G.R. No. 83139 , April 12, 1989
Arnel Sy, petitioner, vs. Honorable Court of Appeals, State Investment House, Inc. and The Register of Deeds of Rizal, respondents.

FACTS

Carlos Coquinco executed a real estate mortgage in favor of respondent State Investment House, Inc. (SIHI) to secure a loan. Upon Coquinco’s default, the property was extrajudicially foreclosed and sold at public auction to SIHI on February 10, 1983. Petitioner Arnel Sy subsequently acquired Coquinco’s right of redemption. Before the expiration of the one-year redemption period, Sy tendered to SIHI the auction price plus 12% interest per annum, totaling P851,200.00, based on Act No. 3135 and the Rules of Court. SIHI rejected the tender, insisting the redemption price must be computed under Section 78 of the General Banking Act, which would require payment of the entire outstanding obligation, not just the bid price.
Sy filed an action for consignation, which was dismissed by the trial court. He did not appeal this dismissal. Sy then redeemed the property directly through the Sheriff, who accepted his payment and issued a certificate of redemption. Subsequently, SIHI consolidated its ownership, obtained a new title, and sold the property to third parties. Sy then instituted a new action for annulment of title, which was dismissed by both the trial court and the Court of Appeals. The appellate court held that Sy failed to make a valid redemption under the General Banking Act and that the prior dismissal of his consignation case had res judicata effect.

ISSUE

The primary issue is whether Act No. 3135 (governing extrajudicial foreclosure) or Section 78 of the General Banking Act, as amended, governs the computation of the redemption price for a property foreclosed by SIHI, a financing company.

RULING

The Supreme Court ruled that Section 78 of the General Banking Act, as amended by Presidential Decree No. 1828, is the applicable law. The Court clarified that this provision applies not only to banks but also to “banking institutions,” a category which includes credit institutions like SIHI. The law explicitly mandates that in foreclosures of real estate mortgages executed in favor of such institutions, the mortgagor’s right of redemption is to be exercised by paying the amount due under the mortgage deed, not merely the price at the foreclosure sale. Therefore, Sy’s tender, based only on the bid price and interest, was legally insufficient to effect a valid redemption. The Court affirmed the appellate decision’s finding of no valid redemption, rendering the subsequent issues on res judicata and damages moot. However, it modified the decision by setting aside the award of attorney’s fees, finding that Sy’s action was not brought in bad faith but was a result of a misapprehension of the applicable legal remedy.