G.R. No. 98334 May 8, 1992
MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK (formerly Cebu City Savings and Loan Association, Inc.) and TEOTIMO ABELLANA, petitioners, vs. COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA DOLINO, respondents.

FACTS

On October 10, 1974, spouses Andres and Pascuala Dolino, alarmed at losing their right of redemption over a lot previously foreclosed and sold to Juan Gandioncho, obtained a loan of P30,000.00 from Teotimo Abellana, president of Cebu City Savings and Loan Association, Inc. (now City Savings Bank). They executed a promissory note and a real estate mortgage over the same lot as security. When the loan became due and unpaid, the bank extrajudicially foreclosed the mortgage on March 16, 1976. The property was sold at public auction to the bank on April 19, 1976, and a certificate of sale was issued and registered. No redemption having been made, a new title (TCT No. 68041) was issued in the bank’s name on May 24, 1977. On October 18, 1979, the Dolino spouses filed a case for annulment of the foreclosure sale, claiming violations of Act No. 3135. The trial court upheld the validity of the loan and mortgage but annulled the extrajudicial foreclosure sale for non-compliance with notice requirements. It ordered the cancellation of the bank’s title, reinstatement of the Dolinos’ title, and payment by the Dolinos of their loan balance plus interest. The Dolinos appealed partially to the Court of Appeals, contesting the mortgage’s validity. The Court of Appeals modified the trial court’s decision, declaring the real estate mortgage void, reasoning that the Dolinos were no longer owners of the property at the time of the mortgage’s execution, having lost it in the prior foreclosure sale. Petitioners sought reconsideration, which was denied, leading to this appeal by certiorari.

ISSUE

Whether a mortgagor, whose property has been extrajudicially foreclosed and sold, may validly execute a mortgage contract over the same property in favor of a third party during the period of redemption.

RULING

Yes. The Supreme Court reversed the Court of Appeals’ modification and reinstated the trial court’s judgment. The Court held that during the redemption period, the mortgagor retains a legal or equitable interest in the property, which can be the subject of a mortgage. The mortgagor remains in possession and is entitled to the property’s fruits. The right of redemption itself is a substantial right that can be transferred or mortgaged. The Court of Appeals erred in relying on an obiter dictum from Dizon vs. Gaborro and in declaring the mortgage void based on an issue not raised in the complaint or at trial. The Supreme Court further ruled that it could not address the petitioners’ challenge to the trial court’s annulment of the foreclosure sale, as petitioners, being appellees who did not appeal, cannot obtain affirmative relief modifying the judgment against them. The trial court’s decision declaring the mortgage valid but the foreclosure sale ineffective was reinstated.