Gotesco Properties, Inc. vs. Solidbank Corporation

The requirement for publication of a Notice of Sale in an extrajudicial foreclosure under Act No. 3135 is complied with when the publication is circulated in the city where the property is located, regardless of where the newspaper is printed or published; and the mortgagor's failure to maintain the sound value of collateral as required by the mortgage contract constitutes an event of default authorizing foreclosure.

The case arose from a P300 million term loan obtained by Gotesco Properties, Inc. from Solidbank Corporation in 1995, secured by a Mortgage Trust Indenture over several properties. Following the 1997 Asian Financial Crisis, Gotesco faced financial difficulties and proposed loan restructuring, which Solidbank allegedly accepted by implication when it demanded additional collateral due to decreased property values. The dispute centers on whether the subsequent extrajudicial foreclosure was valid and whether the requirements of Act No. 3135 were satisfied.

• In 1995, Gotesco Properties, Inc. obtained a P300 million term loan from Solidbank Corporation through its President, Jose Go, secured by three promissory notes and a Mortgage Trust Indenture dated August 9, 1995.
• The Indenture named Solidbank-Trust Division as Trustee and required Gotesco to mortgage several parcels of land, including a property in San Fernando, Pampanga covered by TCT No. 387371-R.
• The Indenture contained a stipulation irrevocably appointing Solidbank-Trust Division as Gotesco's attorney-in-fact and required Gotesco to "at all times maintain the Sound Value of the Collateral."
• Due to the 1997 Asian Financial Crisis, Gotesco faced difficulty meeting its obligations and sent a letter dated January 24, 2000 proposing loan restructuring with a seven-year payment period including a two-year grace period.
• Solidbank responded via letter dated February 9, 2000, informing Gotesco of a substantial reduction in the appraised value of mortgaged properties (from P1.076 billion to P381 million), requiring Gotesco to address the deficiency in the 200% collateral-to-loan ratio by providing additional collateral.
• Gotesco construed this as implied acceptance of the restructuring proposal but refused to provide additional collateral, insisting the aggregate value remained at P1.076 billion.
• Solidbank sent a demand letter dated June 7, 2000, which Gotesco received but failed to pay.
• Solidbank filed a Petition for Extrajudicial Foreclosure through notary public Atty. Wilfrido Mangiliman.
• The Notice of Sale dated July 24, 2000 announced the auction for August 24, 2000, with a postponement to August 31, 2000 if the minimum two-bidder requirement was not met.
• The Notice was published in Remate on July 29, August 5, and August 12, 2000, and posted in three public places in San Fernando, Pampanga starting August 15, 2000.
• The auction proceeded on August 31, 2000 with Solidbank as winning bidder.
• Gotesco filed a complaint for annulment of foreclosure, claiming the restructuring agreement was perfected, the foreclosure was premature, and jurisdictional requirements under Act No. 3135 were not complied with.

• Gotesco argued that a loan restructuring agreement was perfected when Solidbank demanded additional collateral, implying acceptance of the restructuring proposal.
• It claimed the foreclosure was premature because the original obligation was restructured and thus not yet due, and because Solidbank failed to send the required notice of default under Section 5.02 of the Indenture.
• It contended that Mr. Jose Go was not authorized to appoint Solidbank as attorney-in-fact for extrajudicial foreclosure.
• It asserted the mortgage was void because it was executed on August 9, 1995, before the promissory notes dated August 14, 21, and 28, 1995, making it an accessory contract without a principal obligation.
• It challenged the foreclosure procedure under Act No. 3135: (a) the Notice of Sale was published in Remate, a newspaper printed in Manila rather than San Fernando, Pampanga; and (b) the Notice was posted only 16 days (August 15-31, 2000) instead of the required 20 days.
• It argued the Writ of Possession should not issue while the annulment case was pending.

• Solidbank denied entering into a restructuring agreement, arguing that Article 1319 of the Civil Code requires absolute acceptance, and the demand for additional collateral was not acceptance but enforcement of existing contract terms.
• It asserted Gotesco defaulted twice: failure to pay the loan and failure to maintain the sound value of collateral as required by Section 4.03 of the Indenture.
• It submitted a return card proving the demand letter was received and cited promissory note clauses making the obligation immediately due without notice upon failure to pay.
• It argued Mr. Go was authorized by Board Resolution No. 95-015 to sign the Indenture, which included the attorney-in-fact provision.
• It maintained the mortgage was valid as it could secure future obligations, and Gotesco was estopped from questioning it while claiming restructuring benefits.
• It defended compliance with Act No. 3135: Remate is a newspaper of general circulation accredited by the RTC of Pampanga; publication location is irrelevant so long as circulation reaches the property's location.
• It argued the 16-day posting issue was raised for the first time on appeal and should not be entertained.
• It asserted the Writ of Possession issuance is ministerial under Section 7 of Act No. 3135 when no third party is in adverse possession.

• Procedural Issues:
  • Whether the issue regarding the 20-day posting requirement can be raised for the first time on appeal.
• Substantive Issues:
  • Whether a perfected loan restructuring agreement existed between the parties.
  • Whether Gotesco was in default authorizing foreclosure.
  • Whether the foreclosure complied with the notice requirements under Section 3 of Act No. 3135 regarding newspaper publication and posting.
  • Whether Mr. Go had authority to appoint Solidbank as attorney-in-fact.
  • Whether the mortgage was void for being executed before the principal obligation.
  • Whether the Writ of Possession was properly issued.

• Procedural:
  • The Supreme Court held that the issue regarding the alleged defect in the 20-day posting requirement, raised only in the Petition for Review before the Supreme Court, cannot be entertained as it violates due process and the rule that new issues cannot be raised for the first time on appeal.
• Substantive:
  • No perfected restructuring agreement: The Court ruled that under Article 1319 of the Civil Code, consent requires absolute acceptance; a qualified acceptance constitutes a counter-offer. Solidbank's demand for additional collateral was not acceptance but enforcement of the Indenture's Section 4.03. The alleged restructuring agreement was never offered in evidence.
  • Default established: Gotesco defaulted twice: (1) failure to pay the loan upon maturity and demand; and (2) failure to maintain the sound value of collateral when demanded by Solidbank under Section 4.03 of the Indenture. The determination of impairment lies with the creditor (Solidbank) per the contract.
  • Valid publication: The Court affirmed that under Section 3 of Act No. 3135, the Notice of Sale need only be published in a "newspaper of general circulation" in the city where the property is located. The location of printing is irrelevant; what matters is circulation in the locality. Remate, being accredited by the RTC of Pampanga and widely circulated, satisfied this requirement.
  • Posting defect not fatal: Although the Notice was posted for only 16 days instead of 20, this minor defect did not impede the objective of informing the public about the sale, citing Olizon v. Court of Appeals.
  • Authority of Mr. Go: As President authorized to sign the Indenture, Mr. Go had authority to agree to its terms, including the appointment of an attorney-in-fact. This issue was also raised late and deserves scant consideration.
  • Validity of mortgage: A mortgage can secure present and future obligations; the fact that it was executed before the promissory notes does not invalidate it.
  • Writ of Possession: The issuance is ministerial under Section 7 of Act No. 3135 when the purchaser petitions ex parte and no third party is in adverse possession. A pending annulment case does not prevent issuance.

• Perfection of Contracts (Absolute Acceptance) — Under Article 1319 of the Civil Code, consent is manifested by the meeting of offer and absolute acceptance upon the thing and cause. A qualified acceptance constitutes a counter-offer. Applied to reject Gotesco's claim that Solidbank's demand for additional collateral constituted acceptance of a restructuring proposal.
• Newspaper of General Circulation (Act No. 3135) — The requirement for publication in a newspaper of general circulation in the municipality or city where the property is situated is satisfied when the newspaper circulates in that locality, regardless of where it is printed. The crucial factor is the audience reached, not the place of printing.
• Substantial Compliance (Notice Requirements) — Minor deviations from the statutory 20-day posting requirement under Act No. 3135 do not invalidate a foreclosure sale if the errors do not impede the objective of informing the public of the nature, condition, time, place, and terms of the sale.
• Default in Real Estate Mortgage — A mortgagor can be in default not only for failure to pay the principal obligation but also for violating covenants in the mortgage contract, such as the obligation to maintain the sound value of collateral.
• Ministerial Duty (Writ of Possession) — The issuance of a writ of possession under Act No. 3135 is ministerial and ex parte when the property is not in the possession of a third party holding adversely to the judgment obligor. A pending case for annulment of foreclosure does not bar issuance.

• "The requirement for publication of a Notice of Sale in an extrajudicial foreclosure is complied with when the publication is circulated at least in the city where the property is located."
• "Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract."
• "If notices are only published in newspapers printed in the city where the property is located, even newspapers that are circulated nationwide will be disqualified from announcing auction sales outside their city of publication. This runs contrary to the spirit of the law which is to attain wide enough publicity so all parties interested in acquiring the property can be informed of the upcoming sale."
• "The object of a notice of sale is to inform the public of the nature and condition of the property to be sold, and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not affect the sufficiency of the notice."
• "Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of possession. Regardless of whether or not there is a pending suit for the annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice, of course, to the eventual outcome of the pending annulment case."

• Fortune Motors (Phils.), Inc. v. Metropolitan Bank and Trust Co. — Cited to support the interpretation that the location of newspaper printing is irrelevant for as long as the newspaper is of general circulation in the place where the property is located.
• Olizon v. Court of Appeals — Cited for the principle that immaterial errors in notices of sale that do not deter or mislead bidders do not affect the sufficiency of the notice.
• Mendoza v. Court of Appeals — Cited for the rule that only absolute and unqualified acceptance perfects a contract.
• Spouses Ong v. Court of Appeals — Cited to emphasize that courts cannot consider evidence not formally offered.
• Social Security System v. Moonwalk Development & Housing Corp. — Cited for the elements of default under the Civil Code.
• China Banking Corp. v. Spouses Lozada — Cited for the exception to the ministerial issuance of writ of possession when a third party is in adverse possession.
• Fernandez v. Spouses Espinoza — Cited for the rule that a pending annulment case does not prevent the issuance of a writ of possession.
• Canada v. All Commodities Marketing Corporation — Cited for the due process implications of raising new issues on appeal.

• Act No. 3135, Section 3 — Governs the notice requirements (posting in three public places and publication in newspaper of general circulation) for extrajudicial foreclosure of real estate mortgage.
• Act No. 3135, Section 7 (as amended by Act No. 4118) — Provides for the ministerial issuance of writ of possession to the purchaser during the redemption period.
• Civil Code, Article 1319 — Defines consent as manifested by meeting of offer and absolute acceptance; qualified acceptance constitutes counter-offer.
• Civil Code, Article 1169 — Defines delay/default when a party obliged to deliver something fails to do so after judicial or extrajudicial demand.
• Rules of Court, Rule 132, Section 34 — Requires formal offer of evidence for the court to consider it.
• Rules of Court, Rule 39, Section 33 — Provides exception to ministerial issuance of writ of possession when third party is actually holding property adversely to the judgment obligor.