Goldenway Merchandising Corporation v. Equitable PCI Bank
NEW DOCTRINEFacts
The Antecedents: Goldenway Merchandising Corporation (petitioner) executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent) in 1985 to secure a P2,000,000.00 loan. The mortgage covered properties in Valenzuela, Bulacan. Upon petitioner's failure to settle the loan, respondent extrajudicially foreclosed the mortgage on December 13, 2000, with the properties being sold for P3,500,000.00 to the respondent. Procedural History: Following the foreclosure and the registration of the Certificate of Sale on February 16, 2001, petitioner attempted to redeem the property. Petitioner filed a complaint for specific performance and damages against the respondent on December 7, 2001, asserting its right to redeem under Act No. 3135. The Regional Trial Court (RTC) dismissed the complaint, finding that the issue of constitutionality of Section 47 of R.A. No. 8791 was not raised during pre-trial and trial, and that the redemption attempt was late and invalid. The Court of Appeals (CA) affirmed the RTC's decision, also finding no justification to declare Section 47 unconstitutional and concluding that the provision clearly applied to the foreclosure. The Petition: Petitioner seeks review on certiorari, arguing that Section 47 of R.A. No. 8791 is inapplicable because the original mortgage contract stipulated foreclosure under Act No. 3135. Petitioner contends that applying Section 47 would impair the obligation of contract and violate the equal protection clause, as it shortens the redemption period for juridical persons. Petitioner further argues that R.A. No. 8791 should not be applied retroactively to contracts executed before its effectivity and that Act No. 3135, as a special law, should prevail over the general banking law. The core of the petition is that the right of redemption is a vested right integral to the mortgage contract and should not be diminished by subsequent legislation.
Issue(s)
Whether Section 47 of Republic Act No. 8791 is constitutional. Whether applying Section 47 of Republic Act No. 8791 to a real estate mortgage executed in 1985 and foreclosed in 2000 violates the constitutional prohibition against impairment of the obligation of contracts. Whether applying Section 47 of Republic Act No. 8791 to the present case violates the equal protection clause of the Constitution. Whether the redemption period provided under Act No. 3135 should apply instead of the period provided under Republic Act No. 8791.
Ruling
The petition is denied for lack of merit. The Decision dated November 19, 2010, and Resolution dated January 31, 2011, of the Court of Appeals in CA-G.R. CV No. 91120 are affirmed.
Ratio Decidendi
On the constitutionality of Section 47 of R.A. No. 8791: The Court held that every statute is presumed valid, and any challenge to its constitutionality must be clear and beyond reasonable doubt. Petitioner failed to establish a clear and unequivocal breach of the Constitution. The purpose of the non-impairment clause is to safeguard contracts from unwarranted State interference, but this does not mean contracts are beyond regulation. Section 47 did not divest juridical persons of their right to redeem but merely modified the time for its exercise by reducing the one-year period. The amendment was not applied retroactively to properties foreclosed prior to its effectivity. On the alleged violation of the impairment of obligation of contracts: The Court found no basis for this contention. Section 47 of R.A. No. 8791 did not change the terms of the contract but rather modified the remedy available for redemption, which is a statutory right. The modification was made in the exercise of police power to ensure the stability and liquidity of the banking system, a legitimate public interest. The freedom to contract is not absolute and must yield to the State's power of regulation for the general welfare. On the alleged violation of the equal protection clause: The Court ruled that the classification between juridical and natural persons in Section 47 of R.A. No. 8791 is reasonable and germane to the purpose of the law. The distinction is based on the nature of the property foreclosed – whether used for residence (retaining the one-year period) or for industrial/commercial purposes (shorter term). This shorter term for juridical persons, often involved in commercial activities, is deemed necessary to reduce uncertainty in ownership and enable banks to dispose of acquired assets sooner, thereby promoting the solvency and liquidity of banks, especially in the context of financial crises. On the applicability of Act No. 3135 versus R.A. No. 8791: The Court clarified that Section 47 of R.A. No. 8791 amended Act No. 3135. While Act No. 3135 provides a one-year redemption period, R.A. No. 8791, enacted later, introduced specific provisions for juridical persons, shortening their redemption period to the registration of the certificate of sale or three months, whichever is earlier. The mortgage contract stipulated that foreclosure could be done in accordance with Act No. 3135, as amended. Since R.A. No. 8791 was already in effect at the time of foreclosure, its provisions, particularly Section 47, govern. The Court emphasized that the right of redemption, being statutory, must be exercised within the prescribed time limits and manner. The Court also noted that the petitioner's attempt to redeem was made after the registration of the certificate of sale, which, under the amended law, extinguished the right of redemption for juridical persons.
Main Doctrine
Section 47 of Republic Act No. 8791, which shortens the redemption period for juridical persons in extrajudicial foreclosure sales, is constitutional and does not violate the impairment of contract or equal protection clauses, as it is a valid exercise of police power for the stability of the banking system.