Foreclosure undone

In 1968, Edgar wed Rose and their marriage has been blessed with three children, namely, Tina, Pete and Pau.

Edgar obtained a loan from Boston Corporation and entered into a real estate mortgage wherein the former, representing himself as single, mortgaged six parcels of land located in Quezon City to the latter.

Additional loan obligations were later obtained by Edgar. The real estate mortgage previously executed was amended to include the P15 million additional loan and adopting therein all terms and conditions stated in the real estate mortgage.

In all the documents Edgar and Boston executed, Rose signed as an instrumental witness.

With no payments coming in, Boston sent a Edgar a letter demanding for the payment of P52.9 million, claiming it to be the principal amount Edgar owed to the former excluding penalties and other charges.

In reply, Edgar sent a letter asking Boston to furnish him an accurate, specific statement of account, so he can properly settle his obligation as the amount alleged in the demand letter was not accurate since it included the commission of the broker.

Instead of heeding Edgar’s requests, Boston sent another demand letter to Edgar this time seeking payment for P51.4 million. Edgar asked for additional time to settle his obligation.

Boston did not grant Edgar’s request. It proceeded to foreclose Edgar’s properties by publishing a Notice of Foreclosure in Maharlika Pilipinas.

As a consequence, the Ex-Officio Sheriff of Quezon City sent a Notice of Extra-Judicial Sale of Real Property Under Act 3135 (as amended) dated May 28, 2001 to Edgar saying that the parcels of land shall be sold at a public auction on June 27, 2001 to satisfy his P52.9 million debt with Boston. In the said sale, Boston was declared the sole bidder for the properties in the amount of P70 million.

Edgar brought his complaint for the declaration of the nullity of the extrajudicial foreclosure of the REM and sheriff’s sale on May 8, 2002 against Boston, an officer of the corporation and Sheriff.

In 2002, Rose, the spouse of Edgar, and their children Tina, Pete and Pau, filed in the RTC their motion to admit their complaint-in-intervention on the basis that they had a legal interest as co-owners of the mortgaged properties. They joined the prayer of Edgar for declaration of the nullity of the promissory notes, the REM and its amendment, and the extrajudicial foreclosure of the REM and the ensuing sheriff’s sale.

The RTC dismissed Edgar’s complaint. Edgar, Rose and their children separately appealed to the CA, which overturned the RTC’s ruling. The appellate court opined that the REM, involving conjugal properties, required the written consent of Rose for validity; the REM and its amendment were consequently null and void; the extrajudicial foreclosure sale was null and void for failure to comply with the procedure mandated by A.M. No. 99-10-05-0 (Procedure in Extra-Judicial Foreclosure of Mortgage) requiring at least two bidders during public auction; and Boston could not validly consider Edgar’s loan account to be in default without first giving him a proper accounting.

Q: Did the CA err in annulling the extrajudicial foreclosure sale on the ground that there was failure to have at least two bidders?

A: Yes. That only Boston participated in the bidding did not constitute a defect that nullified or voided the foreclosure sale considering that the Supreme Court had dispensed with the two-bidder rule for purposes of the foreclosure sale of private properties.

A reading of the provisions of Act No. 3135 does not require the participation of at least two bidders at the public auction.

In A.M. No. 99-10-05-0 dated Jan. 30, 2001 (Re: Procedure in Extra-Judicial Foreclosure ofMortgage), therefore, the Court, acting on letters containing observations and proposals about the rules of procedure to be undertaken in the extrajudicial foreclosure of mortgages as embodied in Circular A.M. No. 99-10-05-0 (inclusive of the bidding requirements, and the publication of notices), expressly resolved, among others, that neither Act No. 3135 nor the previous circulars issued by the Court governing extrajudicial foreclosures provide for a similar requirement.

Q: Was the appellate court correct to opine that there was no need for an accounting of Edgar’s obligation before he could be held in default?

A: No, the foreclosure of the REM is proper once the debtor has incurred default or delay in performing his obligation. Mora solvendi, or debtor’s default, is defined as the delay in the fulfillment of an obligation by reason of a cause imputable to the debtor. Three requisites are necessary to support a finding of default—first, the obligation is demandable and liquidated; second, debtor delays his performance; and third, creditor judicially or extrajudicially requires debtor’s performance.

Q: Did the twin facts of (a) Rose affixing her signature to the REM amounted to spousal consent; and (b) the proceeds of the loan obtained by Edgar having redounded to the benefit of the family, necessarily rendered the mortgaged properties, albeit conjugal in character, liable for the obligation?

A: No. The submission by the Boston regarding Rose’s having consented to the REM and its amendment by virtue of her signature thereon as an instrumental witness was not among the issues framed and joined by the parties during the proceedings before the trial court.

For the petitioners to make the submission only before the Supreme Court is impermissible. Questions raised on appeal must be within the issues the parties framed at the start; hence, issues not raised before the trial court cannot be raised for the first time on appeal.

As a consequence, the findings of the CA on the lack of Rose’s written consent to the REM and its amendment stand unrefuted. Such findings warrant the nullification not only of the REM and its amendment, but also of all the proceedings taken to foreclose the REM.

Such invalidity applied to the entire mortgage, even to the portion corresponding to the share of Edgar in the conjugal estate. Article 124 of the Family Code clearly so provides, among others, that “In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.”

What the CA declared void was the REM. Since it was an encumbrance on the conjugal properties, the contracting by Edgar sans the written consent of Rose rendered only the REM void and legally inexistent.

What was lost was the right to foreclose the REM as a special remedy for settling the debt that was the principal obligation. In case of its nullity, the mortgage deed remained as proof of the debtor’s personal obligation, and the amount due to the creditor could be enforced in an ordinary action.

(Source: Boston Equity Resources, Inc. vs. Del Rosario, G.R. No. 193228, November 27, 2017)