Facts

• On August 13, 2002, respondents Spouses Voltaire and Ella Villanueva borrowed ₱100,000 from petitioner The Commoner Lending Corporation (TCLC) at 24% per annum, payable within one year.
• To secure the loan they executed a real estate mortgage over Lot No. 380-D. (A 107-square-metre lot at Manoc-Manoc, Malay, Aklan, under Tax Declaration No. 2313 in Voltaire's name. Paragraph 3 of the deed appointed the mortgagee "attorney-in-fact of the mortgagor(s) with full power and authority to take possession of the mortgaged properties" — but no separate special power to sell was attached, which is the whole of the dispute.)
• The spouses paid a total of ₱82,680 but failed to settle the remaining balance of ₱41,340.
• TCLC proceeded to extrajudicially foreclose the mortgage under Act No. 3135, and the property was sold at public auction. (Applied for on 27 July 2004; sold to TCLC as sole bidder on 7 December 2004; certificate of sale issued 14 December 2004 and registered 27 January 2005; final deed of sale 31 January 2006. The spouses said they learned of the foreclosure only in January 2005.)
• The spouses sued to annul the foreclosure. (Civil Case No. 7823 before the RTC of Kalibo, Aklan, Branch 6, to annul the sale, the certificate of sale and the final deed.)
• Regional Trial Court — foreclosure upheld. The RTC dismissed the complaint on 29 March 2012, sustaining the extrajudicial foreclosure and rejecting the claim that the arrangement was a pactum commissorium.
• Court of Appeals — foreclosure declared void. The Court of Appeals, in its decision of March 27, 2017, declared the extrajudicial foreclosure sale void, holding that TCLC had no special power or authority to sell the mortgaged property — a requirement under Act No. 3135.
• Before the Supreme Court. TCLC elevated the case.

Issue

Ruling

Ratio

• Section 1 of Act No. 3135 applies where a special power to sell the property is inserted in or attached to a real estate mortgage.
• Without such a power, the mortgagee's remedy is judicial foreclosure.
• This requirement is an application of Article 1878 (5)§ and (12), which demand a special power of attorney for acts conveying ownership of, or creating real rights over, immovables.

• The Court of Appeals had looked for a separate instrument.
• That is not what the law requires.
• Act No. 3135 expressly contemplates a special power "inserted in or attached to" the mortgage.
• Where the mortgage deed itself constitutes the mortgagee the mortgagor's attorney-in-fact for purposes of the sale, the statutory condition is satisfied.

• On its own terms, the mortgage between the parties appointed TCLC as attorney-in-fact, with authority upon the mortgagors' default to take possession of and sell the mortgaged property, applying the proceeds to the secured debt.
• Where the terms of a contract are clear and leave no doubt as to the parties' intention, the literal meaning of its stipulations controls (Art. 1370§), and the stipulations are to be read together so that each is given effect (Art. 1374§).
• So read, the contract plainly conferred the power to sell.

• A power of sale embodied in a mortgage is not an ordinary agency revocable at the mortgagor's whim.
• It is coupled with an interest§ — the mortgagee's security — and is an integral part of the bargain by which credit was extended.
• That character explains why it survives the mortgagor's later objections and, indeed, his death.

Doctrine

• Form of the special power. The authority to sell required by Act No. 3135 may be inserted in or attached to the mortgage; a separate special power of attorney is unnecessary.
• Construction of the mortgage. Whether the power was granted is resolved by reading the instrument as a whole§ under Articles 1370§ and 1374, giving effect to every stipulation.
• Agency coupled with an interest. The mortgagee's power of sale exists for the protection of its own security interest and is therefore not revocable at the mortgagor's will.

Full Digest — Recitation Format

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts and Procedural Events

1. On 13 August 2002, Spouses Voltaire and Ella Villanueva borrowed ₱100,000.00 from The Commoner Lending Corporation, payable within one year and with 24% interest per annum.
2. As security, the Spouses Villanueva executed a real estate mortgage over Lot No. 380-D, a 107-square-metre parcel situated at Manoc-Manoc, Malay, Aklan, covered by Tax Declaration No. 2313 in the name of Voltaire Villanueva. Paragraph 3 of the mortgage reads:

"3. That in case of non-payment or violation of the terms of the mortgage or any of the provision of the Republic Act No. 728 as amended this mortgage shall immediately be foreclosed judicially or extra-judicially as provided by law and the mortgagee is hereby appointed attorney-in-fact of the mortgagor(s) with full power and authority to take possession of the mortgaged properties without the necessity of any judicial order or any other permission of power, and to take any legal action as may be necessary to satisfy the mortgage debt, but if the mortgagor(s) shall well and truly fulfill the obligation above stated according to the terms thereof then this mortgage shall become null and void."

• It is undisputed that no separate special power to sell was attached to the real estate mortgage.

3. The Spouses Villanueva paid TCLC a total of ₱82,680.00 but were unable to settle the balance of ₱41,340.00.
4. On 20 August 2003, the Spouses Villanueva, through their representative Jeverlyn C. Villanueva, received a Final Demand dated 30 July 2002 from TCLC demanding payment of their amortizations in arrears. They failed to heed the demand.
5. On 27 July 2004, TCLC applied with the Office of the Provincial Sheriff to foreclose the real estate mortgage.
6. After notice and publication, an auction sale was held on 7 December 2004, at which the mortgaged property was sold to TCLC as the sole bidder.
7. On 14 December 2004, TCLC was issued a certificate of sale, which was registered with the register of deeds on 27 January 2005.
8. The Spouses Villanueva claimed that they learned of the foreclosure only in January 2005.
9. On 31 January 2006, a final deed of sale was executed in favour of TCLC.
10. The Spouses Villanueva filed an action against TCLC before the Regional Trial Court, 6th Judicial Region, Branch 6, Kalibo, Aklan (Civil Case No. 7823), to annul the extrajudicial foreclosure sale, the certificate of sale and the final deed of sale.
11. On 29 March 2012, the RTC dismissed the complaint and upheld the validity of the extrajudicial foreclosure sale, ruling also that the agreement is not a pactum commissorium absent a stipulation on automatic appropriation of the mortgaged property, and dismissing the counterclaim for damages for lack of proof.
12. The Spouses Villanueva appealed to the Court of Appeals (CA-G.R. CEB-CV No. 04387).
13. On 27 March 2017, the CA reversed and declared void the extrajudicial foreclosure, certificate of sale and final deed of sale "for lack of the special power or authority to sell the mortgaged property," ruling that TCLC had no authority to foreclose and that paragraph 3 "is merely an expression of Spouses Villanueva's amenability to an extrajudicial foreclosure sale" which "did not grant TCLC the special power to sell the mortgaged property in a public auction."
14. TCLC sought reconsideration, which was denied.
15. On 27 August 2020, the Supreme Court issued its Resolution on the Rule 45 petition, granting it and reinstating the RTC decision.

III. Arguments of the Parties

A. Petitioner (The Commoner Lending Corporation)

B. Respondents (Spouses Voltaire and Ella Villanueva)

C. Common Ground / Stipulations

IV. Issues

A. Main Issue (Topic/Subtopic-Centered)

B. Secondary Issues

1. Whether the stipulation authorizing the mortgagee to take possession without judicial order constitutes a pactum commissorium.
2. Whether the sheriff complied with the notice, posting and publication requirements of Sections 3 and 4 of Act No. 3135, as amended.
3. Whether the Spouses Villanueva are barred from questioning the extrajudicial proceedings for failure to redeem within one year from issuance of the certificate of sale.

C. Ancillary / Incidental Issues

V. Ruling / Disposition (Categorical, Issue-Mapped)

"FOR THESE REASONS, the petition is GRANTED. The Court of Appeals' Decision dated March 27, 2017 in CA-G.R. CEB-CV No. 04387 is REVERSED and SET ASIDE. The Regional Trial Court's Decision dated March 29, 2012 in Civil Case No. 7823 dismissing the complaint is REINSTATED.

SO ORDERED."

VI. Ratio Decidendi and Doctrines (Topic-Focused)

A. Ratio Decidendi (Decisive Reasoning)

• Step 1 — The interpretive premise (Article 1370§). "It is settled that the literal meaning shall govern when the terms of a contract are clear and leave no doubt as to the intention of the parties. The courts have no authority to alter the agreement or to make a new contract for the parties. Their duty is confined to the interpretation of the terms and conditions which the parties have made for themselves without regard to their wisdom or folly. The courts cannot supply material stipulations or read into the contract words which it does not contain. It is only when the contract is vague and ambiguous that the courts are permitted to interpret the agreement and determine the intention of the parties."
• (Footnote 17 anchors this to Article 1370§; footnote 18 to Pan Pacific Service Contractors, Inc. v. Equitable PCI Bank.
• Applied: "Here, the real estate mortgage contract is complete and leave no doubt as to the authority of TCLC to sell the mortgaged property."
• Step 2 — The statutory requirement of a special power to sell (Section 1, Act No. 3135). "Specifically, in extrajudicial foreclosure of real estate mortgage, a special power to sell the property is required which must be either inserted in or attached to the deed of mortgage."
• The Court reproduced Section 1 of Act No. 3135, as amended by Act No. 4118, with its own emphasis: "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..."
• Step 3 — The civil-law foundation: the foreclosing mortgagee acts as agent of the mortgagor (Article 1874; Article 1878§(5)). This is the doctrinally load-bearing passage for Week 2: "The special power or authority to sell finds support in civil law. Foremost, in extrajudicial foreclosure, the sale is made through the sheriff by the mortgagees acting as the agents of mortgagors-owners. Hence, there must be a written authority from the mortgagor-owners in favor of the mortgagees. Otherwise, the sale would be void. Moreover, a special power of attorney is necessary before entering 'into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.' Thus, the written authority must be a special power of attorney to sell."
• Footnote 21 anchors the "otherwise the sale would be void" clause expressly to Article 1874, reproducing it.
• Footnote 22 anchors the quoted phrase to Article 1878§, paragraph 5, likewise reproducing it.
• Footnote 23 cites Sps. Baysa v. Sps. Plantilla, 763 Phil. 562, 570 (2015).
• Step 4 — The undisputed gap, and the parties' competing constructions. "Here, it is undisputed that no special power to sell was attached to the real estate mortgage. TCLC relied on the express provision of paragraph 3 of the agreement allowing it 'to take any legal action as may be necessary to satisfy the mortgage debt.' Yet, the CA construed the provision as a mere grant of authority to foreclose but not to sell the property."
• Step 5 — The standard of formality: substance over form of words. "Indeed, while it has been held that a power of sale will not be recognized as contained in mortgage unless it is given by express grant and in clear and explicit terms, and that there can be no implied power of sale where a mortgage holds by a deed absolute in form, it is generally held that no particular formality is required in the creation of the power of sale. Any words are sufficient which evince an intention that the sale may be made upon default or other contingency."
• (Citing Tan Chat v. C.N. Hodges, 98 Phil. 928, 930-931 (1956), citing 41 Corpus Juris, p. 926.)
• Step 6 — Application, clause by clause. "In this case, paragraph 3 of the real estate mortgage sufficiently incorporated the required special power of attorney to sell. It expressly provides (i) that the mortgaged property shall be foreclosed, judicially or extrajudicially, upon failure to satisfy the debt, and (ii) that TCLC, the mortgagee, is appointed as attorney-in-fact of Spouses Villanueva, the mortgagors, to do any legal action as may be necessary to satisfy the mortgage debt."
• Step 7 — Rejection of the narrow reading. "The provision is pellucid and the CA cannot limit the authority granted to TCLC. Also, Spouses Villanueva cannot claim, contrary to their plain agreement, that they granted TCLC merely the power to possess but not to sell the mortgaged property. Clearly stipulated in the real estate mortgage was the appointment of TCLC as attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan. This provision is customary in mortgage contracts, and is in conformity with the principle that when the principal obligation becomes due, the things in which the mortgage consists may be alienated for the payment to the creditor."
• (Footnote 26 anchors the last clause to Article 2087.)
• Step 8 — The binding force of the stipulation (Article 1159; Article 1306; Article 1308). "It is basic that obligations arising from contracts have the force of law between the parties and should be complied with in good faith. The stipulations are binding between the contracting parties unless they are contrary to law, morals, good customs, public order or public policy. Corollarily, Spouses Villanueva, who freely signed the real estate mortgage contract, cannot now be allowed to renege on their obligation. The validity or compliance of a contract cannot be left to the will of one of the parties."
• Step 9 — Compliance with the foreclosure procedure (Sections 3 and 4, Act No. 3135). "Finally, the sheriff complied with the procedures under Act No. 3135 for the extrajudicial foreclosure of the mortgaged property. The RTC and CA both held that Spouses Villanueva were notified of the auction sale and that the posting and publication requirements were duly complied with. Verily, these involve factual issues and are beyond the ambit of this Court's jurisdiction in a petition for review on certiorari."

B. Doctrines / Rules / Principles Laid Down

1. The foreclosing mortgagee sells as agent of the mortgagor-owner, so a written special power to sell is indispensable — the doctrinal takeaway for this Topic/Subtopic. Verbatim:

   "The special power or authority to sell finds support in civil law. Foremost, in extrajudicial foreclosure, the sale is made through the sheriff by the mortgagees acting as the agents of mortgagors-owners. Hence, there must be a written authority from the mortgagor-owners in favor of the mortgagees. Otherwise, the sale would be void. Moreover, a special power of attorney is necessary before entering 'into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.' Thus, the written authority must be a special power of attorney to sell."

• Anchored expressly on Article 1874 (footnote 21) and Article 1878§(5) (footnote 22), and on Section 1 of Act No. 3135 as amended.

2. No particular form of words is required to create the power of sale. Verbatim:

   "[I]t is generally held that no particular formality is required in the creation of the power of sale. Any words are sufficient which evince an intention that the sale may be made upon default or other contingency."

3. The special power may be incorporated in the mortgage rather than annexed to it. Verbatim:

   "In this case, paragraph 3 of the real estate mortgage sufficiently incorporated the required special power of attorney to sell."

4. A clear stipulation is read literally and may not be narrowed by the courts (Article 1370§). "The courts cannot supply material stipulations or read into the contract words which it does not contain. It is only when the contract is vague and ambiguous that the courts are permitted to interpret the agreement."
5. The mortgagee's power to alienate upon maturity is consistent with Article 2087. "[W]hen the principal obligation becomes due, the things in which the mortgage consists may be alienated for the payment to the creditor."
6. Binding force of contracts (Article 1159; Article 1306; Article 1308). Stipulations bind unless contrary to law, morals, good customs, public order or public policy, and "[t]he validity or compliance of a contract cannot be left to the will of one of the parties."

C. Distinctions / Limitations / Qualifications

1. The Court did not cite Article 1879, and this must be stated plainly. The syllabus assigns the case under "Power to sell and power to mortgage (Art. 1879)," and the case is indeed about whether a mortgage stipulation carries the power to sell. But the decision's codal anchors are Section 1 of Act No. 3135, Article 1874, Article 1878§(5), Article 1370§ and Article 2087. Any assertion that the Court applied Article 1879 would be an invention. The link drawn in Section VI-D is a pedagogical inference and is labelled as such.
2. The controlling contrast is with Sps. Baysa v. Sps. Plantilla, which the Court expressly distinguished in footnote 25. There, paragraph 13 read: "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." The Court had held that this "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 difference is the appointment of an attorney-in-fact: Baysa had consent to a procedure; Commoner Lending had an agency. That is the line to draw in recitation.
3. The holding is one of sufficiency of wording, not of dispensability of the power. The Court did not say a special power is unnecessary; it reaffirmed that "there must be a written authority ... Otherwise, the sale would be void." What it relaxed is the formula, not the requirement.
4. The words relied upon were general — "any legal action as may be necessary to satisfy the mortgage debt" — yet were held sufficient. Note the tension with the strict-construction rule of Angeles v. PNR (Week 2) and with the Dizon content standard adopted in MCIAA v. Unchuan ("a power of attorney must so express the powers of the agent in clear and unmistakable language"). The reconciliation offered by the Court is the Tan Chat rule that "[a]ny words are sufficient which evince an intention that the sale may be made upon default," read together with the express appointment of an attorney-in-fact and the express reference to extrajudicial foreclosure.
5. The absence of an annexed special power was not fatal because the mortgage itself supplied it. The undisputed fact "that no special power to sell was attached to the real estate mortgage" was answered by Section 1 of Act No. 3135, which contemplates a power "inserted in or attached to" the mortgage.
6. The factual findings on notice, posting and publication were not reviewed, both courts below having agreed on them; and the redemption-period argument was not passed upon.

D. Topic/Subtopic Integration (Mandatory)

• The classification is ANALOGOUS.
• Article 1879 states that special powers over an immovable do not imply one another.
• The Commoner Lending Corporation v. Sps. Villanueva engages the same concern from the "power to sell" side, but through the extrajudicial-foreclosure statute rather than through Article 1879.
• Its enduring value for Week 2(c) is the sentence that explains why agency law governs a foreclosure at all — "in extrajudicial foreclosure, the sale is made through the sheriff by the mortgagees acting as the agents of mortgagors-owners" — from which the Court derives, in one breath, the Article 1874 requirement of written authority on pain of nullity and the Article 1878§(5) requirement that the authority be special.
• That is the bridge between the law on mortgages and the law on agency, and it is the reason a mortgage contract is a Week 2 document at all.
• The following is a pedagogical inference and not the Court's own statement: the case marks the practical limit of the Article 1879 principle in the same way [San Miguel Corp. v.
• Trinidad](/agency-trust-partnership/week-02/san-miguel-corporation-v-trinidad) does — strictness is exacted as to whether a special power exists, but not as to the verbal formula by which it is expressed, so long as the words "evince an intention that the sale may be made upon default."
• Recite the case as a pair with Sps. Baysa v. Sps. Plantilla, which the Court itself set opposite it: an agreement merely consenting to extrajudicial foreclosure is not a power to sell, while an agreement appointing the mortgagee attorney-in-fact "to take any legal action as may be necessary to satisfy the mortgage debt" is.

VII. Separate Opinions