G.R. No. 159271. July 13, 2015.
SPOUSES BENITO BAYSA and VICTORIA BAYSA, Petitioners, vs. SPOUSES FIDEL PLANTILLA and SUSAN PLANTILLA, REGISTER OF DEEDS OF QUEZON CITY, and THE SHERIFF OF QUEZON CITY, Respondents.

FACTS

Petitioners Spouses Benito and Victoria Baysa executed a Real Estate Mortgage (REM) on August 4, 1992, over their parcel of land in Cubao, Quezon City, in favor of respondent Spouses Fidel and Susan Plantilla to secure a loan of P2.3 Million. The mortgage note stipulated an interest rate of 2.5% per month. Petitioners paid the monthly interest regularly from September 1992 to May 1993 but later became irregular. Upon default, respondent spouses commenced extrajudicial foreclosure, claiming a total liability of P3,579,100.00 inclusive of principal and unpaid interest. Petitioners sued in the RTC to annul the extrajudicial foreclosure and the public auction, alleging that: (1) there was no special power to sell inserted in or attached to the REM as required by Act No. 3135; and (2) the imposed 8% interest surcharge was unconscionable and violative of the Anti-Usury Law. The RTC dismissed the complaint, upheld the foreclosure’s validity, and allowed the 8% additional interest. The CA affirmed the validity of the foreclosure proceedings but invalidated the 8% additional interest for lack of stipulation in the REM, ordering a recomputation of the mortgage indebtedness without said 8% interest.

ISSUE

1. Whether the extrajudicial foreclosure was valid despite the lack of a provision in the mortgage deed granting a special power to sell to the mortgagee.
2. Whether consenting to extrajudicial foreclosure, by necessary implication, carries with it the grant of power to sell the property at public auction.
3. Whether the 2.5% monthly interest is illegal and usurious.
4. Whether petitioners lost their right to redeem the property.

RULING

1. The extrajudicial foreclosure was NULL and VOID. The Supreme Court held that Section 1 of Act No. 3135 explicitly requires that for a valid extrajudicial foreclosure, the special power to sell the property must be inserted in or attached to the deed of mortgage. The REM in this case only contained the mortgagors’ consent to extrajudicial foreclosure in paragraph 13, but did not contain the requisite special power to sell. Consent to foreclosure is not equivalent to a special power to sell. The Court distinguished the authority to foreclose from the authority to sell, citing Article 1879 of the Civil Code, which states that a special power to mortgage does not include the power to sell. Therefore, the absence of the special power to sell rendered the extrajudicial foreclosure and the subsequent certificate of sale null and void.
2. No, consent to extrajudicial foreclosure does not, by necessary implication, carry the grant of power to sell. The Court rejected the CA’s ruling that the authority to extrajudicially foreclose implied the power to sell. The law (Act No. 3135) and jurisprudence require the special power to sell to be expressly granted in writing, either inserted in or annexed to the mortgage deed. The mere agreement to extrajudicial foreclosure is insufficient.
3. The validity of the 2.5% monthly interest was not ruled upon. The Supreme Court declined to pass upon the issue of whether the 2.5% monthly interest was usurious, as this issue was not raised in the petitioners’ Complaint nor assigned as an error in their appeal to the CA. The Court emphasized that issues not raised below cannot be raised for the first time on appeal. The CA’s invalidation of the separate 8% compounded interest did not justify deleting the stipulation on the 2.5% interest, which was a distinct and separate stipulation.
4. The issue on the right of redemption was rendered moot. Since the extrajudicial foreclosure was declared null and void, there was no valid foreclosure sale from which a right of redemption could arise. Consequently, the issue of whether petitioners lost their right to redeem became unnecessary to resolve.
DISPOSITIVE PORTION:
The Petition was GRANTED. The CA decision was REVERSED and SET ASIDE. The extrajudicial foreclosure and the certificate of sale were declared NULL and VOID. Transfer Certificate of Title No. N-141864 in the names of respondent spouses was ordered CANCELLED. The Register of Deeds of Quezon City was DIRECTED to RESTORE and REINSTATE Transfer Certificate of Title No. 260376 in the names of petitioner spouses. The case was REMANDED to the court of origin for recomputation and accounting of the mortgage indebtedness without the 8% interest on unpaid interest. Respondents were ordered to pay costs of suit.