GR 174329; (October, 2010) (Digest)
G.R. No. 174329 ; October 20, 2010
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs. ENVIRONMENTAL AQUATICS, INC., LAND SERVICES AND MANAGEMENT ENTERPRISES, INC. and MARIO MATUTE, Respondents.
FACTS
On September 10, 1976, respondents Environmental Aquatics, Inc. (EAI) and Land Services and Management Enterprises, Inc. (LSMEI) obtained a loan from petitioner Development Bank of the Philippines (DBP), secured by a real estate mortgage over an LSMEI property. The loan was restructured in 1981. Upon respondents’ default, DBP extrajudicially foreclosed the mortgage on December 19, 1990, and acquired the property as the highest bidder for ₱1,507,000. Respondent Mario Matute, as LSMEI’s assignee, sought to redeem the property by tendering the auction price plus costs.
DBP refused, demanding payment of the entire outstanding loan balance, which had ballooned to over ₱19 million, citing Section 16 of its 1986 Revised Charter (Executive Order No. 81). Matute, EAI, and LSMEI filed a complaint to compel DBP to accept redemption at the foreclosure sale price. The Regional Trial Court ruled in favor of respondents, ordering redemption at the ₱1,507,000 price, a decision affirmed with modification by the Court of Appeals.
ISSUE
Whether the right of redemption should be exercised by paying the foreclosure sale price under Act No. 3135 or the total loan obligation under DBP’s 1986 Charter.
RULING
The Supreme Court ruled in favor of DBP, holding that redemption requires payment of the entire loan obligation. The legal logic is anchored on the application of Republic Act No. 85 , as amended by Republic Act No. 2081 (the DBP Charter in force at the time of the mortgage contract’s execution in 1976), not the later Executive Order No. 81. The Court clarified that the governing law is that which was in effect at the time the mortgage was constituted, as applying a subsequent law to alter the redemption price would unconstitutionally impair the obligation of contracts.
The Court further explained that while the foreclosure procedure is governed by Act No. 3135 , the redemption amount for mortgages in favor of banking institutions like DBP is governed by special laws. Section 31 of Republic Act No. 85 , as amended, explicitly provides that in case of foreclosure, the mortgagor shall have the right to redeem the property “by paying all amounts due to the Bank.” This specific provision prevails over the general rule on redemption price under Act No. 3135 . Therefore, the redemption amount is not merely the bid price but the total claim of the bank. The Court granted Matute a 60-day grace period to redeem the property by paying the loan balance plus interest and expenses from the date of auction.