Case No. 11. Security Bank Corporation v. Spouses Mercado
Case No. 11. Security Bank Corporation v. Spouses Mercado
Case No. 11. Security Bank Corporation v. Spouses Mercado
Case No. 11. Security Bank G.R NOs. 192934 and 197010
Corporation v.
DATE: June 27, 2018
Spouses Mercado
DOCTRINE: Failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes
a jurisdictional defect which invalidates the sale. This jurisdictional requirement may not be waived by the parties;
to allow them to do so would convert the required public sale into a private sale. Thus, the statutory provisions
governing publication of notice of mortgage foreclosure sale must be strictly complied with and that even slight
deviations therefrom will invalidate the notice and render the sale at least voidable.
FACTS:
• On September 13, 1996, Security Bank granted spouses Mercado a revolving credit line in the amount of
P1,000,000.00. To secure the credit line, the spouses Mercado executed a Real Estate Mortgage in favor of
Security Bank over their properties covered by Transfer Certificate of Title (TCT) No. T-103519 (located in
Lipa City, Batangas), and TCT No. T-89822 (located in San Jose, Batangas). The spouses Mercado
executed another Real Estate Mortgage in favor of Security Bank this time over their properties located in
Batangas City, Batangas covered by TCT Nos. T-33150, T- 34288, and T-34289 to secure an additional
amount of P7,000,000.00 under the same revolving credit agreement.
• Subsequently, the spouses Mercado defaulted in their payment under the revolving credit line agreement.
Security Bank requested the spouses Mercado to update their account, and sent a final demand letter on
Thereafter, it filed a petition for extrajudicial foreclosure pursuant to Act No. 3135, as amended, with respect
to the parcel of land situated in Lipa City. Security Bank likewise filed a similar petition with the Office of
the Clerk of Court and Ex-Officio Sheriff of the RTC of Batangas City with respect to the parcels of land located
in San Jose, Batangas and Batangas City.
• The respective notices of the foreclosure sales of the properties were published in newspapers of general
circulation once a week for three consecutive weeks as required by Act No. 3135, as amended. However,
the publication of the notices of the foreclosure of the properties in Batangas City and San
Jose, Batangas contained errors with respect to their technical description. Security Bank
caused the publication of an erratum in a newspaper to correct these errors. The corrections consist of the
following: (1) TCT No. 33150 – "Lot 952-C-1" to "Lot 952-C-1-B;" and (2) TCT No. 89822 – "Lot 1931 Cadm-
164-D" to "Lot 1931 Cadm 464-D." The erratum was published only once and did not correct the
lack of indication of location in both cases.
• The foreclosure sale of the parcel of land in Lipa City, Batangas was held wherein Security Bank was adjudged
as the winning bidder. A similar foreclosure sale was conducted over the parcels of land in Batangas City and
San Jose, Batangas where Security Bank was likewise adjudged as the winning bidder. The spouses Mercado
offered to redeem the foreclosed properties for P10,000,000.00. However, Security Bank allegedly
refused the offer and made a counter-offer in the amount of P15,000,000.00.
• The spouses Mercado filed a complaint for annulment of foreclosure sale, damages, injunction, specific
performance, and accounting with application for temporary restraining order and/or preliminary injunction
with the RTC of Batangas City.
RTC RULING:
RTC declared that: (1) the foreclosure sales of the five parcels of land void; (2) the interest rates contained in the
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revolving credit line agreement void for being potestative or solely based on the will of Security Bank; and (3) the
sum of P8,000,000.00 as the true and correct obligation of the spouses Mercado to Security Bank. RTC modified its
Decision in an Amendatory Order where it declared that: (1) only the foreclosure sales of the parcels of land in
Batangas City and San Jose, Batangas are void as it has no jurisdiction over the properties in Lipa City, Batangas; (2)
the obligation of the spouses Mercado is P7,500,000.00, after deducting P500,000.00 from the principal loan of
P1,000,000.00; and (3) as "cost of money," the obligation shall bear the interest at the rate of 6% from the time of
date of the Amendatory Order until fully paid.
CA RULING:
The CA, on appeal, affirmed with modifications the RTC Amended Decision. It agreed that the error in the technical
description of the property rendered the notice of foreclosure sale defective. Security Bank’s subsequent single
publication of an erratum will not cure the defective notice; it is as if no valid publication of the notice of the
foreclosure sale was made.
ISSUE/S:
1. Whether the foreclosure sales of the parcels of land in Batangas City and San Jose, Batangas are valid.
ARGUMENTS
Security Bank argues that the CA erred in declaring: (1) In the complaint, the spouses Mercado averred that: (1)
the foreclosure sale invalid; and (2) the provisions on the parcel of land in San Jose, Batangas should
interest rate violative of the principle of mutuality of not have been foreclosed together with the
contracts. First, the foreclosure sale is valid because properties in Batangas City because they are
Security Bank complied with the publication covered by separate real estate mortgages; (2) the
requirements of Act No. 3135, as amended. The mistake requirements of posting and publication of the
in the original notice is inconsequential or minor since it notice under Act No. 3135, as amended, were not
only pertains to a letter and number in the technical complied with; (3) Security Bank acted arbitrarily in
description without actually affecting the actual size, disallowing the redemption of the foreclosed properties
location, and/or description or title number of the for P10,000,000.00; (4) the total price for all of the
property. parcels of land only amounted to P4,723,620.00; and (5)
the interests and the penalties imposed by Security Bank
on their obligations were iniquitous and unconscionable.
SC RULING:
• NO. The foreclosure sales of the properties in Batangas City and San Jose, Batangas are void for
noncompliance with the publication requirement of the notice of sale.
• Act No. 3135, as amended, provides for the statutory requirements for a valid extrajudicial foreclosure sale.
Among the requisites is a valid notice of sale. Section 3, as amended, requires that when the value of the
property reaches a threshold, the notice of sale must be published once a week for at least
three consecutive weeks in a newspaper of general circulation:
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, 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.
• Nevertheless, the validity of a notice of sale is not affected by immaterial errors. Only a substantial error
or omission in a notice of sale will render the notice insufficient and vitiate the sale. An error
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is substantial if it will deter or mislead bidders, depreciate the value of the property or prevent it from
bringing a fair price.
• In this case, the errors in the notice consist of: (1) TCT No. T-33150- "Lot 952-C-1" which should be "Lot 952-
C-1-B;" (2) TCT No. T-89822 "Lot 1931, Cadm- 164-D" which should be "Lot 1931 Cadm 464-D;''64 and (3)
the omission of the location. While the errors seem inconsequential, they in fact constitute data
important to prospective bidders when they decide whether to acquire any of the lots announced to be
auctioned. First, the published notice misidentified the identity of the properties. Since the lot
numbers are misstated, the notice effectively identified lots other than the ones sought to be sold. Second,
the published notice omitted the exact locations of the properties. As a result, prospective buyers
are left completely unaware of the type of neighborhood and conforming areas they may consider buying
into. With the properties misidentified and their locations omitted, the properties' sizes and ultimately, the
determination of their probable market prices, are consequently compromised. The errors are of such
nature that they will significantly affect the public's decision on whether to participate in the
public auction. We find that the errors can deter or mislead bidders, depreciate the value of the properties
or prevent the process from fetching a fair price.
• The publication of a single erratum, however, does not cure the defect. As correctly pointed out
by the RTC, "[t]he act of making only one corrective publication in the publication
requirement, instead of three (3) corrections is a fatal omission committed by the mortgagee
bank." To reiterate, the published notices that contain fatal errors are nullities. Thus, the erratum is
considered as a new notice that is subject to the publication requirement for 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. Here, however, it was published only once.
ADDITIONAL NOTES