ROWENA R. CABASObligations and Contracts

G.R. No. 193723. July 20, 2011General Milling Corporation, plaintiff-appellant.vs.Spouses Librado and Remedios Ramos, defendants-appellees.

FACTS OF THE CASE:

Plaintiff and defendant spouses entered into a Growers Contract (GC) where the former is bound to supply boiler chickens to the latter to be raised in the latters land. The contract came with a Deed of Real Estate Mortgage over the conjugal property of the spouses to guarantee full compliance.

Spouses failed to settle its obligation alleging that they suffered business losses because of the negligence of General Milling Corporation and its violation of the contract. Plaintiffs counsel notified the spouses that they will institute foreclosure proceedings on the mortgaged property and filed a petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997 the property was foreclosed and sold at a public auction to GMC after the required posting and publication. The spouses filed a complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages.

The trial court held in favor of the spouses that the Deed of Real Estate Mortgage was valid and that the action of the plaintiff was premature because the formers obligation is not yet due. The Court of Appeals affirmed the ruling of the trial court citing that the spouses were not yet in default when the action was filed.

Plaintiff questioned the ruling of the Court of Appeals in holding that no demand was made as it claimed that the March 31, 1997 letter is tantamount to a demand.

ISSUE:

1. Whether or not there was sufficient demand.

RULING:

No. the Supreme Court held that the contract carries no such provision on demand not being necessary for delay to exist therefore, the plaintiff should have first made a demand on the spouses before proceeding to foreclose the Real Estate Mortgage. It affirmed the Court of Appeals observation that the plaintiff did not make a demand on the spouses and held that there was no provision in the deed allowing the plaintiff to extrajudicially foreclose the mortgage without need of demand. It cited the case of Development Bank of the Philippines vs. Licuanan (G.R. No. 150097, February 26, 2007) where, (t)he issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in their payments and the foreclosure by the petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation. Article 1169 of the Civil Code states that: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.However, demand by the creditor shall not be necessary in order that delay may exist:(1) When the obligation or the law expressly so declares; or (2) When from the nature and circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.