Development Bank of the Philippines v. West Negros College, Inc.
REITERATIONFacts
The Antecedents: Bacolod Medical Center (BMC) obtained a loan from Development Bank of the Philippines (DBP) secured by a mortgage on its properties. For failure to pay, DBP extrajudicially foreclosed the mortgage, and DBP emerged as the highest bidder at the public auction. BMC and DBP later agreed on a compromise redemption price, subject to DBP head office approval. BMC assigned its interests and right to redeem to respondent West Negros College (WNC). WNC paid an installment of the compromise amount and subsequently demanded a reduction of the redemption price, arguing against excessive interest charges. DBP's head office rejected the compromise amount. WNC, based on Act 3135 and Section 30, Rule 39 of the Rules of Court, computed the redemption price as the purchase amount plus 1% monthly interest and other expenses, and requested a certificate of redemption. The Sheriff concurred but noted a deficit, which WNC settled. DBP objected, asserting that redemption requires payment of the total outstanding loan with agreed interest as per its charter. Possession of the properties was vested in WNC, and DBP registered an adverse claim. Procedural History: WNC filed a petition with the RTC for the surrender of the transfer certificates of title or cancellation and issuance of new ones, alleging full payment of the redemption price under Act 3135 and the Rules of Court. DBP contended that proper redemption required satisfying the total outstanding loan. The RTC ordered DBP to surrender the titles, leading to the issuance of new titles in WNC's name. The RTC also canceled DBP's adverse claim and notice of lis pendens. DBP appealed to the Court of Appeals (CA), arguing that redemption necessitated settling BMC's total outstanding obligation. The CA denied DBP's appeal, ruling that Act 3135 and Section 30, Rule 39 of the Rules of Court, as interpreted in prior cases, governed the redemption price (purchase price plus 1% monthly interest and expenses). The CA denied DBP's motion for reconsideration. The Petition: DBP filed a petition for review with the Supreme Court, arguing that the CA erred in applying Act 3135 and the Rules of Court instead of DBP's charter for determining the redemption price.
Issue(s)
Whether the redemption price for properties foreclosed by DBP should be based on its charter or on Act 3135 and Section 30, Rule 39 of the Rules of Court. Whether West Negros College, as assignee, is entitled to redeem the foreclosed properties by paying only the purchase price plus 1% monthly interest and expenses, or the entire outstanding loan obligation of Bacolod Medical Center with agreed interest.
Ruling
The Supreme Court granted the petition, reversed the decisions of the Court of Appeals and the Regional Trial Court, declared the Certificate of Redemption void, and ordered that West Negros College has a grace period of sixty (60) calendar days from notice of finality of the Decision to redeem the mortgaged properties by paying DBP the balance of the credit of Bacolod Medical Center plus expenses and agreed interest as of the date of the public auction. If redemption is not made, the new transfer certificates of title issued in the name of West Negros College are declared void, and new titles shall be issued in the name of DBP.
Ratio Decidendi
On the applicable law for redemption price: The Court held that the redemption of properties mortgaged to the Development Bank of the Philippines (DBP) and foreclosed judicially or extrajudicially is governed by DBP's charter, not by general laws like Act 3135 or Section 30, Rule 39 of the Rules of Court. This principle is consistently embodied in the successive charters of DBP and its predecessor agencies, including Commonwealth Act No. 459 (CA 459), Republic Act No. 85 (RA 85), Republic Act No. 2081 (RA 2081), and Executive Order No. 81 (EO 81). These special laws mandate that redemption requires payment of the entire amount owed to DBP as of the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation. The Court emphasized that this special protection given to a government lending institution prevails over general laws applicable to ordinary civil actions or judgment creditors. The mortgage contract was expressly constituted subject to RA 85, which incorporated the redemption provisions of CA 459. On the redemption price payable by West Negros College: Consequently, West Negros College, as the assignee of Bacolod Medical Center (BMC), must pay the balance of the amount owed by BMC to DBP, with interest thereon at the rate agreed upon as of the date of the public auction. The Court distinguished the present case from Co v. Philippine National Bank and Philippine National Bank v. Court of Appeals, explaining that those cases involved redemption of property levied upon to satisfy a judgment, and the Philippine National Bank's charter at the time did not provide for extrajudicial foreclosure or specify redemption amounts, thus necessitating reliance on Act 3135 and the Rules of Court. In contrast, DBP's charter explicitly provides for extrajudicial foreclosure and dictates the redemption price, making it a special law that must be applied. The Court reiterated its ruling in Dulay v. Cariaga, stating that a mortgagor must pay their entire indebtedness plus agreed interest to the mortgagee before redemption can be effected, as required by the mortgagee's charter. Therefore, the redemption price is not merely the purchase price at the auction plus 1% monthly interest and expenses, but the total outstanding loan obligation with the agreed contractual interest.
Main Doctrine
The redemption of properties mortgaged to the Development Bank of the Philippines (DBP) and foreclosed either judicially or extrajudicially is governed by DBP's charter, which requires payment of the entire outstanding indebtedness plus agreed interest, not merely the purchase price at the auction sale plus statutory interest as provided by general laws like Act 3135 and the Rules of Court.