Development Bank of the Philippines v. Environmental Aquatics, Inc., Land Services and Management Enterprises, Inc. and Mario Matute
REITERATIONFacts
The Antecedents: Environmental Aquatics, Inc. (EAI) and Land Services and Management Enterprises, Inc. (LSMEI) obtained a loan from Development Bank of the Philippines (DBP) secured by a real estate mortgage on LSMEI's property. The mortgage contract stipulated that upon failure to pay, DBP could foreclose judicially or extrajudicially under Act 3135, RA 85, or Act 1508. The loan was restructured, and EAI and LSMEI executed promissory notes. They failed to pay, and the loan balance ballooned. DBP applied for extrajudicial foreclosure under Act 3135. The property was sold at public auction to DBP as the highest bidder for ₱1,507,000. LSMEI transferred its right to redeem to Mario Matute. Matute offered to redeem the property by paying the ₱1,507,000 purchase price plus costs. DBP informed Matute that redemption required paying the remaining loan balance, which by then amounted to over ₱19 million. Procedural History: EAI, LSMEI, and Matute filed a complaint praying that DBP be ordered to accept Matute's offer to redeem. The Regional Trial Court (RTC) allowed redemption at the ₱1,507,000 purchase price, ruling that Act 3135 applied and that applying EO 81 retroactively would violate the impairment of contracts. DBP appealed. The Court of Appeals (CA) affirmed with modification, still allowing redemption at the purchase price but imposing 16% annual interest on the remaining loan balance. DBP moved for reconsideration, which was denied. The Petition: DBP filed a petition for review on certiorari, arguing that the lower courts erred in finding that DBP chose Act 3135 as the governing law for foreclosure and in ruling that the redemption price was the purchase price.
Issue(s)
Whether the lower courts erred in finding that DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure of the property, including the determination of the redemption price. Whether the lower courts erred in ruling that the redemption price is equivalent to the ₱1,507,000 purchase price.
Ruling
The Supreme Court GRANTED the petition, PARTIALLY SET ASIDE the Court of Appeals' decision and resolution. It gave respondent Mario Matute a grace period of 60 calendar days from notice of finality of the Decision to redeem the property by paying petitioner Development Bank of the Philippines the remaining balance of respondents Environmental Aquatics, Inc. and Land Services and Management Enterprises, Inc.'s loan, plus expenses and interest at the agreed rate computed from the 19 December 1990 public auction. If DBP had taken material possession of the property, such possession shall compensate for the interest during the period of possession.
Ratio Decidendi
On the issue of whether DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure and determination of the redemption price: The Court disagreed with the lower courts' conclusion that DBP's citation of Act 3135 in its application for extrajudicial foreclosure meant it elected Act 3135 to the exclusion of its own Charter for determining the redemption price. The Court clarified that Act 3135 is the general law governing the procedure and requirements for extrajudicial foreclosure of real estate mortgages. However, when the mortgagee is DBP, its Charter, specifically Section 16 of EO 81, prevails in determining the redemption price. DBP's resort to Act 3135 was merely to find a proceeding for the sale, not a waiver of its right to demand payment of the entire obligation as the redemption price. The Court cited jurisprudence in Development Bank of the Philippines v. Zaragoza, Development Bank of the Philippines v. Mirang, and Development Bank of the Philippines v. Jimenez, et al., which held that DBP's resort to Act 3135 was merely to find a proceeding for the sale. On the issue of whether the redemption price is equivalent to the ₱1,507,000 purchase price: The Court ruled that the redemption price is the remaining balance of the loan, with interest at the agreed rate, as mandated by Section 16 of EO 81, the DBP Charter. This provision has been consistently upheld in numerous cases, including Development Bank of the Philippines v. West Negros College, Inc., Development Bank of the Philippines v. Mirang, and Nepomuceno, et al. v. Rehabilitation Finance Corporation. These cases established that for properties mortgaged to and foreclosed by DBP, redemption requires paying the entire outstanding indebtedness plus contractual interest as of the date of the auction sale. The Court emphasized that while Act 3135 provides for redemption, its provisions on redemption price are superseded by the DBP Charter when DBP is the mortgagee, as the Charter is considered a special and subsequent law. The Court also noted that even if Act 3135 were to apply, subsequent laws like the General Banking Act (RA 337) amended Act 3135 regarding redemption prices for banks, requiring payment of the amount due under the mortgage deed plus interest and expenses, aligning with the DBP Charter's mandate.
Main Doctrine
In extrajudicial foreclosure of real estate mortgages by the Development Bank of the Philippines (DBP), the redemption price is governed by the DBP Charter (specifically Section 16 of EO 81, as amended), which requires payment of the entire outstanding balance of the loan with interest, and not merely the auction sale purchase price as provided by Act 3135. The citation of Act 3135 in the mortgage contract or foreclosure application is merely to find a proceeding for the sale, not to waive the DBP's right to demand the full obligation as redemption price.