G.R. No. 101083
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. HON. COURT OF APPEALS AND SPOUSES ARTURO and SUSANA DE GUZMAN, Respondents.

Promulgated: July 8, 1996

FACTS

Spouses Arturo and Susana de Guzman obtained a loan from Metropolitan Bank and Trust Company (Metrobank) secured by a real estate mortgage over their property. They defaulted on the loan. Metrobank extrajudicially foreclosed the mortgage, and the property was sold at a public auction where Metrobank emerged as the highest bidder. A certificate of sale was issued and registered. Within the one-year redemption period, the spouses offered to redeem the property by tendering payment to Metrobank. Metrobank refused the tender, insisting that the redemption price must include 1% monthly interest and 2% monthly penalty as stipulated in the loan agreement, in addition to the foreclosure sale price, expenses, and taxes. The spouses contended that only the foreclosure sale price, expenses, and legal interest were required for redemption. They filed an action for consignation of the redemption price. The trial court ruled in favor of the spouses, ordering Metrobank to accept the tendered amount and execute a deed of redemption. The Court of Appeals affirmed the decision. Metrobank appealed to the Supreme Court.

ISSUE

Whether the stipulated interest and penalty charges in the principal loan obligation form part of the redemption price in an extrajudicial foreclosure of a real estate mortgage.

RULING

No. The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The redemption price in an extrajudicial foreclosure is governed specifically by Act No. 3135, as amended. Section 6 of the law states that the mortgagor may redeem the property “by paying the amount of the purchase price, with interest thereon at the rate of one per centum per month, together with the amount of any assessments or taxes which the purchaser may have paid thereon after purchase, and interest on such last-named amount at the same rate.”

The Court held that the redemption price is limited to the items enumerated in the statute: (1) the purchase price at the foreclosure sale, (2) interest of 1% per month thereon, and (3) taxes or assessments paid by the purchaser with 1% interest. The contractual stipulations on interest and penalty in the original loan agreement are extinguished by the foreclosure sale. The foreclosure is a satisfaction of the indebtedness, and the right of redemption is a new right granted by statute, independent of the original contract. To allow the mortgagee-bank to unilaterally impose additional charges not sanctioned by Act No. 3135 would violate the law and contravene public policy, as it would effectively nullify the mortgagor’s statutory right of redemption by making it financially prohibitive. The one percent (1%) per month interest provided in Section 6 is the sole interest allowable on the purchase price for redemption purposes.