SC: Foreclosure sale, if NOT published, void

THIRD DIVISION [ G.R. No. 199427, January 20, 2014 ] URSULA ARAGO VS. CATALINA ABU.

The transmittal letter dated November 14, 2013 of the Court of Appeals elevating to the Court the CA rollo, original records and transcripts of stenographic notes of this case is NOTED.

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Febuary 28, 2011 Decision[1] and the November 22, 2011 Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 89965 which affirmed with modification the March 1, 2007 Decision[3] of the Regional Trial Court, Branch 84, Batangas City (RTC).

Catalina Abu (Abu) was the registered owner of a parcel of land situated in Bulacan, Mabini, Batangas with an area of 319 square meters, covered by Transfer Certificate of Title (TCT) No. P-28190.

In 1991, Abu and her husband, Ambrosio, obtained a loan from the Bangko Kabayan-Ibaan Rural Bank, Inc. (Bank) in the amount of P120,000.00, and as security thereof, mortgaged the subject land. Abu paid the loan in January 1993.

On July 28, 1993, Abu obtained another loan amounting to P120,000.00 from the Bank and mortgaged the same property, as security. When the loan matured on January 24, 1994, Abu failed to pay the same, prompting the bank to send a letter, dated May 11, 1995, demanding the payment of their unpaid obligation amounting to P93,800.00.

Abu made several payments to the bank, to wit:
Date
Amount
February 29, 1996
P81,000.00
March 25, 1997
P32,000.00
October 1, 1997
P10,000.00
August 26, 1998
P15,035.32
September 1, 1998
P14,988.37
Unknown to Abu, the Bank, on November 10, 1995, filed a petition for extrajudicial sale under Act 3135. The public auction was held on February 28, 1996 and the subject property was sold to the Bank, being the highest bidder.On March 9, 1999, the Bank executed an affidavit of consolidation.

On August 30, 2000, the Bank executed the Deed of Absolute Sale over the subject property in favor of Ursula Arago (Arago) and her spouse.

On June 25, 2004, Arago sent a letter to Abu, offering the subject property for sale in the amount of P400,000.00; and stating that if she would opt not to buy the property, she should vacate the same.

Abu filed a complaint[4] for declaration of nullity of the extra-judicial foreclosure, Sheriffs auction sale and deed of absolute sale with damages against the Bank, the Register of Deeds of Batangas, Provincial Sheriff of Batangas, and Arago before the RTC.

She alleged that she was surprised when she received a letter from Arago claiming ownership of the parcel of land that was mortgaged, and informing her of her intention to sell the same; that upon inquiry from the Bank, she was informed that the said property had already been foreclosed; and that the Bank foreclosed the property without notifying her in violation of Act 3135, as amended by Act 4118, and in violation of the standard procedure of extrajudicial foreclosure of mortgage.

In its Answer, the Bank countered that Abu defaulted in the payment of her obligation as stipulated in the promissory note and failed to pay her indebtedness despite several extensions; that Abu knew that the property was extrajudicially foreclosed and sold to the Bank as the highest bidder; that she subsequently negotiated with the Bank for the possible recovery of the property; that Abu and the Bank entered into a contract to sell wherein Abu agreed to buy the property for P215,000.00; that Abu paid the amount of P113,000.00 only so the Bank would cancel the contract; and that the sale of the property to Arago was valid and binding.

For her part, Arago averred that she acquired the property with sufficient consideration, in good faith and without knowledge as to the alleged defect in the foreclosure proceedings.

On March 1, 2007, the RTC rendered its decision in favor of Abu, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants Bangko Kabayan-Ibaan Rural Bank and Ursula Arago:
  1. Declaring the real estate mortgage as null and void;
  2. Declaring the foreclosure sale dated February 28, 1996 in favor of defendant Ibaan Rural Bank, Inc. as null and void;
  3. Declaring the Deed of Absolute Sale dated August 30, 2000 between Bangko Kabayan, vendors, and Sps. Ursula Arago, vendees, as likewise null and void;
  4. Declaring as null and void TCT No. T-180130 in the name of defendant Ursula Arago and her deceased husband Pedro Arago;
  5. Declaiming Tax Declaration No. 005-00586 in the name of the said defendants as null and void;
  6. Ordering the Register of Deeds of Batangas to reinstate OCT No. P-28190 in the name of Ambrocio and Catalino Abu;
  7. Ordering the Municipal Assessor of Mabini, Batangas and Provincial Assessor of Batangas, respectively, to reinstate the Tax Declaration in the name of plaintiff Catalina Abu and Ambrocio Abu covering that parcel of land situated at Bulakan, Mabini, Batangas with an area of three hundred (300) square meters registered under OCT No. P-28190.
SO ORDERED.
The RTC declared the foreclosure of the subject property void because the record was bereft of any approval by the Executive Judge of the Sheriffs Notice of Sale. It also declared the real estate mortgage void for failure of the Bank to disclose the rate of interest imposed on the loan and to determine the exact amount of Abu's obligation. It likewise found it unusual for the Bank to foreclose the subject property on February 28, 1996 and yet collected payments from Abu even after the alleged foreclosure, to wit: (1) P81,000.00 on February 29, 1996 and (2) P32,000.00 on March 25, 1997, the sum of which was over and above the unpaid balance of P93,800.00 as stated in the demand letter, dated May 11, 1995.

With regard to the sale of the subject property to Arago and her husband, the RTC voided the same and rejected her defense of good faith not only because of the Bank's defective title over the property but also because she actually knew of Abu's adverse claim over the property before she bought it.

On appeal, the CA, in its Febuary 28, 2011 Decision, affirmed with modification the RTC decision. The dispositive portion of the CA decision reads:
WHEREFORE, the Partial Order dated June 14, 2007, of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 7593, is hereby AFFIRMED. The Decision dated March 1, 2007 and the Partial Order dated June 13, 2007 are likewise AFFIRMED with MODIFICATION in that the Real Estate Mortgage contract dated November 14, 1991 is hereby declared valid. Plaintiff-appellee is hereby ordered to pay the amount of P93,800.00, plus interest thereon at the rate of 23% per annum, computed from the date of plaintiff-appellee's receipt of the demand letter dated May 11, 1995 up to the actual payment, less the amount of P153,023.69, representing the total payment made by plaintiff-appellee. Defendant-appellant Bank is hereby ordered to return the amount of P240,000.00 to defendant-appellant Arago.

SO ORDERED.
The Bank and Arago filed a motion for reconsideration but it was denied by the CA Resolution on November 22, 2011. Hence, these two petitions contending that:

In G.R. No. 199427 (Arago)
  1. The complaint showed no allegation that she was a buyer in bad faith, nor was there any proof that she was a buyer in bad faith; and
  2. She was a buyer in good faith as she did not merely rely on the certificate of title of the Bank but she also made inquiries to determine if Abu still claimed ownership over the property.
In G.R. No. 199474 (The Bank)
  1. The CA erred in declaring the foreclosure sale null and void on the ground that there was no publication in the newspaper of the notice of sale; and
  2. The CA erred in declaring the foreclosure sale null and void on the ground that the posting of the notice of sale was done in violation of the Court's Circular 7-2002, in relation to Section 6 of Republic Act No. 7353.
The Court finds the petition without merit.

This Court is not a trier of fact. The findings of fact of the CA particularly if they coincide with those of the RTC, and when supported by substantial evidence, are entitled to great weight and respect, and even finality, unless it is shown that the evidence of the parties were arbitrarily disregarded. As long as their decisions are devoid of any unfairness or arbitrariness in the process of their deduction from the evidence proffered by the parties, all that is left is for the Court to stamp its affirmation and declare its finality.[5]

In the present case, the Bank did not publish the notice of auction sale in a newspaper of general circulation. It merely posted the notice of auction sale in three (3) conspicuous places. Clearly, the foreclosure sale was null and void.

With respect to G.R. No. 199427, Arago's title over the subject property is a nullity. Because the Bank acquired no valid title to the subject property, no valid title passed to her. She could not be considered an innocent purchaser for value either because she knew of the adverse claim of Abu. In fact, she even offered Abu to buy back the property or vacate the same.

WHEREFORE, the petitions in G.R. No. -199427 and G.R. No. 199474 are DENIED. The February 28, 2011 Decision and the November 22, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 89965 are AFFIRMED.

SO ORDERED.

[1] Rollo (G.R. No. 199427), pp. 31-45. Penned by Justice Ramon M. Bato, Jr. and concurred in by Associate Justices Juan Q. Enriquez, Jr. and Florito S. Macalino.
[2] Rollo, pp. 47-50.
[3] Rollo (G.R. No. 199427), pp. 114-126.
[4] Id. at 107-113.
[5] Maximum Security & Services Corp. and Virgilio Gonzales v. Seneres, G.R. No. 153712, March 14, 2007.

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