GR L 75786; (September, 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 private respondents, obtained loans from petitioner Community Savings and Loan Association (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, purchased the property at the sheriff’s sale, and later consolidated title. The heirs inquired about the loan status in 1980, but CSLA assured them it was minimal and not yet due. Despite this, CSLA consolidated ownership and sold the property to co-petitioner Narciso Mendiola.
The heirs filed a complaint to annul the foreclosure, alleging fraud and lack of proper notice. The trial court upheld the foreclosure’s validity and awarded damages to petitioners. On appeal, the Court of Appeals reversed the trial court’s decision.
ISSUE
Whether the extrajudicial foreclosure sale is valid despite CSLA’s failure to provide the notice stipulated in the mortgage contract.
RULING
The Supreme Court affirmed the Court of Appeals, declaring the foreclosure void. The mortgage contract contained a specific stipulation (Section 10) requiring that all correspondence, including demand letters and notifications of judicial or extrajudicial actions, be sent to the mortgagor at a designated address. This constituted a binding contractual condition between the parties.
The legal logic is clear: contractual stipulations not contrary to law, morals, good customs, or public policy constitute the law between the parties and must be complied with faithfully under Article 1306 of the Civil Code. While Act No. 3135 governs extrajudicial foreclosure and mandates publication, it does not preclude parties from agreeing on additional notice requirements. CSLA’s failure to send the stipulated personal notice to the deceased mortgagor or his heirs rendered the foreclosure proceedings fatally defective and not binding on them. The Court upheld the appellate court’s factual finding that no such notice was sent, which finding is generally conclusive. Consequently, the foreclosure and subsequent sale were invalidated.