Other Commercial Laws

ACT 3135 - AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS
INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES

 Regulates the extrajudicial foreclosure (which contains into play upon default of the obligor) of
real estate mortgage.

GENERAL PRINCIPLES

 Extrajudicial foreclosure should be expressly allowed in the document reflecting the deed of
mortgage.

 There must be a special power to extra-judicially foreclose the mortgage and attached or made an
integral part of the real estate mortgage contract.

Section1.

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 election 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

 Subject matter: Real property or an immovable.

 Property can be foreclosed in case of default on the part of the obligor.

 REM effectively creates real rights

 Follows the property such that in subsequent transfer, the transferee must respect the mortgage,
subject to the requirement that the same is annotated in the title or that the transferee had
knowledge of the existence of the REM.

 Ownership is not transferred to the mortgagee. Property will stand only as collateral for the
satisfaction of the claim in the event there is default on the part of the obligor/mortgagor

 Invalidity of the accessory will not render invalid/void the principal upon which it is made to rest.

PROCEDURE:
1. All applicatiuons for extra-judicial foreclosure of mortgage shall be filed with the Executive Judge,
through the Clerk of Court who is also the Ex-Officio Sheriff.

2. Notice shall be given by posting notices of the sale for not less than twenty days (20) in at least
three (3) public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos (P400.00), such notice shall be also be published once a week
for at least three (3) consecutive weeks in a newspaper of general circulation in the municipality or city.
(SECTION 3., jurisdictional requirements)\

VENUE:

 Province where property is situated.

 When parties stipulate city/municipality within the province where property is situated.

 Said sale cannot be made legally outside of the province in which the property sold is situated.

 If no restrictive words or exclusivity of venue of sale, the stipulated place should construed as
an additional but not a limiting venue. (Langkaan vs UCBP, Dec. 8, 2000)

REDEMPTION RIGHT

SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgement creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at anytime within the term of one (1) year from
and after the date of the sale.

NOTE rule if creditor is bank: Redemption period is only three (3) months anytime after registration of
sale.

How is one (1) year period counted?

Reyes vs. Noblejas, 25 November 1967

The main issue is, W/N the period of redemption of properties sold at public auction pursuant to
an extrajudicial foreclosure of REM under Act 3135, as amended by Act No. 4118, is to be counted
from the date of the execution of the certificate of sale by the sheriff, or, from the date of registration of
the corresponding certificate of sale issued by the sheriff in the Office of the Register of Deeds
concerned.

Parties theories:
 The Land Registration Commissioner is of the opinion that the above-quoted provision is not the
only pertinent and controlling law on the matter, specially when it is taken into consideration that the
land involved is registered land under the Torrens system. He maintains, and so held in the resolution
appealed from, that Section6 of Act 3135 should be applied to the present case together with:

1. sections 30 to 35 of Rule 39 of the Revised Rules of Court with regard to redemption;

2. Section 27, Rule 39 of the said Rules and Section 71 of Act 496 with regard to the filing
(registration) of the Sheriff’s certificate of sale; ang

3. Section 50 of Act 496, with regard to the registration of the certificate of sale so as to consider the
land conveyed and affected under the Land Registration Act.

It is the theory of the petitioner that in sales of property at public auction pursuant to an
extrajudicial foreclosure of REM under Act 3135, as amended by 4118, the period of redemption
should be reckoned from the date of the auction sale which, he contends, is the express mandate of
the law.

SC ruled:

 The property involved in the present case is registered land. It is the law in this jurisdiction that
when property brought under the operation of the Land Registration Act is sold, the operative act
is the registration of the deed of conveyance. The deed of sale does not take effect as a
conveyance, or bind the land until it is registered.

 Undoubtedly, to be inconsonance with this well-settled rule, Section24, Rule 39 of the Rules of
Court, provides that the duplicate of the certificate of sale given by the sheriff who made the
auction sale to the purchaser must be filed (registed) in the office of the register of deeds of the
province where the property is situated.

 SC concluded, therefore, that the date of the sale mentioned in Section6 of Act 3135, as amended,
should be construed to mean the date of registration of the certifiacte of sale in the office
of the register of deeds concerned. Only after the lapse of the twelve-month redemption period
from the date of registration of the certificate of sale and in the absence of any redemptioner
within the said period, may the deed of final sale be executed in favor of the purchaser who
may then consolidate the titie of the property in his favor.

Is it necessary to have two-bidders for a proper conduct of the sale?

Spouses Certeza vs PSB, 5 March 2010

 Whether the auction sale conducted by virtue of the extra-judicial foreclosure of the mortgage
should be declared null and oid for failure to comply with the two-bidder rule.

FACTS:
 Petitioners obtained a P1, 255, 000.00 loan from respondent Philippine Savings Bank (PS Bank),
secured by two parcels of land, with all the buildings and improvements exising thereon, covered
by Transfer Certificate of Title Nos. N-208706 and N-208770.

 Petitioners failed to pay their outstanding obligation despite demands hence PS Bank instituted on
8 May 2002, an action for Extrajudicial Foreclosure of the REM pursuant to Act. No. 3135, as
amended.

 During the action sale conducted on 18 February 2003, PS Bank emerged as the sole and highest
bidder. A corresponding Certificate of Sale dated 20 February 2003 was issued in favor of PS
Bank, which was registered with the Registry of Deeds of Quezon City on 25 March 2003.

 The petitioners filed their Reply arguing that the filing og their petition beofre the court where
possession was requested was pursuant to Sec 8. of Act. No. 3135.

 In support of their contention, petitioners argue that A.m. No. 99-10-05-0 which took effect on 15
January 2000, requires that there must be at least two (2) participating bidders in an auction sale.
Thus:

 5. no auction sale shall be held unless there are at least two (2) participating bidders,
otherwise the sale shall be postponed to another date. If on the new date set for the sale there
shall not be at least two (2) bidders, the sale shall then proceed. The names of the bidders
shall be reported by the sheriff or the notary public who conducted the sale of the Clerk of
Court before the issuance of the certificate of sale.

 Whether the auction sale conducted by virtue of the extra-judicial foreclosure of the
mortgage should be declared null and oid for failure to comply with the two-bidder
rule.

 The requirement for at least two (2) participating bidders provided in the original version of
paragraph 5 of A.M. No. 99-10-05-0 is not found Act. No. 3135

 Hence, in the Resolution of the SC en banc dated 30 January 2001, we made the following
pronouncements:

 It is contended that this requirement is no found in Act 3135 and that it is impractical and
burdensome, considering that not all auction sales are commercially attractive to prospective
bidders.

 The observation is well taken. Neither Act 3135 nor the previous circulars issued by the Court
governing extra-judicial foreclosures provide for a similar requirement.

 The two-bidder rule is provided under PD 1594 and its implementing rules with respect to
contracts for government infrastructure projects because of the public interest involved. Although
there is a public interest in the regularity of extrajudicial foreclosure of mortgages, the private
interest is predominant. The reason, therefore, for the requirement that there must be atleast
two bidders is not as exigent as in the case of contracts for government infrastructure
projects.
 on the other hand, the new requirement will necessitate republication of the notice of auction sale
in case only one bidder appears at the scheduled auction sale. This is not only costly but ore
importantly, it would render naught the binding effect of the publication of the originally scheduled
sale.

 Hence, the CA correctly ruled that it is no longer required to have at least two bidders in an
exrta-judicial foreclosure of mortgage.

However, petitioners argued that Section5(a) of the said circular states that the bidding shall be
made through sealed bids which must be submitted to the Sheriff who shall conduct the sale between
the hours of 9a.m. and 4p.m. of the date of the auction (Act 3135, Sec4)

 The use of the word bids (in plural form) does not make it a mandatory requirement to have more
than one bidder for an auction sale to be valid.

 A.M. No. 99-10-05-0, as amended, no longer prescribes the requirement of at least 2 bidders for a
valid auction sale. SC further held that Except for errors or omissions in the notice of sale which
are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it
from bringing a fair price, simple mistakes or omissions are not considered fatal to the validity of
the notice and the sale made pursuant thereto.

 In view of the foregoing, the extra-judicial foreclosure sale conducted in this case is regular and
valid. Consequently, the subsequent issuance of the writ of possession is like wise regular and
valid.

Spouses Samson vs Judge Rivera, 20 May 2004 (Writ of Possession)

The well-entrenched rule that the buyer in an extrajudicial foreclosure sale is entitled to
possession of the purchased property. Any question regarding the regularity and validity of the
mortgage and foreclosure sale may be determined only after the issuance of the writ of possession.

The issuance of the Writ is explicitly authorized by Act 3135 (As amended by Act 4118), which
regulates the methods of effecting an extrajudicial foreclosure of mortgage. Section7 thereof provides:

Secion7. Possession during redemption period. In any sale made under the
provisions of this Act, the purchaser may petition the (Regional Trial Court) where the
property or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the
property for a period of twelve (12) months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without complying
with the requirements of this Act.

This court has long settled that a pending action for annulment of mortgage or
foreclosure does not stay the issuance of a writ of possession.
 Therefore, the contention of petitioners that the RTC should have waited for the
resolution of annulment case prior to the issuance of the Writ of Possession is unavailing.

Spouses Oliveros vs RTC Laguna, 3 September 2007

It bears to stress that after the consolidation of title in the name of the purchaser of the
foreclosed property, upon failure of the mortgagor to redeem the property, the Writ of
possession becomes a matter of right.

The issuance of a writ of possession over the properties by the trial court is merely a
ministerial function.

Spouse Carlos vs CA, 19 October 2007

Section 7. Such petition shall be made under oath and filed in form of an ex parte
motion in the registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of the property registered under the Mortgage Law or under section
one hundred and ninety-four (194) of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in
accordance with any existing law, and in each case the clerk of court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven (11) of section one hundred and
fourteen (114) of Act numbered Four Hundred and ninety-six (496), as amended by Act
Numbered Twenty-eight hundred and sixty-six(2866), and the court shall, upon approval of
the bond, order that a writ of possession issue, addressed to the sheriff of the province in
which that property is situated, who shall execute said order immediately.

ISSUE: “EX-PARTE” NATURE of a proceeding under Act No. 31325, meant to gaga a
mortgagor of at least an opportunity to object to or be heard thereon, and therefore violative
of the due process clause of the constitution?

The trial court correctly held that the motion for issuance of a writ of possession is an
exception to the general three-day (3-day) notice rule for motions. Neverthelessm the
ex-parte nature of the proceeding does not deny due process to the petitioners because, to
repeat, the issuance of the writ of possession does not bar a separate case for annulment of
mortgage sale.

GLOBAL HOLIDAY OWNERSHIP vs Metrobank, 19 July 2009

 ISSUE: Whether personal notice to the debtor-mortgagor of the extrajudicial
foreclosure is not necessary despite the parties stipulation in their Real Estate Mortgage
contract requiring personal notice thereof.

Notice the jurisdictional requirements under Section3, ACT 3135, which means that
personal notice is not necessay.

Nevertheless, parties to the REM are not precluded from exacting or

impposing additional requirements. (Art 1306, freedom to stipulation in NCC)

The general rule is that personal notice to the mortgagor in extra-judicial

foreclosure proceedings is not necessary, and posting and publication will suffice.

Section 3 of Act 3135 governing extra-judicial foreclosure of REM, as amended by

Act 4118, requires only posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation.

The exception is when the parties stipulate that personal notice is additionally
required to be given the mortgagor. Failure to abde by the general rule, or its
exception, renders the foreclosure proceedings null and void.

Globals right to be furnished with personal notice of the extra-judicial foreclosure

proceedings has been established. Thus, to continue with the extra-judicial sale without
proper notice would render the proceedings null and void; injunction is proper to protect
Globals rights and to prevent unnecessary injury that would result from the conduct of an
irregular sale. It is beyond question that a writ of preliminary injunction is issued to
prevent an extrajudicial foreclosure, upon a clear showing of a violation of the
mortgagors unmistakable right. The trial court was thus correct in granting an
injunction.

POSTING REQUIREMENT

BOHANAN VS COURT OF APPEALS, 18 APRIL 1996

FACTS:

Petitioner argues that the principal defect which invalidates the questioned foreclosure
sale is the non-presentation of a certificate of posting by the deputy sheriff despite that
statement in Tambunting that the published notices and certificate of posting by the Sheriff
xxx should have been presented to show compliance.

Petitioner then goes on to insist that since the certificate of posting is an indespensable
proof of compliance with the law, the mere testimony of Deputy Sheriff Oscar Domingo
(presented as petitioners own witness) that he posted the notice of sale in three (3) public
places does not suffice.
 SC finds that the argument to be without merit. The non-presentation of a certificate of
posting does not affect the intrinsic validity of the questioned foreclosure sale. As already
stated, all that is required by Sec. 3 of Act 3135 is that public notice of the place and time of
the sale be posted in three (3) public places and, where the property is worth more than
P400.00, published in a newspaper of general circulation. Non-compliance constitutes a
jurisdictional defect sufficient to invalidate the sale.

However, a certificate of posting is not a statutory requirement.

Rather, it is significant only in the matter of proving compliance with the required posting
of notice. And although we said in Tambunting that the presumption of compliance with
official duty has been rebutted by the failure to present proof of posting and publication of the
notice of sale, this cannot be construed to mean that a certificate of posting is indispensable
wihtout which a questioned foreclosure sale is automatically doomed as invalid.

For the fact alone that there is no certificate of posting attached to the sheriffs records is
not sufficient to prove the lack of posting. In Tambunting the absence of the affidavit of
publication was considered fatal because no equally convincing and competent proof of
compliance was offered to compensate for its non-presentation.

BPI vs POZON, 27 November 2009

ISSUE: The certificate of posting states merely that it was posted only in three
conspicuous places

Sheriff’s CERTIFICATE OF POSTING:

THIS IS TO CERTIFY, that three (3) copies of the Notice of Sheriffs Sale issued in the
above-entitled case have been posted in three (3) conspicuous places in Quezon City,
where the property is located and where the auction sale took place, in accordance with the
provisions of Act 3135, as amended by Act 4118.

Act 3135, Sec 3 provides:

Sec. 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 (P400.00), such notice shall also be
published once a week for at least three (3) consecutive weeks in a newspaper of general
circulation in the municipality or city.

SC said:
 There is a presumption that official duty has been regularly performed, unless
contradicted and overcome by other evidence.

Foreclosure proceedings have in their favor the presumption of regularity and the party
who seeks to challenge the proceedings has the burden of evidence to rebut the same.

In this case, respondent failed to prove her allegation that there was no compliance with
the posting requirement. There was no evidence that the conspicuous places where the
notices were posted were not public places.

In the absence of contrary evidence, the presumption prevails that the Sheriff performed
his official duty of posting the notices of sale in 3 public places for no less than 20 days
before the sale.

Baldueza vs CA, 10 October 2008

It is settled the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year the registration of the sale. As
such, he is entitled to the possession of the property and can demand it at any time following
the consolidation of ownership in his name and the issuance to him of a new transfer
certificate of title. The buyer can in fact demand possession of the last even during the
redemption period except that he has to post a bond in accordance with Section 7 of Act
3135 as amended. No such bond is required after the redemption period of if the property is
not redeemed. Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. Upon proper application and proof of title, the issuance of the writ of
possession becomes a ministerial duty of the court.

Applicability of Act 3135 to Pledges

Yliungco vs PNB, GR No. 19227:

This law refers only, and is limited, to foreclosure of real estate mortgages.

So, whatever formalities there are in Act 3135 do not apply to pledges.