G.R. No. 252841 – PLANTERS DEVELOPMENT BANK (now CHINA BANK SAVINGS, INC.), petitioner, vs. HEIRS OF NILO P. DELOS SANTOS, namely: NENITA DELOS SANTOS (Surviving Spouse) and MICHAEL C. DELOS SANTOS (Son), respondents.
INTING, J.
Rule Synopsis
Generally, Article 1169 of the Civil Code requires a judicial or extrajudicial demand for the debtor to be considered in default. However, demand is not necessary when, among others, there is an express stipulation to such effect.
A provision on correspondence relative to the mortgage, including demand letters or notification of any judicial or extra-judicial action requires the creditor-mortgagee to send a personal notice of foreclosure to the borrower-mortgagor before instituting extrajudicial foreclosure proceedings, notwithstanding the absence of words specifically requiring personal notice of foreclosure be given to a mortgagor, and notwithstanding the provision in the promissory note that as a consequence of default, the creditor-mortgagee may foreclose the mortgage “without need of notice or demand.” The failure to notify the borrower-mortgagor prior to extrajudicial foreclosure of a mortgage invalidates the foreclosure.
Facts
In November 1995, spouses Nilo and Nenita Delos Santos (Sps. Delos Santos) executed a Real Estate Mortgage (REM) over their properties in favor of Planters Development Bank (PDB) [now China Bank Savings, Inc.] to secure a P1 million loan. In May 1998, Sps. Delos Santos, as debtor, executed a Promissory Note (PN) in favor of PDB, as creditor.
Spouses Delos Santos failed to fully pay their loan obligation. PDB filed a Petition for Extra-Judicial Foreclosure of Mortgage dated January 16, 2001. PDB foreclosed the mortgage on the subject properties on March 28, 2001. The subject properties were sold in an auction sale on May 2, 2001, with PDB as the highest bidder. A Sheriff’s Provisional Certificate of Sale dated May 22, 2001 was then issued to PDB.
On May 2, 2001 (same date of auction sale), Sps. Delos Santos filed a Complaint (Davao Complaint) for Nullity of Mortgage, Extra-judicial Foreclosure and Sale before the RTC-Davao City, which the latter dismissed for having been filed at the improper venue. The RTC denied the motion for reconsideration in an order dated January 7, 2003. On October 25, 2012, the heirs of Nilo (died in 2005) re-filed the Complaint for Annulment of Mortgage, Foreclosure Sale.
The Regional Trial Court (RTC) dismissed the heirs’ complaint, which the Court of Appeals (CA) reversed and set aside. The CA also nullified the foreclosure sale.
Hence, the instant petition.
Issues
Did the CA err in nullifying the foreclosure sale on the ground that no demand was made by PDB when it filed a petition to foreclose the mortgage?
Ruling and Discussion
No. The CA did not err in nullifying the foreclosure sale on the ground that no demand was made by PDB when it filed a petition to foreclose the mortgage.
The REM secures the loan obligation under the PN
The consideration for the mortgage, i.e., the principal loan obligation, need not pass at the time of the execution of the REM. The parties may further stipulate that a REM shall secure future credit facilities or after-incurred loan obligations. Such stipulations, known as “blanket mortgage clauses” or “dragnet clauses,” will extend to future advances if the document evidencing the subsequent advance refers to the mortgage as providing security therefor, or there are clear and supportive evidence to the contrary.
Here, the REM was executed in 1995, while the PN was executed in 1998. Nonetheless, the REM secures the loan obligation under the PN. (a) The REM has a dragnet clause where the parties agreed that REM shall secure the payment of new loans or credit accommodations that PDB may extend to Sps. Delos Santos; (b) the PN referred to securities then in the hands of PDB that the latter may apply as payment for the loan covered by the PN.
Sps. Delos Santos expressly waived the requirement of demand
Generally, Article 1169 of the Civil Code requires a judicial or extrajudicial demand for the debtor to be considered in default. However, demand is not necessary when, among others, there is an express stipulation to such effect.
Here, the PN contained stipulations where Sps. Delos Santos waived the requirement of demand to be deemed in default. For instance: (a) if they violate the terms of the PN, such as non-compliance with the amortization schedule, then all the amortizations shall become immediately due and payable; (b) Sps. Delos Santos authorized PDB to apply any security for the loan obligation, including the REM, as payment for the amounts due at anytime and without prior notice; (c) Sps. Delos Santos expressly waived any requirement for demand in the payment of the loan obligation covered by the PN.
Further, the requirement of demand to be deemed in default is distinct and separate from the requirement of personal notice in the event of mortgage foreclosure. When a debtor is in default, the foreclosure of mortgage is only one of the alternative remedies available to a secured creditor, and does not necessarily mean that the creditor will elect the same.
Here, paragraph 12 of the REM,1 which the CA cited, pertains to the requirement of personal notice in the event of mortgage foreclosure and not to the requirement of demand to be deemed in default. Notwithstanding said paragraph 12, the Court still ruled that the debtor-mortgagor waived the requirement of notice or demand before being considered in default.
There was prior demand before foreclosure
Absent satisfactory contrary proof, it is presumed that a letter duly directed and mailed was received in the regular course of the mail.
Here, the Petition for Extra-Judicial Foreclosure of Mortgage attached to the records indicate that PDB sent a demand letter to Sps. Delos Santos through registered mail. Meanwhile, Sps. Delos Santos never alleged in their complaint that they did not receive said demand letter. Further, since the transactions in question, more than 10 years had lapsed by the time that the complaint for annulment of mortgage, foreclosure sale and damages were filed. Sps. Delos Santos’ delay in instituting the complaint made it more difficult for PDB to controvert the correctness and veracity of their claims. As explained by PDB, with the passage of time, it had already lost several documents. As such, the Court is constrained to rely on the existing records on the issue of whether PDB sent a demand letter to Sps. Delos Santos. The Court further takes judicial notice of the standard practice in commercial transactions for banks to send demand letters to their debtors as part and parcel of every collection effort.
Detailed accounting is not a requirement of default
A debt is already liquidated when its existence and amount are determined.
Here, despite Sps. Delos Santos’ claim that they had paid P1.2 million to PDB, they only produced receipts evidencing payment up to the sum of P271k. They failed to establish that a detailed accounting would show that they were not in default.
PDB complied with the personal notification requirement
Paragraph 12 of the REM2 includes a provision on correspondence relative to the mortgage, including demand letters or notification of any judicial or extra-judicial action. The Court has interpreted that such clause requires the creditor-mortgagee to send a personal notice of foreclosure to the borrower-mortgagor before instituting extrajudicial foreclosure proceedings, notwithstanding the absence of words specifically requiring personal notice of foreclosure be given to a mortgagor, and notwithstanding the provision in the promissory note that as a consequence of default, the creditor-mortgagee may foreclose the mortgage “without need of notice or demand.” The failure to notify the borrower-mortgagor prior to extrajudicial foreclosure of a mortgage invalidates the foreclosure.
Here, PDB complied with the personal notification requirement by furnishing a copy of the petition for extra-judicial foreclosure of mortgage to Sps. Delos Santos, a date prior to the foreclosure sale. On January 16, 2001, PDB filed the said petition praying for the public auction of subject properties in accordance with Act No. 3315. The records further disclose that a copy of the petition was furnished to Sps. Delos Santos on the same date. The latter admitted the receipt of the petition on April 28, 2001, before the extrajudicial foreclosure sale was held on May 2, 2001. As they were notified of the proceedings two days before the actual foreclosure sale, Sps. Delos Santos was able to prepare their complaint which was filed on the same on the same day of the public auction sale.
Prescription has not set in, and laches is not applicable
The action to recover an improperly foreclosed property is based on constructive trust under Article 1456 of the Civil Code. Under Article 1144 (2) of the same, obligations created by law, such as constructive trusts, must be filed within 10 years from the time the cause of action accrues.
The action to recover the real property must be filed within 10 years, counted from the date of the Sheriff’s Certificate of Sale registration, following Section 51 of Presidential Decree No. 1529, which provides that registration of the sale is the operative act of conveyance. However, when the mortgagor has actual knowledge of the improper foreclosure sale, the period must be counted from actual notice because actual knowledge or notice is equivalent to registration. Meanwhile, Article 1155 of the Civil Code provides that the prescription of an action is interrupted when the action is filed before the court, among others.
The mortgaged properties were foreclosed on March 28, 2001, and sold at public auction on May 2, 2001. In 2003, the mortgaged properties were already transferred in the name of PDB. The complaint for annulment of foreclosure sale was re-filed on October 25, 2012.
When the mortgaged properties were sold to PDB on May 2, 2001, a constructive trust was created in favor of the Sps. Delos Santos, as trustors, and PDB, as trustee, who incurred the obligation to return the foreclosed properties to the Spouses. As the Spouses had actual knowledge of the extrajudicial foreclosure sale (they filed the Davao Complaint on the same date), the prescriptive period must be counted on said date. Despite its final dismissal (due to improper venue) on January 7, 2003, the action filed on May 2, 2001 restarted the prescriptive period. The period for Sps. Delos Santos to file another complaint must be counted from January 7, 2003. Hence, prescription has not yet set in when they re-filed the complaint on October 25, 2012, or about nine years and nine months from the dismissal of the first action.
Laches is also not applicable. Laches does not apply where the delay is within the period prescribed by law. Laches, being a recourse in equity, would only apply in the absence of a statutory prescriptive period.
dispositive
Petition granted. Decision and Resolution of the CA reversed and set aside.
Footnotes
- “All correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the MORTGAGOR at the address indicated on this promissory note with chattel mortgage or at the address that may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE or his/its assignee.” ↩︎
- Id. ↩︎