Ardiente vs. Provincial Sheriff

A party cannot raise the lack of posting and publication of the notice of extrajudicial foreclosure sale for the first time on appeal where it was not alleged in the complaint or amended complaint, not refuted in the reply, and not tried with the parties’ consent; the rule of strict compliance with publication requirements does not itself supply the missing issue.

The spouses Rustico A. Ardiente and Asuncion Palomardiente were the mortgagors, while Peninsula Development Bank was the mortgagee; the Provincial Sheriff of Quezon and the Register of Deeds of Quezon were impleaded because the challenged sale was conducted by the sheriff and the resulting title was registered with the Register of Deeds. The governing statute is Act No. 3135, which regulates sales of property under special powers inserted in or annexed to real estate mortgages and requires posting and publication of the notice of sale.

In mid-November 1979, spouses Rustico A. Ardiente and Asuncion Paloma, together with their son Angel P. Ardiente and the latter’s wife Gliceria Ardiente, obtained a ₱100,000.00 loan from Peninsula Development Bank at its main office in Lucena City, to be amortized in six years, and executed a November 15, 1979 promissory note for that amount. To secure payment, the Ardientes executed on November 14, 1979 a real estate mortgage in favor of the bank over a parcel of land in Mabutag, Cawa, Buenavista, Quezon covered by TCT No. 29478 and three parcels in Cadlit, Guinayangan, Quezon covered by OCT No. 0-5961. From the loan proceeds, they purchased a mini bus costing ₱81,875.00. After the bus had operated for several months, it met an accident in August 1980, sustained heavy damages, and the Ardientes became unable to meet their obligation. The bank later granted them an additional loan of ₱46,000.00, for which they executed an October 29, 1981 promissory note, and the real estate mortgage was amended.

Demands for payment notwithstanding, the Ardientes failed to settle their obligation. The bank extrajudicially foreclosed the mortgage, and the parcels of land covered thereby were sold at public auction to the bank, which was the highest bidder. The bank later notified the Ardientes by letter dated February 24, 1984 that they had one year from November 11, 1983, or until November 11, 1984, to redeem the foreclosed properties.

Two days before the redemption period expired, on November 9, 1984, the spouses filed with the RTC of Quezon at Gumaca a complaint, denominated as Petition, against the bank, the Provincial Sheriff of Quezon, and the Register of Deeds of Quezon for Annulment of Auction Sale with Preliminary Injunction and Damages. Paragraph 16 of the complaint alleged two legal grounds: (a) that it was the defendant, not the petitioners, who had violated the real estate mortgage and amended real estate mortgage, and (b) that the requisite of notifying the mortgagors of the intended extrajudicial foreclosure sale was not duly complied with. Paragraph 15 alleged that, without first having been duly notified of an intended extrajudicial foreclosure auction sale, petitioners received the bank’s February 24, 1984 letter informing them that the one-year redemption period ran from November 11, 1983 to November 11, 1984.

In its Answer with Counterclaim, the bank admitted paragraph 15 with the qualification that petitioners were duly notified of the extrajudicial foreclosure and public auction sale and that there was sufficient notice and publication served to all concerned. It specifically denied paragraph 16 and alleged that petitioners had violated the terms and conditions of the real estate mortgage and amended real estate mortgage, and that the bank had complied with the requisites of Act No. 3135 as amended in relation to the application for extrajudicial proceedings of collaterals. Petitioners filed a Reply and Answer to Counterclaim. They later amended the complaint to allege, among other things, that the purchase price of the mortgaged parcels was grossly and greatly inadequate, that they suffered damages by reason of the unlawful foreclosure, and that they filed a notice of lis pendens with the Register of Deeds.

In their memorandum before the RTC, the bank argued that there was notice and publication of the notice of public auction sale in a newspaper of general circulation, supported by a publisher’s affidavit attached to the record in the Office of the Provincial Sheriff of Quezon at Calauag, Quezon; that personal notice was sent to the plaintiffs; and that personal notice in extrajudicial foreclosure is not necessary under Bonnevie vs. Court of Appeals and Act No. 3135, Sec. 3, with publication once a week for at least three consecutive weeks not requiring three full weeks under Basa vs. Mercado. The RTC noted, however, that the bank never submitted documentary exhibits of publication in a newspaper of general circulation supported by a publisher’s affidavit, and that no proof of publication existed in the records.

• Sufficiency of the Complaint and Amended Complaint: Petitioners argued that paragraphs 15 and 16 of the Complaint and paragraph 16 of the Amended Complaint attacked the validity of the extrajudicial sale; that impleading the sheriff showed they were questioning the validity and legality of his performance of official duty; and that the bank was sufficiently informed of their cause of action, theory, and relief, as shown by the bank’s allegations in paragraphs 15 and 16 of its Answer.
• Issue Tendered by the Bank’s Affirmative Defense: Petitioners argued that paragraph 25 of the bank’s Special and Affirmative Defenses alleged compliance with Act No. 3135, specifically the notices of public auction sale and the extrajudicial foreclosure application, thereby tendering an issue that called for presentation of evidence under Benavides vs. Alabastro; the bank nevertheless did not present proof of proper compliance with Act No. 3135 as to posting and publication of the notices of public auction sale.
• CA Reversal and Attorney’s Fees: Petitioners argued that the CA seriously erred in holding that the bank had no need to present the sheriff’s certification of posting, the newspaper where the notice was published, and the publisher’s affidavit because the absence of posting and publication was not mentioned in the Petition and Amended Petition; in reversing the RTC and dismissing the complaint; and in not awarding attorney’s fees and litigation expenses.

• Compliance with Notice and Publication: Respondent bank alleged in its Answer that petitioners were duly notified of the extrajudicial foreclosure and public auction sale, that there was sufficient notice and publication served to all concerned, and that it complied with the requisites of Act No. 3135 as amended in relation to the application for extrajudicial proceedings of collaterals.
• Personal Notice Not Required: Respondent bank maintained in its memorandum that personal notice to the mortgagor in extrajudicial foreclosure is not necessary under Bonnevie vs. Court of Appeals and Act No. 3135, Sec. 3; it also argued that publication once a week for at least three consecutive weeks does not mean publication for three full weeks under Basa vs. Mercado.
• Denial of Petitioners’ Mortgage Violation Claim: Respondent bank denied the allegation that it violated the mortgage and alleged that petitioners violated the terms and conditions of the real estate mortgage and amended real estate mortgage.

• Personal Notice: Whether lack of personal notice to the mortgagors of the extrajudicial foreclosure sale is a ground to annul the sale.
• First-Time-on-Appeal / Lack of Publication: Whether the lack of posting and publication of the notice of extrajudicial foreclosure sale can be raised for the first time on appeal where it was not alleged in the complaint or amended complaint, not refuted in the reply, and not tried with the parties’ consent.

• Personal Notice: No. Personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary, so its absence is not a ground to set aside the foreclosure sale.
• First-Time-on-Appeal / Lack of Publication: No. The lack of posting and publication was not raised in the complaint, amended complaint, reply, or trial and cannot be raised for the first time on appeal; the CA correctly reversed the RTC.

• Personal Notice: The SC read paragraphs 15 and 16 of the complaint as questioning the validity of the extrajudicial foreclosure on the basis of lack of notice to petitioners as mortgagors. It held that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary, hence not a ground to set aside the foreclosure sale, citing Fortune Motors (Phils.), Inc. vs. Metropolitan Bank & Trust Co. The bank’s memorandum had also invoked Bonnevie vs. Court of Appeals and Act No. 3135, Sec. 3, but the SC’s ruling rested on the settled rule that personal notice is not required.
• First-Time-on-Appeal / Lack of Publication: The SC acknowledged that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and that even slight deviations invalidate the notice and the sale at least voidable, citing Ouano vs. Court of Appeals. It held, however, that the lack of posting and publication was not raised by petitioners in the Amended Complaint, in their Reply and Answer to Counterclaim, during the trial as shown by the transcripts, or in their memorandum before the RTC; they assailed only the lack of personal notification and the grossly inadequate purchase price. Although the bank’s Answer pleaded that petitioners were duly notified and that there was sufficient notice and publication, and paragraph 25 of its Special and Affirmative Defenses alleged compliance with Act No. 3135, petitioners never refuted those defenses or presented evidence to disprove them. The SC distinguished Benavides vs. Alabastro, which concerns judgment on the pleadings and holds that an answer tendering an issue by denial and affirmative defenses calls for evidence; that rule did not cure the failure to raise lack of publication. It distinguished Tambunting vs. Court of Appeals because there the lack of publication was raised in a supplemental complaint, and followed Go vs. Court of Appeals because there, as here, the mortgagees pleaded publication in their Answer but the mortgagors never raised lack of publication in the complaint or evidence, so the issue was raised only on appeal and could not be considered. The CA therefore did not err in reversing the RTC.

• Personal notice not required in extrajudicial foreclosure — In extrajudicial foreclosure under Act No. 3135, personal notice to the mortgagor is not necessary; lack of personal notice is not a ground to set aside the foreclosure sale. The SC applied this to reject petitioners’ complaint, which was anchored on lack of notice to them as mortgagors.
• Strict compliance with publication requirements — Statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with; even slight deviations invalidate the notice and the sale at least voidable. The SC recognized this rule but held it could not be applied because the lack of publication was not raised in the pleadings or tried.
• Issue must be raised in pleadings and tried — A ground for annulling an extrajudicial foreclosure sale must be alleged in the complaint or amended complaint, or at least tried with the parties’ consent, to be a valid basis for judgment; it cannot be raised for the first time on appeal. The SC applied this to the lack of posting and publication, which petitioners raised only on appeal.
• Answer tendering an issue calls for evidence; judgment on pleadings — Where the answer denies material allegations and sets up special and affirmative defenses, it tenders an issue and calls for presentation of evidence; it is error to render judgment on the pleadings without such evidence. The SC distinguished Benavides because it did not supply the missing pleading of lack of publication.

• “It is settled that personal notice to the mortgagor in extra-judicial foreclosure proceedings is not necessary, hence, not a ground to set aside the foreclosure sale.” — The SC rejects petitioners’ theory that lack of notice to them as mortgagors invalidated the foreclosure.
• “No doubt, it is a well-settled rule that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and that even slight deviations therefrom will invalidate the notice and the sale at least voidable.” — The SC acknowledges the strict-compliance rule but does not apply it because the issue was not raised.
• “As the appellate court thus held, the issue of lack of publication of notice cannot be raised for the first time on appeal.” — The SC affirms the CA’s dispositive procedural ground for reversing the RTC.

• Fortune Motors (Phils.), Inc. vs. Metropolitan Bank & Trust Co., 265 SCRA 72, 81 (1996) — Cited by the SC for the rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary.
• Ouano vs. Court of Appeals, 398 SCRA 525 (2003) — Cited by the SC for the rule that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, with even slight deviations invalidating the notice and sale at least voidable.
• Tambunting vs. Court of Appeals, 167 SCRA 17 — Distinguished; there the lack of publication was raised in a supplemental complaint, unlike the present case where it was not raised in the pleadings or trial.
• Benavides vs. Alabastro, 12 SCRA 553 (1964) — Distinguished; it concerns judgment on the pleadings and holds that an answer tendering an issue calls for evidence, but it did not cure petitioners’ failure to raise lack of publication.
• Go vs. Court of Appeals, 210 SCRA 661 (1992) — Followed; despite the mortgagees’ Answer pleading publication, the mortgagors never raised lack of publication in the complaint or evidence, so the issue was raised only on appeal and could not be considered.

• Act No. 3135, Sec. 3, as amended by Act No. 4118 — Requires posting of notice of sale for not less than twenty days in at least three public places and publication once a week for at least three consecutive weeks in a newspaper of general circulation where the property is worth more than ₱400.00; the SC recognized the strict-compliance rule but held the lack of publication was not raised in the pleadings or trial.
• Act No. 3135 — Regulates the sale of property under special powers inserted in or annexed to real estate mortgages; the SC applied it in holding that personal notice to the mortgagor is not necessary and in recognizing the publication requirements for extrajudicial foreclosure sales.
• Sec. 5, Rule on Amendment to Conform to or Authorize Presentation of Evidence — The CA quoted it; the SC held it could not apply because the lack of publication was not tried with the parties’ consent.