Publication Requirements in Extrajudicial Foreclosure: Protecting Mortgagors' Due Process

The Supreme Court's 2010 decision in Philippine Savings Bank v. Spouses Geronimo (G.R. No. 170241) serves as an important reminder to banks and other mortgagees: an extrajudicial foreclosure is void if the mortgagee fails to strictly comply with the statutory publication requirement. This case illustrates how courts scrutinize compliance with Act No. 3135, the law governing extrajudicial foreclosure of real estate mortgages, and why mortgagors must be given proper notice before their property is sold.

The Facts of the Case

In February 1995, Spouses Dionisio and Caridad Geronimo obtained a loan of P3,082,000 from Philippine Savings Bank, secured by a real estate mortgage on their land in Caloocan City. When the spouses defaulted, the bank initiated extrajudicial foreclosure proceedings. The property was sold at auction on 29 March 1996 to the bank as the highest bidder for P3,000,000.

The spouses filed a complaint to annul the foreclosure, claiming the bank failed to comply with the publication requirement under Section 3 of Act No. 3135. The trial court dismissed the complaint, but the Court of Appeals reversed, declaring the foreclosure void. The bank appealed to the Supreme Court.

The Legal Framework: Section 3 of Act No. 3135

Section 3 of Act No. 3135 requires that notice of an extrajudicial foreclosure sale be given by:

1. Posting notices of the sale for not less than 20 days in at least three public places in the municipality or city where the property is situated; and
2. Publication once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city, if the property is worth more than P400.

The purpose of these requirements is to inform the public of the nature and condition of the property to be sold, and of the time, place, and terms of the sale. As the Court noted, citing Metropolitan Bank and Trust Company, Inc. v. Peñafiel, the goal is to achieve "reasonably wide publicity" of the auction sale to secure bidders and prevent a sacrifice sale of the property.

The Court's Ruling

The Supreme Court denied the bank's petition and affirmed the Court of Appeals' decision declaring the foreclosure void. The Court found that the bank failed to prove compliance with the publication requirement.

Key points from the Court's reasoning:

Burden of proof. While the party alleging non-compliance generally bears the burden of proof, the Court cited Spouses Pulido v. Court of Appeals for the rule that negative allegations need not be proved if they constitute a denial of the existence of a document in the other party's custody. Here, the bank had custody of the affidavit of publication and other evidence of publication but failed to present them properly.

The sheriff's testimony was insufficient. The bank relied on Deputy Sheriff Castillo's testimony to prove publication. However, the sheriff admitted he had no personal knowledge of the actual publication—he only knew about it because the bank presented an affidavit of publication at the auction sale. The Court held that publication concerns the publisher's business, not the sheriff's official functions, so the presumption of regularity in the performance of official duty did not apply.

The newspaper was not of general circulation in Caloocan City. The Court noted that Ang Pinoy, the newspaper where the notice was allegedly published, was printed and published in Manila, not in Caloocan City where the property was located. This failed the requirement of publication in a newspaper of general circulation in the city where the property is situated.

Damaging omissions. The Notice of Extra-Judicial Sale prepared by the sheriff had the space for the newspaper's name left blank, with only the dates of publication filled in. This raised serious doubts about whether publication actually occurred.

Practical Takeaways

• Strict compliance is mandatory. Mortgagees must faithfully comply with every requirement of Act No. 3135. As the Court warned in Metropolitan Bank v. Wong, the right to foreclose "ends when it is abused especially to the prejudice of others."

• Keep and preserve evidence of publication. Mortgagees should retain the affidavit of publication, the published notice itself, and other competent evidence. In this case, the bank's affidavit of publication was excluded as hearsay because the affiant was not presented in court, and the bank never challenged that exclusion.

• Choose the right newspaper. The publication must be in a newspaper of general circulation in the municipality or city where the property is located—not merely any newspaper. A newspaper printed and published elsewhere may not satisfy the requirement.

• Sheriff's testimony has limits. A sheriff's testimony can prove posting of notices, which is part of official functions, but cannot prove actual publication, which is the publisher's business.

• Mortgagors should verify compliance. Mortgagors facing foreclosure should check whether the notice requirements were properly satisfied, as non-compliance can render the foreclosure void.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.