The Supreme Court ruled that an extrajudicial foreclosure sale is void if the mortgagee fails to comply strictly with the publication requirements outlined in Act No. 3135. This case underscores the importance of providing adequate notice to the public to ensure fair bidding and prevent the sacrifice of property. The decision reinforces the principle that while banks have the right to foreclose on mortgages, they must exercise this right in strict adherence to the law, protecting the interests of mortgagors.

Foreclosure Fiasco: Did the Bank Meet Its Publication Duties?

This case revolves around the extrajudicial foreclosure of a property owned by Spouses Dionisio and Caridad Geronimo after they defaulted on a loan from Philippine Savings Bank (PSBank). PSBank initiated foreclosure proceedings, selling the property at auction. The Geronimos, however, contested the foreclosure’s validity, alleging that PSBank failed to comply with the mandatory publication requirements outlined in Act No. 3135, which governs extrajudicial foreclosures. The central question before the Supreme Court was whether PSBank had adequately proven that it published the notice of sale in a newspaper of general circulation, as required by law.

Act No. 3135, Section 3 explicitly states the requirements for notice in extrajudicial foreclosure sales. Specifically, it mandates:

SECTION 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 or city.

The Supreme Court emphasized that compliance with these requirements is not merely a formality but a crucial step in ensuring due process for the mortgagor. The purpose of requiring publication is to inform potential bidders and prevent the property from being sold at a price far below its actual market value. The mortgagee bears the responsibility of demonstrating that it has strictly adhered to these requirements. In this case, PSBank attempted to prove compliance through the testimony of a deputy sheriff who claimed to have published the notice in a newspaper called Ang Pinoy. However, the Court found this evidence insufficient. The testimony lacked specific details confirming actual publication or the extent of the newspaper’s circulation.

The respondents countered that Ang Pinoy was not a newspaper of general circulation in Caloocan City, where the property was located. They presented a witness who owned a newsstand to testify that he had never sold or heard of Ang Pinoy. While this evidence was not conclusive, it raised doubts about the newspaper’s reach. The Court noted that PSBank failed to present the affidavit of publication, which would have served as prima facie evidence of compliance. The trial court had excluded the affidavit as hearsay because the affiant was not presented to testify, and PSBank did not appeal this decision. Furthermore, evidence suggested that Ang Pinoy was published in Manila, not Caloocan City, potentially violating the requirement that publication occur in a newspaper circulating in the locality where the property is situated.

Building on this point, the Court addressed PSBank’s reliance on the presumption of regularity in the performance of official duty by the deputy sheriff. While the sheriff was responsible for posting notices of sale, the actual publication fell outside the scope of his official duties. The Court clarified that proving publication is the responsibility of the publisher, not the sheriff. The sheriff’s testimony that the mortgagee bank presented an affidavit of publication during the auction sale did not suffice to prove actual compliance with the publication requirement. Even the Notice of Extra-Judicial Sale prepared by the sheriff lacked information about the specific newspaper where the notice would be published.

Drawing from precedent, the Court cited Spouses Pulido v. Court of Appeals, reinforcing the principle that the burden of proof shifts when the opposing party denies the existence of a document (like the publication) in the custody of the other party (the bank). The Court also referred to China Banking Corporation v. Spouses Martir, highlighting that the affidavit of publication is essential for establishing that the newspaper has general circulation in the relevant area.

The failure to prove compliance with publication requirements carries significant consequences. As the Court stated in Metropolitan Bank and Trust Company, Inc. v. Peñafiel, “The object of a notice of sale 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.” The Court reiterated the vital role of notice in securing bidders and preventing a sacrifice sale of the property. The lack of proper publication undermines the integrity of the foreclosure process and violates the mortgagor’s right to due process.

The Supreme Court’s decision serves as a reminder to mortgagees to strictly adhere to the legal requirements for foreclosure. Citing Metropolitan Bank v. Wong, the Court underscored that while the law recognizes the right of a bank to foreclose, that right must be exercised according to its clear mandate. Failure to comply with each and every requirement can invalidate the foreclosure. In this instance, because PSBank failed to adequately demonstrate compliance with the publication requirements, the Court affirmed the Court of Appeals’ decision, declaring the extrajudicial foreclosure void.

FAQs

What was the key issue in this case?	The central issue was whether the Philippine Savings Bank (PSBank) complied with the publication requirements under Act No. 3135 in the extrajudicial foreclosure of the Spouses Geronimo’s property. Specifically, the court examined if the notice of sale was published in a newspaper of general circulation as mandated by law.
What is the requirement for publication in extrajudicial foreclosures?	Act No. 3135 requires that the notice of sale be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city where the property is located. This ensures that potential bidders are informed of the sale.
What evidence is needed to prove compliance with the publication requirement?	The affidavit of publication from the newspaper is considered prima facie evidence of compliance, attesting that the notice was published as required. Additionally, the testimony of witnesses with personal knowledge of the publication can support this claim.
What happens if the publication requirement is not met?	Failure to comply with the publication requirement renders the extrajudicial foreclosure sale void. This is because proper publication is essential for providing due process to the mortgagor and attracting potential bidders.
What is the role of the sheriff in the publication process?	While the sheriff is responsible for posting notices of the sale, the actual publication in a newspaper is typically handled by the mortgagee. The sheriff’s role does not extend to verifying the newspaper’s circulation or the accuracy of the publication.
What is a “newspaper of general circulation”?	A newspaper of general circulation is one that is published for the dissemination of local or general news and information, has a bona fide subscription list of paying subscribers, and is circulated generally. It must have a widespread readership in the relevant community.
Can a newsstand owner’s testimony prove a newspaper is not of general circulation?	A newsstand owner’s testimony can raise doubts, but it is not conclusive evidence. The court will consider the scope of the witness’s knowledge and the location of their newsstand relative to the property in question.
What is the significance of accreditation of newspapers?	While accreditation by the Executive Judge can indicate a newspaper’s qualifications, it is not the sole determinant of whether a newspaper is of general circulation. The key factor remains the newspaper’s actual readership and reach in the community.

This case highlights the critical importance of strict compliance with the publication requirements in extrajudicial foreclosures. Mortgagees must ensure that all legal procedures are meticulously followed to protect the rights of mortgagors and maintain the integrity of the foreclosure process. Moving forward, financial institutions should implement rigorous verification processes to confirm that publications meet the standards of general circulation within the relevant locality.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Philippine Savings Bank vs. Spouses Dionisio Geronimo and Caridad Geronimo, G.R. No. 170241, April 19, 2010