GR L 75786; (August, 1987) (Digest)
G.R. No. L-75786 August 31, 1987
COMMUNITY SAVINGS & LOAN ASSOCIATION, INC. and “HEIRS OF NARCISO MENDIOLA”, petitioners, vs. HON. COURT OF APPEALS, ADORACION ESGUERRA CRUZ, YOLANDA E. VILLANUEVA and EDGARDO ESGUERRA, respondents.
FACTS
The spouses Antonio and Lolita Esguerra, predecessors of the private respondents, obtained loans from petitioner Community Savings and Loan Association, Inc. (CSLA), secured by a real estate mortgage. The loans matured in 1976. Antonio Esguerra died in 1978, with CSLA having taken no prior collection action. In 1979, CSLA initiated extrajudicial foreclosure, and the properties were sold to it at auction. The sheriff’s sale was registered. In 1980, the heirs inquired about the loan status, but CSLA assured them it was minimal and not yet due. Contrary to these assurances, CSLA consolidated title and later sold the property to co-petitioner Narciso Mendiola. The heirs subsequently filed a complaint to annul the foreclosure sale, alleging fraud and lack of proper notice.
ISSUE
Whether the extrajudicial foreclosure sale is valid despite CSLA’s failure to provide the specific notice required by the mortgage contract.
RULING
The Supreme Court affirmed the Court of Appeals’ decision nullifying the foreclosure. The legal logic centers on contract law and the specific terms of the mortgage agreement. While the law governing extrajudicial foreclosure ( Act No. 3135 ) does not require personal notice to the mortgagor, the parties in this case contractually agreed to a stricter requirement. Section 10 of their Real Estate Mortgage stipulated that all notifications of extrajudicial actions “shall be sent to the Mortgagor” at a specified address. This stipulation became binding as the law between the parties under Article 1306 of the Civil Code. The Court of Appeals’ factual finding, which the Supreme Court deemed binding, was that no such agreed notice was ever sent to the deceased mortgagor or his heirs. This failure to comply with a contractual condition rendered the foreclosure proceedings fatally defective and void as to the mortgagor’s successors. The subsequent assurances by CSLA to the heirs, which misled them about the loan’s status, further supported the finding of irregularity. The sale to Mendiola, as a successor in interest, was consequently invalidated due to the root defect in the foreclosure process.