Philippine National Bank v. Honorable Court of Appeals and Divina Alim
REITERATIONFacts
The Antecedents: Divina Alim obtained a loan of P40,000.00 from Philippine National Bank (PNB), secured by three parcels of land. Due to failure to pay the loan upon maturity, PNB extrajudicially foreclosed the mortgaged properties. The Provincial Sheriff sold the properties at public auction on February 12, 1973, to PNB, the sole bidder, for P59,320.00, which covered the total obligation including principal, attorney's fees, charges, and interests as of the sale date. Procedural History: On April 26, 1975, Divina Alim filed an action for Annulment of Extrajudicial Foreclosure and Sale of Real Properties and for Damages with Prayer for Preliminary Injunction before the Court of First Instance (CFI) of Quezon Province. During the pendency of the case, the parties attempted to settle amicably, and Alim deposited an amount to cover the loan and interest as of February 12, 1973. The parties agreed to submit the case for decision solely on the issue of whether Alim should still pay interest after the auction sale. The CFI ruled in favor of Alim, enjoining PNB from consolidating title and directing PNB to allow redemption by accepting payment, while dismissing claims and counterclaims. PNB appealed this decision. The Petition: The Court of Appeals affirmed the CFI's decision on March 25, 1982. PNB filed a Petition for Review on Certiorari with the Supreme Court, assailing the appellate court's decision and contending that Alim is still obligated to pay interest specified in the mortgage from the time of the auction sale up to the date of redemption, citing various laws. The Supreme Court considered the applicable law to be Act No. 3135, as the foreclosure was initiated under this statute, and the mortgage contract was entered into in 1968, prior to the enactment of Presidential Decree No. 694.
Issue(s)
Whether the private respondent is still obligated to pay interest on the mortgage loan after the extrajudicial foreclosure sale. Whether Act No. 3135 and Rule 39 of the Rules of Court, rather than general banking laws or PNB's charter, govern the redemption of the foreclosed properties.
Ruling
The petition is granted, and the decision of the Court of Appeals is affirmed with modification. The writ of preliminary injunction is made permanent and irrevocable. The plaintiff (private respondent) is allowed to redeem the mortgaged properties by paying the amount of the purchase price with interests thereon at the rate of one percentum (1%) per month up to the date of her deposit of the redemption price, and the defendant (PNB) is ordered to accept such payment. All claims and counterclaims are dismissed.
Ratio Decidendi
On the issue of interest after foreclosure: The Court ruled that after the extrajudicial foreclosure proceedings are completed and the mortgaged property is sold to the purchaser, the mortgagor's interest in the property is cut off. Therefore, the mortgagor is no longer liable for the original mortgage interest. However, pursuant to Section 30 of Rule 39 of the Rules of Court, which governs redemption under Act No. 3135, the redemptioner is required to pay the purchaser the amount of the purchase price with one percentum (1%) per month interest thereon up to the time of redemption. This includes any assessments or taxes paid by the purchaser after the purchase, with interest at the same rate. The Court cited the case of Development Bank of the Philippines vs. Jovencio A. Zaragosa, et al., 84 SCRA 668, which established that upon completion of foreclosure proceedings, all interests of the mortgagor are cut off from the property. On the applicable law: The Court held that since the extrajudicial foreclosure proceedings were initiated by PNB through a petition for sale under Act No. 3135, this special law, which specifically governs extrajudicial foreclosures, is the applicable statute. Act No. 3135, in conjunction with Section 30 of Rule 39 of the Rules of Court, dictates the terms of redemption. The Court clarified that Presidential Decree No. 694, enacted in 1975, and other general banking laws or PNB's charter provisions enacted subsequent to the mortgage contract (entered into in 1968) are not applicable in this instance. The Court also noted that Republic Act No. 1300, the PNB charter in 1968, does not contemplate extrajudicial foreclosure, citing Co vs. PNB, L-51767, June 29, 1982.
Main Doctrine
In extrajudicial foreclosure proceedings governed by Act No. 3135, the redemptioner is required to pay the purchase price with one percentum (1%) per month interest thereon up to the time of redemption, along with any assessments or taxes paid by the purchaser with interest at the same rate, pursuant to Section 30 of Rule 39 of the Rules of Court. After the completion of the foreclosure sale, the mortgagor's interest in the property is cut off, and redemption is governed by the specific provisions of Act No. 3135 and the Rules of Court, not by general banking laws or PNB's charter provisions enacted subsequent to the mortgage contract.