The Supreme Court has affirmed the validity of an extrajudicial foreclosure sale, emphasizing that publication of the notice of sale in a newspaper of general circulation sufficiently complies with legal requirements, even if there are defects in the posting of the notice. The Court also reiterated that a mortgagor who challenges the foreclosure bears the burden of proving non-compliance with legal requisites. Additionally, the Court invoked the principle of estoppel, preventing mortgagors who entered into a lease agreement with the bank after the foreclosure from later contesting the sale’s validity. This decision reinforces the presumption of regularity in foreclosure proceedings and the importance of fulfilling contractual obligations.

Mortgage Default and Foreclosure: Can a Lease Agreement Validate a Sale?

The case of Century Savings Bank vs. Spouses Danilo and Rosalinda Samonte, GR No. 176212, arose from a dispute over the extrajudicial foreclosure of properties mortgaged to secure loans. When the Spouses Samonte defaulted on their loans, Century Savings Bank initiated foreclosure proceedings. The core legal question revolved around whether the bank adequately complied with the notice requirements under Act No. 3135, specifically concerning the posting of the notice of sale. The Samontes argued that the Certificate of Posting issued by the notary public was deficient, rendering the foreclosure invalid. The bank, however, maintained that the publication of the notice in a newspaper of general circulation was sufficient and that the Samontes were estopped from questioning the sale due to a subsequent lease agreement.

Section 3 of Act No. 3135, the governing law on extrajudicial foreclosure, mandates specific notice requirements. It states:

SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.

The Court examined whether the bank’s actions met these requirements. The initial Regional Trial Court (RTC) decision favored the bank, finding that the posting requirement appeared to have been met and that the publication sufficed even if posting was deficient. Furthermore, the RTC invoked estoppel due to the lease agreement. The Court of Appeals (CA), however, reversed this decision, emphasizing the inadequacy of the Certificate of Posting and rejecting the application of estoppel.

The Supreme Court, in reversing the CA, underscored the presumption of regularity in foreclosure proceedings. It emphasized that the burden of proof lies with the mortgagor challenging the foreclosure to demonstrate non-compliance with the legal requirements. The Court referenced Cristobal v. Court of Appeals, where it was held that:

…a mortgagor who alleges absence of a requisite has the burden of establishing that fact. Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the petitioners.

The Court found that the Samontes failed to present sufficient evidence to overcome this presumption. Their argument centered on the wording of the Certificate of Posting, which they claimed indicated posting for only one day. The Supreme Court dismissed this interpretation as specious, reasoning that a more logical reading would be that the posting commenced on November 15, 1999, and continued until the certificate’s issuance. Moreover, the Court found no fault with the notary public’s use of the term “conspicuous places” instead of “public places,” considering them synonymous in this context.

Building on this, the Supreme Court reiterated the principle that publication in a newspaper of general circulation constitutes sufficient compliance, even if there are defects in the posting. Citing Olizon v. Court of Appeals, the Court stated:

Hence, the publication of the notice of sale in the newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirement of the law. By such publication, a reasonably wide publicity had been effected such that those interested might attend the public sale, and the purpose of the law had been thereby subserved.

The Court emphasized that the purpose of the notice is to inform the public and secure bidders. Since the publication achieved this objective, any alleged defect in posting was deemed insufficient to invalidate the sale. The Samontes did not demonstrate any errors in the published notice that would deter bidders or depress the property’s value. This approach contrasts with cases where significant defects in the notice itself misled potential buyers.

Further solidifying its decision, the Supreme Court invoked the principle of estoppel. The Court noted that the Samontes had entered into a Contract of Lease with Century Savings Bank after the foreclosure, acknowledging the bank’s title over the property. The Court referenced Section 2(b), Rule 131 of the Rules of Court, which states: “The tenant is not permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant between them.” By entering into the lease agreement, the Samontes were estopped from later challenging the bank’s ownership and the validity of the foreclosure sale. This affirms the legal principle that a tenant cannot dispute the landlord’s title during the tenancy.

This ruling has significant implications for foreclosure proceedings in the Philippines. It reinforces the importance of publication as a means of providing notice and protects the rights of mortgagees who have complied with this requirement. Additionally, it highlights the binding nature of subsequent agreements between parties, preventing mortgagors from later challenging actions they had implicitly or explicitly acknowledged. The interplay between notice requirements, burden of proof, and the principle of estoppel is crucial in determining the validity of foreclosure sales.

FAQs

What was the key issue in this case?	The key issue was whether Century Savings Bank complied with the notice requirements for an extrajudicial foreclosure sale under Act No. 3135, specifically regarding the posting of the notice. The spouses Samonte alleged the posting was deficient, rendering the foreclosure invalid.
What is the significance of Act No. 3135?	Act No. 3135, as amended, governs the procedure for extrajudicial foreclosure of real estate mortgages. It outlines the requirements for notice, publication, and the conduct of the public auction sale.
What does the law require regarding notice of sale?	The law requires posting notices of the sale for at least twenty days in at least three public places and publication once a week for three consecutive weeks in a newspaper of general circulation. These requirements aim to inform the public about the sale.
What was the Court’s ruling on the Certificate of Posting?	The Court interpreted the Certificate of Posting to mean that the notice was posted beginning November 15, 1999, until the issuance of the certificate on December 9, 1999, thus satisfying the 20-day posting requirement. It did not find fault in the notary’s use of “conspicuous places” instead of “public places.”
What is the effect of publishing the notice of sale?	The Court held that publication of the notice of sale in a newspaper of general circulation is sufficient compliance with the notice requirements, even if there are defects in the posting. This provides wide publicity and ensures interested parties are informed.
What is the principle of estoppel?	Estoppel prevents a party from denying or asserting anything contrary to that which has been established as the truth, either by judicial or legislative acts, or by his own deed, acts, or representations. In this case, the Samontes were estopped from questioning the sale because they entered into a lease agreement with the bank after the foreclosure.
How did the lease agreement affect the case?	The lease agreement, which acknowledged the bank’s title over the property, estopped the Samontes from later challenging the bank’s ownership and the validity of the foreclosure sale. A tenant cannot dispute the landlord’s title during the tenancy.
Who has the burden of proof in challenging a foreclosure?	The mortgagor who challenges the foreclosure has the burden of proving non-compliance with the legal requirements. Foreclosure proceedings have a presumption of regularity.
What is the key takeaway from this case?	Even with technical defects, publication in a newspaper of general circulation fulfills notice requirements for foreclosures. The burden of proof is on the challenger, and subsequent agreements can estop challenges to the foreclosure’s validity.

This case clarifies the balance between strict compliance with notice requirements in extrajudicial foreclosures and the practical realities of providing sufficient public notice. It serves as a reminder of the importance of fulfilling contractual obligations and the limitations placed on challenging actions previously acknowledged or ratified.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CENTURY SAVINGS BANK VS. SPOUSES DANILO T. SAMONTE AND ROSALINDA M. SAMONTE, G.R. No. 176212, October 20, 2010