G.R. NO. 195540 - Goldenway Merchandising Corporation v.

Equitable PCI Bank

FIRST DIVISION

G.R. NO. 195540 : March 13, 2013

GOLDENWAY MERCHANDISING CORPORATION, Petitioner, v. EQUITABLE

PCI BANK, Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari which seeks to reverse and set
aside the Decision1 dated November 19, 2010 and Resolution2 dated January 31,
2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed the
Decision3 dated January 8, 2007 of the Regional Trial Court (RTC) of- Valenzuela
City, Branch 171 dismissing the complaint in Civil Case No. 295-V -01.

The facts are undisputed.

On November 29, 1985, Goldenway Merchandising Corporation (petitioner)

executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent) over
its real properties situated in Valenzuela, Bulacan (now Valenzuela City) and
covered by Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and T-
214528 of the Registry of Deeds for the Province of Bulacan. The mortgage secured
the Two Million Pesos (P2,000,000.00) loan granted by respondent to petitioner and
was duly registered.4chanroblesvirtualawlibrary

As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed

the mortgage on December 13, 2000. During the public auction, the mortgaged
properties were sold for P3,500,000.00 to respondent. Accordingly, a Certificate of
Sale was issued to respondent on January 26, 2001. On February 16, 2001, the
Certificate of Sale was registered and inscribed on TCT Nos. T-152630, T-151655
and T-214528.5chanroblesvirtualawlibrary

In a letter dated March 8, 2001, petitioner's counsel offered to redeem the

foreclosed properties by tendering a check in the amount of P3,500,000.00. On
March 12, 2001, petitioner's counsel met with respondent's counsel reiterating
petitioner's intention to exercise the right of redemption. 6 However, petitioner was
told that such redemption is no longer possible because the certificate of sale had
already been registered. Petitioner also verified with the Registry of Deeds that title
to the foreclosed properties had already been consolidated in favor of respondent
and that new certificates of title were issued in the name of respondent on March 9,
2001.

On December 7, 2001, petitioner filed a complaint7 for specific performance and

damages against the respondent, asserting that it is the one-year period of
redemption under Act No. 3135 which should apply and not the shorter redemption
period provided in Republic Act (R.A.) No. 8791. Petitioner argued that applying
Section 47 of R.A. 8791 to the real estate mortgage executed in 1985 would result
in the impairment of obligation of contracts and violation of the equal protection
clause under the Constitution. Additionally, petitioner faulted the respondent for
allegedly failing to furnish it and the Office of the Clerk of Court, RTC of Valenzuela
City with a Statement of Account as directed in the Certificate of Sale, due to which
petitioner was not apprised of the assessment and fees incurred by respondent,
thus depriving petitioner of the opportunity to exercise its right of redemption prior
to the registration of the certificate of sale.

In its Answer with Counterclaim,8 respondent pointed out that petitioner cannot

claim that it was unaware of the redemption price which is clearly provided in
Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to
redeem the foreclosed properties from the time it received the letter of demand and
the notice of sale before the registration of the certificate of sale. As to the check
payment tendered by petitioner, respondent said that even assuming arguendo
such redemption was timely made, it was not for the amount as required by law.

On January 8, 2007, the trial court rendered its decision dismissing the complaint
as well as the counterclaim. It noted that the issue of constitutionality of Sec. 47 of
R.A. No. 8791 was never raised by the petitioner during the pre-trial and the trial.
Aside from the fact that petitioner's attempt to redeem was already late, there was
no valid redemption made because Atty. Judy Ann Abat-Vera who talked to Atty.
Joseph E. Mabilog of the Legal Division of respondent bank, was not properly
authorized by petitioner's Board of Directors to transact for and in its behalf; it was
only a certain Chan Guan Pue, the alleged President of petitioner corporation, who
gave instruction to Atty. Abat-Vera to redeem the foreclosed
properties.9chanroblesvirtualawlibrary

Aggrieved, petitioner appealed to the CA which affirmed the trial court's decision.
According to the CA, petitioner failed to justify why Section 47 of R.A. No. 8791
should be declared unconstitutional. Furthermore, the appellate court concluded
that a reading of Section 47 plainly reveals the intention to shorten the period of
redemption for juridical persons and that the foreclosure of the mortgaged
properties in this case when R.A. No. 8791 was already in effect clearly falls within
the purview of the said provision.10chanroblesvirtualawlibrary

Petitioner's motion for reconsideration was likewise denied by the CA.

In the present petition, it is contended that Section 47 of R.A. No. 8791 is

inapplicable considering that the contracting parties expressly and categorically
agreed that the foreclosure of the real estate mortgage shall be in accordance with
Act No. 3135. Citing Co v. Philippine National Bank 11 petitioner contended that the
right of redemption is part and parcel of the Deed of Real Estate Mortgage itself and
attaches thereto upon its execution, a vested right flowing out of and made
dependent upon the law governing the contract of mortgage and not on the
mortgagee's act of extrajudicially foreclosing the mortgaged properties. This Court
thus held in said case that "Under the terms of the mortgage contract, the terms
and conditions under which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or imposed by law."

Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present
case would be a substantial impairment of its vested right of redemption under the
real estate mortgage contract. Such impairment would be violative of the
constitutional proscription against impairment of obligations of contract, a patent
derogation of petitioner's vested right and clearly changes the intention of the
contracting parties. Moreover, citing this Court's ruling in Rural Bank of Davao City,
Inc. v. Court of Appeals12 where it was held that "Section 119 prevails over statutes
which provide for a shorter period of redemption in extrajudicial foreclosure sales",
and in Sulit

v. Court of Appeals,13 petitioner stresses that it has always been the policy of this
Court to aid rather than defeat the mortgagor's right to redeem his property.

Petitioner further argues that since R.A. No. 8791 does not provide for its
retroactive application, courts therefore cannot retroactively apply its provisions to
contracts executed and consummated before its effectivity. Also, since R.A. 8791 is
a general law pertaining to the banking industry while Act No. 3135 is a special law
specifically governing real estate mortgage and foreclosure, under the rules of
statutory construction that in case of conflict a special law prevails over a general
law regardless of the dates of enactment of both laws, Act No. 3135 clearly should
prevail on the redemption period to be applied in this case.

The constitutional issue having been squarely raised in the pleadings filed in the
trial and appellate courts, we shall proceed to resolve the same.

The law governing cases of extrajudicial foreclosure of mortgage is Act No.

3135,14 as amended by Act No. 4118. Section 6 thereof
provides:chanroblesvirtualawlibrary

SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors-in-interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of

trust under which the property is sold, may redeem the same at any time within the
term of one year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty-six, inclusive, of the Code of
Civil Procedure,15 in so far as these are not inconsistent with the provisions of this
Act.

The one-year period of redemption is counted from the date of the registration of
the certificate of sale. In this case, the parties provided in their real estate
mortgage contract that upon petitioner's default and the latter's entire loan
obligation becoming due, respondent may immediately foreclose the mortgage
judicially in accordance with the Rules of Court, or extrajudicially in accordance with
Act No. 3135, as amended.

However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking
Law of 2000" which took effect on June 13, 2000, amended Act No. 3135. Said
provision reads:chanroblesvirtualawlibrary

SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure,

whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody of said
property less the income derived therefrom. However, the purchaser at the auction
sale concerned whether in a judicial or extrajudicial foreclosure shall have the right
to enter upon and take possession of such property immediately after the date of
the confirmation of the auction sale and administer the same in accordance with
law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course only
upon the filing by the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
to an extrajudicial foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which
are allowed to exercise the right of redemption only "until, but not after, the
registration of the certificate of foreclosure sale" and in no case more than three (3)
months after foreclosure, whichever comes first. 16chanroblesvirtualawlibrary

May the foregoing amendment be validly applied in this case when the real estate
mortgage contract was executed in 1985 and the mortgage foreclosed when R.A.
No. 8791 was already in effect?
We answer in the affirmative.

When confronted with a constitutional question, it is elementary that every court

must approach it with grave care and considerable caution bearing in mind that
every statute is presumed valid and every reasonable doubt should be resolved in
favor of its constitutionality.17 For a law to be nullified, it must be shown that there
is a clear and unequivocal breach of the Constitution. The ground for nullity must
be clear and beyond reasonable doubt.18 Indeed, those who petition this Court to
declare a law, or parts thereof, unconstitutional must clearly establish the basis
therefor. Otherwise, the petition must fail.19chanroblesvirtualawlibrary

Petitioner's contention that Section 47 of R.A. 8791 violates the constitutional

proscription against impairment of the obligation of contract has no basis.

The purpose of the non-impairment clause of the Constitution 20 is to safeguard the
integrity of contracts against unwarranted interference by the State. As a rule,
contracts should not be tampered with by subsequent laws that would change or
modify the rights and obligations of the parties. 21 Impairment is anything that
diminishes the efficacy of the contract. There is an impairment if a subsequent law
changes the terms of a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws remedies for the enforcement of
the rights of the parties.22chanroblesvirtualawlibrary

Section 47 did not divest juridical persons of the right to redeem their foreclosed
properties but only modified the time for the exercise of such right by reducing the
one-year period originally provided in Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and expires upon registration of the
certificate of sale or three months after foreclosure, whichever is earlier. There is
likewise no retroactive application of the new redemption period because Section 47
exempts from its operation those properties foreclosed prior to its effectivity and
whose owners shall retain their redemption rights under Act No. 3135.

Petitioner's claim that Section 47 infringes the equal protection clause as it

discriminates mortgagors/property owners who are juridical persons is equally
bereft of merit.

The equal protection clause is directed principally against undue favor and
individual or class privilege. It is not intended to prohibit legislation which is limited
to the object to which it is directed or by the territory in which it is to operate. It
does not require absolute equality, but merely that all persons be treated alike
under like conditions both as to privileges conferred and liabilities imposed. 23 Equal
protection permits of reasonable classification. 24 We have ruled that one class may
be treated differently from another where the groupings are based on reasonable
and real distinctions.25 If classification is germane to the purpose of the law,
concerns all members of the class, and applies equally to present and future
conditions, the classification does not violate the equal protection
guarantee.26chanroblesvirtualawlibrary
We agree with the CA that the legislature clearly intended to shorten the period of
redemption for juridical persons whose properties were foreclosed and sold in
accordance with the provisions of Act No. 3135.27chanroblesvirtualawlibrary

The difference in the treatment of juridical persons and natural persons was based
on the nature of the properties foreclosed whether these are used as residence, for
which the more liberal one-year redemption period is retained, or used for industrial
or commercial purposes, in which case a shorter term is deemed necessary to
reduce the period of uncertainty in the ownership of property and enable
mortgagee-banks to dispose sooner of these acquired assets. It must be
underscored that the General Banking Law of 2000, crafted in the aftermath of the
1997 Southeast Asian financial crisis, sought to reform the General Banking Act of
1949 by fashioning a legal framework for maintaining a safe and sound banking
system.28 In this context, the amendment introduced by Section 47 embodied one
of such safe and sound practices aimed at ensuring the solvency and liquidity of our
banks. It cannot therefore be disputed that the said provision amending the
redemption period in Act 3135 was based on a reasonable classification and
germane to the purpose of the law.

This legitimate public interest pursued by the legislature further enfeebles

petitioner's impairment of contract theory.

The right of redemption being statutory, it must be exercised in the manner

prescribed by the statute,29 and within the prescribed time limit, to make it
effective. Furthermore, as with other individual rights to contract and to property, it
has to give way to police power exercised for public welfare.30 The concept of police
power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in
order to promote the general welfare." Its scope, ever-expanding to meet the
exigencies of the times, even to anticipate the future where it could be done,
provides enough room for an efficient and flexible response to conditions and
circumstances thus assuming the greatest benefits.31chanroblesvirtualawlibrary

The freedom to contract is not absolute; all contracts and all rights are subject to
the police power of the State and not only may regulations which affect them be
established by the State, but all such regulations must be subject to change from
time to time, as the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the non-impairment clause of the Constitution
must yield to the loftier purposes targeted by the Government. The right granted by
this provision must submit to the demands and necessities of the State's power of
regulation.33 Such authority to regulate businesses extends to the banking industry
which, as this Court has time and again emphasized, is undeniably imbued with
public interest.34chanroblesvirtualawlibrary

Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find
no reversible error committed by the CA in holding that petitioner can no longer
exercise the right of redemption over its foreclosed properties after the certificate of
sale in favor of respondent had been registered.

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The
Decision dated November 19, 2010 and Resolution dated January 31, 2011 of the
Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

Endnotes:

1
 Rollo, pp. 36-47. Penned by Associate Justice Isaias P. Dicdican with Associate
Justices Stephen C. Cruz and Amy C. Lazaro-Javier concurring.?r?l??l?br?rÿ

2
 Id. at 86-87.?r?l??l?br?rÿ

3
 Id. at 240-245. Penned by Judge Maria Nena J. Santos.?r?l??l?br?rÿ

4
 Id. at 192-197, 236.?r?l??l?br?rÿ

5
 Id. 198-200, 236.?r?l??l?br?rÿ

6
 Id. at 236-237.?r?l??l?br?rÿ

7
 Id. at 183-191.?r?l??l?br?rÿ

8
 Id. at 211-215.?r?l??l?br?rÿ

9
 Id. at 243-245.?r?l??l?br?rÿ

10
 Id. at 44-47.?r?l??l?br?rÿ

11
 200 Phil. 333, 347 (1982).?r?l??l?br?rÿ

12
 G.R. NO. 83992, January 27, 1993, 217 SCRA 554, 565.?r?l??l?br?rÿ

13
 335 Phil. 914, 928 (1997).?r?l??l?br?rÿ
14
 AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS
INSERTED IN OR ANNEXED TO REAL ESTATE MORTGAGES, approved on March 6,
1924.?r?l??l?br?rÿ

15
 Now Section 28 of Rule 39, 1997 Rules on Civil Procedure.

SEC. 28. Time and manner of, and amounts payable on, successive redemptions;
notice to be given and filed. The judgment obligor, or redemptioner, may redeem
the property from the purchaser, at any time within one (1) year from the date of
the registration of the certificate of sale, by paying the purchaser the amount of his
purchase, with one per centum per month interest thereon in addition, up to the
time of redemption, 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 of the same rate; and if the purchaser be also a creditor having a
prior lien to that of the redemptioner, other than the judgment under which such
purchase was made, the amount of such other lien, with interest.

16
 See A.M. No. 99-10-05-0 Re: Procedure in Extra-Judicial Foreclosure of
Mortgages, August 7, 2001 (Unsigned Resolution).?r?l??l?br?rÿ

17
 People v. Siton, G.R. NO. 169364, September 18, 2009, 600 SCRA 476, 497,
citing Lacson v.

Executive Secretary, G.R. NO. 128096, January 20, 1999, 301 SCRA 298.?r?l??l?br?
rÿ

18
 Beltran v. Secretary of Health, 512 Phil. 560, 588 (2005), citing Basco v.
Philippine Amusements and Gaming Corporation, G.R. NO. 91649, May 14, 1991,
197 SCRA 52, 68 and Yu Cong Eng v. Trinidad, 47 Phil. 385 (1925).?r?l??l?br?rÿ

19
 Id.?r?l??l?br?rÿ

20
 Art. III, Sec. 10 of the 1987 Constitution reads:chanroblesvirtualawlibrary

"Sec. 10. No law impairing the obligation of contracts shall be passed."?r?l??l?br?rÿ

21
 Siska Development Corporation v. Office of the President of the Phils., G.R. NO.
93176, April 22, 1994, 231 SCRA 674, 680.?r?l??l?br?rÿ

22
 Id., citing Clemons v. Nolting, 42 Phil. 702, 717 (1922).?r?l??l?br?rÿ

23
 JMM Promotion and Management, Inc. v. Court of Appeals, G.R. NO. 120095,
August 5, 1996, 260 SCRA 319, 331, citing Itchong v. Hernandez, 101 Phil. 1155,
1164 (1957).?r?l??l?br?rÿ

24
 Abbas v. Commission on Elections, 258 Phil. 870, 882 (1989), citing People v.
Vera, 65 Phil. 56 (1937); Laurel v. Misa, 76 Phil. 372 (1946); J.M. Tuason and Co.,
Inc. v. Land Tenure Administration, No. L-21064, February 18, 1970, 31 SCRA
413.?r?l??l?br?rÿ

25
 Id., citing Dumlao v. Commission on Elections, No. L-52245, January 22, 1980,
95 SCRA 392, 404.?r?l??l?br?rÿ

26
 JMM Promotion and Management, Inc. v. Court of Appeals, supra note 23, at
332.?r?l??l?br?rÿ

27
 Records of the Eleventh Congress showed that the consolidated House Bill No.
6814 and Senate Bill No. 1519 under Conference Committee Report submitted on
April 28, 2000 contained the reconciled Sec 47 that was approved and signed into
law by the President of the Philippines, and became R.A. 8791. Said final version of
Sec. 47 was based on the recommendation made by Senator Franklin Drilon during
the Second Reading of SB 1519 that a distinction be made in the foreclosure of
properties used for residence and those used for business purposes. We quote from
the Record of the Senate during the session of September 14,
1999:chanroblesvirtualawlibrary

"Senator Drilon. x x x

Maybe, the sponsor can consider, at the appropriate time, a provision which would
allow this one-year redemption period by whatever liberal provisions and which
may be incorporated in cases of properties used for residence. But for properties for
commercial or industrial purposes, we may wish to review even the one-year
redemption period because such inability to generate economic activity out of the
foreclosed property for a period of one year can tie up a lot of assets. Maybe, the
committee can consider making distinctions between foreclosure of properties used
for residence and properties used for business." (Record of the Senate, Vol. I, No.
22, p. 569)

28
 Sponsorship speech of the late Senator Raul S. Roco, Record of the Senate,
March 17, 1999, Vol. III, No. 76, pp. 552-559.?r?l??l?br?rÿ

29
 See Mateo v. Court of Appeals, 99 Phil. 1042 (1956).?r?l??l?br?rÿ

30
 Beltran v. Secretary of Health, supra note 18, at 587, citing Vda. de Genuino v.
Court of Agrarian Relations, No. L-25035, February 26, 1968, 22 SCRA 792, 796-
797.?r?l??l?br?rÿ

31
 Basco v. Philippine Amusement and Gaming Corporation, supra note 18, at 61,
citing Edu v. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 487 & 488.?r?
l??l?br?rÿ

32
 Beltran v. Secretary of Health, supra note 30, citing Ongsiako v. Gamboa, 86
Phil. 50 (1950).?r?l??l?br?rÿ
33
 Id., citing Philippine Association of Service Exporters, Inc. v. Drilon, No. L-81958,
June 30, 1988, 163 SCRA 386, 397.?r?l??l?br?rÿ

34
 Asiatrust Development Bank v. First Aikka Development, Inc., G.R. NO. 179558,
June 11, 2011, 650 SCRA 172, 190, citing Banco de Oro-EPCI, Inc. v. JAPRL
Development Corporation, G.R. NO. 179901, April 14, 2008, 551 SCRA 342, 356.