G.R. No. L-41621 February 18, 1999
PASTORA VALMONTE, JOSE DE LEON, AND JOAQUIN VALMONTE, petitioners, vs. THE HON. COURT OF APPEALS, PHILIPPINE NATIONAL BANK, ARTEMIO VALENTON, AND AREOPAGITA J. JOSON, respondents.

FACTS

Petitioner Pastora Valmonte obtained loans from respondent Philippine National Bank (PNB), secured by real estate mortgages over three parcels of land. Due to default on a P5,000.00 loan, PNB extrajudicially foreclosed the mortgage. The properties were sold at a public auction on August 19, 1954, with PNB as the highest bidder. A certificate of sale was issued, and the one-year redemption period expired on August 19, 1955, without redemption by the petitioners. Subsequently, PNB consolidated its ownership. After the redemption period, petitioner Joaquin Valmonte requested an extension to repurchase the properties, which PNB granted until December 31, 1955, conditioned on payment of its total claim of P26,926.38. Petitioners failed to meet this deadline.
On January 3, 1956, respondent Artemio Valenton paid PNB P35,000.00 for the properties, and PNB executed a deed of absolute sale in his favor. Valenton then obtained a new transfer certificate of title. Petitioners filed a complaint in 1958, seeking to annul the sale to Valenton, alleging the foreclosure and sale were void due to lack of proper notice and that PNB acquired the property through a pactum commissorium. They also argued that a separate P16,000.00 mortgage lien, which was not foreclosed, should have prevented the transfer of a clean title to Valenton.

ISSUE

The core issues were: (1) whether the extrajudicial foreclosure and subsequent sale to Valenton were valid; and (2) whether the existence of an unforeclosed mortgage lien rendered the sale to Valenton and the issuance of his title void.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court found the extrajudicial foreclosure procedurally sound. Publication and posting of the notice of sale complied with Act No. 3135 . The petitioners’ failure to redeem within the statutory period vested absolute ownership in PNB. The subsequent grant of a repurchase period was a mere privilege, not a right, and PNB was free to sell the property to Valenton after petitioners’ failure to pay. The transaction did not constitute a pactum commissorium, as the property was acquired through a lawful public auction, not an automatic appropriation upon default.
On the second issue, the Court ruled that any lien from the unforeclosed P16,000.00 mortgage was extinguished by merger. Upon consolidation of title after the redemption period, PNB became both the mortgagee and the absolute owner, merging the two interests and clearing the title of that encumbrance. Even assuming the lien subsisted, PNB, as the owner, had the right to sell the property, and a purchaser would merely take it subject to that lien. The petitioners, as mortgagors, had no standing to compel foreclosure of that mortgage; the prerogative to foreclose belongs solely to the mortgagee. Therefore, Valenton was a purchaser for value, and his title was valid.