Development Bank of the Philippines v. West Negros College, Inc.
REVERSALFacts
The Antecedents: Bacolod Medical Center (BMC) obtained a loan from Development Bank of the Philippines (DBP) secured by a mortgage on two parcels of land. BMC failed to pay the loan, leading DBP to extrajudicially foreclose the mortgage. DBP emerged as the highest bidder at the public auction. Prior to the expiration of the redemption period, BMC and DBP agreed to peg the redemption price at ₱21,500,000.00, subject to DBP's head office approval. BMC resolved to pay 20% of this amount. BMC assigned its interests in the foreclosed properties to West Negros College (West Negros), granting it the right to redeem. West Negros demanded a reduction in the redemption price, citing excessive interest charges. DBP's head office rejected the compromise amount as it was below the re-appraised value of the properties. West Negros requested a certificate of redemption, having paid 20% of the compromise amount plus interest and expenses. The Sheriff found a deficit, which West Negros subsequently settled. DBP objected to the issuance of the certificate of redemption, asserting West Negros lacked personality and that the redemption price should be based on the total outstanding loan as per DBP's charter. DBP also registered an adverse claim. Procedural History: West Negros filed a petition with the RTC for the surrender of TCTs or cancellation and issuance of new ones, alleging full payment of the redemption price. DBP claimed proper redemption required satisfaction of the total outstanding loan. The RTC ordered DBP to surrender the TCTs, and upon DBP's failure, the Register of Deeds issued new TCTs in West Negros' name. The RTC also cancelled DBP's adverse claim and notice of lis pendens. The Court of Appeals affirmed the RTC's ruling, holding that Section 30, Rule 39 of the Rules of Court and Act 3135 applied to determine the redemption price. DBP appealed to the Supreme Court. The Petition: The Supreme Court, in its Decision dated October 28, 2002, granted DBP's petition, reversing the Court of Appeals and the RTC. It declared the Certificate of Redemption void and gave West Negros a 60-day grace period to redeem by paying the balance of BMC's obligation with interest and expenses as of the auction date. West Negros filed a Motion for Reconsideration, seeking to determine the legality of DBP's claimed redemption price, particularly the compounded interest, penalties, and other charges, or alternatively, to remand the case for determination of the exact amount. West Negros also challenged the constitutionality of Executive Order No. 81.
Issue(s)
Whether the properties may still be redeemed. Whether the redemption price should be determined based on Section 30, Rule 39 of the Rules of Court and Act 3135, or on the total outstanding loan obligation as per DBP's charter. Whether the compounded interest, penalties, and other charges imposed by DBP are legal and valid. Whether DBP is estopped from claiming a higher redemption price. Whether Executive Order No. 81 is constitutional.
Ruling
The Supreme Court granted the Motion for Reconsideration only insofar as it sought the determination of the total redemption price, which shall not be lower than ₱21,500,000.00. The case was remanded to the Court of Appeals for the reception of evidence solely for the purpose of determining the basis for or the propriety of the imposition of compounded interest, penalties, and other charges, and the computation of the total outstanding obligation/redemption price.
Ratio Decidendi
On the right to redeem: The Court found that the properties may still be redeemed. This conclusion was based on the fact that DBP accepted installment payments beyond the statutory redemption period, effectively agreeing to an extension. Furthermore, DBP did not file a motion for reconsideration of the Supreme Court's earlier decision which granted West Negros a 60-day grace period to redeem. On the applicable law for redemption price: The Court reiterated its earlier decision that Executive Order No. 81, not Section 30, Rule 39 of the Rules of Court and Act 3135, applies in determining the redemption price for properties foreclosed by DBP. This means the mortgagor must pay the total outstanding loan as of the date of the foreclosure sale, with agreed interest rates, not merely the purchase price at the auction plus one percent monthly interest. On the validity of compounded interest, penalties, and charges: The Court noted that the issue of the validity of these impositions was not squarely raised or passed upon by the lower courts. It acknowledged that West Negros' claim of illegality was countered by DBP's assertion that subsequent loan documents authorized compounded interest and penalties. Due to the largely factual nature of this issue and the procedural bar against raising new issues on appeal, the Court found it necessary to remand the case. On estoppel: The Court ruled that DBP was not estopped by its Bacolod branch's agreement to peg the redemption price at ₱21,500,000.00 and the acceptance of the 20% installment. This was because the branch's agreement was expressly made subject to the approval of DBP's head office, which ultimately rejected the compromise amount. Furthermore, West Negros, as an assignee, is bound by BMC's commitment to pay the redemption price pegged at ₱21,500,000.00. On the constitutionality of Executive Order No. 81: The Court dismissed the challenge to the constitutionality of Executive Order No. 81. It cited the well-settled rule that all presumptions are indulged in favor of constitutionality and that a party attacking a statute must prove its invalidity beyond a reasonable doubt. The Court also noted that the issue of constitutionality was not the lis mota of the case and was raised for the first time in the motion for reconsideration, thus violating procedural rules.
Main Doctrine
The determination of the validity of compounded interest, penalties, and other charges, and the ascertainment of the total redemption price, are indispensable to the complete adjudication of a case involving redemption of foreclosed properties, and may necessitate the remand of the case to the Court of Appeals for reception of evidence.