Ouano vs. Court of Appeals

The statutory requirements of posting and publication of the notice of sale under Act No. 3135, as amended, are mandatory and jurisdictional; parties to an extrajudicial foreclosure cannot waive these requirements, and a postponed sale requires republication and reposting of the notice in the manner prescribed by law. Failure to comply with these requirements renders the foreclosure sale absolutely void, and no title passes to the purchaser.

Julieta M. Ouano obtained a loan from the Philippine National Bank (PNB) on June 8, 1977, secured by a real estate mortgage over two parcels of land in Mandaue City. The governing law for extrajudicial foreclosures is Act No. 3135, as amended by Act No. 4118, which requires notice of sale by posting for at least 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. The statutory requirements of publication and posting are imbued with public policy considerations, as their purpose is to inform the public generally and secure bidders to prevent a sacrifice of the property.

On June 8, 1977, respondent Julieta M. Ouano obtained a loan of P104,280.00 from the Philippine National Bank (PNB), secured by a real estate mortgage over two parcels of land in Opao, Mandaue City. After she defaulted, PNB filed a petition for extrajudicial foreclosure with the City Sheriff of Mandaue City on September 29, 1980. The sheriff prepared a notice of sale setting the auction for December 5, 1980, and caused the notice to be published in the Cebu Daily Times in its issues of November 13, 20, and 27, 1980, and posted copies in public places in Mandaue City and where the properties were located.

The sale as scheduled did not take place. On December 3, 1980, two days before the scheduled sale, the parties executed and filed with the sheriff the first Agreement to Postpone Sale, moving the date to February 5, 1981, "without any further republication of the notice of sale." No sale occurred on February 5, 1981. Eight days later, on February 13, 1981, the parties executed a second agreement moving the sale to February 28, 1981. No sale occurred on that date either. Ten days later, on March 10, 1981, a third agreement moved the sale to March 30, 1981. No sale occurred. On March 30, 1981, a fourth agreement moved the sale to May 29, 1981, but this agreement was filed with the sheriff only on April 30, 1981. In all postponements, no new notice of sale was issued, nor was there any republication or reposting of notice for the rescheduled dates.

On May 29, 1981, the sheriff conducted the auction sale, awarding the properties to PNB as the only bidder for P195,510.50. A Certificate of Sale was executed. When Julieta failed to redeem the properties within the one-year period, PNB consolidated its title on February 12, 1983, and conveyed the properties to petitioner Alfredo Ouano, Julieta's brother, under a Deed of Promise to Sell payable in five years. On February 25, 1986, PNB executed a Deed of Sale in favor of petitioner, and the Register of Deeds issued new titles in his name.

On March 28, 1983, Julieta sent demand letters to PNB and petitioner pointing out irregularities in the foreclosure sale. She filed a complaint for nullification of the sale on April 18, 1983. The trial court found that the lack of republication rendered the foreclosure sale void, and the Court of Appeals affirmed on the same ground. The trial court also found that the Agreements to Postpone Sale were in standard bank forms labeled "Legal Form No. 41," prepared by PNB's counsel, and that Julieta's participation was limited to affixing her signature to the ready-made forms.

• Substantial Compliance with Publication: Petitioner argued that there was substantial compliance with the publication requirement, considering that prior publication and posting of the notice of the first date were made.
• Waiver of Republication: Petitioner contended that republication may be waived voluntarily by the parties, and that the written agreements of the parties to postpone the sale without republication were valid.
• Applicability of Rule 39, Section 24: Petitioner argued that the Court of Appeals should have applied Rule 39, Section 24 of the Rules of Court, which allows adjournment of execution sales by agreement of the parties, and that the written request of the parties suffices to authorize the sheriff to reset the sale without republication or reposting.
• Estoppel: Petitioner maintained that Julieta's act of requesting the postponement and repeatedly signing the Agreements placed her under estoppel, barring her from challenging the lack of publication of the auction sale.
• Laches: Petitioner argued that Julieta's filing of her complaint almost two years after the auction sale was a clear case of laches.

• Mandatory Nature of Publication Requirements: Respondents argued that the statutory requirements of posting and publication under Act No. 3135 are mandatory and jurisdictional, and that failure to comply renders the foreclosure sale void.
• No Waiver of Statutory Requirements: Respondents maintained that the parties have no right to waive the posting and publication requirements of Act No. 3135, as these requirements are for the benefit of the public, not merely the mortgagor.
• No Estoppel: Respondents argued that Julieta did not commit any act that would have estopped her from questioning the validity of the foreclosure sale, as requesting postponement is different from requesting it without compliance with statutory requirements.

• Compliance with Act No. 3135: Whether the requirements of Act No. 3135 were complied with in the May 29, 1981 foreclosure sale, specifically whether republication of the notice of sale was required for the postponed sale.
• Waiver of Publication Requirements: Whether the parties may validly waive the republication and reposting requirements of Act No. 3135 through their Agreements to Postpone Sale.
• Applicability of Rule 39, Section 24: Whether Rule 39, Section 24 of the Rules of Court, allowing adjournment of execution sales by agreement of the parties, applies to extrajudicial foreclosure sales.
• Estoppel: Whether Julieta was estopped from challenging the validity of the auction sale by her repeated requests for postponement and execution of the Agreements.
• Laches: Whether Julieta's delay of almost two years in filing her complaint constituted laches barring her claim.

• Compliance with Act No. 3135: No. The requirements of Act No. 3135 were not complied with, as the postponed sale on May 29, 1981 was held without republication and reposting of the notice of sale, rendering the sale absolutely void.
• Waiver of Publication Requirements: No. The parties have absolutely no right to waive the posting and publication requirements of Act No. 3135, as these requirements are imbued with public policy considerations for the benefit of the public.
• Applicability of Rule 39, Section 24: No. Rule 39, Section 24 of the Rules of Court does not apply to extrajudicial foreclosure sales, which are governed exclusively by Act No. 3135, as amended.
• Estoppel: No. Julieta was not estopped from challenging the validity of the foreclosure sale, as the waiver was void for being contrary to the express mandate of Act No. 3135, and estoppel cannot give validity to an act prohibited by law.
• Laches: No. Julieta's delay of almost two years was not unreasonable, as she promptly acted upon discovering the defect in the foreclosure sale, and an action for the declaration of the inexistence of a contract does not prescribe.

• Compliance with Act No. 3135: The Court applied the well-settled rule that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and even slight deviations therefrom will invalidate the notice and render the sale at least voidable. Citing Tambunting vs. Court of Appeals, the Court held that republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect invalidating the sale, rendering it absolutely void, and no title passes.

• Waiver of Publication Requirements: The Court cited Philippine National Bank vs. Nepomuceno Productions Inc. for the categorical holding that "Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135." The Court explained, quoting People vs. Donato, that while rights and privileges may generally be waived, a waiver in derogation of a statutory right is inoperative and void if it infringes on the rights of others or would be against public policy. The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the mortgagor as to inform the public generally of the nature and condition of the property to be sold, and of the time, place, and terms of the sale. The statutory requirements of posting and publication are mandated not for the mortgagor's benefit but for the public or third persons, and are imbued with public policy considerations. To allow the parties to waive this jurisdictional requirement would result in converting into a private sale what ought to be a public auction.

• Applicability of Rule 39, Section 24: The Court distinguished three different kinds of sales under the law: ordinary execution sales governed by Rule 39 of the Rules of Court, judicial foreclosure sales governed by Rule 68, and extrajudicial foreclosure sales governed by Act No. 3135, as amended. A different set of law applies to each class of sale. The cited provision in the Rules of Court hence does not apply to an extrajudicial foreclosure sale. Moreover, even assuming the provision applies, all it authorizes is the adjournment of the execution sale by agreement of the parties; nowhere does it state that republication and reposting of notice for the postponed sale may be waived.

• Estoppel: The Court held that Julieta did request postponement of the foreclosure sale to extend the period to settle her obligation, but the records do not show that she requested the postponement without need of republication and reposting of notice of sale. Citing Nepomuceno, the Court stated: "To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another." The Agreements were in standard forms of the bank, labeled as "Legal Form No. 41," partaking of the nature of contracts of adhesion, and their terms are construed strictly against the party who drafted them. More importantly, the waiver being void for being contrary to the express mandate of Act No. 3135, such cannot be ratified by estoppel, as estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.

• Laches: The Court defined laches as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence, could or should have been done earlier. Julieta only realized the defect in the foreclosure sale upon conferring with her counsel who discovered the irregularity. She then promptly filed an adverse claim, sent demand letters, and sued to nullify the foreclosure sale. The Court found the delay of almost two years not unreasonable, and noted that an action or defense for the declaration of the inexistence of a contract does not prescribe under Article 1410 of the Civil Code.

• Strict Compliance with Statutory Publication Requirements — Statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and even slight deviations therefrom will invalidate the notice and render the sale at least voidable. Failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect invalidating the sale, rendering it absolutely void, and no title passes. The Court applied this doctrine to hold that the postponed sale on May 29, 1981, held without republication and reposting, was void.

• Republication Required for Postponed Sales — Where required by statute, public notice of the place and time of the mortgage foreclosure sale must be given, and a statute requiring it is held applicable to subsequent sales as well as to the first advertised sale of the property. The Court applied this doctrine, citing Tambunting vs. Court of Appeals, to hold that republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale.

• Non-Waivability of Publication Requirements — The statutory requirements of posting and publication under Act No. 3135 are mandated not for the mortgagor's benefit but for the public or third persons, and are imbued with public policy considerations. Parties have absolutely no right to waive these requirements, as doing so would convert into a private sale what ought to be a public auction. The Court applied this doctrine to reject petitioner's argument that republication may be waived voluntarily by the parties.

• Contract of Adhesion — A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation, and depriving the latter of the opportunity to bargain on equal footing. The terms of such contracts are construed strictly against the party who drafted it. The Court applied this doctrine to the Agreements to Postpone Sale, which were in standard bank forms prepared by PNB's counsel.

• Estoppel Cannot Validate Illegal Acts — Estoppel cannot give validity to an act that is prohibited by law or one that is against public policy, and neither can the defense of illegality be waived. The Court applied this doctrine to reject petitioner's argument that Julieta was estopped from challenging the validity of the auction sale.

• "Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135." — This is the categorical holding from Philippine National Bank vs. Nepomuceno Productions Inc. that the Court adopted as controlling precedent, establishing that the statutory publication requirements for extrajudicial foreclosure sales cannot be waived by the parties.

• "The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the mortgagor as to inform the public generally of the nature and condition of the property to be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and prevent a sacrifice of the property. Clearly, the statutory requirements of posting and publication are mandated, not for the mortgagor's benefit, but for the public or third persons." — This passage articulates the public policy rationale underlying the mandatory publication requirements of Act No. 3135, explaining why the requirements cannot be waived by the parties.

• "To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another. Respondents, therefore, did not commit any act that would have estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135." — This passage from Nepomuceno establishes the distinction between requesting postponement and requesting postponement without compliance with statutory requirements, which the Court applied to reject the estoppel defense.

• "To allow the parties to waive this jurisdictional requirement would result in converting into a private sale what ought to be a public auction." — This passage states the consequence of permitting waiver of the publication requirements, emphasizing the public interest in foreclosure sales that would be undermined by private agreements to dispense with statutory notice.

• Philippine National Bank vs. Nepomuceno Productions Inc., G.R. No. 139479, December 27, 2002 — Controlling precedent directly on point, involving nearly identical facts where an extrajudicial foreclosure sale was rescheduled several times without republication pursuant to Agreements to Postpone Sale. The Court cited it for the holding that parties have no right to waive the posting and publication requirements of Act No. 3135, and that requesting postponement is different from requesting it without compliance with statutory requirements.

• Tambunting vs. Court of Appeals, 165 SCRA 16 (1988) — Followed for the doctrine that republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale, and that a statute requiring public notice applies to subsequent sales as well as to the first advertised sale.

• People vs. Donato — Cited for the general principle on waiver of rights and privileges, specifically that a waiver in derogation of a statutory right is inoperative and void if it infringes on the rights of others or would be against public policy or morals and the public interest.

• Olizon vs. Court of Appeals, 236 SCRA 148 (1994) — Cited for the proposition that publication is required to give the foreclosure sale a reasonably wide publicity such that those interested might attend the public sale.

• Fiestan vs. Court of Appeals, 185 SCRA 751 (1990) — Cited for the distinction among ordinary execution sales, judicial foreclosure sales, and extrajudicial foreclosure sales, each governed by a different set of laws.

• Polotan, Sr. vs. Court of Appeals, 296 SCRA 247 (1998) — Cited for the definition of a contract of adhesion, which the Court applied to the standard-form Agreements to Postpone Sale prepared by PNB.

• Auyong Hian vs. Court of Appeals, 59 SCRA 110 (1974) — Cited for the principle that estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.

• Section 3, Act No. 3135, as amended by Act No. 4118 — The governing law for extrajudicial foreclosures, requiring notice of sale by posting for not less than twenty days in at least three public places of the municipality or city where the property is situated, and publication once a week for at least three consecutive weeks in a newspaper of general circulation if the property is worth more than four hundred pesos. The Court held that these requirements were not complied with in the postponed sale.

• Section 24, Rule 39, Rules of Court (1964) — The provision allowing adjournment of execution sales by written consent of debtor and creditor. The Court held that this provision does not apply to extrajudicial foreclosure sales, which are governed exclusively by Act No. 3135, and that even if it applied, it does not authorize waiver of republication and reposting requirements.

• Article 1409, New Civil Code — The provision on void or inexistent contracts, cited for the proposition that the waiver being void for being contrary to the express mandate of Act No. 3135 cannot be ratified by estoppel.

• Article 1410, New Civil Code — The provision stating that an action or defense for the declaration of the inexistence of a contract does not prescribe, cited to reject the defense of laches.

Davide, Jr., C.J., Vitug, and Carpio, JJ., concurred. Ynares-Santiago, J., was on leave.