G.R. No. L-21362 November 29, 1968
DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff-appellant, vs. LOURDES GASPAR BAUTISTA, THE DIRECTOR OF THE LANDS and THE NATIONAL TREASURER OF THE PHILIPPINES, defendants-appellees.

FACTS

Defendant-appellee Lourdes Gaspar Bautista obtained a sales patent from the government for a parcel of land, and Original Certificate of Title No. P-389 was issued in her favor. On July 16, 1949, she secured a loan of P4,000 from the Rehabilitation Finance Corporation (RFC), predecessor of the plaintiff-appellant Development Bank of the Philippines (DBP), mortgaging the land covered by the title as security. Bautista defaulted on the loan, leading the RFC to extrajudicially foreclose the mortgage. At the auction sale on June 27, 1951, the RFC acquired the property as the highest bidder. After the redemption period expired, the RFC consolidated its ownership, and the Register of Deeds cancelled Bautista’s title, issuing Transfer Certificate of Title No. NT-12108 in the RFC’s name. Subsequently, an action (Civil Case No. 870) was filed by Rufino Ramos and Juan Ramos in the Court of First Instance of Nueva Ecija against the Government of the Republic of the Philippines and the RFC, claiming ownership of the land and seeking annulment of the relevant certificates of title. A decision was rendered on June 27, 1955, declaring the certificates of title null and void. Notably, Bautista was not made a party to this annulment case. The DBP then filed a complaint against Bautista for the recovery of the unpaid mortgage indebtedness. The lower court dismissed the complaint, holding that the judgment annulling the title could not bind Bautista, as she was not a party to the action and was thus denied due process.

ISSUE

Whether the Development Bank of the Philippines can revive and recover the unpaid mortgage indebtedness from Lourdes Gaspar Bautista after the bank had already satisfied its claim through an extrajudicial foreclosure sale and acquisition of the mortgaged property, when the title to said property was later nullified in a judicial proceeding where Bautista was not made a party.

RULING

No. The Supreme Court affirmed the lower court’s dismissal of the complaint. The fundamental requirement of due process was flagrantly disregarded, as Bautista was not made a party to the action where her title was annulled. Therefore, the judgment of nullity could not bind her in any way. Having already satisfied its claim through the extrajudicial foreclosure and acquisition of the property, the appellant bank could not thereafter seek to revive the same obligation based on the subsequent annulment of the title, considering Bautista was denied her day in court. The principle that no party should be made to suffer in person or property without being heard was controlling. The Court also cited Article 1558 of the Civil Code by analogy, which provides that a vendor is not obliged to make good the warranty unless summoned in the suit for eviction, reinforcing the necessity of being made a party to defend one’s interest. Furthermore, the DBP’s alternative claim for recovery from the Assurance Fund against the Director of Lands and the National Treasurer was denied, as recovery is allowed only upon a showing of no negligence on the part of the claimant, which was not the case here. The judgment appealed from was affirmed.