Development Bank of the Philippines vs. Court of Appeals

A postponed extrajudicial foreclosure sale requires republication of the notice of sale under Act No. 3135, and the parties cannot waive this jurisdictional requirement.

Emerald Resort Hotel Corporation ("ERHC") obtained a P3,500,000 loan from Development Bank of the Philippines ("DBP") secured by personal and real property mortgages. DBP approved a restructuring of the loan subject to several conditions, including debt-to-equity conversion, an additional loan, and quasi-reorganization. ERHC failed to meet these conditions, prompting DBP to initiate extrajudicial foreclosure proceedings.

• The Loan and Security: ERHC obtained a P3,500,000 loan from DBP, released in three installments between September 1975 and September 1976. To secure the loan, ERHC executed chattel and real estate mortgages over its properties. The original mortgage contracts required ERHC to assign at least 67% of its outstanding voting shares to DBP.
• The Restructuring Agreement: On March 18, 1981, DBP approved a restructuring of ERHC’s loan via DBP Resolution No. 956, subject to material conditions: (1) conversion of 40% of the outstanding obligation into equity; (2) availment of a third additional loan of P679,000 to cover accrued interest; and (3) quasi-reorganization to eliminate existing deficits, requiring SEC approval. ERHC had to comply within 90 days or the accommodation would be automatically cancelled.
• ERHC's Non-Compliance: ERHC failed to satisfy the conditions. It delivered stock certificates to DBP, but these were to fulfill the 67% assignment requirement under the original mortgage contracts, not the debt-to-equity conversion under the restructuring. ERHC refused to avail of the additional loan. Finally, the SEC disapproved ERHC’s application for quasi-reorganization.
• The Foreclosure Proceedings: On June 5, 1986, DBP filed an application for extrajudicial foreclosure. The sheriffs posted notices of the auction sale but failed to execute the corresponding certificates of posting.
• The Chattel Mortgage Sale: The auction sale of the personal properties proceeded as scheduled on July 10, 1986.
• The Real Estate Mortgage Sale: The auction sale of the real properties was initially scheduled for August 12, 1986, with notices published in the Bicol Tribune on July 18, July 25, and August 1, 1986. At ERHC’s request, the sale was postponed to September 11, 1986. DBP agreed to the postponement but did not republish the notice of the rescheduled sale.
• Post-Foreclosure Actions: On November 24, 1986, ERHC informed DBP of its intention to lease the foreclosed properties.

• Posting Requirement: DBP maintained that the non-execution of the certificate of posting did not invalidate the foreclosure, arguing that actual posting was proven by the sheriffs' partial report, certificate of sale, and testimony.
• Publication Requirement: DBP contended that republication of the notice was unnecessary for a rescheduled auction sale, asserting that the parties could waive the requirement by agreeing to the postponement. DBP argued that Section 24, Rule 39 of the Rules of Court, allowing adjournment of execution sales by written consent, applied.
• Restructuring Agreement: DBP claimed the restructuring agreement was never perfected because ERHC failed to comply with its material conditions.
• Waiver: DBP argued that ERHC’s offer to lease the foreclosed properties constituted a waiver of its right to question the validity of the foreclosure.
• Moral Damages: DBP maintained that ERHC, being a juridical person, was not entitled to moral damages.

• Procedural Defenses: ERHC alleged that the foreclosure was void due to DBP’s failure to comply with the statutory posting and publication requirements, specifically the lack of certificates of posting and the failure to republish the notice of the rescheduled sale.
• Premature Foreclosure: ERHC countered that the loan was not yet due and demandable because the restructuring agreement had been perfected and substantially implemented, pointing to the delivery of stock certificates and DBP's acceptance thereof.
• Moral Damages: ERHC argued that its reputation was debased when sheriffs and armed men intruded into Hotel Ibalon and inventoried its furniture and fixtures, justifying the award of moral damages.

• Posting Requirement: Whether the non-execution of the certificate of posting invalidates the extrajudicial foreclosure sale.
• Publication Requirement: Whether republication of the notice of sale is required for a postponed extrajudicial foreclosure sale, and whether the parties can waive this requirement.
• Restructuring Agreement: Whether the restructuring agreement between DBP and ERHC was perfected and implemented before the foreclosure.
• Waiver: Whether ERHC’s offer to lease the foreclosed properties constitutes a waiver of its right to question the validity of the foreclosure.
• Moral Damages: Whether the award of moral damages to ERHC, a juridical person, is proper.

• Posting Requirement: The non-execution of a certificate of posting does not invalidate an extrajudicial foreclosure sale. What the law requires is the actual posting of the notice, not the execution of the certificate. In the absence of contrary evidence, the presumption that sheriffs regularly performed their official duty prevails. The sheriffs' partial report and certificate of sale sufficiently proved that posting occurred.
• Publication Requirement: Republication of the notice of sale in the manner prescribed by Act No. 3135 is mandatory for a postponed extrajudicial foreclosure sale. Section 24, Rule 39 of the Rules of Court on adjournment of execution sales does not apply to extrajudicial foreclosure sales, which are governed exclusively by Act No. 3135. The publication requirement cannot be waived by the parties, as doing so would convert a public auction into a private sale. The extrajudicial foreclosure of the real estate mortgage was declared void for lack of republication. However, the foreclosure of the chattel mortgage was valid, as the Chattel Mortgage Law only requires posting, which was complied with, and no postponement occurred.
• Restructuring Agreement: The restructuring agreement was never perfected. ERHC failed to comply with three material conditions: (1) the stock certificates delivered were for the 67% assignment under the original mortgage, not the debt-to-equity conversion required by the restructuring; (2) ERHC refused to avail of the additional loan intended to update its interest payments; and (3) the SEC disapproved the quasi-reorganization. Consequently, the loan was already in default when DBP initiated foreclosure.
• Waiver: A mere offer to lease the foreclosed properties does not constitute a waiver of the right to contest the validity of a void foreclosure. Waiver requires clear and convincing evidence of intent to relinquish a right. Furthermore, statutory requirements for foreclosure cannot be waived as they are matters of public order.
• Moral Damages: The award of moral damages was deleted. As a general rule, moral damages cannot be awarded to a corporation because it has no feelings, emotions, or senses. Moreover, ERHC failed to present concrete proof of the factual basis of the damage and its causal relation to DBP’s acts, as the testimony cited by the trial court was not even offered to prove damages.

• Republication of Notice in Rescheduled Extrajudicial Foreclosure Sale — A postponed extrajudicial foreclosure sale requires republication of the notice of sale pursuant to Act No. 3135. The parties cannot waive this requirement. Republication is unnecessary only if the rescheduled date is clearly specified in the prior published notice, as allowed by OCA Circular No. 7-2002, which took effect on April 22, 2002.
• Certificate of Posting — A certificate of posting is not indispensable for the validity of an extrajudicial foreclosure sale under Act No. 3135. The fact that no certificate of posting exists is not sufficient proof that posting did not occur, especially when confronted with the presumption of regular performance of official duty.
• Moral Damages for Juridical Persons — A corporation cannot recover moral damages because, being an artificial person, it has no feelings, emotions, or senses, and cannot experience physical suffering or mental anguish. Any statement allowing a corporation to recover moral damages for a debased reputation is considered obiter dictum.
• Waiver of Statutory Requirements — The posting and publication requirements in extrajudicial foreclosure proceedings cannot be waived by the parties, as doing so would convert a public auction into a private sale, contravening law and public order.

• "Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity such that those interested might attend the public sale. To allow the parties to waive this jurisdictional requirement would result in converting into a private sale what ought to be a public auction."
• "The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only be one having a nervous system."
• "To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another."

• Cristobal v. Court of Appeals, G.R. No. 124372 (2000) — Followed. Reiterated the doctrine that a certificate of posting is not indispensable for the validity of an extrajudicial foreclosure sale.
• Bohanan v. Court of Appeals, G.R. No. 111654 (1996) — Followed. Established that the absence of a certificate of posting does not prove lack of actual posting.
• Ouano v. Court of Appeals, G.R. No. 129279 (2003) — Followed. Held that republication is necessary for a postponed extrajudicial foreclosure sale and that Section 24, Rule 39 of the Rules of Court does not apply to extrajudicial sales.
• Philippine National Bank v. Nepomuceno Productions Inc., G.R. No. 139479 (2002) — Followed. Declared that parties have no right to waive the posting and publication requirements of Act No. 3135, and requesting a postponement does not estop a party from questioning the lack of republication.
• ABS-CBN Broadcasting Corp. v. Court of Appeals, 361 Phil. 499 (1999) — Followed. Affirmed the rule that moral damages cannot be awarded to a corporation.

• Section 3, Act No. 3135 — Requires posting of notices of sale for not less than 20 days in at least three public places, and publication once a week for at least three consecutive weeks in a newspaper of general circulation for properties worth more than four hundred pesos. Applied to invalidate the real estate mortgage foreclosure due to lack of republication of the rescheduled sale.
• Section 14, Act No. 1508 (Chattel Mortgage Law) — Requires posting of notices at least ten days in at least two public places. Applied to uphold the chattel mortgage foreclosure, as posting was complied with and no postponement occurred.
• Section 24, Rule 39, Rules of Court — Allows adjournment of execution sales by written consent of the parties. Held inapplicable to extrajudicial foreclosure sales, which are governed by Act No. 3135.
• OCA Circular No. 7-2002 — Prescribes the form of the notice of extrajudicial sale, allowing a rescheduled date to be specified in the original notice to dispense with republication. Held not applicable retroactively to the 1986 foreclosure.

Davide, Jr., C.J., Vitug, Ynares-Santiago, and Azcuna, JJ.