G.R. No. 73678 July 21, 1989
GUILLERMO CORTES and FLORENCIA P. CORTES, petitioners, vs. THE INTERMEDIATE APPELLATE COURT, ARSENIO REYES, DEVELOPMENT BANK OF THE PHILIPPINES and THE SHERIFF OF KALOOKAN CITY, respondents.
FACTS
Petitioners obtained a loan from respondent Development Bank of the Philippines (DBP) secured by a real estate mortgage. After defaulting on their payments, DBP initiated extrajudicial foreclosure proceedings under Act No. 3135. The foreclosure sale was conducted with notices posted and published as required by law, and the property was sold to respondent Arsenio Reyes as the highest bidder. Petitioners claimed they only learned of the sale years later when they received a writ of possession. They subsequently filed a complaint seeking nullification of the sale, arguing they received no personal notice. They also contended that, after the sale but before learning of it, they constructed a new house on the property and should be deemed its owners or, alternatively, builders in good faith entitled to rights under Article 448 of the Civil Code.
ISSUE
The primary issues were: (1) whether the extrajudicial foreclosure sale was invalid due to lack of personal notice to the mortgagors; and (2) whether petitioners are entitled to ownership of the house they built on the foreclosed property or to rights as builders in good faith.
RULING
The Supreme Court denied the petition and affirmed the Intermediate Appellate Court’s decision. On the first issue, the Court held the foreclosure was valid. Act No. 3135, which governed the proceedings, only requires posting and publication of notice, not personal notice to the mortgagor. The Court rejected the argument that a stipulation in the mortgage deed for sending “all correspondence” to the mortgagor created a requirement for personal notice of the sale. This general stipulation could not override the specific statutory procedure invoked by the parties within the same contract. The trial court’s factual finding that statutory posting and publication requirements were complied with was upheld.
On the second issue, the Court found no basis to award the house to petitioners. The appellate court’s factual finding that petitioners failed to substantiate their claim of constructing a new house in 1968 was deemed conclusive. The alleged construction was unsupported by evidence such as tax declarations or DBP’s consent, which was required under the mortgage contract. Consequently, the discussion on builders in good faith under Article 448 was rendered unnecessary. However, the Court noted that even assuming good faith, the option under Article 448 belongs to the landowner, not the builder, and the landowner here had not yet exercised any such option. The petition was denied for lack of merit.