The Commoner Lending Corporation vs. Spouses Voltaire and Ella Villanueva

A real estate mortgage provision that appoints the mortgagee as attorney-in-fact with full power and authority to take any legal action necessary to satisfy the mortgage debt sufficiently incorporates the special power to sell required for extrajudicial foreclosure under Act No. 3135, even without a separate special power of attorney attached, because no particular formality is required and any words evincing an intention that the sale may be made upon default suffice.

The Commoner Lending Corporation (TCLC) is a lending corporation; Spouses Voltaire and Ella Villanueva were borrowers who executed a real estate mortgage over Lot No. 380-D as security for a loan. Extrajudicial foreclosure of real estate mortgages is governed by Act No. 3135, as amended, which requires a special power to sell inserted in or attached to the mortgage, and the Civil Code requires written authority for an agent to sell land. The dispute concerns whether the mortgage contract's paragraph 3 supplied that authority.

On August 13, 2002, Spouses Voltaire and Ella Villanueva borrowed P100,000.00 from The Commoner Lending Corporation (TCLC), payable within one year and with 24% interest per annum. As security, the spouses executed a real estate mortgage over Lot No. 380-D, a 107-square meter land situated at Manoc-Manoc, Malay, Aklan, and covered by Tax Declaration No. 2313 in the name of Voltaire Villanueva. Thereafter, Spouses Villanueva paid TCLC a total of P82,680.00 but were unable to settle the balance of P41,340.00. TCLC sent a final demand letter; on August 20, 2003, Spouses Villanueva, through their representative Jeverlyn C. Villanueva, received a Final Demand dated July 30, 2002 from TCLC demanding payment of their amortizations in arrears. The spouses failed to comply.

Because no payment followed, TCLC applied with the Office of the Provincial Sheriff to foreclose the real estate mortgage. After notice and publication, an auction sale was held on December 7, 2004, and the mortgaged property was sold to TCLC as the sole bidder. On December 14, 2004, TCLC was issued a certificate of sale, which it recorded with the register of deeds on January 27, 2005. On January 31, 2006, a final deed of sale was executed in favor of TCLC.

Aggrieved, Spouses Villanueva filed an action against TCLC before the Regional Trial Court to annul the extrajudicial foreclosure sale, certificate of sale, and final deed of sale, docketed as Civil Case No. 7823. They alleged that TCLC had no right to foreclose the mortgaged property because paragraph 3 of the real estate mortgage did not expressly grant it the power to sell. They also claimed that the mortgage transaction was void because it gave TCLC the power to possess the property without judicial order, amounting to a pactum commissorium prohibited under the law. They further claimed that they learned of the foreclosure only in January 2005 and denied receiving any notice of foreclosure and its publication.

The RTC found no stipulation on automatic appropriation of the mortgaged property. Both the RTC and the CA found that Spouses Villanueva were notified of the auction sale and that the posting and publication requirements were duly complied with.

• Authority to Foreclose and Sell: TCLC maintained that paragraph 3 of the real estate mortgage provided the authority to foreclose the mortgage and sell the property to satisfy Spouses Villanueva's debt.
• Bar by Failure to Redeem: TCLC argued that Spouses Villanueva were already barred from questioning the extrajudicial proceedings because they failed to redeem the property within one year from the issuance of the certificate of sale.

• No Special Power to Sell: Spouses Villanueva insisted that TCLC was only granted the power to possess the property but not to foreclose the mortgage in case of non-payment of the loan.
• Pactum Commissorium: Spouses Villanueva alleged that the mortgage transaction was void because it gave TCLC the power to possess the property without judicial order, amounting to a pactum commissorium prohibited under the law.
• Lack of Notice: Spouses Villanueva claimed that they learned of the foreclosure only in January 2005 and denied receiving any notice of foreclosure and its publication.

• Special Power to Sell: Whether paragraph 3 of the real estate mortgage sufficiently incorporated the special power to sell required for extrajudicial foreclosure under Act No. 3135.
• Validity of Extrajudicial Foreclosure: Whether the CA erred in declaring void the extrajudicial foreclosure sale, certificate of sale, and final deed of sale for lack of the special power to sell.
• Compliance with Notice and Publication: Whether the sheriff complied with the notice, posting, and publication requirements of Act No. 3135.

• Special Power to Sell: Yes. Paragraph 3 expressly provided that upon non-payment the mortgage shall be foreclosed judicially or extrajudicially and appointed TCLC as attorney-in-fact with full power and authority to take any legal action necessary to satisfy the mortgage debt; this sufficiently incorporated the special power to sell under Act No. 3135.
• Validity of Extrajudicial Foreclosure: Yes, the CA erred. The extrajudicial foreclosure sale, certificate of sale, and final deed of sale are valid because the special power to sell was incorporated in the real estate mortgage; the CA cannot limit the authority granted to TCLC.
• Compliance with Notice and Publication: Yes. The RTC and CA both found that Spouses Villanueva were notified of the auction sale and that posting and publication requirements were complied with; these factual findings are beyond the Supreme Court's jurisdiction in a Rule 45 petition.

• Special Power to Sell: The Court began from the rule that literal meaning governs when contract terms are clear and leave no doubt as to the intention of the parties; courts cannot alter the agreement, make a new contract, supply material stipulations, or read into the contract words it does not contain. Only when the contract is vague and ambiguous may courts interpret it. Here, the real estate mortgage was complete and left no doubt as to TCLC's authority to sell. In extrajudicial foreclosure, Section 1 of Act No. 3135 requires a special power to sell inserted in or attached to the deed of mortgage. Civil law supports this: extrajudicial foreclosure is made through the sheriff by the mortgagee acting as agent of the mortgagor-owner, so there must be written authority from the mortgagor-owners in favor of the mortgagee; otherwise the sale is void. Article 1878(5) of the Civil Code requires a special power of attorney to enter into any contract by which ownership of an immovable is transmitted or acquired, and Article 1874 requires written authority for an agent to sell land. No special power was attached, but TCLC relied on paragraph 3. The CA construed the provision as a mere grant of authority to foreclose but not to sell; this was reversible error. While a power of sale must be 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 creating the power of sale; any words are sufficient which evince an intention that the sale may be made upon default or other contingency. Paragraph 3 sufficiently incorporated the required special power to sell: it expressly provided that upon non-payment or violation of the mortgage terms, the mortgage shall be foreclosed judicially or extrajudicially as provided by law, and that the mortgagee is appointed attorney-in-fact of the mortgagor with full power and authority to take possession of the mortgaged properties without judicial order and to take any legal action necessary to satisfy the mortgage debt. The provision is pellucid, and the CA cannot limit the authority granted to TCLC. Spouses Villanueva cannot claim, contrary to their plain agreement, that they granted TCLC merely the power to possess but not to sell. Clearly stipulated was the appointment of TCLC as attorney-in-fact, with authority to sell or otherwise dispose of the subject property and to apply the proceeds to the payment of the loan. This provision is customary in mortgage contracts and conforms to Article 2087 of the Civil Code. Obligations arising from contracts have the force of law between the parties and should be complied with in good faith; stipulations are binding unless contrary to law, morals, good customs, public order, or public policy. Spouses Villanueva, who freely signed the real estate mortgage, cannot be allowed to renege on their obligation, and the validity or compliance of a contract cannot be left to the will of one of the parties.
• Validity of Extrajudicial Foreclosure: Because paragraph 3 sufficiently incorporated the special power to sell, the CA's declaration of nullity for lack of that special power was erroneous. The extrajudicial foreclosure sale, certificate of sale, and final deed of sale stand, and the RTC decision dismissing the complaint was properly reinstated.
• Compliance with Notice and Publication: The sheriff complied with the procedures under Act No. 3135 for extrajudicial foreclosure. Sections 3 and 4 require notice by posting for not less than twenty days in at least three public places of the municipality or city where the property is situated, publication once a week for at least three consecutive weeks in a newspaper of general circulation if the property is worth more than four hundred pesos, and sale at public auction between nine in the morning and four in the afternoon under the direction of the sheriff. The RTC and CA both held that Spouses Villanueva were notified of the auction sale and that the posting and publication requirements were duly complied with. These involve factual issues and are beyond the ambit of the Supreme Court's jurisdiction in a petition for review on certiorari; it is not the Court's task to review the proofs presented below to ascertain if they were appreciated and weighed correctly, especially when the trial court and the appellate court speak as one in their findings and conclusions.

• Literal Interpretation of Contracts — When the terms of a contract are clear and leave no doubt as to the intention of the parties, the literal meaning shall govern. Courts have no authority to alter the agreement or make a new contract for the parties; their duty is confined to interpreting the terms and conditions the parties made for themselves. Courts cannot supply material stipulations or read into the contract words it does not contain. Only when the contract is vague and ambiguous are courts permitted to interpret it. The Court applied this doctrine to paragraph 3 of the real estate mortgage, finding it complete and clear as to TCLC's authority to sell.
• Special Power to Sell in Extrajudicial Foreclosure — Under Section 1 of Act No. 3135, as amended, a sale under a special power inserted in or attached to a real estate mortgage is governed by the statute. The power of sale must be given by express grant and in clear and explicit terms; there can be no implied power of sale where the mortgagee holds by a deed absolute in form. However, no particular formality is required in creating the power of sale, and any words are sufficient which evince an intention that the sale may be made upon default or other contingency. The Court applied this doctrine by holding that paragraph 3, which appointed TCLC as attorney-in-fact with full power and authority to take any legal action necessary to satisfy the mortgage debt, sufficiently incorporated the special power to sell.
• Written Authority for Sale of Land Through Agent — Under Article 1874 of the Civil Code, when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise the sale shall be void. Under Article 1878, paragraph 5, a special power of attorney is necessary to enter into any contract by which ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The Court applied these provisions by reasoning that extrajudicial foreclosure is made by the mortgagee as agent of the mortgagor-owner, so a written special power to sell is required; paragraph 3 supplied that authority.
• Obligations Arising from Contracts Have the Force of Law — Article 1159 of the Civil Code provides that obligations arising from contracts have the force of law between the parties and should be complied with in good faith. Article 1306 provides that stipulations are binding unless contrary to law, morals, good customs, public order, or public policy. Article 1308 provides that the validity or compliance of a contract cannot be left to the will of one of the parties. The Court applied these principles by holding that Spouses Villanueva, who freely signed the real estate mortgage, could not renege on their obligation or claim contrary to their plain agreement.
• Factual Findings of Lower Courts in Rule 45 — Factual issues are beyond the ambit of the Supreme Court's jurisdiction in a petition for review on certiorari, especially when the trial court and the appellate court speak as one in their findings and conclusions. The Court applied this doctrine to the notice, posting, and publication compliance findings, which both the RTC and CA had made in favor of TCLC.

• "It is settled that the literal meaning shall govern when the terms of a contract are clear and leave no doubt as to the intention of the parties." — This states the contract-interpretation rule the Court applied to paragraph 3 of the real estate mortgage.
• "Indeed, 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 defines the standard for the special power to sell in extrajudicial foreclosure and supports the Court's conclusion that paragraph 3 sufficed.
• "In this case, paragraph 3 of the real estate mortgage sufficiently incorporated the required special power of attorney to sell. It expressly provides that the mortgaged property shall be foreclosed, judicially or extra judicially, upon failure to satisfy the debt, and that TCLC, the mortgagee, is appointed as attorney-in-fact of Spouses Villanueva, the mortgagors, to do any legal action as may be necessary to satisfy the mortgage debt," — This is the ratio decidendi on the central issue of the special power to sell.
• "The provision is pellucid and the CA cannot limit the authority granted to TCLC. Also, Spouses Villanueva cannot claim, contrary to their plain agreement, that they granted TCLC merely the power to possess but not to sell the mortgaged property." — This rejects the spouses' interpretation of paragraph 3 and confirms that the mortgagee's authority included the power to sell.

• Pan Pacific Service Contractors, Inc. vs. Equitable PCI Bank, 630 Phil. 94 (2010) — Cited for the rule that literal meaning governs when contract terms are clear and leave no doubt as to the intention of the parties; courts cannot alter the agreement or make a new contract for the parties.
• Sps. Baysa vs. Sps. Plantilla, et al., 763 Phil. 562, 570 (2015) — Cited for the requirement that a special power or authority to sell, whether inserted in the real estate mortgage itself or annexed thereto, is necessary for extrajudicial foreclosure. In Baysa, paragraph 13 merely expressed the mortgagors' amenability to extrajudicial foreclosure and did not constitute the special power to sell; here, paragraph 3 was distinguished because it appointed TCLC as attorney-in-fact with authority to take any legal action necessary to satisfy the mortgage debt.
• Tan Chat vs. C.N. Hodges, et al., 98 Phil. 928, 930-931 (1956) — Cited for the rule 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.
• Gatan vs. Vinarao, G.R. No. 205912, October 18, 2017, 842 SCRA 602; Heirs of Teresita Villanueva, et al. vs. Heirs of Petronila Suquia Mendoza, et al., 810 Phil. 172 (2017); and Bacsasar vs. Civil Service Commission, 596 Phil. 858 (2009) — Cited collectively for the rule that factual issues are beyond the Supreme Court's jurisdiction in a Rule 45 petition, particularly when the trial and appellate courts agree on their findings. Applied to the notice and publication compliance findings.

• Section 1, Act No. 3135, as amended by Act No. 4118 — Requires that a sale be made under a special power inserted in or attached to a real estate mortgage. Applied: paragraph 3 sufficiently incorporated the special power to sell.
• Sections 3 and 4, Act No. 3135, as amended — Require notice by posting for not less than twenty days in at least three public places and publication once a week for at least three consecutive weeks in a newspaper of general circulation if the property is worth more than four hundred pesos, and sale at public auction between nine in the morning and four in the afternoon under the direction of the sheriff. Applied: the RTC and CA found compliance, and the Supreme Court did not disturb those factual findings.
• Article 1370, Civil Code — Provides that the literal meaning shall govern when the terms of a contract are clear and leave no doubt as to the intention of the parties. Applied to paragraph 3 of the real estate mortgage.
• Article 1874, Civil Code — Provides that when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise the sale shall be void. Applied: written authority was required for the extrajudicial foreclosure sale.
• Article 1878, paragraph 5, Civil Code — Provides that a special power of attorney is necessary to enter into any contract by which ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. Applied: a special power to sell was required.
• Article 2087, Civil Code — Provides that when the principal obligation becomes due, the things in which the mortgage consists may be alienated for the payment to the creditor. Applied: the provision appointing TCLC as attorney-in-fact with authority to sell was customary and conformed to law.
• Article 1159, Civil Code — Provides that obligations arising from contracts have the force of law between the parties and should be complied with in good faith. Applied: the real estate mortgage was binding on Spouses Villanueva.
• Article 1306, Civil Code — Provides that stipulations are binding unless contrary to law, morals, good customs, public order, or public policy. Applied: paragraph 3 was valid and binding.
• Article 1308, Civil Code — Provides that the validity or compliance of a contract cannot be left to the will of one of the parties. Applied: Spouses Villanueva could not renege on their obligation.

Peralta, C.J., Caguioa, J., Reyes, Jr., and Lazaro-Javier, JJ., concur.