Security Bank Corporation vs. Spouses Martel

A party who expressly requests the postponement of an extrajudicial foreclosure auction sale "without the need of republication" is estopped from subsequently seeking nullification of that sale on the ground that republication was not effected, as such conduct violates the principles of fair dealing, good faith, and honesty embodied in Article 19 of the Civil Code.

Security Bank Corporation extended a series of loan accommodations to Spouses Jose V. Martel and Olga S. Martel, secured by real estate mortgages over their residential house and lot at No. 8, Farol St., Urdaneta Village, Makati City, covered by TCT No. (288267) 146489. The aggregate principal obligation eventually reached P26,700,000.00, covered by four promissory notes executed in late 2001. The legal framework governing the extrajudicial foreclosure of real estate mortgages is Act No. 3135, as amended by Act No. 4118, which prescribes mandatory posting and publication requirements for notices of sheriff's sale.

Security Bank Corporation and Spouses Jose V. Martel and Olga S. Martel entered into a credit agreement under which, on August 26, 1994, the spouses executed a real estate mortgage in the bank's favor as security for a P10,000,000.00 loan accommodation. The mortgage was constituted over their residential house and lot at No. 8, Farol St., Urdaneta Village, Makati City, covered by TCT No. (288267) 146489. On various dates from April 12, 1995 until March 22, 1999, the spouses executed five additional REM contracts over the same property to secure further loans, bringing the aggregate principal obligation to P26,700,000.00. From September 14, 2001 until October 5, 2001, the spouses executed four promissory notes covering P25,000,000.00 of their obligation.

The spouses subsequently defaulted, prompting the bank to extrajudicially foreclose the subject mortgages. By the bank's demand letter dated May 15, 2002, the spouses' obligation as of May 8, 2002 amounted to P33,009,745.43, exclusive of stipulated attorney's fees and other charges. A Notice of Sheriff's Sale dated July 31, 2002, issued by the Office of the Clerk of Court and Ex-Officio Sheriff of the RTC of Makati City, scheduled the public auction for September 6, 2002, at the New City Hall of Makati. The notice was duly posted and published, and the mortgage debt was stated as P34,645,909.44 as of June 30, 2002.

On September 5, 2002, one day before the scheduled auction, the spouses wrote to the Clerk of Court and Ex-Officio Sheriff requesting postponement to September 23, 2002, expressly stating "without the need of republication." The request was granted. On September 23, 2002, the spouses made a similarly worded request for postponement to October 8, 2002, again "without the need of republication," which was likewise granted. On October 8, 2002, for the third time, they requested re-scheduling to October 23, 2002, again "without the need of republication," and the request was again granted. The auction sale was conducted on October 23, 2002 as scheduled, and the property was sold to the bank as highest bidder for P25,303,072.21. A Certificate of Sale dated November 15, 2002 was issued, and the sale was annotated on the title on November 18, 2002.

On November 11, 2003, the spouses filed a complaint against the bank, the Register of Deeds of Makati City, and the Clerk of Court and Ex-Officio Sheriff, seeking nullification of the foreclosure sale and the promissory notes, as well as damages, citing prematurity of the foreclosure, bad faith, exorbitant interest rates, irregularity in the signing of the promissory notes, and failure to comply with posting and publication requirements. On November 19, 2003, the bank executed an Affidavit of Consolidation on the ground that the spouses failed to redeem the property on time. TCT No. 146489 was cancelled and a new title, TCT No. 219694, was issued in the bank's name, and the bank was placed in possession of the property.

The RTC initially nullified the auction sale in its August 5, 2014 Decision, finding that the bank failed to formally offer the spouses' letter-requests in evidence. Upon reconsideration, however, the RTC reversed itself in its December 22, 2014 Order, noting that the spouses had admitted the existence of the letter-requests in their Motion for Summary Judgment, through their witness's cross-examination testimony, and in their Supplemental Memorandum, constituting judicial admissions binding upon them. The CA then reversed the RTC's December 22, 2014 Order and reinstated the August 5, 2014 Decision, holding the foreclosure sale void for failure to republish the rescheduled auction dates.

• Insufficient Docket Fees: Petitioner contended that respondent spouses' complaint sought not only nullification of the foreclosure proceedings but also recovery of title or possession of the subject property, such that the docket fees should have been based on the estimated or assessed value of the property. Petitioner claimed the docket fees paid were insufficient and that the spouses failed to pay the correct amount within the period allowed by law, depriving the RTC of jurisdiction.
• Estoppel: Petitioner argued that respondent spouses are estopped from questioning the validity of the foreclosure proceedings because they themselves requested the postponements of the auction sale "without the need of republication."

• Jurisdiction (Docket Fees): Whether the RTC validly acquired jurisdiction over the complaint despite the spouses' alleged insufficient payment of docket fees.
• Estoppel: Whether respondent spouses are estopped from questioning the validity of the auction sale given that they requested its postponement "without the need of republication."

• Jurisdiction (Docket Fees): Yes. The RTC validly acquired jurisdiction, as the deficiency in docket fees may be paid within a reasonable time before the lapse of the prescriptive period, which for real actions over immovables is thirty years under Article 1141 of the Civil Code.
• Estoppel: Yes. Respondent spouses are estopped from questioning the validity of the auction sale, having thrice requested its postponement expressly "without the need of republication," conduct that constitutes bad faith and a violation of Article 19 of the Civil Code.

• Jurisdiction (Docket Fees): Section 1, Rule 141 of the Rules of Court requires payment of prescribed fees in full upon filing, but if the correct fees are not paid at the time of filing, the court may allow payment of the deficiency within a reasonable time, provided it is before the lapse of the prescriptive period. The complaint filed by respondent spouses is a real action, as it seeks recovery of title to and possession of real property, within the meaning of Section 1, Rule 4 of the Rules of Court. Under Article 1141 of the Civil Code, real actions over immovables prescribe after thirty years. The foreclosure sale was held on October 23, 2002, the date on which the cause of action accrued. The thirty-year prescriptive period thus had not lapsed when the RTC, in its August 5, 2014 Decision, directed the spouses to pay the deficiency within fifteen days. The directive was a valid exercise of the trial court's discretion to allow belated payment of the correct docket fees, and payment within the specified period before prescription cures the defect caused by incomplete payment.

• Estoppel: The doctrine of estoppel is grounded on public policy, fair dealing, good faith, and justice, and forbids a party from speaking against its own act, representations, or commitments to the injury of one who reasonably relied thereon. Respondent spouses thrice requested postponement of the auction sale, each time expressly stating "without the need of republication," and all three requests were granted to accommodate them. Having secured the postponements on those terms, they cannot subsequently seek nullification of the sale on the very ground they themselves proposed. Their conduct was an underhanded tactic designed to deceive both the bank and the Clerk of Court, laying the groundwork for a nullification action in the event they failed to acquire the property at auction. This constitutes bad faith and a violation of Article 19 of the Civil Code, which requires every person to act with justice, give everyone his due, and observe honesty and good faith in the exercise of rights and performance of duties. Parties who do not come to court with clean hands cannot profit from their own wrongdoing. The Court further agreed with the dissenting opinion of then CA Associate Justice Ramon Paul I. Hernando that, if anyone has a cause of action to seek nullification for lack of republication, it is the public and the spouses' creditors and heirs — not the spouses themselves, who are estopped by their own conduct.

• Doctrine of Estoppel — Based on the grounds of public policy, fair dealing, good faith, and justice, estoppel forbids one from speaking against its own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. It springs from equitable principles and is designed to aid the law in the administration of justice where without its aid injustice might result. In this case, the spouses were estopped because they expressly requested postponement of the auction sale "without the need of republication" three times and then sought to nullify the sale for precisely that reason.

• Clean Hands Doctrine — Parties who do not come to court with clean hands cannot be allowed to profit from their own wrongdoing. The action or inaction of the party seeking equity must be free from fault, and the party must have done nothing to lull an adversary into repose, thereby obstructing and preventing vigilance. The spouses' repeated requests for postponement without republication, followed by a nullification suit, violated this principle.

• Belated Payment of Docket Fees — Under Section 1, Rule 141 of the Rules of Court, if the correct docket fees are not paid at the time of filing, the court may allow payment of the deficiency within a reasonable time, but in no case beyond the lapse of the prescriptive period. For real actions over immovables, the prescriptive period is thirty years under Article 1141 of the Civil Code. Payment of the deficiency within a reasonable time before prescription cures the defect of incomplete payment.

• "Be that as it may, the Court agrees with petitioner that respondent spouses are estopped from questioning the validity of the subject foreclosure proceedings precisely because they, themselves, were the ones who 'requested for several postponements of the auction sale without need of republication.'" — This passage states the ratio decidendi: the spouses' own express requests for postponement without republication estop them from later challenging the sale on that ground.

• "Indeed, parties, like herein respondent spouses, who do not come to court with clean hands cannot be allowed to profit from their own wrongdoing." — This articulates the clean hands doctrine as applied to the spouses' scheming conduct of requesting postponement without republication and then suing to nullify the sale for lack of republication.

• "What makes their act more detestable is the fact that they made the same request three times and that all these requests were granted in order to accommodate them." — This emphasizes the aggravated nature of the spouses' bad faith, as they repeated the same deceptive request three times, each time accommodated by the Clerk of Court.

• Philippine First Insurance Co., Inc. vs. Pyramid Logistics and Trucking Corp., 579 Phil. 679-693 (2008) — Cited for the rule that if the correct docket fees are not paid at the time of filing, the court may allow payment of the deficiency within a reasonable time but before the lapse of the prescriptive period.
• Fedman Development Corporation vs. Agacoili, 672 Phil. 20, 29 (2011) — Cited for the proposition that the "prescriptive period" for purposes of belated docket fee payment pertains to the period in which a specific action must be filed, as provided in the Civil Code.
• Philippine National Bank vs. Intermediate Appellate Court (First Civil Cases Div.), 267 Phil. 720, 728 (1990) — Cited for the doctrine of estoppel, its equitable grounds, and its purpose to forbid one from speaking against its own act to the injury of one who relied thereon.
• Department of Public Works and Highways vs. Quiwa, et al., 681 Phil. 485, 489 (2012) — Cited for the clean hands doctrine: parties who do not come to court with clean hands cannot profit from their own wrongdoing, and the party seeking equity must be free from fault.

• Section 1, Rule 141, Rules of Court — Requires that the prescribed fees for an action or proceeding be paid in full upon filing; if not, the court may allow payment of the deficiency within a reasonable time but beyond the lapse of the prescriptive period. Applied to sustain the RTC's directive for the spouses to pay deficiency docket fees within fifteen days.
• Section 1, Rule 4, Rules of Court — Defines a real action as one affecting title to, possession of, or interest in real property. Applied to classify the spouses' complaint as a real action.
• Article 1141, Civil Code — Provides that real actions over immovables prescribe after thirty years. Applied to determine that the prescriptive period had not lapsed when the RTC directed belated payment of docket fees, as the cause of action accrued on October 23, 2002.
• Article 19, Civil Code — States that every person must, in the exercise of rights and performance of duties, act with justice, give everyone his due, and observe honesty and good faith. Applied to find that the spouses' conduct in requesting postponement without republication and then suing to nullify the sale violated this provision.
• Act No. 3135, as amended by Act No. 4118 — Governs extrajudicial foreclosure of real estate mortgages and prescribes mandatory posting and publication requirements for notices of sheriff's sale. Referenced as the legal framework the RTC ordered compliance with in directing a new auction sale.

Caguioa, Carandang, Zalameda, and Gaerlan, JJ., concurred.