Redemption Price for a Mortgaged and Foreclosed Properties

Section 16 of Executive Order (EO) No. 81 states that the redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan.  Section 16 states that, “Any mortgagor of the Bank whose property has been extrajudicially sold at public auction shall x x x have the right to redeem the real property by paying to the Bank all of the latter’s claims against him, as determined by the Bank.”

In Development Bank of the Philippines v. West Negros College, Inc., [439 Phil. 943 (2002)] the Court held that the redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate.  The Court held that:

It has long been settled that where the real property is mortgaged to and foreclosed judicially or extrajudicially by the Development Bank of the Philippines, the right of redemption may be exercised only by paying to “the Bank all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date, unless the bidder has taken material possession of the property or unless this had been delivered to him, in which case the proceeds of the property shall compensate the interest.”     x x x

The foregoing rule is embodied consistently in the charters of petitioner DBP and its predecessor agencies.  Section 31 of CA 459 creating the Agricultural and Industrial Bank explicitly set the redemption price at the total indebtedness plus contractual interest as of the date of the auction sale.  Under RA 85 the powers vested in and the duties conferred upon the Agricultural and Industrial Bank by CA 459 as well as its capital, assets, accounts, contracts, and choses in action were transferred to the Rehabilitation Finance Corporation.  It has been held that among the salutary provisions of CA 459 ceded to the Rehabilitation Finance Corporation by RA 85 was Sec. 31 defining the manner of redeeming properties mortgaged with the corporation.  Subsequently, by virtue of RA 2081 (1958), the powers, assets, liabilities and personnel of the Rehabilitation Finance Corporation under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred to petitioner DBP.  Significantly, Sec. 31 of CA 459 has been reenacted substantially in Sec. 16 of the present charter of the DBP, i.e., EO 81 (1986) as amended by RA 8523 (1998).

x x x x

The unavoidable conclusion is that in redeeming the foreclosed property respondent West Negros College as assignee of Bacolod Medical Center should pay the balance of the amount owed by the latter to petitioner DBP with interest thereon at the rate agreed upon as of the date of the public auction on 24 August 1989.  (Emphasis supplied)

In Development Bank of the Philippines v. Mirang, [160 Phil. 833 (1975)] the Court held that the redemption price for properties morgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate.  The Court held that, “The unavoidable conclusion is that the appellant, in redeeming the foreclosed property, should pay the entire amount he owed to the Bank on the date of the sale, with interest thereon at the rate agreed upon.”

As early as 1960, the Court has already settled the issue.  In Nepomuceno, et al. v. Rehabilitation Finance Corporation,    [110 Phil. 42 (1960)] the Court held that the redemption price for properties morgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate.  The Court held that:

The issue posed in this appeal is: considering that the loan of P300,000.00 was obtained from the Rehabilitation Finance Corporation [now DBP] by spouses Jose Nepomuceno and Isabela Acuña and Jesus Nepomuceno merely acted as accomodation mortgagor, for what price may the mortgagor redeem his property after the same has been sold at public auction?  Would it be for the price at which the property was sold, as contended by the mortgagor, or for the balance of the loan obtained by the borrowers from the banking institution, as contended by appellant?

x x x x

[T]he inescapable conclusion is that the mortgagor herein or his assignees cannot redeem the property in dispute without paying the balance of the total indebtedness then outstanding on the date of the sale to the Rehabilitation Finance Corporation.  (Emphasis supplied)

The lower courts ruled that the redemption price for the property is equivalent to the P1,507,000 purchase price because DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure.  The RTC and Court of Appeals, respectively, stated that:

When defendant DBP foreclosed the mortgage at issue, it chose Act 3135.  That was an option it freely exercised without the least intervention of plaintiffs.  We cannot, therefore, escape the conclusion that what defendant DBP agreed to in respect to (sic) the possible foreclosure of its mortgage was to subject the same to the provisions of Act No. 3135, as amended, should the DBP opt to utilize said law.

Thereunder given the choice of resorting to “Act No. 3135 as amended, or Republic Act No. 85 as amended, or Act No. 1508 as amended”, appellant bank undoubtedly opted for the first of the aforesaid laws as may be gleaned from the following prayer it interposed in the application for foreclosure of mortgage it filed with the Ex-Officio Sheriff of Quezon City on October 25, 1990.

The Court disagrees.  Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for extrajudicial foreclosure of real estate mortgage.  When DBP stated in its letter to the ex-officio sheriff that the property be sold “at public auction in accordance with the provisions of Act 3135,” it did so merely to find a proceeding for the sale.

In Development Bank of the Philippines v. Zaragoza, [174 Phil. 153, 157 (1978)] Development Bank of the Philippines v. Mirang, [Supra note 25 at 839] and Development Bank of the Philippines v. Jimenez, et al., [146 Phil. 919, 927 (1970)] the Court held that when the bank resorted to Act No. 3135 in order to sell the mortgaged property extrajudicially, it did so merely to find a proceeding for the sale.

In its 10 October 2006 petition, DBP claims that when it resorted to Act No. 3135 in order to sell the mortgaged property extrajudicially, it did so merely to find a proceeding for the sale.  DBP stated that:

[W]hen herein petitioner resorted to Act 3135 in its application for extrajudicial foreclosure of the subject mortgaged real estate, it did so only to find a proceeding for the extrajudicial sale.  The Court of Appeals should have noted that neither Republic Act No. 85 (the Charter of the Rehabilitation Finance Corporation) nor Act 1508 (Chattel Mortgage Law) prescribe a procedure for extrajudicial foreclosure of real estate mortgage as provided under Act 3135.  Such action, therefore, cannot be construed to mean a waiver of petitioner’s right to demand the payment of respondents’ entire obligation as the proper redemption price.  There is no such waiver on the part of the petitioner.

x x x x

[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of other laws in the extrajudicial foreclosure of the subject mortgaged real property.  Such a conclusion is definitely contrary to law and jurisprudence, which settled the rule that Act 3135 is the general law that governs the procedure and requirements in extra-judicial foreclosure of real estate mortgage, but in determining the redemption price of the property mortgaged to the Development Bank of the Philippines, the DBP Charter shall prevail.

It is of judicial notice that Act 3135 is the only law governing the proceedings in extrajudicial foreclosure of real estate mortgage.  Act No. 1508, on the other hand, governs the extrajudicial foreclosure of chattel mortgage, and should not be in issue in the instant case which involves a real estate mortgage.

It should likewise be of judicial notice that Republic Act No. 85 is the charter of the Rehabilitation Finance Corporation, predecessor of appellant DBP.  RA 85 prescribes the redemption price, not the proceedings and requirements in an extrajudicial foreclosure of real estate mortgage such as those found in Act 3135.

x x x When appellant DBP cited Act 3135 in its Deed of Real Estate Mortgage or even in the application for foreclosure of mortgage, it was not a matter of making an exclusive option or choice because Act 3135 governs the procedure and requirements for an extrajudicial foreclosure or real estate mortgage.  In citing said law, Appellant DBP was merely finding a proceeding for extra-judicial foreclosure sale x x x.  And while the said Act 3135 provides for redemption, such provision will not apply in the determination of the redemption price on [sic] mortgages to DBP.  In the latter case, the DBP Charter will prevail.

Even assuming that DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure, the redemption price would still be equvalent to the remaining balance of the loan.  EO No. 81, being a special and subsequent law, amended Act No. 3135 insofar as the as redemption price is concerned.

In Sy v. Court of Appeals, [254 Phil. 120 (1989)] the Court held that RA No. 337 amended Act No. 3135 insofar as the redemption price is concerned.  The Court held that:

[T]he General Banking Act partakes of the nature of an amendment to Act No. 3135 insofar as the redemption price is concerned, when the mortgagee is a bank or banking or credit institution, Section 6 of Act No. 3135 being, in this respect, inconsistent with Section 78 of the General Banking Act.  Although foreclosure and sale of the subject property was done by SIHI pursuant to Act. No. 3135, x x x Section 78 of the General Banking Act, as amended provides the amount at which the subject property is redeemable from SIHI, which is, in this case, the amount due under the mortgage deed, or the outstanding obligation of Carlos Coquinco, plus interest and expenses. (Emphasis supplied) [Id. at 129]

In Ponce de Leon v. Rehabilitation Finance Corporation, [146 Phil. 862 (1970)] the Court held that RA No. 337, being a special and subsequent law, amended Act No. 3135 insofar as the redemption price is concerned.  The Court held that:

Rep. Act No. 337, otherwise known as “The General Banking Act,” is entitled “An Act Regulating Banks and Banking Institutions and for other purposes.”  Section 78 thereof limits the amount of the loans that may be given by banks and banking or credit institutions on the basis of the appraised value of the property given as security, as well as provides that, in the event of foreclosure of a real estate mortgage to said banks or institutions, the property sold may be redeemed “by paying the amount fixed by the court in the order of execution,” or the amount judicially adjudicated to the creditor bank.  This provision had the effect of amending Section 6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a bank or a banking or credit institution, said Section 6 of Act No. 3135 being, in this respect, inconsistent with the above-quoted portion of Section 78 of Rep. Act No. 337.  In short, the Parañaque property was sold pursuant to said Act No. 3135, but the sum for which it is redeemable shall be governed by Rep. Act No. 337, which partakes of the nature of an amendment to Act No. 3135, insofar as mortgages to banks or banking or credit institutions are concerned, to which class the RFC belongs.  At any rate, the conflict between the two (2) laws must be resolved in favor of Rep. Act No. 337, both as a special and as the subsequent legislation.  (Emphasis supplied) [Id. at 878]

Development bank of the philippines  v. Environmental aquatics,   Inc., land services and   Management enterprises,   Inc. and Mario Matute, G.r. No. 174329, October 20, 2010

http://sc.judiciary.gov.ph/jurisprudence/2010/october2010/174329.htm

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About Erineus

Ernesto O. Bendita. Born on December 28, 1965, Surallah, South Cotabato, Southern Mindanao, Philippines.
This entry was posted in Mortgage Law and tagged . Bookmark the permalink.

One Response to Redemption Price for a Mortgaged and Foreclosed Properties

  1. kathie says:

    What happens when there is a joint venture. the agreement between the owner of the property and developer is such that there is some swapping pf property. the developer never gives the titles of the swapper property to the land owner, the joint fell through, the developer went bankrupt and now the swapped units have been auctioned by the govt……titles of the units are with a bank in manila as dacion en pago on the account of the developer. BUT the the land owner has people renting the property. property has been auctioned due to non-payment of realty taxes.

    is there a period of redemption of said units? what should the landowner do?

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