February 18, 2002.

Petitioners redeemed the property within the redemption period by tendering PHP 401,820.00. The sheriff issued a certificate of redemption in petitioners’ name, but Premiere Bank refused to accept the redemption price because it was less than the alleged outstanding obligation of PHP 2,062,254.26. Premiere Bank then consolidated its ownership, and the Register of Deeds of Marikina City issued TCT No. 452198 in Premiere Bank’s name.

Trial Court Proceedings

On November 6, 2003, petitioners filed in Branch 77 of the Regional Trial Court (RTC), San Mateo, Rizal, a complaint for annulment of sale, docketed as Civil Case No. 1792, assailing the validity of the extrajudicial foreclosure sale held on February 18, 2002. Petitioners contended that the foreclosure sale was void for failure to comply with the mandatory publication and posting requirements under Section 3, Act No. 3135.

On February 8, 2008, the RTC dismissed the complaint. It held that petitioners had effectively waived the publication and posting requirements by requesting postponements and that they were estopped from questioning the foreclosure because they attempted to redeem the property. It further ruled that Premiere Bank’s computation of petitioners’ outstanding loan obligation was proper, having been based on the terms of the Promissory Note.

Appellate Review in the Court of Appeals

Petitioners appealed to the Court of Appeals (CA). On January 27, 2012, the CA affirmed the RTC and upheld the validity of the February 18, 2002 foreclosure sale notwithstanding the absence of publication and posting for the rescheduled sale. The CA reasoned that petitioners were estopped from challenging the foreclosure proceedings because they offered to redeem and tendered the redemption price without condition or reservation. The CA also agreed that Premiere Bank’s computation of the outstanding obligation was regular and consistent with the Promissory Note, which expressly allowed the imposition of interest, penalties, and other charges upon default.

The Court’s Decision (September 5, 2018)

Petitioners then filed a Petition for Review on Certiorari under Rule 45 before the Court. In a Decision dated September 5, 2018, the Court partially granted the petition. It declared null and void (a) the extrajudicial foreclosure sale held on February 18, 2002, and (b) the issuance of TCT No. 452198 in Premiere Bank’s name. The Court directed the Register of Deeds to cancel the title in Premiere Bank’s name and reinstate petitioners’ TCT No. 150668, and it ordered respondents to comply with the requirements of posting and publication under Act No. 3135 for a valid extrajudicial foreclosure sale.

The Court explained that the posting and publication requirements under Act No. 3135 were mandatory and jurisdictional. They were not intended for the benefit of the mortgagor or the mortgagee but for the benefit of third persons, to secure bidders and prevent the sacrifice of the property, thus reflecting public policy. Consequently, the parties could not waive those requirements because waiver could convert a public auction into a private sale, contrary to Section 4, Act No. 3135.

The Court, however, left undisturbed the factual findings concerning the computation of petitioners’ outstanding obligation, holding that such computation involved issues of fact beyond the scope of a Rule 45 petition.

The Court’s Resolution on Partial Reconsideration (July 24, 2019)

Petitioners filed a Motion for Partial Reconsideration seeking the deletion of the portion ordering compliance with posting and publication, asserting that Premiere Bank’s foreclosure action had already prescribed. They invoked Article 1142 of the Civil Code, which provides that an action for foreclosure of mortgage prescribes after ten years, and argued that the prescriptive period should be counted from October 17, 1995, when they received the first notice of foreclosure proceedings. They maintained that because the foreclosure sale was declared null and void, the proceedings did not toll prescription.

In the Resolution dated July 24, 2019, the Court granted the motion for partial reconsideration and deleted the direction requiring respondents to comply with posting and publication. The Court ruled that since the foreclosure sale had been declared null and void and produced no legal effect, it could not toll the prescriptive period. It held that the action for foreclosure accrued on October 17, 1995, and thus had already prescribed after ten years.

The Parties’ Contentions in the Present Motion for Reconsideration

Premiere Bank moved for reconsideration of the July 24, 2019 Resolution. It argued that the prescriptive period was tolled when it filed its application for extrajudicial foreclosure in 1995, which it claimed was within the ten-year prescriptive period under Article 1142. It further maintained that the Court’s September 5, 2018 Decision avoided only the foreclosure sale itself held on February 18, 2002, and not the entire extrajudicial foreclosure proceedings. Premiere Bank also stressed that the RTC and CA had recognized an outstanding loan obligation of PHP 2,062,254.26 as of February 18, 2002, and that this factual determination had become final because the Court did not disturb it.

Petitioners opposed and reiterated that the foreclosure action had prescribed under Article 1142 because the null and void extrajudicial sale did not interrupt prescription. They further asserted that allowing another foreclosure would reward the bank’s violation of Act No. 3135. Petitioners also invoked Article 1144, arguing that an action on a written contract must be brought within ten years from accrual, which they contended likewise had prescribed with respect to collection based on the Promissory Note.

Core Issues Before the Court

The Court framed two principal issues for resolution: first, whether Premiere Bank’s action to foreclose had prescribed; and second, whether petitioners could be directed to pay their outstanding loan obligation to Premiere Bank.

Ruling of the Court on the Motion for Reconsideration

The Court denied the Motion for Reconsideration for lack of merit. It held that Premiere Bank, having elected to collect through the extrajudicial foreclosure remedy that had already prescribed, had effectively waived the remedy of a personal action to collect the debt, in view of the prohibition against splitting a single cause of action among alternative remedies.

The Court reaffirmed that prescription for foreclosure of a mortgage under Article 1142 runs for ten years from the time the right of action accrues, i.e., from the date of the mortgagor’s default. It also held that Article 1155 provides three modes to interrupt prescription—filing before the court, written extrajudicial demand, and written acknowledgment of the debt by the debtor. Premiere Bank’s arguments did not persuade the Court that any of these modes effectively interrupted prescription.

Legal Basis and Reasoning

The Court rejected Premiere Bank’s claim that filing its application for extrajudicial foreclosure in 1995 interrupted prescription under Article 1155. The Court explained that the office of the sheriff is not a court of justice. It held that an extrajudicial foreclosure is not an “action or suit” contemplated under Article 1155, because it is initiated by filing a petition with the sheriff’s office rather than with a court of justice. Thus, Premiere Bank’s filing did not qualify as filing in court.

The Court also rejected the view that any delay in the foreclosure process could toll prescription merely because an action was later answered in court. Even assuming the involved steps could be treated as “actions filed with the court,” the Court held that interruption was unavailable where the delay was due to the mortgagee’s own failure to comply with the jurisdictional requirements of extrajudicial foreclosure under Act No. 3135. It analogized to jurisprudence explaining that while commencement of an action may stop prescription, its dismissal or abandonment leaves the parties in the position as if no action had been commenced. Here, because the foreclosure proceedings did not achieve valid foreclosure due to the bank’s failure to comply with the mandatory requirements, the Court treated the foreclosure undertaking as not producing tolling effect on prescription.

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