Tan Chat vs. Hodges

A real estate mortgage deed need not contain any particular formality to create a power of sale; provisions requiring the mortgagee to follow the procedure of Act No. 3135 in a public auction and reserving the right to judicial foreclosure are sufficient express authority for extrajudicial foreclosure. The omission of other printed-form clauses does not negate that authority.

C.N. Hodges owned three lots and sold them to Benito Tan Chat, who mortgaged the same lots back to Hodges to secure the unpaid balance of the purchase price. Act No. 3135, as amended by Act No. 4118, governs the manner of sale and redemption when a real estate mortgage contains a special power of sale, whether or not the mortgage itself provides for that manner. The mortgage deed was drafted from a printed form supplied by Hodges, and the legal effect of its provisions is the subject of the appeal.

C.N. Hodges owned three lots, which he sold on July 6, 1941 to Benito Tan Chat for P15,105. Tan Chat paid P3,105 in cash and mortgaged the lots in favor of Hodges to secure the payment of the balance of P12,000. Hodges handed Tan Chat a printed form of mortgage contract, which Tan Chat more or less followed in drafting the deed of mortgage actually executed and signed by him.

The printed form, Exhibit E, contained in paragraph 7 a condition that the mortgage shall, after notice to the mortgagor, be considered automatically foreclosed, without the necessity of any judicial proceedings, upon the mortgagor's failure to comply with the conditions specified; and in paragraph 8 a condition that when the mortgage is automatically foreclosed for any of the causes or reasons enumerated in the next preceding paragraph, the mortgagee is authorized by the mortgagor to take possession of the mortgaged property without the necessity of resorting to any court proceedings or other judicial action. These provisions were omitted in the deed of mortgage actually executed, Exhibit D. Exhibit D nevertheless contained paragraph 3, stipulating that the mortgagee, in selling the property at public auction, shall follow the procedure provided for in Act No. 3135, the mortgagor in any case to be notified by the mortgagee in writing by registered mail of the sale; and paragraph 4, stipulating that the conditions and stipulations set forth in the preceding paragraphs shall not be construed as depriving the mortgagee of his right to institute the corresponding judicial proceedings to foreclose the mortgage if, in the opinion of the mortgagee, his interests require such an action.

In view of Tan Chat's failure to comply with the conditions of the mortgage, Hodges filed a petition with the sheriff of Iloilo City for the sale of the mortgaged lots in accordance with the provisions of Act No. 3135 as amended. The corresponding notice was made, and the sale at public auction was set for November 23, 1953. Tan Chat then filed in the Court of First Instance of Iloilo a petition for prohibition with injunction. After trial, the court rendered a decision granting the petition and ordering Hodges and the sheriff of Iloilo City to desist from carrying out the scheduled sale. Hodges appealed.

• Express Authority to Foreclose Extrajudicially: Appellant C.N. Hodges argued that although paragraphs 3 and 4 of the deed of mortgage, Exhibit D, do not contain direct phraseology, they nevertheless amount to an express authority to foreclose extrajudicially.

• Omission of Paragraphs 7 and 8: Appellee Benito Tan Chat contended that the elimination from Exhibit D of the conditions contained in paragraphs 7 and 8 of Exhibit E shows a clear intention on his part to disauthorize extrajudicial foreclosure.
• Specific and Unequivocal Special Power: Appellee further argued that, in any event, the special power to foreclose extrajudicially referred to in Act No. 3135 should be specific and unequivocal.

• Special Power to Foreclose Extrajudicially: Whether the deed of mortgage contains a special power to foreclose extrajudicially.

• Special Power to Foreclose Extrajudicially: Yes. Paragraphs 3 and 4 of the deed of mortgage, Exhibit D, taken together, plainly constitute an express authority for the mortgagee to foreclose extrajudicially under Act No. 3135; the omission of paragraphs 7 and 8 of the printed form is of no moment.

• Special Power to Foreclose Extrajudicially: Section 1 of Act No. 3135, as amended by Act No. 4118, provides that when a sale is made under a special power inserted in or attached to a real estate mortgage as security for the payment of money or the fulfillment of any other obligation, the provisions of the following sections govern the manner in which the sale and redemption shall be effected, whether or not provisions for the same are made in the power. The sale contemplated is extrajudicial. Paragraph 3 of Exhibit D requires the mortgagee, in selling the property at public auction, to follow the procedure prescribed in Act No. 3135 and to notify the mortgagor in writing by registered mail of the date of the sale; paragraph 4 reserves to the mortgagee the right to foreclose judicially. Taken together, these provisions plainly express authority for extrajudicial foreclosure. Had the parties not intended to allow extrajudicial foreclosure, the Act No. 3135 procedure would not have been mentioned, the mortgagee would not have been required to give written registered-mail notice of the sale, and the right to institute judicial foreclosure would not have been reserved. The reservation of judicial foreclosure implies the existence of another right, namely, the only remaining remedy of extrajudicial foreclosure. The omission in Exhibit D of paragraphs 7 and 8 contained in the printed form, Exhibit E, is of no moment because paragraphs 3 and 4 of the deed of mortgage are already sufficient. Although a power of sale will not be recognized as contained in a mortgage unless given by express grant and in clear and explicit terms, and there can be no implied power of sale where the mortgagee holds by a deed absolute in form, no particular formality is required in the creation of the power of sale; any words are sufficient which evince an intention that the sale may be made upon default or other contingency.

• Express Power of Sale in a Real Estate Mortgage — A power of sale is not recognized as contained in a mortgage unless it is given by express grant and in clear and explicit terms, and no implied power of sale exists where the mortgagee holds by a deed absolute in form. No particular formality, however, is required in creating the power of sale; any words suffice if they evince an intention that the sale may be made upon default or other contingency. In this case, paragraphs 3 and 4 of Exhibit D, taken together, plainly constituted express authority for extrajudicial foreclosure, and the omission of paragraphs 7 and 8 of the printed form did not negate that authority.
• Extrajudicial Foreclosure under Act No. 3135 — Section 1 of Act No. 3135, as amended by Act No. 4118, governs the manner of sale and redemption when a sale is made under a special power inserted in or attached to a real estate mortgage as security for the payment of money or the fulfillment of any other obligation, whether or not the mortgage itself provides for that manner. The sale contemplated by the statute is extrajudicial. The Court applied this provision by holding that the mention of Act No. 3135 procedure and the registered-mail notice requirement in paragraph 3, together with the reservation of judicial foreclosure in paragraph 4, established the mortgagee's authority to foreclose extrajudicially.
• Reservation of Judicial Foreclosure Implies Extrajudicial Remedy — Where a mortgage deed reserves to the mortgagee the right to institute judicial foreclosure proceedings, that reservation implies the existence of another right, the only remaining remedy of extrajudicial foreclosure. The Court used this reasoning to construe paragraphs 3 and 4 of Exhibit D as an express grant of authority to foreclose extrajudicially.

• "Paragraphs 3 and 4 of the deed of mortgage, Exhibit D, taken together, is plainly an express authority for the mortgagee to foreclose extra-judicially." — This is the ratio decidendi: the two paragraphs, read together, supply the express authority required for extrajudicial foreclosure.
• "The omission in Exhibit D of paragraphs 7 and 8 contained in the printed form, Exhibit E is of no moment since paragraphs 3 and 4 of the deed of mortgage are already sufficient." — This rejects the argument that deletion of the printed-form clauses negated any power of sale.
• "While it has been held that a power of sale will not be recognized as contained in mortgage unless it is given by express grant and in clear and explicit terms, and that there can be no implied power of sale where a mortgage holds by a deed absolute in form, it is generally held that no particular formality is required in the creation of the power of sale. Any words are sufficient which evince an intention that the sale may be made upon default or other contingency." — This states the controlling doctrine on the creation of a power of sale in a real estate mortgage.

• Section 1, Act No. 3135, as amended by Act No. 4118 — Provides that when a sale is made under a special power inserted in or attached to any real estate mortgage as security for the payment of money or the fulfillment of any other obligations, the provisions of the following sections shall govern the manner in which the sale and redemption shall be effected, whether or not provisions for the same are made in the power. The Court relied on this provision to hold that the sale contemplated is extrajudicial and that paragraphs 3 and 4 of Exhibit D sufficiently authorized extrajudicial foreclosure.

Reyes, A.; Jugo; Bautista Angelo; Concepcion; and Reyes, J. B. L., JJ.