Philippine National Bank vs. Nepomuceno Productions, Inc.

The posting and publication requirements for notices of sale in extrajudicial foreclosure proceedings under Act No. 3135 are mandatory and jurisdictional, and cannot be waived by the parties to the mortgage, because these requirements are imbued with public policy considerations and are intended for the benefit of the public and third persons, not solely for the mortgagor.

Philippine National Bank (PNB) extended a series of credit accommodations to Nepomuceno Productions, Inc., together with its officers and affiliates Luis, Amparo, and Jesus Nepomuceno, to finance the production of the film "Pacific Connection." The loan facilities were secured by real estate and chattel mortgages over several properties, including a parcel of land in Malugay Street, Makati, a parcel in North Forbes Park, Makati, and various motion picture equipment. The legal framework governing the foreclosure of the real estate mortgages was Act No. 3135, as amended, which prescribes specific posting and publication requirements for notices of extrajudicial foreclosure sales.

On November 28, 1973, PNB granted respondents a P4,000,000 credit line to finance the filming of the movie "Pacific Connection." The loan was secured by mortgages over respondents' real and personal properties, namely: a 7,623-square-meter parcel of land on Malugay Street, Makati; a 3,000-square-meter parcel in North Forbes Park, Makati; and several motion picture equipment. The credit line was subsequently increased to P6,000,000 on January 14, 1974, and finally to P7,500,000 on September 8, 1974.

Respondents defaulted on their obligation, prompting PNB to seek foreclosure of the mortgaged properties through the Sheriff's Office of Pasig, Rizal. The auction sale was initially scheduled for August 12, 1976, but was re-scheduled several times without republication of the notice of sale, pursuant to an "Agreement to Postpone Sale" signed by the parties. The auction sale finally proceeded on December 20, 1976, with PNB as the highest bidder at P10,432,776.97.

Aggrieved by the foreclosure, respondents filed Civil Case No. 28809 with the RTC of Pasig (Branch 155), an action for annulment of foreclosure sale and damages with injunction. Respondents contended that the foreclosure sale was null and void because the obligation had not yet matured as there were ongoing negotiations for an additional P5,000,000 loan, there was lack of publication, the purchase price was grossly inadequate and unconscionable, and the foreclosure proceedings were initiated by PNB in bad faith. The trial court annulled the foreclosure proceedings and auction sale on the ground of lack of publication of the notice of sale, and awarded P100,000 in attorney's fees to respondents. PNB appealed to the Court of Appeals, which affirmed the trial court's decision in toto. During the appeal's completion stage, the appellate court dismissed the appeal with respect to the Forbes Park property, as it had already been reconveyed to respondents under a Deed of Reconveyance dated November 22, 1994 and a Compromise Agreement dated September 13, 1994, leaving only the Malugay property at issue.

• Waiver of Publication Requirements: Petitioner maintained that the Court of Appeals erred in declaring the foreclosure sale null and void for lack of republication, despite the parties' written agreement in the "Agreement to Postpone Sale" waiving the republication and reposting of the sheriff's notice of sale.
• Estoppel: Petitioner argued that the Court of Appeals erred in not declaring respondents in estoppel to assail the validity of the foreclosure sale, since respondents had induced PNB to execute the Agreement to Postpone Sale waiving the republication and reposting requirements.
• Status as Third Persons: Petitioner contended that the Court of Appeals erred in sustaining that respondents are not third persons in contemplation of the law.

• Lack of Maturity: Respondents contended that the foreclosure sale was null and void because the obligation had not yet matured, as there were ongoing negotiations for an additional loan of P5,000,000.
• Lack of Publication: Respondents argued that the foreclosure sale was void for lack of publication of the notice of sale as required by Act No. 3135.
• Inadequate Purchase Price: Respondents asserted that the purchase price of P10,432,776.97 was grossly inadequate and unconscionable.
• Bad Faith: Respondents maintained that the foreclosure proceedings were initiated by PNB in bad faith.

• Waiver of Statutory Requirements: Whether the parties to a mortgage can validly waive the posting and publication requirements mandated by Act No. 3135 for extrajudicial foreclosure sales.
• Estoppel: Whether respondents should be held in estoppel from questioning the validity of the foreclosure sale on the ground that they induced PNB to re-schedule the sale without need of republication and reposting.
• Attorney's Fees: Whether the award of P100,000 as attorney's fees was proper.

• Waiver of Statutory Requirements: No. The posting and publication requirements under Act No. 3135 are mandatory and jurisdictional, and cannot be waived by the parties because they are intended for the benefit of the public and third persons, not merely the mortgagor.
• Estoppel: No. Respondents merely requested postponement of the sale; they did not seek re-scheduling without compliance with statutory requirements. The Agreement to Postpone Sale was a contract of adhesion prepared solely by PNB, and its terms are construed strictly against the drafter.
• Attorney's Fees: Yes, but the amount was excessive. The award was reduced to P25,000 as just, fair, and reasonable under Article 2208 of the Civil Code, given PNB's foreclosure without complying with statutory requirements.

• Waiver of Statutory Requirements: Act No. 3135, Section 3, requires posting of notices of sale in at least three public places for not less than twenty days and publication once a week for at least three consecutive weeks in a newspaper of general circulation. Failure to publish constitutes a jurisdictional defect that invalidates the sale. While the general rule is that rights may be waived, Article 6 of the Civil Code conditions waiver on its not being contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person. The principal object of a notice of sale in foreclosure is not so much to notify the mortgagor as to inform the public generally of the nature and condition of the property and of the time, place, and terms of the sale, thereby securing bidders and preventing a sacrifice of the property. The statutory requirements are thus mandated for the benefit of the public or third persons, and personal notice to the mortgagor is not even necessary unless stipulated. As such, the requirements are imbued with public policy considerations, and any waiver would be inconsistent with the intent and letter of Act No. 3135. Statutory provisions governing publication must be strictly complied with, and slight deviations invalidate the notice and render the sale at the very least voidable. In Development Bank of the Philippines vs. Aguirre, a foreclosure sale held more than two months after the published date was void for lack of republication. Similarly, the lack of republication of the notice for the December 20, 1976 foreclosure sale rendered it void.

• Estoppel: Records showed that respondents indeed requested postponement of the foreclosure sale, but nothing indicated they purposely sought re-scheduling without need of republication and reposting. To request postponement is distinct from requesting it without compliance with statutory requirements. Moreover, the "Agreement to Postpone Sale" was obviously prepared solely by PNB in a ready-made form, with respondents' only participation being to affix their signatures. It partakes of the nature of a contract of adhesion, in which one party imposes a ready-made form that the other may accept or reject but cannot modify, depriving the latter of the opportunity to bargain on equal footing. As such, its terms are construed strictly against the party who drafted it. Respondents therefore committed no act that would estop them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135.

• Attorney's Fees: While the appellate court committed no error in affirming the trial court's decision, the award of P100,000 as attorney's fees was excessive. Article 2208 of the Civil Code allows the award of attorney's fees when the claimant is compelled to litigate or incur expenses to protect a just and valid claim. In view of PNB's foreclosure of the property without complying with statutory requirements, an award of P25,000 was deemed just, fair, and reasonable.

• Mandatory and Jurisdictional Nature of Posting and Publication Requirements — The posting and publication requirements for notices of sale in extrajudicial foreclosure proceedings under Act No. 3135 are mandatory and jurisdictional. Failure to publish constitutes a jurisdictional defect that invalidates the sale. Statutory provisions governing publication must be strictly complied with, and slight deviations invalidate the notice and render the sale at the very least voidable. Applied in this case to nullify the foreclosure sale conducted on December 20, 1976 without republication of the notice of sale after multiple postponements.

• Non-Waivability of Public-Policy Statutory Requirements — While rights may generally be waived under Article 6 of the Civil Code, such waiver is void if contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person. The posting and publication requirements of Act No. 3135 are intended not for the mortgagor's benefit but for the public and third persons, to secure bidders and prevent a sacrifice of the property. They are imbued with public policy considerations and cannot be waived by the parties to the mortgage.

• Contracts of Adhesion — A contract of adhesion is one in which one party imposes a ready-made form of contract which the other party may accept or reject but cannot modify, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. The terms of a contract of adhesion are construed strictly against the party who drafted it. Applied to the "Agreement to Postpone Sale," which was prepared solely by PNB in a ready-made form with respondents merely affixing their signatures.

• "Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135." — This is the central pronouncement of the case, directly answering the focal issue and establishing the non-waivability of statutory foreclosure notice requirements on public policy grounds.

• "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." — This passage articulates the rationale for the public-policy character of the posting and publication requirements, explaining why they cannot be waived by the parties and are intended for the benefit of third persons.

• "To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another." — This distinguishes a mere request for postponement from a waiver of statutory requirements, defeating PNB's estoppel argument.

• People vs. Donato, 198 SCRA 130 (1991) — Cited for the doctrine on waiver, expounding on what rights and privileges may be waived and the conditions therefor, including that waiver is inoperative and void if it infringes on the rights of others or is against public policy.
• Development Bank of the Philippines vs. Aguirre, G.R. No. 144877, September 7, 2001 — Controlling precedent followed, where a foreclosure sale held more than two months after the published date was void for lack of republication. Applied analogously to the instant case.
• Metropolitan Bank and Trust Company vs. Wong, G.R. No. 120859, June 26, 2001 — Cited for the rule that Act No. 3135 requires posting and publication, and that personal notice to the mortgagor in extrajudicial foreclosure is not necessary unless stipulated.
• Tambunting vs. Court of Appeals, 167 SCRA 16 (1988) — Cited for the rule that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with and slight deviations invalidate the notice and render the sale voidable.
• Polotan, Sr. vs. Court of Appeals, 296 SCRA 247 (1998) — Cited for the definition of a contract of adhesion, applied to the "Agreement to Postpone Sale."
• BPI Express Card Corp. vs. Olalia, G.R. No. 131086, December 14, 2001 — Cited for the rule that terms of a contract of adhesion are construed strictly against the party who drafted it.

• Section 3, Act No. 3135 (as amended) — Requires posting of notices of sale 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 where the property is worth more than four hundred pesos. Applied as the mandatory and jurisdictional standard for the foreclosure sale; non-compliance rendered the December 20, 1976 sale void.
• Article 6, Civil Code — Provides that rights may be waived, unless such waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law. Applied to hold that the parties cannot waive the posting and publication requirements because they are imbued with public policy and intended for the benefit of third persons.
• Article 2208, Civil Code — Allows the award of attorney's fees when the claimant is compelled to litigate or incur expenses to protect a just and valid claim. Applied to sustain the award of attorney's fees, though the amount was reduced from P100,000 to P25,000 as the former was excessive.

Bellosillo (Chairman), Mendoza, Quisumbing, and Callejo, Sr., JJ., concurred.