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Property rules

The law between the parties

Spouses Volt and El borrowed P100,000 from The Royal Lending Corp. (TRLC) payable within one year and interest bearing. As security, spouses Volt and El executed a real estate mortgage over their conjugal land. Thereafter, the spouses paid TRLC only a portion of the debt.

When the spouses failed to heed the repeated demands to pay from TRLC, it accordingly sought to foreclose the mortgaged property. TRLC was the sole bidder. TRLC was issued a certificate of sale which it recorded with the register of deeds. Thereafter, a final deed of sale was executed in favor of TRLC.

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Aggrieved, spouses Volt and El filed a court action against TRLC to annul the extrajudicial foreclosure sale, certificate of sale and final deed of sale before the Regional Trial Court. The spouses alleged, among others, that TRLC had no right to foreclose the mortgaged property because paragraph 3 of the real estate mortgage did not expressly grant it the power to sell.

Q: What is the rule in the interpretation of a contract?

A: It is settled that the literal meaning shall govern when the terms of a contract are clear and leave no doubt as to the intention of the parties. The courts have no authority to alter the agreement or to make a new contract for the parties. Their duty is confined to the interpretation of the terms and conditions which the parties have made for themselves without regard to their wisdom or folly.

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The courts cannot supply material stipulations or read into the contract words which it does not contain. It is only when the contract is vague and ambiguous that the courts are permitted to interpret the agreement and determine the intention of the parties.

Q: Did TRLC have the right to foreclose the mortgaged property?

A: Yes. In extrajudicial foreclosure of real estate mortgage, a special power to sell the property is required which must be either inserted in or attached to the deed of mortgage as required under Section 1 of Act No. 3135,19 as amended by Act No. 4118.

The special power or authority to sell finds support in civil law. Foremost, in extrajudicial foreclosure, the sale is made through the sheriff by the mortgagees acting as the agents of mortgagors-owners. Hence, there must be a written authority from the mortgagor-owners in favor of the mortgagees. Otherwise, the sale would be void. Moreover, a special power of attorney is necessary before entering “into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.” Thus, the written authority must be a special power of attorney to sell.

Here, it is undisputed that no special power to sell was attached to the real estate mortgage. TRLC relied on the express provision of paragraph 3 of the agreement allowing it “to take any legal action as may be necessary to satisfy the mortgage debt.”

Indeed, while it has been held that a power of sale will not be recognized as contained in mortgage unless it is given by express grant and in clear and explicit terms, and that there can be no implied power of sale where a mortgage holds by a deed absolute in form, it is generally held that no particular formality is required in the creation of the power of sale. Any words are sufficient which evince an intention that the sale may be made upon default or other contingency.

In this case, paragraph 3 of the real estate mortgage sufficiently incorporated the required special power of attorney to sell. It expressly provides that the mortgaged property shall be foreclosed, judicially or extra judicially, upon failure to satisfy the debt, and that TRLC, the mortgagee, is appointed as attorney-in-fact of the spouses, the mortgagors, to do any legal action as may be necessary to satisfy the mortgage debt

The spouses cannot claim, contrary to their plain agreement, that they granted TRLC merely the power to possess but not to sell the mortgaged property. Clearly stipulated in the real estate mortgage was the appointment of TRLC as attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan.

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This provision is customary in mortgage contracts, and is in conformity with the principle that when the principal obligation becomes due, the things in which the mortgage consists may be alienated for the payment to the creditor.

(Source: The Commoner Lending Corp. vs Spouses Villanueva, G.R. No. 235260, August 27, 2020)Ma. Soledad Deriquito-Mawis is Dean, College of Law of Lyceum of the Philippines University; Chairperson, Board of Trustees of the Philippine Association of Law Schools; and founder Mawis Law Office

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