Case Summary (G.R. No. 235260)
Factual Background
On August 13, 2002, Spouses Voltaire and Ella Villanueva borrowed P100,000.00 from THE COMMONER LENDING CORPORATION, payable within one year at twenty-four percent interest per annum. The loan was secured by a real estate mortgage over Lot No. 380-D, a 107-square meter parcel in Manoc-Manoc, Malay, Aklan. The spouses paid P82,680.00 in partial satisfaction but failed to pay the balance of P41,340.00. After a final demand, THE COMMONER LENDING CORPORATION applied to the provincial sheriff for extrajudicial foreclosure. An auction sale occurred on December 7, 2004, at which THE COMMONER LENDING CORPORATION was the sole bidder. A certificate of sale issued on December 14, 2004, was recorded with the register of deeds, and a final deed of sale was executed on January 31, 2006.
Trial Court Proceedings
Spouses Voltaire and Ella Villanueva filed a complaint before the RTC docketed as Civil Case No. 7823 to annul the extrajudicial foreclosure sale, the certificate of sale, and the final deed of sale. They alleged that paragraph 3 of the real estate mortgage did not expressly grant a power to sell and that the mortgage operated as a prohibited pactum commissorium by permitting possession without judicial order. They also denied receipt of the required notice and publication and asserted they learned of the foreclosure only in January 2005. The RTC dismissed the complaint on March 29, 2012, upheld the extrajudicial foreclosure, and found the agreement was not a pactum commissorium because it lacked an automatic appropriation clause.
Court of Appeals' Decision
On appeal, the Court of Appeals in CA-G.R. CEB-CV No. 04387 reversed the RTC on March 27, 2017. The CA declared the extrajudicial foreclosure, the certificate of sale, and the final deed of sale null and void. It held that THE COMMONER LENDING CORPORATION had no authority to foreclose because paragraph 3 of the real estate mortgage merely evidenced the mortgagors' amenability to extrajudicial foreclosure and did not grant the special power to sell the mortgaged property at public auction.
Issues Presented
The principal issue presented in the petition for review under Rule 45 was whether paragraph 3 of the real estate mortgage conferred upon THE COMMONER LENDING CORPORATION the special power to sell the mortgaged property in an extrajudicial foreclosure, thereby validating the sale, certificate, and final deed of sale; and whether the extrajudicial proceedings complied with the statutory notice, posting, and publication requirements of Act No. 3135, as amended.
Parties' Contentions
THE COMMONER LENDING CORPORATION maintained that paragraph 3 of the real estate mortgage authorized it to foreclose and sell the property to satisfy the debt and that Spouses Voltaire and Ella Villanueva were barred from attacking the sale because they failed to redeem within one year from issuance of the certificate of sale. Spouses Voltaire and Ella Villanueva contended that the contract only granted the mortgagee the power to possess the property and to foreclose but did not grant the special power to sell; they thus argued that the extrajudicial sale was void as lacking authority.
Legal Standards on Contract Interpretation and Power to Sell
The Court reiterated the rule that the literal meaning governs when contract terms are clear and leave no doubt as to the parties' intention, citing Civil Code, Art. 1370 and pertinent jurisprudence. The Court explained that in extrajudicial foreclosures a special power to sell must be inserted in or attached to the deed of mortgage, invoking Section 1, Act No. 3135, as amended by Act No. 4118. The Court further relied on Art. 1874 and Art. 1878(5) of the Civil Code to stress the necessity of written authority or a special power of attorney when an agent effects the sale or transfer of immovable property.
Supreme Court's Ruling
The Supreme Court granted the petition. It reversed and set aside the Court of Appeals' March 27, 2017 decision and reinstated the RTC's March 29, 2012 decision dismissing the complaint. The Court held that paragraph 3 of the real estate mortgage sufficiently incorporated the special power to sell and therefore authorized the extrajudicial foreclosure sale, the certificate of sale, and the final deed of sale.
Legal Reasoning
The Court found that paragraph 3 was clear and unambiguous in conferring authority. The provision expressly stated that upon nonpayment the mortgage shall be foreclosed judicially or extrajudicially and appointed the mortgagee as attorney-in-fact of the mortgagors "to take possession of the mortgaged properties without the necessity of any judicial order" and "to take any legal action as may be necessary to satisfy the mortgage debt." The Court rejected the CA's narrower construction that the clause amounted only to amenability to foreclosure. It observed that, while a power of sale must be given by express grant, no particular formality is required and any words evincing an intention that sale may be made upon default are sufficient. The Court concluded that the clause incorporated the required special power of attorney to sell. The Court emphasized that obligations arising from contracts have the force of law between the parties (Civil Code, Art. 1159) and that stipulations are binding unless contrary to law, morals, public order, or public policy (Civil Code, Art. 1306). The mortgagors who signed the instrument could not repudiate its plain terms (Civil Code, Art. 1308).
Procedural and Factual Findings Regarding Notice and Publication
The Supreme Court noted that the sheriff complied with the procedures set forth in Act No. 3135 for extrajudicial foreclosure, and that both the RTC and the CA had found that no
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Case Syllabus (G.R. No. 235260)
Parties and Procedural Posture
- The Commoner Lending Corporation filed a Petition for Review on Certiorari under Rule 45, Rules of Court from the decision of the Court of Appeals.
- Spouses Voltaire and Ella Villanueva were respondents in the petition and plaintiffs in the underlying civil action.
- The Regional Trial Court, Branch 6, Kalibo, Aklan, dismissed the Villanuevas' complaint in Civil Case No. 7823 on March 29, 2012.
- The Court of Appeals reversed and set aside the RTC decision by its March 27, 2017 Decision in CA-G.R. CEB-CV No. 04387.
- The Supreme Court resolved the present petition by a decision announced on August 27, 2020 which granted the petition and reinstated the RTC decision.
Key Factual Allegations
- On August 13, 2002, Spouses Villanueva borrowed P100,000.00 from The Commoner Lending Corporation at twenty-four percent interest per annum, payable within one year.
- The loan was secured by a real estate mortgage over Lot No. 380-D, a 107-square meter parcel in Manoc-Manoc, Malay, Aklan.
- The Villanuevas made aggregate payments totaling P82,680.00 but allegedly remained indebted in the amount of P41,340.00.
- TCLC sent a final demand and, after nonpayment, applied to the Office of the Provincial Sheriff for extrajudicial foreclosure with an auction held on December 7, 2004.
- TCLC was the sole bidder at the auction, received a Certificate of Sale on December 14, 2004 which was registered on January 27, 2005, and obtained a Final Deed of Sale on January 31, 2006.
Claims and Defenses
- Spouses Villanueva claimed that paragraph three of the real estate mortgage did not expressly grant TCLC the special power to sell and that the mortgage amounted to a prohibited pactum commissorium.
- Spouses Villanueva also alleged lack of notice and publication and asserted that they only learned of the foreclosure in January 2005.
- TCLC contended that paragraph three of the mortgage conferred authority to foreclose and sell and that the Villanuevas were barred from attacking the sale for failure to redeem within one year from the Certificate of Sale.
Issues Presented
- Whether paragraph three of the real estate mortgage constituted a special power of attorney to sell that authorized extrajudicial foreclosure and public auction.
- Whether the mortgage agreement contained a pactum commissorium or other stipulation contrary to law that would void the extrajudicial foreclosure.
- Whether factual findings on notice, posting, and publication were reviewable on certiorari under Rule 45.
Statutory Framework
- The Court applied Act No. 3135, as amended by Act No. 4118, governing sales under special powers inserted in or an