Planters Development Bank vs. Lubiya Agro Industrial Corporation

G.R. No. 207976. November 14, 2018

FACTS:

Planters Development Bank (Planters Bank) granted two (2) loans to respondent Lubiya Agro Industrial Corporation (Lubiya) in the amounts of P6,500,000.00 and P5,000,000.00, respectively. The said loans were secured by real estate mortgages over two (2) parcels of land with improvements thereon located in General Santos City.

When Lubiya defaulted, Planters Bank sent a letter dated June 8, 1998 to it demanding payment and informing the latter that failure to heed such demand shall prompt Planters Bank to institute a legal action against it. Due to Libuya’s failure to settle its obligation, Planters Bank extrajudicially foreclosed the properties offered as security by Lubiya. In the public auction, Planters Bank emerged as the sole and highest bidder. A Certificate of Sale was thereafter issued in its favor and recorded with the Registry of Deeds on November 11, 1998.

On January 23, 2001, Lubiya filed a complaint for nullification of the loan agreement, foreclosure proceedings, and damages xx on Planters Bank’s alleged failure to furnish Lubiya with notices regarding the foreclosure and sale of the mortgaged properties despite being obligated in their mortgage contract to do so.

Lubiya moved for a summary judgment alleging that no genuine issues exist as to the material facts of the case. The RTC granted the motion however, the summary judgment was adversed to Lubiya as the RTC dismissed its complaint against Planters Bank.

The CA reversed the decision of the RTC and nullified the foreclosure sale.

Lubiya insists that the demand letter dated June 8, 1998, which Lubiya received on June 24, 1998 prior to the auction sale on October 6, 1998, duly satisfied the notice requirement agreed upon by the parties.

ISSUE:

whether or not the lack of personal notice of the extrajudicial foreclosure proceedings upon the mortgagor renders foreclosure null and void.

HELD:

As a general rule, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary. Section 3 of Act No. 313514 governing extrajudicial foreclosure of real estate mortgages only requires the 1) posting of the notice of extrajudicial foreclosure sale in three public places; and 2) publication of the said notice in a newspaper of general circulation. 

Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality and city.

However, despite the above provisions of the law, the parties to a mortgage contract are not precluded from imposing additional stipulations. This includes the requirement of personal notification to the mortgagor of any action relative to the mortgage contract, such as the institution of an extrajudicial foreclosure proceeding. Thus, the exception to the rule is when the parties stipulate that personal notice is additionally required to be given the mortgagor. Failure to abide by the general rule, or its exception, renders the foreclosure proceedings null and void. 

The June 8, 1998 demand letter that Planters Bank sent to Lubiya satisfies the bank’s additional obligation to provide personal notice of the extrajudicial foreclosure sale to the mortgagor. The purpose of stipulations of such nature is to precisely apprise the mortgagors of any action which the mortgagees might take on the mortgaged properties in order to accord the former of an opportunity to safeguard their rights. Thus, when Planters Bank failed to send the notice of foreclosure sale to Lubiya, it committed a contractual breach sufficient to render the foreclosure sale on October 6, 1998 null and void. Besides, the loan agreements and mortgage contracts are standard contracts of adhesion prepared by petitioner itself. If the parties did not intend to require personal notice in addition to the statutory requirements of posting and publication, the said provision should not have been included in the mortgage contracts.