Ramirez vs. The Manila Banking Corporation

A mortgagee’s failure to send the mortgagor the personal notice of extrajudicial foreclosure sale stipulated in the real estate mortgage is a contractual breach sufficient to invalidate the extrajudicial foreclosure sale, even though Act No. 3135 does not require personal notice absent such stipulation.

Jose T. Ramirez executed a real estate mortgage over two parcels of land in Bayanbayanan, Marikina City, covered by TCT Nos. N-10722 and N-23033, in favor of The Manila Banking Corporation to secure a ₱265,000 loan. The mortgage contract contained paragraph N, which provided that all correspondence relative to the mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial action, shall be sent to the mortgagor at the address given or later given in writing, and that sending the correspondence by mail or personal delivery to that address would be valid and effective notice for all legal purposes. Act No. 3135 governs extrajudicial foreclosure sales and, under Section 3, requires posting and publication but not personal notice to the mortgagor unless the parties stipulate otherwise.

Jose T. Ramirez owned two parcels of land located at Bayanbayanan, Marikina City, covered by Transfer Certificate of Title Nos. N-10722 and N-23033. To secure a ₱265,000 loan, he mortgaged both parcels in favor of The Manila Banking Corporation. The real estate mortgage contained paragraph N, which required that all correspondence relative to the mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial action, be sent to Ramirez at the address stated in the mortgage or at any address later given in writing to the mortgagee; sending the correspondence by mail or personal delivery to that address would be valid and effective notice for all legal purposes, even if not actually received, returned unclaimed, or undeliverable.

When Ramirez failed to pay the loan despite demands, The Manila Banking Corporation filed a request for extrajudicial foreclosure of real estate mortgage before Atty. Hipolito Sañez. At the auction sale on September 8, 1994, the bank was the only bidder for the mortgaged properties. A certificate of sale was thereafter issued in its favor as the highest bidder.

In 2000, the bank demanded that Ramirez vacate the properties. Ramirez then sued the bank for annulment of sale, praying that the certificate of sale be annulled on the ground, among others, that paragraph N of the real estate mortgage was violated because he was not notified of the foreclosure and auction sale. In its answer, the bank claimed that the foreclosure proceedings were valid.

The trial court found that the extrajudicial foreclosure proceedings were null and void and that the certificate of sale was invalid; it awarded Ramirez moral damages of ₱100,000, exemplary damages of ₱50,000, attorney’s fees of ₱50,000, and costs of suit, noting that had the bank strictly followed the procedure for extrajudicial foreclosure and not prematurely filed an unlawful detainer case, Ramirez would not have been forced to litigate and incur expenses. The Court of Appeals later concluded that the absence of personal notice of foreclosure to Ramirez was not a ground to set aside the foreclosure sale.

• Contractual Notice: Petitioner argued that the auction sale and certificate of sale are null and void because no notice of the foreclosure and sale by public auction was personally given to him, in violation of paragraph N of the real estate mortgage requiring personal notice of extrajudicial foreclosure.

• Statutory Notice: Respondent countered that under Section 3 of Act No. 3135, no personal notice to the mortgagor is required in case of a foreclosure sale.
• Contractual Stipulation: Respondent argued that paragraph N of the real estate mortgage does not impose an additional obligation on it to provide personal notice to the mortgagor.

• Effect of Violating Paragraph N: Whether the violation of paragraph N of the deed of mortgage, which requires personal notice to the petitioner-mortgagor by the respondent-mortgagee bank, renders the extrajudicial foreclosure sale and the certificate of sale null and void.
• Monetary Awards: Whether the trial court’s awards of moral and exemplary damages, attorney’s fees, and costs of suit should be sustained.

• Effect of Violating Paragraph N: Yes. The extrajudicial foreclosure sale and certificate of sale are null and void. The bank’s failure to send the stipulated personal notice was a contractual breach; although Section 3 of Act No. 3135 does not require personal notice absent stipulation, the parties may exact additional requirements and the contract is the law between them.
• Monetary Awards: No as to moral and exemplary damages and attorney’s fees; yes as to costs of suit. Moral damages lacked clear proof of injury; exemplary damages had no basis; attorney’s fees lacked stated factual or legal reasons. Costs are allowed to the prevailing party, including ₱3,530 in docket and lawful fees for the petition.

• Effect of Violating Paragraph N: The Court began from the rule that, unless the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure is not necessary because Section 3 of Act No. 3135 only requires posting of the notice of sale in three public places and publication in a newspaper of general circulation. Here, however, the parties stipulated in paragraph N that all correspondence relative to the mortgage, including notifications of extrajudicial actions, shall be sent to Ramirez at his given address. The bank had no choice but to comply with this contractual provision; the contract is the law between the parties and, absent any showing that its provisions are contrary to law, morals, good customs, public order, or public policy, it must be enforced to the letter. The purpose of the stipulation is to apprise the mortgagor of any action the mortgagee might take on the subject property, thus giving him the opportunity to safeguard his rights. When the bank failed to send the notice of extrajudicial foreclosure sale to Ramirez, it committed a contractual breach sufficient to render the September 8, 1994 foreclosure sale null and void. The Court relied on Carlos Lim vs. Development Bank of the Philippines, Metropolitan Bank vs. Wong, and Global Holiday Ownership Corporation vs. Metropolitan Bank and Trust Company, all involving similar provisions.
• Monetary Awards: Moral damages require a clear showing that the claimant actually experienced physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, or similar injury. No such testimony or proof was presented; Ramirez’s testimony was wanting. Exemplary damages cannot be awarded because there was no basis for moral damages and no award of temperate, liquidated, or compensatory damages. Attorney’s fees were deleted because the trial court failed to state in the body of its decision the factual or legal reasons for the award, and the petition offered no supporting fact or argument. Costs of suit, however, are allowed to the prevailing party as a matter of course unless otherwise provided; Ramirez may recover the costs stated in Section 10, Rule 142, including lawful fees paid in docketing the action, plus ₱3,530 in docket and lawful fees for filing the petition. Although Section 7, Rule 142 would have restricted costs because the award of moral and exemplary damages was deleted, the Court certified that the action involved a substantial and important right, entitling Ramirez to costs.

• Contract Is the Law Between the Parties — Where a real estate mortgage contains a stipulation requiring the mortgagee to send the mortgagor personal notice of extrajudicial actions, the mortgagee must comply. The stipulation is valid and enforceable absent a showing that it is contrary to law, morals, good customs, public order, or public policy. In this case, paragraph N required all correspondence, including notifications of extrajudicial actions, to be sent to Ramirez; the bank’s failure to send the notice of extrajudicial foreclosure sale was a contractual breach sufficient to invalidate the sale.
• Notice in Extrajudicial Foreclosure Under Act No. 3135 — Section 3 of Act No. 3135 requires only (1) posting of the notice of sale in three public places and (2) publication in a newspaper of general circulation. Personal notice to the mortgagor is not required unless the parties stipulate otherwise. Because the parties stipulated in paragraph N, the bank was bound to give personal notice; noncompliance invalidated the foreclosure.
• Moral Damages — Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. An award must be anchored on a clear showing that the claimant actually experienced such injury. The award to Ramirez was deleted because no testimony or proof supported it.
• Exemplary Damages — Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They cannot be awarded where there is no basis for moral damages and no award of temperate, liquidated, or compensatory damages. The award was deleted.
• Attorney’s Fees — Attorney’s fees may not be awarded where the trial court fails to state in the body of its decision the factual or legal reasons for the award. The award was deleted.
• Costs of Suit — Costs are allowed to the prevailing party as a matter of course unless otherwise provided. Recoverable costs are those enumerated in Rule 142. Although Section 7, Rule 142 restricts costs where the plaintiff recovers no more than ₱10 in debt or damages, the Court certified that the action involved a substantial and important right, allowing full costs. Ramirez could recover the lawful fees paid in docketing the action and ₱3,530 for filing the petition.

• "We have consistently held that unless the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3 of Act No. 3135 only requires the posting of the notice of sale in three public places and the publication of that notice in a newspaper of general circulation." — States the general rule and the exception that controlled the case: personal notice is not statutorily required, but the parties may stipulate otherwise.
• "We rule that when respondent failed to send the notice of extrajudicial foreclosure sale to Ramirez, it committed a contractual breach of said paragraph N sufficient to render the extrajudicial foreclosure sale on September 8, 1994 null and void." — The ratio decidendi: breach of the mortgage’s notice stipulation invalidated the foreclosure sale.
• "The contract is the law between them. Hence, we cannot agree with the bank that paragraph N of the real estate mortgage does not impose an additional obligation upon it to provide personal notice of the extrajudicial foreclosure sale to the mortgagor Ramirez." — Articulates the contract-as-law principle and rejects the bank’s position that paragraph N imposed no additional notice obligation.
• "The award of moral damages must be anchored on a clear showing that Ramirez actually experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury." — States the evidentiary standard for moral damages, which the Court applied to delete the award.

• Carlos Lim, et al. vs. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013 — Controlling precedent cited for the rule that personal notice in extrajudicial foreclosure is not necessary unless the parties stipulate; the Court reiterated it and applied it to paragraph N.
• Metropolitan Bank vs. Wong, 412 Phil. 207, 216-217 (2001) — Quoted at length; held that a bank’s violation of a mortgage provision requiring correspondence and notices to be sent to the mortgagor is sufficient to invalidate the extrajudicial foreclosure sale.
• Global Holiday Ownership Corporation vs. Metropolitan Bank and Trust Company, G.R. No. 184081, June 19, 2009, 590 SCRA 188, 196-197 — Reiterated the Wong ruling and involved a similar mortgage provision; cited to support invalidation of the foreclosure.
• Philippine Savings Bank vs. Mañalac, Jr., G.R. No. 145441, April 26, 2005, 457 SCRA 203, 222 — Cited for the requirement that moral damages be anchored on a clear showing of actual injury.
• Gatmaitan vs. Dr. Gonzales, 525 Phil. 658, 672 (2006) — Cited for the rule that exemplary damages are imposed in addition to moral, temperate, liquidated, or compensatory damages and cannot stand without such basis.
• Ledda vs. Bank of the Philippine Islands, G.R. No. 200868, November 21, 2012, 686 SCRA 285, 296-297 — Cited for the deletion of attorney’s fees where the trial court failed to state the factual or legal reasons for the award.

• Section 3, Act No. 3135 — Requires notice of extrajudicial foreclosure sale by posting in at least three public places for not less than twenty days and, if the property is worth more than ₱400, publication once a week for at least three consecutive weeks in a newspaper of general circulation. It does not require personal notice to the mortgagor unless the parties stipulate otherwise. Because paragraph N stipulated personal notice, the bank’s failure to comply invalidated the sale.
• Paragraph N, Real Estate Mortgage — Contractual stipulation requiring all correspondence relative to the mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial action, to be sent to the mortgagor at the given address or a later written address; sending by mail or personal delivery to that address is valid and effective notice for all legal purposes. The bank breached this provision by not sending the notice of extrajudicial foreclosure sale.
• Article 2217, Civil Code — Defines moral damages to include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. The Court cited it to require clear proof of actual injury; none was shown.
• Article 2229, Civil Code — States that exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. The Court cited it to delete the exemplary damages award because there was no basis for moral damages and no other damages awarded.
• Rule 142, Sections 1, 7, 10, and 11, Rules of Court — Section 1 allows costs to the prevailing party as a matter of course; Section 10 enumerates recoverable costs in the Regional Trial Court; Section 11 covers costs in the Supreme Court; Section 7 restricts costs where the plaintiff recovers no more than ₱10 in debt or damages unless the court certifies that the action involved a substantial and important right. The Court allowed costs, including ₱3,530 in docket and lawful fees for the petition, and certified that the action involved a substantial and important right.
• Section 13, Article VIII, 1987 Constitution — Cited in the Chief Justice’s certification that the conclusions in the decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

Chief Justice Maria Lourdes P.A. Sereno (Chairperson), Associate Justices Teresita J. Leonardo-De Castro, Lucas P. Bersamin, and Bienvenido L. Reyes.