General Milling Corp. v. Ramos
G.R. No. 193723 (July 20, 2011)
Facts:
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos (Spouses Ramos), wherein GMC was to supply broiler chickens for the spouses to raise on their property in Barangay Banaybanay, Lipa City, Batangas. To secure compliance with the contract, the spouses executed a Deed of Real Estate Mortgage over their property, which included a maximum credit line of PhP 215,000, payable within an indefinite period at an interest rate of 12% per annum. The contract also required the spouses to post a surety bond of PhP 20,000 for every 1,000 chicks delivered.
The Spouses Ramos later claimed they suffered business losses due to GMC's negligence and breach of the Growers Contract, leading to their inability to settle their account. On March 31, 1997, GMC notified the spouses of its intention to initiate foreclosure proceedings on their mortgaged property. Subsequently, on May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage, and the property was sold at public auction to GMC on June 10, 1997, for PhP 935,882,075, which included losses from chicks and feeds, excluding interest and attorney's fees.
On October 27, 1997, GMC informed the spouses that its Agribusiness Division had ceased operations. On March 3, 2000, the spouses filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages, arguing that the foreclosure was void due to non-compliance with the posting and publication requirements under Act No. 3135, as amended, and the absence of a sheriff's affidavit to prove compliance. They also contended that the Deed of Real Estate Mortgage lacked a fixed term and that Librado Ramos was not notified of the foreclosure.
During the trial, the parties agreed to limit the issues to the validity of the Deed of Real Estate Mortgage, the validity of the extrajudicial foreclosure, and the party liable for damages. GMC countered that it had repeatedly reminded the spouses of their obligations and that the foreclosure was necessary due to their failure to pay.
Legal Issues:
- Whether the Deed of Real Estate Mortgage was valid despite lacking a fixed term.
- Whether the extrajudicial foreclosure was valid given the alleged non-compliance with legal requirements.
- Whether GMC's actions were premature due to the absence of a demand for payment from the spouses.
- Whether the trial court erred in awarding attorney's fees to the spouses.
Arguments:
Spouses Ramos: They argued that the extrajudicial foreclosure was null and void due to GMC's failure to comply with the requirements of posting and publication of notices. They also claimed that the Deed of Real Estate Mortgage was invalid because it did not specify a fixed term, and they were not in default as GMC had not made a proper demand for payment.
General Milling Corporation (GMC): GMC contended that it had complied with all legal requirements for the foreclosure and that the Deed of Real Estate Mortgage was valid. GMC argued that the spouses were in default due to their failure to pay, and it had made sufficient demands for payment, thus justifying the foreclosure.
Court's Decision and Legal Reasoning:
The Regional Trial Court (RTC) ruled in favor of the Spouses Ramos, declaring the extrajudicial foreclosure proceedings null and void while affirming the validity of the Deed of Real Estate Mortgage. The RTC found that the obligation was not yet due and payable, as the spouses had not been properly demanded for payment. The court awarded attorney's fees to the spouses due to GMC's premature action in filing for foreclosure.
On appeal, the Court of Appeals (CA) upheld the RTC's decision but modified it by deleting the award of attorney's fees. The CA found that while GMC had complied with the posting and publication requirements, it had not made a proper demand for payment, rendering the foreclosure premature.
The Supreme Court affirmed the CA's decision, emphasizing that a valid demand for payment is a prerequisite for declaring a debtor in default. The Court reiterated that the absence of a demand meant that the obligation had not yet become due, thus making the foreclosure invalid. The Court also clarified that the CA had the authority to consider issues not raised in the lower court if they were necessary for a just resolution of the case.
Significant Legal Principles Established:
- A Deed of Real Estate Mortgage can be valid even without a fixed term, provided that the obligation is not due until a demand is made.
- Foreclosure proceedings are premature if the creditor has not made a proper demand for payment, as a debtor cannot be considered in default without such demand.
- Appellate courts have the discretion to consider issues not raised in the lower court if they are essential for a complete and just resolution of the case.