G.R. No. 78508 March 21, 1994
PHILIPPINE NATIONAL BANK, petitioner, vs. FILEMON REMIGIO and the HON. COURT OF APPEALS, respondents.

FACTS

On August 25, 1967, private respondent Filemon Remigio obtained a P65,000.00 loan from petitioner Philippine National Bank (PNB), secured by a real estate mortgage covering five parcels of land. He defaulted, and PNB extrajudicially foreclosed the mortgage on November 17, 1970, acquiring the properties for P87,082.00. The sheriff’s sale was registered only on October 11, 1972. Remigio made partial redemption payments totaling P40,000.00 between November 18, 1970, and May 17, 1971. On October 21, 1972, Presidential Decree No. 27 (the agrarian reform law) was enacted, covering some of the mortgaged lands. On December 24, 1974, PNB and Remigio executed a Deed of Promise to Sell for P284,000.00 (the appraised market value), and Remigio made further payments totaling P207,243.85 by November 2, 1977. On September 20, 1978, Remigio filed an action for “Annulment of Foreclosure Deed, Breach of Contract, Sum of Money and Damages.” While the case was pending, PNB received from the Land Bank of the Philippines P26,348.12 in cash and P160,000.00 in bonds as payment for the lands covered by P.D. No. 27. The trial court upheld the validity of the foreclosure and the Deed of Promise to Sell, ordering Remigio to pay the balance of P186,874.16. The Court of Appeals reversed the trial court, declaring the foreclosure without force and effect, rescinding the Deed of Promise to Sell, and ordering PNB and Land Bank to recalculate payments in accordance with P.D. No. 27, entitling PNB only to P87,012.00 (the redemption price) and Remigio to a refund of overpayments.

ISSUE

Whether the Court of Appeals erred in: 1) declaring the foreclosure without force and effect due to the application of P.D. No. 27; and 2) limiting PNB’s entitlement to the redemption price of P87,012.00 instead of the market value of P284,000.00.

RULING

The Supreme Court AFFIRMED the decision of the Court of Appeals. On the first issue, the Court held that when P.D. No. 27 took effect on October 21, 1972, the mortgagor’s right of redemption was still subsisting because the one-year redemption period commenced from the registration of the sheriff’s sale on October 11, 1972, and would expire on October 12, 1973. Thus, the foreclosure proceedings were not yet completed, and the lands fell under the operation of P.D. No. 27. The Court cited a Department of Justice opinion stating that P.D. No. 27, as an exercise of police power, prevails over the non-impairment clause of contracts. On the second issue, the Court ruled that PNB is entitled only to the redemption price of P87,012.00 (the amount offered by PNB in its February 15, 1971, letter) plus interest, not the market value, in accordance with Section 20 of the PNB Charter (R.A. No. 1300) and the ruling in Development Bank of the Philippines vs. Mirang. The Court affirmed the appellate court’s order for PNB and Land Bank to recalculate the payments due and for Remigio to be refunded any overpayments.