Gotesco Properties, Inc. vs. Solidbank Corporation

The publication requirement for a Notice of Sale in an extrajudicial foreclosure is satisfied if the newspaper is of general circulation in the city or municipality where the property is located, regardless of where the newspaper is printed.

Gotesco obtained a P300 million loan from Solidbank secured by a Mortgage Trust Indenture (Indenture). When the loan matured, Gotesco struggled to pay due to the 1997 Asian Financial Crisis and proposed a restructuring. Solidbank responded by demanding additional collateral due to a drop in property values. Gotesco refused, insisting its own valuation was sufficient. Solidbank foreclosed, prompting Gotesco to file a complaint for annulment of foreclosure while Solidbank sought a writ of possession.

• Original Filing: RTC Branch 42, San Fernando, Pampanga (Civil Case No. 12212 for Annulment; LRC No. 762 for Writ of Possession)
• Lower Court Decision: May 4, 2011 — RTC Branch 47 (after re-raffle due to inhibition) dismissed Gotesco's complaint and granted the Writ of Possession.
• Appeal: CA-G.R. CV No. 97748
• CA Decision: May 31, 2013 — CA affirmed the RTC.
• SC Action: Petition for Review on Certiorari filed on November 28, 2013, assailing the CA Decision and October 7, 2013 Resolution.

• The Loan and the Indenture: In 1995, Gotesco obtained a P300 million loan from Solidbank, executing three promissory notes. To secure the loan, Gotesco executed a Mortgage Trust Indenture (Indenture) naming Solidbank-Trust Division as Trustee and irrevocably appointing it as attorney-in-fact. The Indenture required Gotesco to maintain the Sound Value of the collateral.
• Financial Difficulty and Proposed Restructuring: Due to the 1997 Asian Financial Crisis, Gotesco could not pay at maturity. On January 24, 2000, Gotesco proposed a loan restructuring, requesting a 7-year payment period with a 2-year grace period.
• Demand for Additional Collateral: On February 9, 2000, Solidbank replied, informing Gotesco of a substantial reduction in the appraised value of the mortgaged properties and demanding that Gotesco address the deficiency to maintain the 200% collateral-to-loan ratio.
• Gotesco's Refusal: Gotesco construed Solidbank's letter as implied acceptance of the restructuring but refused to add collateral, insisting its own valuation (P1.07B) was still sufficient.
• Default and Foreclosure: On June 7, 2000, Solidbank sent a demand letter upon maturity. Gotesco failed to pay. Solidbank filed a Petition for Extrajudicial Foreclosure. The Notice of Sale was posted on August 15, 2000, and published in Remate, a tabloid printed in Manila but circulated nationwide. The auction occurred on August 31, 2000, with Solidbank as the winning bidder.
• Subsequent Litigation: Gotesco filed for annulment of foreclosure. Solidbank filed an ex-parte petition for a writ of possession. The cases were consolidated. The RTC dismissed the complaint and granted the writ. The CA affirmed.

• Solidbank impliedly agreed to restructure the loan when it asked for additional collateral; thus, the foreclosure was premature.
• No notice of default was received; the foreclosure violated the Indenture's 10-day cure period.
• The mortgage was void because the Indenture was signed before the promissory notes, making the accessory contract exist without a principal obligation.
• Mr. Go lacked authority to appoint Solidbank as attorney-in-fact.
• The posting requirement under Sec. 3 of Act No. 3135 was violated (posted Aug 15, sale Aug 31 = only 16 days, not 20).
• The publication requirement was violated because Remate was printed in Manila, not Pampanga where the property was located.
• The writ of possession was improperly issued.

• No perfected restructuring agreement existed; Gotesco presented no evidence of acceptance.
• A mortgage can secure future obligations; Gotesco is estopped from challenging the Indenture's validity.
• Gotesco received the demand letter (proven by a return card); the promissory notes also had an acceleration clause waiving demand.
• Mr. Go was authorized by the Board Resolution to sign the Indenture, which included the attorney-in-fact appointment.
• Remate is a newspaper of general circulation accredited by the RTC of Pampanga.
• The 20-day posting defect was raised for the first time on appeal.
• The issuance of the writ of possession is ministerial.

• Procedural Issues: Whether issues regarding Mr. Go's authority and the 20-day posting period can be raised for the first time on appeal.
• Substantive Issues:
  • Whether the extrajudicial foreclosure was premature.
  • Whether the publication and posting requirements under Section 3 of Act No. 3135 were complied with.
  • Whether the writ of possession was properly issued.

• Procedural: The SC refused to entertain issues regarding Mr. Go's authority and the 20-day posting period because they were raised for the first time on appeal. Raising new issues at this stage violates due process, as the adverse party is deprived of the opportunity to present contrary evidence.
• Substantive:
  • The foreclosure was not premature. Gotesco defaulted twice: (1) by failing to pay the loan at maturity, and (2) by failing to provide additional collateral after Solidbank's valid demand. No restructuring agreement was perfected because a qualified acceptance or a response about a different term (additional collateral) constitutes a counter-offer under Art. 1319 of the Civil Code. Gotesco also failed to formally offer the alleged restructuring proposal in evidence.
  • The publication and posting requirements were complied with. Under Sec. 3 of Act No. 3135, the crucial factor for publication is whether the newspaper is circulated in the city where the property is located, not where it is printed. Remate was circulated in Pampanga. Regarding posting, while the notice was posted for 16 days instead of the required 20, the defect was superficial and did not invalidate the sale because the object of the notice—to inform the public and secure bidders—was attained.
  • The writ of possession was properly issued. The issuance of a writ of possession is ministerial upon the purchaser in a foreclosure sale. The exception—when a third party holds the property adversely to the mortgagor—does not apply here because Gotesco, the mortgagor itself, occupied the property. A pending annulment case also does not bar the issuance of the writ.

• Perfection of Contracts (Art. 1319, Civil Code) — Consent requires a meeting of the offer and acceptance upon the thing and the cause. The offer must be certain and the acceptance absolute; a qualified acceptance constitutes a counter-offer. The SC applied this to rule that Solidbank's demand for additional collateral was not an acceptance of Gotesco's restructuring proposal, but a counter-offer.
• Default (Art. 1169, Civil Code) — Those obliged to deliver or do something incur in delay from the time the obligee judicially or extrajudicially demands fulfillment. Elements: (1) obligation is demandable and liquidated; (2) debtor delays performance; (3) creditor requires performance judicially or extrajudicially. The SC applied this to Gotesco's failure to provide additional collateral after Solidbank's demand.
• Publication of Notice of Sale (Sec. 3, Act No. 3135) — The notice must be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city where the property is situated. The SC clarified that the requirement is satisfied if the newspaper is circulated in the locality, regardless of where it is printed.
• Ministerial Issuance of Writ of Possession — The purchaser in a foreclosure sale is entitled to a writ of possession during the redemption period as a matter of right. The trial court's duty to issue it is ministerial. The exception is when a third party holds the property adversely to the judgment obligor, which requires a hearing.
• Formal Offer of Evidence — Courts cannot consider evidence not formally offered. The SC applied this to Gotesco's failure to formally offer the January 24, 2000 restructuring letter.
• Documentary vs. Testimonial Evidence — Documentary evidence generally prevails over testimonial evidence. The SC applied this to favor Solidbank's return card over Gotesco's witness testimony denying receipt of the demand letter.

• Article 1319, Civil Code — Requires certain offer and absolute acceptance for perfection of contracts. Applied to determine that no restructuring agreement was perfected.
• Article 1169, Civil Code — Defines default. Applied to rule that Gotesco was in default for failing to pay and failing to provide additional collateral upon demand.
• Section 3, Act No. 3135 — Requires posting of notice of sale for not less than 20 days in 3 public places and publication once a week for 3 consecutive weeks in a newspaper of general circulation in the municipality/city. Applied to validate the publication in Remate and excuse the 4-day shortfall in posting.
• Section 7, Act No. 3135 (as amended by Act No. 4118) — Entitles the purchaser in a foreclosure sale to a writ of possession during the redemption period. Applied to uphold the ministerial issuance of the writ.
• Rule 39, Section 33, Rules of Court — States possession shall be given to the purchaser unless a third party is actually holding the property adversely to the judgment obligor. Applied to identify the exception to the ministerial issuance of the writ of possession.
• Rule 132, Section 34, Rules of Court — Courts shall consider no evidence which has not been formally offered. Applied to disregard Gotesco's unoffered restructuring letter.