Planters Development Bank vs. Heirs of Nilo P. Delos Santos

The express waiver of demand in a promissory note is valid and binding, making a prior demand unnecessary for the debtor to be considered in default and for the creditor to initiate extrajudicial foreclosure proceedings.

Spouses Nilo and Nenita Delos Santos obtained a loan from Planters Development Bank (PDB), secured by a real estate mortgage over their properties. They later executed a promissory note for the same loan obligation. Upon default, PDB extrajudicially foreclosed the mortgage. The Spouses Delos Santos filed a complaint to nullify the foreclosure, which was later re-filed by their heirs after Nilo's death.

• Filed in RTC (Makati City, Branch 66) as Civil Case No. 12-1049 for Annulment of Mortgage, Foreclosure Sale, and Damages.
• RTC dismissed the complaint for lack of merit.
• Respondents appealed to the Court of Appeals (CA).
• CA granted the appeal, reversed the RTC, and nullified the foreclosure sale.
• Petitioner elevated the case to the Supreme Court via a Petition for Review on Certiorari under Rule 45.

• In 1995, Spouses Delos Santos executed a Real Estate Mortgage in favor of PDB to secure a loan.
• In 1998, they executed a Promissory Note for a PHP 1,000,000 loan, stipulating a 23% annual interest and a 3% monthly penalty charge. The note contained a clause where the borrowers expressly waived any requirement for demand.
• The borrowers defaulted on the loan.
• PDB filed a Petition for Extra-Judicial Foreclosure in January 2001. A copy was furnished to the borrowers.
• The foreclosure sale was held on May 2, 2001, with PDB as the highest bidder.
• On the same day (May 2, 2001), the Spouses Delos Santos filed a complaint in RTC Davao City to nullify the foreclosure, which was later dismissed for improper venue.
• After the redemption period lapsed, PDB consolidated ownership and obtained new titles.
• In 2012, the Heirs of Nilo Delos Santos re-filed the complaint in RTC Makati City.

• The Promissory Note expressly waived the requirement for demand; thus, demand was unnecessary before declaring default and foreclosing.
• The Real Estate Mortgage's provision on sending correspondence pertains only to the address for notices, not a requirement for demand.
• The foreclosure sale enjoys a presumption of regularity.
• The 3% monthly penalty charge is not iniquitous under the circumstances.

• No proper demand letter was sent prior to foreclosure as required by the Real Estate Mortgage.
• Without a valid demand, the effects of default do not arise, rendering the foreclosure premature and void.
• The interest and penalty charges are grossly excessive and exorbitant.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the CA erred in nullifying the foreclosure sale on the ground that no demand was made by the petitioner prior to foreclosure.
  2. Whether the 3% monthly penalty charge is iniquitous or excessive.

• Procedural: N/A
• Substantive:
  1. Yes. The CA erred. The Spouses Delos Santos expressly waived the requirement for demand in the Promissory Note. Therefore, demand was not necessary for them to be considered in default. The foreclosure was valid.
  2. The SC did not rule on this issue. The main issue resolved was the validity of the foreclosure based on the demand waiver. The penalty charge's validity was not a central point in the final ruling.

• Waiver of Demand — A debtor may expressly waive the requirement for demand to be considered in default. Such a waiver is valid and makes demand unnecessary for the creditor to exercise remedies like foreclosure. The SC applied this by citing the explicit waiver clause in the Promissory Note.
• Dragnet Clause — A clause in a mortgage contract that makes it security for future loans or advancements. The SC noted the Real Estate Mortgage contained such a clause, making it security for the later Promissory Note.
• Constructive Trust (Article 1456, Civil Code) — When property is acquired through mistake or fraud, the acquirer is considered a trustee for the benefit of the person from whom the property comes. The SC discussed this in relation to the prescriptive period for annulling a foreclosure, noting that an improper foreclosure creates a constructive trust.
• Distinction Between Demand for Default and Personal Notice of Foreclosure — The requirement of demand for the principal obligation (to be in default) is distinct from the contractual requirement of personal notice for the accessory obligation (the foreclosure of the mortgage). The waiver of the former does not automatically waive the latter.

• "I/We expressly waive any requirement for diligence, presentment, demand, notice of non-payment and/or notice of dishonor of this note or of any and all checks or other negotiable instruments delivered by me/us in payment hereof." — The waiver clause in the Promissory Note that the SC found controlling.
• "The requirement of demand to be deemed in default is distinct and separate from the requirement of personal notice in the event of mortgage foreclosure." — The SC's clarification distinguishing the two concepts.

• Bank of the Philippine Islands v. Court of Appeals — Cited to show that a similar waiver clause in a promissory note was upheld, making demand unnecessary for default.
• Premiere Development Bank v. Central Surety & Insurance Company, Inc. — Cited for the principle that sending demand letters is standard banking practice and for the validity of waiver clauses.
• Global Holiday Ownership Corp. v. Metropolitan Bank & Trust Co. — Distinguished. The SC noted that in Global Holiday, the promissory note did not contain a waiver of demand clause, unlike the present case.
• Planters Development Bank v. Lubiya Agro Industrial Corp. and Philippine Savings Bank v. Co — Cited to establish that a contractual stipulation requiring all correspondence (including notices of judicial/extrajudicial action) to be sent to the mortgagor's address constitutes a stipulation for personal notice of foreclosure, the violation of which nullifies the sale.
• Heirs of Espiritu v. Spouses Landrito — Cited for the rule that an action to recover property based on an improper foreclosure is based on a constructive trust and prescribes in 10 years.

• Article 1169, Civil Code — Defines when a debtor incurs in delay (default), generally requiring demand, but lists exceptions including express stipulation.
• Article 2087, Civil Code — Provides that a creditor may alienate the mortgaged property for payment when the principal obligation becomes due.
• Article 1456, Civil Code — Establishes the concept of a constructive trust when property is acquired through mistake or fraud.
• Article 1144(2), Civil Code — Sets a 10-year prescriptive period for obligations created by law (like constructive trusts).
• Article 1155, Civil Code — Provides for the interruption of the prescriptive period of actions.
• Act No. 3135 — Governs the extrajudicial foreclosure of real estate mortgages, requiring posting and publication of notice.

• Justice Alfredo Benjamin S. Caguioa (Concurring) — Agreed that the waiver clause in the promissory note was controlling and superseded the general correspondence clause in the earlier mortgage. Emphasized that since demand was waived, the bank was not even required to prove that demand was sent. Also concurred that all elements for a valid foreclosure were present.