CARMEN MIAGUE, PLAINTIFF-APPELLANT, VS. SOCIAL SECURITY SYSTEM, ROGER C. DIAZ AND THE REGISTER OF DEEDS FOR VALENZUELA CITY, DEFENDANTS-APPELLEES.

Miague versus Social Security System

The Case

This is an appeal by Carmen Miague against the Social Security System, Roger C. Diaz, and the Register of Deeds for Valenzuela City, from the dismissal of her complaint for nullification of foreclosure and foreclosure proceedings. She asked the trial court to declare void the extrajudicial foreclosure of the house and lot she and her late husband had mortgaged to the Social Security System, and to annul the subsequent conditional sale of that property to Roger C. Diaz. The case matters because it gathers in one decision the rules on mortgage redemption insurance, on the presumption of regularity of foreclosure proceedings, and on the right of a defaulting mortgagor to relief based on equity.

Procedural History

Carmen Miague filed her complaint for nullification of foreclosure and foreclosure proceedings, with a prayer for a temporary restraining order and preliminary injunction, before the Regional Trial Court of Valenzuela City. The trial court denied her application for a temporary restraining order, and later denied her application for a writ of preliminary injunction. After trial, the trial court rendered its decision dismissing the complaint for lack of merit, and it likewise dismissed the defendants' counterclaim for lack of merit. She moved for reconsideration, and the trial court denied the motion. She then brought the present appeal to the Supreme Court, assigning as errors the trial court's rulings on the mortgage redemption insurance provision of the mortgage contract, on the alleged absence of posting of the notice of sale, and on the validity of the foreclosure sale under Act Number 3135, as amended.

Facts

Spouses Carlos Miague and Carmen Miague obtained a loan of 100,000 pesos from the Social Security System, payable in twenty five years and secured by a real estate mortgage over their house and lot in Valenzuela City, under a Mortgage Contract dated May 4, 1985. The spouses failed to pay their monthly installments. In January 1990 the Social Security System sent them a telegram asking them to pay their total obligation of 126,494 pesos. In May 1991 they requested a restructuring of their loan, and the parties executed a Supplemental Mortgage Contract under which they agreed to pay 1,060 pesos and 30 centavos per month for 231 months. They still did not pay.

The Social Security System therefore applied for extrajudicial foreclosure in January 1996. A notice of sheriff's sale was issued in February 1996, setting the public auction for March 28, 1996, and the notice was published for three consecutive weeks in Malaya, a newspaper of general circulation. At the auction, the Social Security System was the highest bidder, and a certificate of sale was issued in its favor in August 1996. The Social Security System did not register the certificate immediately. Instead, it sent the spouses several notices and gave them repeated opportunities to restructure their loan and to avail of condonation programs. The spouses failed to pay each time. The certificate of sale was registered in September 2006, and the spouses were informed that they had one year, or until September 6, 2007, within which to redeem the property. Carlos Miague died on June 20, 2007. The redemption period lapsed without redemption, and ownership was consolidated in the name of the Social Security System.

Carmen Miague signified her intention to repurchase the property but failed to do so. The property was then offered under the Housing Fair Program, and Roger C. Diaz applied to purchase it. His purchase was approved, and a Deed of Conditional Sale was executed in his favor in May 2010. Carmen Miague refused to vacate the premises and requested that she be given preference to repurchase. When her requests were denied, she filed the present complaint.

Issues

• Whether or not the mortgage redemption insurance on the life of Carlos Miague extinguished the loan obligation upon his death, such that the foreclosure was void.
• Whether or not the Social Security System concealed the mortgage redemption insurance coverage from Carmen Miague in bad faith.
• Whether or not the extrajudicial foreclosure was void for lack of posting of the notice of sheriff's sale.
• Whether or not the trial court erred in dismissing the complaint.

Applicable Provisions

Paragraph 16 of the Mortgage Contract, quoted by the Court, provides:

16. (a) The loan shall be secured against the death of the borrower through the Mortgage Redemption Insurance Plan; (b) Coverage shall take effect on the date of the first release voucher of the loan and shall continue until the real estate mortgage loan is fully paid; (c) Coverage shall be compulsory for any MORTGAGOR who is not over 60 years old on his birthday nearest to the date of approval of the loan; otherwise, optional coverage may be provided upon submission of evidence of insurability satisfactory to the MORTGAGEE; (d) The insured indebtedness, that is, the amount of the approved loan, or the total amount released where the approved loan has not been fully availed of by the borrower, as provided in the policy shall be deemed paid upon the death of the MORTGAGOR covered under the MRI plan, and any amount not covered by the MRI Insurance shall be paid by the surviving spouses, heirs, co-applicants or co-mortgagors, as the case may be, and until such amount shall have been paid, the mortgage on the collateral shall subsist.

This clause fixes the extent of the insurance cover and preserves the mortgage until the uncovered balance is paid, which defeats the claim that the death of Carlos Miague wiped out the entire obligation.

Paragraph 24 of the Mortgage Contract provides:

24. If the MORTGAGOR should pay or refuse to pay six (6) monthly amortizations on the indebtedness or interest when due, or whatever other obligations herein agreed upon, or otherwise fail to perform any of the conditions herein stipulated, then all the amortizations and other obligations of the MORTGAGOR of any nature shall become due, payable and defaulted and the MORTGAGEE may immediately foreclose this Mortgage judicially or extrajudicially under Act No. 3135, as amended, without any further demand. Furthermore, if the MORTGAGOR delays in the payment of the monthly amortizations, the MORTGAGEE shall have the right to impose penalty on the total amount due and demandable at the same rate of interest as the principal loan.

This clause is the contractual basis for the extrajudicial foreclosure, authorizing it even without further demand upon default.

Paragraph 28 of the Mortgage Contract provides:

28. The MORTGAGOR hereby grants unto the MORTGAGEE full and irrevocable power of attorney, in case of breach of any of the conditions of this Mortgage, to sell at its discretion the mortgaged properties, at public auction for cash and to the highest bidder, without court proceedings, the MORTGAGEE being authorized, furthermore, to execute all the necessary instruments of sale and such other documents as may be necessary in the premises, all in accordance with Act No. 3135, as amended; x x x

This clause constitutes the mortgagor's authority for the mortgagee to sell the property at public auction without court proceedings.

Ruling

On the first issue, the Court held that the mortgage redemption insurance did not extinguish the loan. The insurance covered only the amount of the approved loan, which was 100,000 pesos, and any amount not covered by the insurance had to be paid by the surviving spouse or heirs, with the mortgage subsisting until payment. Carmen Miague herself signed the contract and could not feign ignorance of its terms. Moreover, she admitted that she and her husband failed to pay the insurance premiums for one year, so the coverage had ceased or expired upon non payment of premium. The trial court put it sharply, and the Supreme Court agreed, that it would be absurd and iniquitous to hold that the principal loan continued to be insured until the death of the husband in 2007 despite the failure to make any payment on the loan for more than ten years.

On the second issue, the Court found no concealment. Carmen Miague signed the Mortgage Contract, and apart from her bare allegation she presented no evidence that she had even informed the Social Security System of her husband's death.

On the third issue, the Court held that foreclosure proceedings enjoy in their favor the presumption of regularity, and the burden of evidence to rebut that presumption lies on the party challenging the proceedings. Apart from her bare allegation, Carmen Miague presented no evidence of the alleged lack of posting. The records showed that the notice of sheriff's sale was issued, that the auction was set, and that the notice was published in Malaya for three consecutive weeks. The Court also stressed the hornbook doctrine that foreclosure is valid where the debtor is in default, and that when the principal obligation is not paid when due, the mortgagee has the right to foreclose and to have the property sold to apply the proceeds to the obligation.

On the fourth issue, the Court held that the trial court did not err. Despite all the notices, telegrams, and letters, the spouses failed to pay and chose not to maximize the chances given to them, so they must bear the consequences of their inaction. Equity may be invoked only when the plaintiff has a clear right to enforce, and one who seeks relief based on equity and justice must come to court with clean hands. The Court likewise affirmed the basic rule that factual findings of the trial court are entitled to great weight on appeal and should not be disturbed except for strong and valid reasons.

Doctrine

A mortgage redemption insurance is a device for the protection of both the mortgagee and the mortgagor. Upon the death of the mortgagor during the subsistence of the mortgage, the proceeds are applied to the mortgage debt, relieving the heirs from the obligation. But the cover extends only to the amount of the approved loan as stipulated, and any amount not covered by the insurance must be paid by the surviving spouse, heirs, co applicants, or co mortgagors, and until such amount is paid, the mortgage on the collateral subsists. Coverage ceases upon non payment of premiums.

Foreclosure is valid where the debtor is in default in the payment of the obligation. When the principal obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold with the view of applying the proceeds to the payment of the obligation.

Foreclosure proceedings have in their favor the presumption of regularity, and the burden of evidence to rebut the same is on the party seeking to challenge the proceedings. A bare allegation of lack of posting, unsupported by evidence, cannot overcome that presumption.

Equity may be invoked only when the plaintiff has a clear right that she seeks to enforce, and one who seeks relief from the court based on equity and justice must come to court with clean hands.

Disposition

The Supreme Court affirmed the decision of the trial court dismissing the complaint of Carmen Miague for lack of merit.

Remember This

Remember the single line: the mortgage redemption insurance covers only the approved loan, and any uncovered balance keeps the mortgage alive until paid. Examiners use this case to test the presumption of regularity in extrajudicial foreclosure and the rule that equity cannot rescue a mortgagor with unclean hands.