Waiver of Publication in Foreclosure Sales: Protecting Public Interest Over Private Agreements

The Supreme Court has firmly settled that parties to a mortgage cannot waive the publication and posting requirements in extrajudicial foreclosure sales, even through a written agreement. In Philippine National Bank v. Nepomuceno Productions, Inc. (G.R. No. 139479, December 27, 2002), the Court explained that these requirements exist not for the mortgagor's benefit but to protect the public interest—making any waiver void and the foreclosure sale invalid.

The Facts of the Case

In 1973, Philippine National Bank (PNB) granted Nepomuceno Productions a credit line to finance the film "Pacific Connection." The loan, eventually increased to ₱7.5 million, was secured by mortgages on properties in Malugay Street and North Forbes Park, Makati, plus motion picture equipment.

When the respondents defaulted, PNB initiated extrajudicial foreclosure. The auction sale was initially scheduled for August 12, 1976, but was postponed several times. Crucially, the parties signed an "Agreement to Postpone Sale" stipulating that postponements could occur without republication or reposting of the notice of sale. The sale finally proceeded on December 20, 1976, with PNB as the highest bidder.

The respondents challenged the foreclosure, arguing among other grounds that the notice of sale was not republished. Both the trial court and the Court of Appeals annulled the foreclosure sale. PNB elevated the case to the Supreme Court.

The Sole Issue: Can Publication Requirements Be Waived?

The central question was whether mortgagors and mortgagees can validly waive the posting and publication requirements under Act No. 3135, which governs extrajudicial foreclosure of real property mortgages.

Act No. 3135, Section 3 requires that notice of sale be posted for at least twenty days in three public places of the municipality or city where the property is situated. If the property is worth more than ₱400, the notice must also be published once a week for at least three consecutive weeks in a newspaper of general circulation.

The Ruling: No Waiver, Public Interest Prevails

The Supreme Court ruled in the negative. The statutory requirements of posting and publication are mandated for the public or third persons, not for the mortgagor's benefit. The principal object of the notice is not so much to notify the mortgagor but to inform the public generally of the nature and condition of the property to be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and prevent a sacrifice of the property.

Citing People v. Donato, the Court acknowledged that while rights may generally be waived, Article 6 of the Civil Code provides that such waiver must not be contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.

The Court emphasized that failure to publish the notice of sale constitutes a jurisdictional defect that invalidates the sale. Statutory provisions governing publication of notice in mortgage foreclosure sales must be strictly complied with, and slight deviations will invalidate the notice and render the sale voidable.

The Estoppel Argument Fails

PNB also argued that the respondents should be estopped from questioning the sale because they induced the bank to reschedule without republication. The Court rejected this. The records showed that respondents only requested postponement of the sale—they did not request that it proceed without complying with statutory requirements. The Court distinguished between requesting a postponement and requesting one without republication.

The Court further noted that the "Agreement to Postpone Sale" was a contract of adhesion—a ready-made form prepared solely by PNB where respondents merely affixed their signatures. Such contracts are construed strictly against the party who drafted them.

Practical Takeaways

• Publication requirements in extrajudicial foreclosure are mandatory and cannot be waived by agreement between mortgagor and mortgagee, regardless of what their contract states.
• A foreclosure sale conducted without proper republication after postponement is void, not merely voidable, because the defect is jurisdictional.
• Banks and lenders must strictly comply with Act No. 3135's posting and publication rules even if the borrower agrees to waive them; the requirements protect the public's right to bid, not just the parties.
• Borrowers who sign postponement agreements are not automatically estopped from later questioning the validity of a foreclosure sale for lack of republication, especially when the agreement is a contract of adhesion prepared by the lender.
• Attorney's fees may be awarded to a mortgagor compelled to litigate due to a lender's failure to comply with statutory foreclosure requirements, though the amount must be reasonable.

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