G.R. No. 90369 . October 31, 1990.
FLORENTINO CRUZ AND LINA CRUZ, petitioners, vs. THE HONORABLE COURT OF APPEALS AND GOVERNMENT SERVICE INSURANCE SYSTEM, respondents.

FACTS

On May 22, 1970, petitioners Florentino and Lina Cruz purchased a parcel of land from spouses Oscar and Eva De los Reyes. The property was mortgaged to the Government Service Insurance System (GSIS) for P20,000.00, an obligation the Cruz spouses assumed. The mortgage contract explicitly prohibited the sale or encumbrance of the property without the GSIS’s prior consent. Petitioner Florentino Cruz attempted to secure this consent by submitting a copy of the deed of sale to a GSIS officer, Mr. Tobias Jaylo, but received no formal approval despite follow-ups. The Cruz spouses subsequently failed to pay the mortgage amortizations.
Due to unpaid arrearages, the GSIS extrajudicially foreclosed the property on September 29, 1978. After the redemption period lapsed, the GSIS consolidated ownership, and a new title was issued in its name on September 25, 1981. In 1982, the GSIS offered the Cruz spouses an opportunity to repurchase the property, which they rejected, insisting instead on liquidating the original mortgage debt. The Cruz spouses then filed a complaint for annulment of foreclosure, reconveyance, and damages, which was dismissed by the Regional Trial Court. The Court of Appeals affirmed this dismissal.

ISSUE

Whether the Court of Appeals erred in affirming the dismissal of the complaint, thereby upholding the validity of the extrajudicial foreclosure conducted by GSIS despite the sale of the mortgaged property to the petitioners.

RULING

The Supreme Court dismissed the petition, affirming the appellate court’s decision. The legal logic is anchored on the absence of privity of contract between the petitioners and the GSIS and the petitioners’ failure to secure the mortgagee’s prior consent as contractually required.
First, the deed of sale with assumption of mortgage was executed without the prior written consent of GSIS, a clear violation of the mortgage contract’s stipulation. Petitioners knowingly assumed this risk. Consequently, no contractual relationship was established between petitioners and GSIS; their recourse, if any, lies against the vendor-spouses De los Reyes.
Second, the extrajudicial foreclosure was valid. Since no privity existed, GSIS had no legal duty to provide petitioners with special notice of the foreclosure. The publication of the notice of sale in a newspaper of general circulation, as required by Act No. 3135 , constituted constructive notice to the whole world, including the petitioners. The law does not mandate personal notice to successors-in-interest.
Third, petitioners failed to establish a cause of action against GSIS. Their subsequent attempt to secure approval did not cure the initial lack of consent. Moreover, their inaction—failing to pay amortizations for years and rejecting GSIS’s post-foreclosure repurchase offer—negated any equitable grounds for relief. The Court found no basis to allow redemption based on equity, as petitioners’ predicament resulted from their own calculated risk and failure to fulfill assumed obligations.