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FIRST DIVISION
THE COMMONER LENDING G.R. No. 235260
CORPORATION, represented by
MA. NORY ALCALA, Present:
Petitioner
'
PERAL TA, CJ, Chairperson,
CAGUIOA,
REYES, J., JR.,
-versus- LAZARO-JAVIER, and
LOPEZ,JJ.
SPOUSES VOLTAIRE AND Promulgated:
ELLA VILLANUEVA,
Respondents. AUG 2 7 2020
x----------------------------------------------------------------------------------
RESOLUTION
LOPEZ, J.:
The interpretation of the real estate mortgage contract is the main issue
in this Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals' (CA) Decision 1 dated March 27, 2017 in
CA-G.R. CEB-CV No. 04387, which declared void the extrajudicial
foreclosure sale.
ANTECEDENTS
On August 13, 2002, Spouses Voltaire and Ella Villanueva borrowed
Pl 00,000.00 from The Commoner Lending Corporation (TCLC) payable
within one year and with 24% interest per annu,n. 2 As security, Spouses
Villanueva executed a real estate mortgage over Lot No. 380-D. 3
Thereafter, Spouses Villanueva paid TCLC a total of P82,680.00 but were
unable to settle the balance of f>4 I ,340.00. Thus, TCLC sent a final demand
Rollo, p. 14-26; penned by Associate Ju~tice Gabriel T. Robeniol. wilh the concurrence of Associate
Justices Pamela Ann Abella Maxino and Pablito A. Perez.
Id. at 121, 137.
3
Id. at 138-139, 156-157. Lot No. 380-D is n I07-squarc meter land situated al Manoc-Manoc, Malay,
Aki an, and covered by Tax Declaration No. 23 13 in tile 1rn111c or Voltaire Villanueva.
t
Resolution 2 G.R. No. 235260
letter. Yet, Spouses Villanueva failed to comply. 4
Accordingly, TCLC applied with the Office of the Provincial Sheriff to
foreclose the real estate mortgage. 5 After notice and publication, an auction
sale(' ori December 7, 2004 was held and the mortgaged prope11y was sold to
TCLC as the sole bidder. On December 14, 2004, TCLC was issued a
certificate of sale7 which it recorded with the register of deecls. 8 On January
31, 2006, a final deed of sale was executed in favor ofTCLC. 9
Aggrieved, Spouses Villanueva filed an action against TCLC to annul
the extrajudicial foreclosure sale, certificate of sale and final deed of sale
10
before the Regional Trial Court (RTC) docketed as Civil Case No. 7823 .
Spouses Villanueva alleged that TCLC had no right to foreclose the
mmigaged prope11y because paragraph 3 of the real estate mortgage did not
expressly grant it the power to sell. Moreover, the mortgage transaction
between the parties is void because it gave TCLC the power to possess the
prope1iy without judicial order amounting to a pactum commissorium that is
prohibited under the law. Lastly, Spouses Villanueva claimed that they
learned the foreclosure only in January 2005. They denied receiving any
notice of ·f oreclosure and its publication.
On March 29, 2012, the RTC dismissed the complaint and upheld the
validity of the extrajudicial foreclosure sale. Also, it ruled that the agreement
between the parties is not a pactum commissorium absent stipulation on
automatic appropriation of the mortgaged property, 11 thus:
WHEREFORE, in vievv of foregoing. the instant case is ordered
D[SMISSED. The counterclaim for damages is likewise dismissed for lack
of proof.
No cost.
SO ORDERED. 12
Dissatisfied, Spouses Villanueva elevated the case to the CA docketed
as CA-G.R. CEB-CV No. 04387. On March 27, 20 17, the CA reversed the
RTC's findings and declared void the extrajudicial foreclosure sale,
ce rtificate of sale and finai deed of sale. It ruled that TCLC has no authority
to foreclose the mortgage and that paragraph 3 of the real estate mortgage is
merely an expression of Spouses Villanueva's amenability to an
extrajuclicial foreclosure sale. The contract did not a grant TCLC the special
Id. at 118-120, 135-136. 011 August 20, 2003, Spouses Villanueva, through their representative .leverlyn
C. Vilhrnueva, received a Final Demand dated July 30, 2002 from TCLC demanding the payment of their
amortizations in arrears. The spouses foi1ed to heed the clemancl.
Id. at 140-141. AppliL:ation dated July 27, 2004.
Id. at 142. Auction sale was held 1111 December 7, 2004.
Id. at l<lJ-144.
Id. at _144. The Certificate ol'Salc was reg_istere<l on January 27, 2005.
Id. at 1<lS-146. The Final D~t>d of ~,de was executed on .lanuarv JI. 2006.
10
ld.at45-51. -
11
Id. at 79-91 : penned by !'residing .Judge: Jemena I.. Ab•::llar Arbis.
11 Id. at 9 I.
Resolution 3 G.R. No. 235260
power to sell the mortgaged prope1iy in a public auction, 13 to wit:
WHEREFORE, lhe appeal is GRANTED. The Decision elated March
29, 2012 of the RTC, 6 th .Judicial Region, Branch 6, Kalibo, Aklan in Civil
Case No. 7823 is REVERSED and SET ASIDE. The extrajudicial
foreclosure, Cert(ficaLe o/Sale and Final Deed o/Sa!e issued thereunder are
hereby declared NULL and VOID for lack of the special power or authority
to sell the mortgaged property.
SO ORDERED. 14
TCLC sought reconsideration but was denied. 15 Hence, this petition .
TCLC maintains that paragraph 3 of the real estate mortgage provided the
authority to foreclose the mortgage and sell the property to satisfy Spouses
Villanueva's debt. Furthermore, Spouses Villanueva are already barred from
questioning the extrajudicial proceedings because they failed to redeem the
property within one year from the issuance of the certificate of sale. On the
other hand, Spouses Villanueva insisted that TCLC was only granted the
power to possess the property but not to foreclose the mortgage in case of
non-payment of the loan. 16
RULING
It is settled that the Iiteral meaning shal I govern when the terms of a
contract are clear and leave no doubt as to the intention of the parties. 17 The
courts have no authority to alter the agreement or to make a new contract for
the parties. Their duty is confined to the interpretation of the terms and
conditions which the pa1iies have made for themselves without regard to their
wisdom or folly. The courts cannot supply material stipulations or read into
the contract words which it does not contain. It is only when the contract is
vague and ambiguous that the courts are permitted to interpret the agreement
and determine the intention of the parties. 18 Here, the real estate mortgage
contract is complete and leave no doubt as to the authority of TCLC to sell the
mortgaged property.
Specifically, in extrajudicial foreclosure of real estate mortgage, a
special power to sell the prope1iy is required which must be either inse1ied in
or attached to the deed of 11101igage. Apropos is Section I of Act No. 3135, 19
as amended by Act No. 4118,20 thus:
Section I. When a sale is made Lmder a special power inserted in or
attached to any real estate mortgage hereafter made as security for the
payment of money or the f'ul fillment of' any other obligation, the provisions
13
Supra note I .
1
~ Rollo, p. 26.
15
Id. at 41-43.
16
Id. at 213-216.
17
CIVIL CODlc, Art. 1370.
18
Pan Pac/fie Service Contractors, Inc. v. Equitable !'Cl Bank, 630 Phil. 94 (20 ID).
l'J An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real Estate
Mortgages, Act No. 3 135, March 6, 1924.
20
Approved on December 7, 1933.
r
Resolution 4 G.R. No. 235260
of the following section shall govern as to the manner in which the sale and
redemption shall be cffeclccl, whether or not provision for the same is made
in the power. (Emphasis supplied.)
The special power or authority to sell finds support in civil law.
Foremost, in extrajudicial foreclosure, the sale is made through the sheriff by
the n1ortgagees acting as the agents of mortgagors-owners. Hence, there must
be a written authority from the mortgagor-owners in favor of the mortgagees.
Otherwise, the sale would be void. 21 Moreover, a special power of attorney is
necessaiy before entering "into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration." 22 Thus, the written authority must be a special power of
attorney to sel I. :2:i
Here, it is undisputed that no special power to sell was attached to the
real estate mortgage. TCLC relied on the express provision of paragraph 3 of
the agreement allowing it "to take any legal action as may be necessary to
satisfy the mortgage debt." Yet, the CA construed the provision as a mere
grant of authority to foreclose but not to sell the property. On this point, we
find reversible error on the part of the appellate court.
Indeed, while it has been held that a power of sale will not be recognized
as contained in mortgage unless it is given by express grant and in clear and
explicit terms, and that there can be no implied power of sale where a
mortgage holds by a deed absolute in form , it is generally held that no
particular formality is required in the creation of the power of sale. Any words
are sufficient which evince an intention that the sale may be made upon
default or other contingency.2~ .In this case, paragraph 3 of the real estate
mortgage sufficiently incorporated the required special power of attorney to
sell. lt expressly provides that the mortgaged property shall be foreclosed ,
judicia lly or extra judicially, upon failure to satisfy the debt, and that TCLC,
the 11101tgagee, is appointed as attorney-in-fact of Spouses Villanueva, the
mortgagors, to do any legal action as may be necessary to sati,~fy the
mortgage debt, 25 thus:
"
1
See Article 1874, Civil Code. When a sale ofa piece ol" land or any interest therein is through an agen!,
!he authority oflhe !alter shall he in writing: otherwise, !he sale shall be void.
22
See Arti cle I 878~ paragraph 5, Civil Code. Special powers of attorney are necessary in the follo,ving
cases:
xxxx
(5) To enter into any conlrnct by which the ownership of an immovable is trnnsm illed o r acquired either
gratuitously or (t)J" a valuable consideration;
XX XX
2' Sps. Bt(\'S£t v. ,'ifJS. f>l,mrilfu. l'I al., 763 Phil. 562,570 (_'.2015).
21
' Tan C'1111 v. C. N. /-{rl(.~~es. el al., C>8 Phil. 928 . 930-911 (] l)56), citing 4 1 Corpus Juris, p. 926.
2
~ cf StnJ11se.1· /Jaysa v. SprJ//se.,· f'/anti/fa, .1·111wc: al 566. ln !hat case, paragraph 13 of the REM reads: "In the
event of non-payment of !he entire principal and :iccruc:cl interest due under the conditions described in
this paragraph, the mor!gagors exprt,ssly and specilically ugrce lo 1hc extra-judicial foreclosure or the
mortgaged property." We ruled Iha! based on the text of paragraph 13, the petitioners agreed only to !he
holding of the extrajuclicial foreclosure should !hey uefaul! in lheir obligations. Their agreement was a
mere expression or their amenability to extrajudicial lo reclosure as !he means or foreclosing the
morlgage, and did not conslitute the :;pecial power or authority to se ll the mortgaged property to enable
the mortgagees ro recover the unp,1id obligation~. We declared that what was necessary was the specic1I
power or authority to sel 1- whether inserted i11 lhe REM itsel t: or annexed thereto -· that author ized the
respondent spouses lo sell in !he public auction Iheir 111ortg:1geu property.
Resolution 5 G.R. No . 235260
3. That in case of non-payment or violation of the terms of the mortgage or
any of the provision of the Republic Act No. 728 as amended this
mo1-tgage shall immediately be foreclosed judicially or extra-judicially
as provided by law and the mortgagee is hereby appointed
attorney-in-fact of the mortgagor(s) with full power and authority to
take possession of the mortgaged properties without the necessity of any
judicial order or any other permission or power. and to take any legal
action as may be necessary to satisfy the mortgage debt, but if the
mortgagor(s) shall well nnd truly l'ulfill the obligation above stated
according to the terms thereof then this mortgage shnll become null and
void. (Emphases supplied.)
The provision is pellucid and the CA cannot limit the authority granted
to TCLC. Also, Spouses Villanueva cannot claim, contrary to their plain
agreement, that they granted TCLC merely the power to possess but not to sell
the mortgaged property. Clearly stipulated in the real estate mo1igage was the
appointment of TCLC as attorney-in-fact, with authority to sell or otherwise
dispose of the subject property, and to apply the proceeds to the payment of
the loan. This provision is customary in mortgage contracts, and is in
conformity with the principle that when the principal obligation becomes due,
the things in which the mo1igage consists may be alienated for the payment to
the creditor. 26
It is basic that obligations arising from contracts have the force of law
between the parties and should be complied with in good faith. 27 The
stipulations are binding between the contracting parties unless they are
contrary to law, morals, good customs, public order or public policy. 28
Corollarily, Spouses Villanueva, who freely signed the real estate mortgage
contract, cannot now be allowed to renege on their obligation. The validity or
compliance of a contract cannot be left to the will of one of the pariies. 29
Finally, the sheriff complied with the procedures under Act No. 3135 30
for the extrajudicial foreclosure of the mo1igaged prope1iy. The RTC and CA
both held that Spouses Villanueva were notified of the auction sale and that
the posting and publication requirements were duly complied with. 31 Verily,
these involve factual issues and are beyond the ambit of this Court's
jurisdiction in a petition for review on certiorari. [t is not this Court's task to
go over the proofs presented below to ascertain if they were appreciated and
Jc, CIVIi. COIJI·:, Art. 2087.
7
~ Id., Art. 1159.
!H /cf., Art. 1306.
29
Id., Art. 1308.
,ii Sections 3 and 4, Act No. 3135, as amended, provide:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at
least three public places or the municipality or city where the property is situaled, and if such
properly is worth more than four hundred pesos, such nolicc shall also be published once a week for
at least three consecutive weeks in a newspaper or general circulation in Lhe municipality or city.
Sec. 4. The sale shall be made at public auction, bclwccn the hours or nine in the morning and
four in the afternoon: and shall be under Lhe direction of the sheriff' or the province. the justice or
auxiliary justice of the peace of the municipality in which such sale has to be made , or a notary
public of said municipality, who shall be entitled to collect a fee of five pesos each clay of actual
work performed, in addition to his expenses .
.1i Rollo, pp. 25 and 87-89 .
I
Resolution 6 G.R. No. 235260
weighed correctly, most especially when the trial coL11i and the appellate court
speak as one in their findings and conclusions. 3~
FOR THESE REASONS, the petition is GRANTED. The Court of
Appeals' Decision dated March 27, 2017 in CA-G.R. CEB-CV No. 04387 is
REVERSED and SET ASIDE. The Regional Trial Corni's Decision dated
March 29, 2012 in Civil Case No. 7823 dismissing the complaint is
REINSTATED.
SO ORDERED.
"
WE CONCUR:
u~
(fl EC. REYES, JR.
sociate Justice
( ~ '
1
AMf7{. LAZARO-JAVIER
· Associate Justice
12
· Gulan 11. Vinurnv, G.R. No. 2059 I::!, October 18.2017. 842 SCl{A 602: Heirs of Teresi/a 1"illa1111eva. t'I
al. ,,. Heirs 1f Petro11i/a S11q11iu AI<!ndo::.u, el al., 810 Phil. I Tl (2017); and Rac.1·asur 1•. ( 'i1•i/ S en •ice
Co111mi.1·.1·i11n. 5% Phil. 858 (2009).
Resolution 7 G.R. No. 235260
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Resolution had been reached in consultation before
the case was assigned to the writer of the opinion of the Court's Division.
DIOSDADO . . PERALTA
Chief
