See - G.R. No. 159271
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On the first and second issues, we hold the CA in error for affirming the RTC's declaration of the extra judicial foreclosure as valid. In the extrajudicial foreclosure of property subject of a real estate mortgage, Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real Estate Mortgages) is quite explicit and definite about the special power to sell the property being required to be either inserted in or attached to the deed of mortgage. Section 1 of Act No. 3135 provides:
Section 1. When a sale is made under a special power inserted in or attached to any real estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following section shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power.
Accordingly, to enable the extra judicial foreclosure of the REM of the petitioners, the special power to sell should have been either inserted in the REM itself or embodied in a separate instrument attached to the REM. But it is not disputed that no special power to sell was either inserted in the REM or attached to the REM. Hence, the respondent spouses as the foreclosing mortgagees could not initiate the extrajudicial foreclosure, but must resort to judicial foreclosure pursuant to the procedure set forth in Rule 68 of the Rules of Court. The omission of the special power to sell the property subject of the mortgage was fatal to the validity and efficacy of the extrajudicial foreclosure, and warranted the invalidation of the entire proceedings conducted by the sheriff.
The CA opined that the extrajudicial foreclosure was nonetheless valid despite the omission of the special power to sell.1avvphi1 It upheld the ruling of the RTC by citing paragraph 13 of the REM, which stated:
In the event of non-payment of the entire principal and accrued interest due under the conditions described in this paragraph, the mortgagors expressly and specifically agree to the extra-judicial foreclosure of the mortgaged property.13
It held to be enough that the REM thereby empowered the respondent spouses as the mortgagees to extrajudicially foreclose the property inasmuch as such agreement by the petitioners (as the mortgagors) carried with it by necessary implication the grant of the power to sell the property at the public auction. It relied on the ruling in Centeno v. Court of Appeals.14
We cannot subscribe to the opinion of the CA.
Based on the text of paragraph 13, supra, the petitioners evidently agreed only to the holding of the extrajudicial foreclosure should they default in their obligations. Their agreement was a mere expression of their amenability to extrajudicial foreclosure as the means of foreclosing the mortgage, and did not constitute the special power or authority to sell the mortgaged property to enable the mortgagees to recover the unpaid obligations. What was necessary was the special power or authority to sell - whether inserted in the REM itself, or annexed thereto - that authorized the respondent spouses to sell in the public auction their mortgaged property.
The requirement for the special power or authority to sell finds support in the civil law. To begin with, because the sale of the property by virtue of the extrajudicial foreclosure would be made through the sheriff by the respondent spouses as the mortgagees acting as the agents of the petitioners as the mortgagors-owners, there must be a written authority from the latter in favor of the former as their agents; otherwise, the sale would be void.15 And, secondly, considering that, pursuant to Article 1878, (5), of the Civil Code, a special power of attorney was necessary for entering "into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration," the written authority must be a special power of attorney to sell. 16 Contrary to the CA's opinion, therefore, the power or authority to sell by virtue of the extrajudicial foreclosure of the REM could not be necessarily implied from the text of paragraph 13, supra, expressing the petitioners' agreement to the extrajudicial foreclosure.
The reliance on the ruling in Centeno v. Court of Appeals was inadequate, if not also misplaced. Although the Centeno Court was confronted with several issues, including whether or not the extrajudicial foreclosure of the mortgage was a total nullity because the deed of mortgage did not contain a special power of attorney to sell in favor of the mortgagees, a meticulous reading of Centeno reveals that the Court did not expressly deal with and resolve such issue, because the Court limited itself to the effects of the failure of the petitioners thereat to annotate on the Torrens title the sale in their favor of the property. In other words, the Court was silent on the issue of validity of the foreclosure sale despite the lack of the special power of attorney to sell being inserted in or annexed to the deed of mortgage. Under the circumstances, Centeno has no precedential value in this case.
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