G.R. No. 198800; December 11, 2013
JOSE T. RAMIREZ, Petitioner, vs. THE MANILA BANKING CORPORATION, Respondent.

FACTS

Petitioner Jose T. Ramirez mortgaged two parcels of land to respondent The Manila Banking Corporation to secure a loan. The Real Estate Mortgage contained a specific stipulation in its paragraph N, which required that all correspondence, including notifications of any judicial or extrajudicial actions, be sent to Ramirez at his given address. The clause explicitly stated that sending correspondence to that address constituted valid notice, regardless of actual receipt.
Respondent bank extrajudicially foreclosed the mortgage due to Ramirez’s loan default. The bank complied with the statutory requirements of Act No. 3135 by posting notices in public places and publishing them. However, it did not send a personal notice of the foreclosure sale to Ramirez at the address stipulated in paragraph N of the mortgage contract. After the auction, Ramirez filed an action for annulment of the sale, arguing the foreclosure was void due to the bank’s violation of the contractual notice requirement.

ISSUE

Whether the bank’s failure to send personal notice of the extrajudicial foreclosure sale to the mortgagor, as expressly stipulated in paragraph N of the Real Estate Mortgage, renders the foreclosure sale null and void.

RULING

Yes. The Supreme Court granted the petition and reinstated the trial court’s decision annulling the foreclosure sale. The legal logic is anchored on the principle that a contract is the law between the parties. While Act No. 3135 governing extrajudicial foreclosure does not generally require personal notice to the mortgagor, the parties are free to stipulate additional requirements.
By incorporating paragraph N into their contract, the bank and Ramirez voluntarily created a specific, binding obligation for the bank to send notifications of extrajudicial actions to the stipulated address. This contractual term became an integral part of the agreed foreclosure procedure. The bank’s failure to comply with this self-imposed obligation constituted a contractual breach. The Court ruled that such a breach was sufficient to invalidate the extrajudicial foreclosure sale, as the sale was not conducted in accordance with the full terms agreed upon by the parties. The statutory compliance did not excuse the bank from its separate contractual duty. Consequently, the foreclosure sale was declared null and void.