Fiestan vs. Court of Appeals

An extrajudicial foreclosure sale under Act No. 3135, as amended, does not require a prior levy under Section 15 of Rule 39 of the Rules of Court, and the mortgagee-creditor may participate in the bidding and purchase the mortgaged property under Section 5 of Act No. 3135, as amended. The special law governs extrajudicial foreclosure, and the Civil Code prohibitions on agent-purchasers do not apply.

Spouses Dionisio Fiestan and Juanita Arconado owned Lot No. 2-B in Ilocos Sur, covered by TCT T-13218, which they mortgaged to the Development Bank of the Philippines (DBP) as security for a P22,400.00 loan. The mortgage contract contained a special power authorizing DBP, for purposes of extrajudicial foreclosure, to sell the mortgaged property under Act No. 3135, as amended, and to perform acts necessary to accomplish that purpose. Act No. 3135, as amended by Act No. 4118, is the special law regulating the sale of property under special powers inserted in or annexed to real estate mortgages; ordinary execution sales are governed by Rule 39 of the Rules of Court, while judicial foreclosure sales are governed by Rule 68.

Petitioners Dionisio Fiestan and Juanita Arconado owned Lot No. 2-B in Ilocos Sur, covered by TCT T-13218. They mortgaged the lot to the Development Bank of the Philippines (DBP) as security for a P22,400.00 loan. In the mortgage contract, petitioners appointed DBP, for purposes of extrajudicial foreclosure, as attorney-in-fact to sell the mortgaged property under Act No. 3135, as amended, to sign all documents, and to perform any act requisite and necessary to accomplish that purpose; the mortgagor also consented to the appointment of the mortgagee or any of its employees as receiver, without bond, to take charge of the mortgaged property at once.

After petitioners failed to pay their mortgage indebtedness, DBP extrajudicially foreclosed the property in accordance with Act No. 3135, as amended by Act No. 4118. At the public auction sale held on August 6, 1979, DBP was the highest bidder. The Provincial Sheriff of Ilocos Sur issued a certificate of sale on the same day, and it was registered on September 28, 1979. Earlier, or on September 26, 1979, petitioners executed a Deed of Sale in favor of DBP, which was likewise registered on September 28, 1979. Notices of sale had been posted by the Provincial Sheriff and published in Ilocos Times, a newspaper of general circulation in Ilocos Sur, setting the auction on August 6, 1979 at 10:00 a.m. at the Office of the Sheriff, Vigan, Ilocos Sur.

Petitioners failed to redeem the property within the one-year period, which expired on September 28, 1980. Consequently, the Register of Deeds cancelled TCT T-13218 and issued TCT T-19077 to DBP upon presentation of a duly executed affidavit of consolidation of ownership.

On April 13, 1982, DBP sold the lot to Francisco Peria by a Deed of Absolute Sale, registered on April 15, 1982. DBP's title was cancelled and TCT T-19229 was issued to Peria. Peria secured a tax declaration for the lot and paid the taxes due. He thereafter mortgaged the lot to PNB Vigan Branch as security for his loan of P115,000.00, which the bank required to increase his original loan from P49,000.00 to P66,000.00 until it reached the approved amount of P115,000.00. Because petitioners remained in possession of Lot No. 2-B, the Provincial Sheriff ordered them to vacate the premises.

On August 23, 1982, petitioners filed a complaint for annulment of sale, mortgage, and cancellation of transfer certificates of title against DBP-Laoag City, PNB Vigan Branch, Peria, and the Register of Deeds of Ilocos Sur, docketed as Civil Case No. 3447-V before the Regional Trial Court of Vigan, Ilocos Sur. Petitioners alleged that the extrajudicial foreclosure sale was void for lack of a prior levy and that DBP could not purchase the property as mortgagee. After trial, the RTC dismissed the complaint and declared valid the extrajudicial foreclosure sale to DBP, the subsequent sale to Peria, and the real estate mortgage in favor of PNB Vigan. The Court of Appeals affirmed the dismissal. The factual findings material to the Supreme Court's analysis were that the auction sale was conducted under Act No. 3135, that the required notices were posted and published, and that DBP was the highest bidder and later consolidated ownership after petitioners failed to redeem.

• Levy Requirement: Petitioners argued that the extrajudicial foreclosure sale of August 6, 1979 was null and void because the Provincial Sheriff of Ilocos Sur conducted it without first effecting a levy on the mortgaged property before selling it at public auction; they maintained that without a valid levy, the certificate of sale could not transfer ownership to DBP.
• Consequential Nullity: Petitioners maintained that because the foreclosure sale and certificate of sale were void, the subsequent deed of sale executed by DBP in favor of Francisco Peria and the real estate mortgage constituted by Peria in favor of PNB Vigan Branch were likewise null and void.
• Prohibition on Agent-Purchaser: Petitioners argued that DBP could not acquire the mortgaged property at the public auction sale by virtue of paragraph (2) of Article 1491 and paragraph (7) of Article 1409 of the Civil Code, which prohibit agents from acquiring by purchase property whose administration or sale may have been entrusted to them unless the principal consents.
• Reliance on Aparri: Petitioners cited Aparri vs. Court of Appeals, 13 SCRA 611 (1965).

• Levy Requirement: Whether an extrajudicial foreclosure sale under Act No. 3135, as amended, requires a prior levy under Section 15 of Rule 39 of the Rules of Court before the mortgaged property may be sold at public auction.
• Mortgagee's Purchase: Whether the mortgagee-creditor DBP may participate in the bidding and purchase the mortgaged property at the extrajudicial foreclosure sale, notwithstanding paragraph (2) of Article 1491 and paragraph (7) of Article 1409 of the Civil Code.
• Compliance with Act No. 3135 Formalities: Whether the extrajudicial foreclosure sale complied with the notice and publication requirements of Sections 2, 3, and 4 of Act No. 3135, as amended.
• Validity of Subsequent Sale and Mortgage: Whether the subsequent sale by DBP to Francisco Peria and the real estate mortgage constituted by Peria in favor of PNB Vigan Branch are valid.

• Levy Requirement: No. Act No. 3135, as amended, is the special law governing extrajudicial foreclosure; it does not require a prior levy under Section 15 of Rule 39, which applies to ordinary execution sales.
• Mortgagee's Purchase: Yes. Section 5 of Act No. 3135, as amended, allows the mortgagee-creditor to participate in the bidding and purchase under the same conditions as any other bidder, unless the mortgage or trust deed expressly provides otherwise; the Civil Code prohibitions do not apply.
• Compliance with Act No. 3135 Formalities: Yes. The notices of sale were posted and published in Ilocos Times, a newspaper of general circulation in Ilocos Sur, setting the auction on August 6, 1979 at 10:00 a.m. at the Office of the Sheriff, Vigan, Ilocos Sur; the formalities under Sections 2, 3, and 4 were substantially complied with.
• Validity of Subsequent Sale and Mortgage: Yes. Because the extrajudicial foreclosure sale and DBP's acquisition were valid, the subsequent sale to Francisco Peria and the real estate mortgage to PNB Vigan Branch were likewise valid.

• Levy Requirement: The Court distinguished three kinds of sales: ordinary execution sale under Rule 39, judicial foreclosure sale under Rule 68, and extrajudicial foreclosure sale under Act No. 3135, as amended. The case involved an extrajudicial foreclosure sale: the public auction conducted by the Provincial Sheriff on August 6, 1979 was the "sale" under Section 1 of Act No. 3135, made pursuant to a special power inserted in or attached to the real estate mortgage. The mortgage contract appointed DBP as attorney-in-fact to sell the property under Act No. 3135 and to perform acts necessary for that purpose. There was no basis to apply by analogy Section 15 of Rule 39 on ordinary execution sales, including its levy requirement, to an extrajudicial foreclosure sale under Act No. 3135. Aparri vs. Court of Appeals did not support petitioners: in Aparri, the Court applied the rule and practice in a judicial foreclosure sale to an extrajudicial foreclosure sale only on the question of what to do when the highest bid exceeds the mortgage debt, because Section 6 of Act No. 3135 mandates Sections 29, 30, and 34 of Rule 39 and those provisions are silent on the matter. That ruling could not be construed as requiring a levy under Section 15 of Rule 39 before an extrajudicially foreclosed property may be sold. Levy under Section 15, Rule 39 is the act whereby a sheriff sets apart or appropriates property to satisfy the writ; in extrajudicial foreclosure, the property need not be identified or set apart by the sheriff from the whole mass of the mortgagor's property because the mortgage itself already identified or set apart the property as security, and the special power authorizes the sale under Act No. 3135. Thus, no prior levy was required.
• Mortgagee's Purchase: The prohibition in paragraph (2) of Article 1491 in relation to paragraph (7) of Article 1409 of the Civil Code, against agents acquiring by purchase property whose administration or sale may have been entrusted to them unless the principal consents, did not apply. The sale was made under a special power inserted in or attached to the real estate mortgage pursuant to Act No. 3135, as amended. As between a specific statute and a general statute, the former prevails; the Civil Code is general, while Act No. 3135 is a special enactment. Section 5 of Act No. 3135 expressly allows the creditor, trustee, or other person authorized to act for the creditor to participate in the bidding and purchase under the same conditions as any other bidder, unless the contrary is expressly provided in the mortgage or trust deed. This provision creates an exception to the general rule that a mortgagee or trustee with a power of sale may not become the purchaser at a sale he himself makes. The power to foreclose is not an ordinary agency contemplating exclusively representation of the principal; it is primarily an authority conferred upon the mortgagee for the latter's own protection, an ancillary stipulation supported by the same cause or consideration as the mortgage and an essential and inseparable part of the bilateral agreement. Even absent a statutory provision, authority holds that a mortgagee may purchase at a sale under his mortgage to protect his own interest or avoid loss from a sale to a third person at a price below the mortgage debt. Section 5 protects the mortgagee's interest. Thus, DBP could purchase at the auction.
• Compliance with Act No. 3135 Formalities: The Court found that the formalities prescribed under Sections 2, 3, and 4 of Act No. 3135, as amended, were substantially complied with. Records showed that the notices of sale were posted by the Provincial Sheriff of Ilocos Sur and published in Ilocos Times, a newspaper of general circulation in the province of Ilocos Sur, setting the date of the auction sale on August 6, 1979 at 10:00 a.m. in the Office of the Sheriff, Vigan, Ilocos Sur.
• Validity of Subsequent Sale and Mortgage: Because the extrajudicial foreclosure sale was valid and DBP acquired the property as highest bidder, the certificate of sale and subsequent consolidation of ownership in DBP were valid. Consequently, the deed of absolute sale executed by DBP in favor of Francisco Peria and the real estate mortgage constituted by Peria in favor of PNB Vigan Branch as security for his P115,000.00 loan were likewise valid. The RTC and CA correctly dismissed the complaint for annulment and cancellation of transfer certificates of title.

• Extrajudicial Foreclosure Under Act No. 3135 Does Not Require Prior Levy — An extrajudicial foreclosure sale conducted under Act No. 3135, as amended, is governed by that special law and not by Section 15 of Rule 39 of the Rules of Court on ordinary execution sales. The levy requirement for ordinary execution sales does not apply because, in extrajudicial foreclosure, the mortgaged property has already been identified or set apart by the mortgage as security and the special power authorizes the sale. Applied: the August 6, 1979 auction sale to DBP was valid despite the absence of a prior levy.
• Mortgagee May Purchase at Extrajudicial Foreclosure Sale — Section 5 of Act No. 3135, as amended, allows the mortgagee-creditor to participate in the bidding and purchase the mortgaged property under the same conditions as any other bidder, unless the mortgage or trust deed expressly provides otherwise. This creates an exception to the general rule that a mortgagee or trustee with a power of sale may not become the purchaser at his own sale. Applied: DBP validly acquired the lot as highest bidder.
• Specific Statute Prevails Over General Statute — Where a specific statute and a general statute conflict, the specific statute prevails because it evinces the legislative intent more clearly. Act No. 3135, as amended, is a special law governing extrajudicial foreclosure, while the Civil Code is of general character. Applied: the prohibitions in Article 1491(2) and Article 1409(7) of the Civil Code did not disqualify DBP from purchasing at the extrajudicial foreclosure sale.
• Power to Foreclose Is Not Ordinary Agency — The power to foreclose is not an ordinary agency contemplating exclusively representation of the principal by the agent; it is primarily an authority conferred upon the mortgagee for the latter's own protection, an ancillary stipulation supported by the same cause or consideration for the mortgage and an essential and inseparable part of the bilateral agreement. Applied: DBP's role as attorney-in-fact under the mortgage was not the kind of agency covered by Article 1491(2).
• Substantial Compliance with Notice and Publication Requirements — Under Sections 2, 3, and 4 of Act No. 3135, as amended, the extrajudicial foreclosure sale requires posting and publication of notices. Substantial compliance suffices. Applied: posting and publication in Ilocos Times, a newspaper of general circulation in Ilocos Sur, setting the auction date, time, and place, satisfied the formalities.

• "The formalities of a levy, as an essential requisite of a valid execution sale under Section 15 of Rule 39 and a valid attachment lien under Rule 57 of the Rules of Court, are not basic requirements before an extrajudicially foreclosed property can be sold at public auction." — This states the ratio decidendi on the principal issue: a prior levy is not required for an extrajudicial foreclosure sale under Act No. 3135.
• "In extrajudicial foreclosure of mortgage, the property sought to be foreclosed need not be identified or set apart by the sheriff from the whole mass of property of the mortgagor for the purpose of satisfying the mortgage indebtedness." — This explains why the levy requirement of ordinary execution sales is inapplicable: the mortgage itself already identifies the property as security.
• "Under Act No. 3135, as amended, a mortgagee-creditor is allowed to participate in the bidding and purchase under the same conditions as any other bidder, as in the case at bar, thus:" — This is the controlling statutory basis for allowing DBP to purchase the mortgaged property at the extrajudicial foreclosure sale.
• "The Civil Code (R.A. 386) is of general character while Act No. 3135, as amended, is a special enactment and therefore the latter must prevail." — This is the statutory-construction principle used to reject petitioners' reliance on the Civil Code prohibitions against agent-purchasers.

• Aparri vs. Court of Appeals, 13 SCRA 611 (1965) — Cited by petitioners but distinguished. The Court explained that Aparri applied the rule and practice in a judicial foreclosure sale to an extrajudicial foreclosure sale only on the question of excess bid because Section 6 of Act No. 3135 mandates Sections 29, 30, and 34 of Rule 39, which are silent on the matter; it is not authority for requiring a levy under Section 15 of Rule 39.
• Valenzuela vs. de Aguilar, 8 SCRA 212 (1963) — Cited for the definition of levy under Section 15, Rule 39 of the Rules of Court: the act whereby a sheriff sets apart or appropriates for the purpose of satisfying the command of the writ a part or the whole of the judgment-debtor's property.
• De Jesus vs. People, 120 SCRA 760; Wilhemsen vs. Baluyot, 83 SCRA 38; Lacsamana vs. Baltazar, 92 Phil. 32; Arayata vs. Joya, et al., 51 Phil. 654 — Cited for the rule of statutory construction that a specific statute prevails over a general statute, and that the Civil Code is general while Act No. 3135 is special.
• Perez vs. Philippine National Bank, 17 SCRA 833 — Cited for the principle that the power to foreclose is not an ordinary agency but is primarily an authority conferred upon the mortgagee for the latter's own protection.
• Heighe vs. Evans, 164 Md 259, 164 A 671, 93 ALR 81; Bergen vs. Bennet (NY) Caines Cas. — Cited through 55 Am Jur 2d 643 for the authority that, even absent a statutory provision, a mortgagee may purchase at a sale under his mortgage to protect his own interest or avoid loss.

• Section 15, Rule 39, Rules of Court — Governs ordinary execution sale and requires levy. The Court held it does not apply to extrajudicial foreclosure under Act No. 3135.
• Rule 68, Rules of Court — Governs judicial foreclosure sale. Distinguished from extrajudicial foreclosure.
• Act No. 3135, as amended by Act No. 4118 — Special law regulating the sale of property under special powers inserted in or annexed to real estate mortgages. It governs extrajudicial foreclosure and prevails over general Civil Code provisions.
• Section 1, Act No. 3135 — Refers to the "sale" under a special power inserted in or attached to a real estate mortgage; the August 6, 1979 auction was such a sale.
• Sections 2, 3, and 4, Act No. 3135 — Prescribe notice and publication formalities for extrajudicial foreclosure; substantial compliance was found.
• Section 5, Act No. 3135 — Allows the creditor, trustee, or other person authorized to act for the creditor to participate in the bidding and purchase under the same conditions as any other bidder, unless the mortgage or trust deed expressly provides otherwise.
• Section 6, Act No. 3135 — Mandates Sections 29, 30, and 34 of Rule 39 in cases of excess bid; cited to distinguish Aparri and to show no levy requirement.
• Article 1491(2), Civil Code — Prohibits agents from acquiring by purchase property whose administration or sale may have been entrusted to them unless the principal consents. Held not applicable to DBP's purchase under Act No. 3135.
• Article 1409(7), Civil Code — Declares void contracts prohibited by law. Held not applicable because Act No. 3135 is a special law allowing the mortgagee-creditor to purchase.

Gutierrez, Jr., Feliciano, Bidin, and Cortes, JJ., concurred.