GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), PETITIONER, VS. THE COURT OF FIRST INSTANCE OF ILOILO, BRANCH III, ILOILO CITY AND NELITA M. VDA. DE BACALING & MARIA TERESA INTEGRAT…

The legal issue presented in this appeal by certiorari is
whether, after the judicial foreclosure of a real estate mortgage and the
confirmation of the sale, the trial court may grant or fix another period for
the redemption of the foreclosed property by the assignee of the mortgagor’s
equity of redemption.

In 1957 a real estate loan of P600,000
payable in monthly installments within a period of ten (10) years  with 7% interest per annum, was granted to
the spouses Ramon
and Nelita Bacaling by the
petitioner, Government Service Insurance System (hereafter GSIS) for the
development of the Bacaling-Moreno subdivision.  To secure the repayment of the loan, the Bacalings executed in favor of the GSIS a real estate
mortgage on four (4) lots owned by them. 
Out of the approved loan of P600,000, only
P240,000 had been released to them by the GSIS as of November 11, 1957.

The Bacalings failed to finish the
subdivision project and pay the amortizations on the loan so the GSIS, on May 22, 1959, filed in the Court of
First Instance of Iloilo a complaint for judicial foreclosure of the mortgage
(Civil Case No. 5233).  During the pendency of the case, Ramon Bacaling
passed away.

In a decision dated October
5, 1960, the court ordered the widow, for herself and as administratrix of the estate of Ramon Bacaling,
to pay the GSIS:

(1) P240,000 with interest at 7% per annum from May 22, 1959 until the amount was fully paid;

(2) to pay the sum of
P21,879.56 as accumulated interests on the debt up to February 11, 1959 plus 7%
interest per annum, from February 12, 1959
until fully paid;

(3) to pay 10% of the judgment as attorney’s fees and costs; and

(4) should she fail
to pay, or deposit with the Clerk of Court, the above amounts within a period
of ninety (90) days from receipt of a copy of the decision, the four mortgaged
lots would be sold at public auction to satisfy the mortgage debt, and the
surplus if any should be delivered to the defendant Nelita
Vda. de Bacaling.  (pp. 12-13, Record on
Appeal.)

Mrs. Bacaling failed to pay the
judgment debt within 90 days after receipt of the decision of the court.  Consequently, the mortgaged lots were sold at
public auction on February 28, 1961.  The GSIS
was the highest bidder at the sale.

On March 1, 1961, the GSIS filed a motion
for confirmation of the sale of
the property to it (p. 25,
Record on Appeal).  On October 10, 1961, it
reiterated said motion and
further asked for a deficiency judgment against
the mortgagor, its bid of P74,558.25 being
inadequate to cover the judgment debt which had swelled to P339,302.58 as of August 31, 1961 (p. 30, Record on
Appeal).

On December 18, 1972,
respondent Maria Teresa Integrated Development Corporation (MTIDC), as alleged assignee of the
mortgagor’s “right of redemption,” filed a “Motion to Exercise the Right of Redemption” (p. 34,
Record on Appeal).  The motion was
granted by the trial court in an
order dated December 20, 1972.  Check No. MK-45594 of the China Banking
Corporation in the amount of P1,100,000 was delivered
by MTIDC to the GSIS as payment of the redemption price.  However, the check was dishonored by the drawee bank because it was drawn against a closed account.

On motion of the
GSIS the court issued on February 3, 1973 an order declaring null
and void the redemption of the property by respondent MTIDC.

Thereafter, written proposals were sent by said respondent to the GSIS for the
redemption of the foreclosed property, but the GSIS required cash payment of
the redemption price.

On October 25, 1975,
respondent Nelita Bacaling
filed a motion to re-open the
case so she could prove the inadequacy of the price of the sale of the
mortgaged property (p. 63, Record on Appeal). 
The GSIS filed an opposition.  In
an order dated December 8, 1975,
respondent court denied Nelita’s motion, confirmed
the sale of the mortgaged property, and rendered a deficiency judgment in favor
of GSIS (p. 76, Record on Appeal).

On December 19, 1975,
fourteen (14) years after the foreclosure sale on February 28, 1961 and almost three (3) years after the
court had annulled on February 3, 1973
its redemption of the foreclosed property, respondent MTIDC filed a motion for
reconsideration of the court’s order and sought the restoration of its right of
redemption.  The court, over the strong
opposition of the GSIS, reconsidered on January
19, 1976 its order of December
8, 1975 and granted MTIDC a period of one year after the finality
of it order of January 19, 1976
to redeem the Bacaling properties (p. 94, Record on
Appeal).

The GSIS sought a reconsideration of that order on the ground
that the court may not extend the period for the redemption of the property (p.
95, Record on Appeal).

On February 12, 1976,
the court modified its order of January
19, 1976 by giving MTIDC one (1) year from January 19, 1976 within which to redeem the Bacaling property, instead of one year
from the finality of the January 19, 1976 order
(p. 101, Record on Appeal).  Petitioner received a copy of this last order on February 12, 1976.

On March 1, 1976,
the GSIS appealed by certiorari to this Court raising purely legal questions (p. 102, Record on Appeal).

In her Comment on the petition for review, Nelita Vda. de Bacaling asked for the dismissal of GSIS’ petition on the
grounds that:  (1) the appeal has become moot and academic because the one-year
redemption period fixed by the trial court had expired without the properties
being redeemed; and (2) the questioned order (dated February 12, 1976) is also
pending appeal in the Court of Appeals (CA-G.R. No. 60842) hence, this case
should be remanded to that Court.

The respondent MTIDC,
in its Comment, alleged the same grounds for the dismissal of the appeal, and
further argued the legality of the lower court’s order because anyway the GSIS entertained and encouraged its
overtures for the redemption of the foreclosed property.

On May 30, 1977,
this Court, through the First Division, gave due course to the petition.

On October 21, 1977,
We denied the motion to remand this appeal to the
Court of Appeals.

After the respondents had filed their Comments, the case was
declared submitted for decision on January
27, 1978.

Considering the long lapse of time that this case has been awaiting adjudication, and apprehensive
that supervening events may have rendered the issues moot and academic, this
Court on September 21, 1988
gave the parties ten (10) days from notice to manifest whether they are still
interested in prosecuting the case.  In a
Manifestation filed November 16, 1988,
the GSIS declared that it is still interested in prosecuting its appeal.

We find merit in the
appeal.  Sections 2 and 3, Rule 68 of the Rules of Court
provide:

“SEC. 2.  Judgment on foreclosure
for payment or sale.
– If upon the trial in such action the court shall find the facts set forth in
the complaint to be true, it shall ascertain the amount due to the plaintiff
upon the mortgage debt or obligation, including interest and costs, and shall
render judgment for the sum so found due and order that the same be paid into court
within a period of not less than ninety (90)
day from the date of the
service of such order, and that in
default of such payment the property be sold to realize the mortgage debt and
costs.”

“SEC. 3.  Sale of mortgaged property; effect. – When the defendant, after being
directed to do so as provided in the last preceding section, fails to pay the
principal, interest, and costs at the time directed in the order, the court
shall order the property to be sold in the manner and under the
regulations that govern sales of real estate
under execution.  Such sale shall not
affect the rights of persons holding prior encumbrances upon the property or a
part thereof, and when confirmed
by an order of the court, it shall operate to divest the
rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may
be allowed by law.” (Underscoring supplied.)

There is no right of redemption
from a judicial foreclosure sale after
the confirmation of the sale, except those granted by banks or banking institutions as provided by the
General Banking Act (Limpin vs.
Intermediate Appellate
Court, G.R. No. 70987, Sept. 29, 1988). 
This has been the consistent interpretation of Rule 68 in a long line of decisions of this Court.

“We may say, furthermore, that this Court has already held that in mortgage foreclosures the rights of the mortgagee and
persons holding under
him are cut off by the
sale, when duly confirmed,
and with them the equity of redemption.  The reason for that holding
is that the
right of redemption being purely statutory, and there being no statute
conferring that right, it does not exist.” (Benedicto vs. Yulo, 26 Phil. 166;
emphasis ours.)

“x x x
When the foreclosure sale is validly confirmed by the court title vests  upon the purchaser in the foreclosure sale,
and the confirmation retroacts
to the date of the sale
(Binalbagan Estate, Inc. vs. Gatuslao,
et al., 74 Phil.
128).  Only foreclosure of mortgages to banking institutions
(including Rehabilitation Finance
Corporation) and those made extrajudicially are
subject to legal redemption, by express provision of
statute, and the present case does not come under exceptions.” (Villar vs. Javier de Paderanga, 97
Phil.
608-609; emphasis ours.)

“Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists.  The law (Sec. 3, Rule
68, Rules of Court)
declares that a judicial foreclosure
sale, ‘when confirmed by an order of the court, x x x shall operate to divest the rights of all the parties to
the action and to vest their rights in the purchaser, subject to such rights
of redemption as may be allowed by law.’ Such rights exceptionally ‘allowed by law’ (i.e., even after
confirmation by an order of the court) are those granted by the charter of the
Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act R. A. 337) (See Noran, Comments on the Rules, 1970 Ed., Vol. 3, p. 273,
citing Gonzales vs. PNB, 48 Phil. 824, 828; and Martin, Rules of Court, etc., 3rd Ed., Vol. 3, p. 278, citing Villar vs. Javier de Paderanga, 97 Phil. 64; Piano vs. Cayanong, 7 SCRA 397). 
These laws confer on the mortgagor,
his successors in interest or
any judgment creditor of
the mortgagor, the right to redeem the property cold on the foreclosure – after confirmation by the court of the foreclosure sale – which right may be
exercised within a period of one (1) year, counted from the date of registration of the certificate
of sale in the Registry of Property.

“But, to repeat, as such right of redemption exists in case of judicial
foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution.  In such a case, the foreclosure sale, ‘when confirmed by an order of the court, x x
x shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser.’ There then exists
only what is known as the equity of redemption.  This is simply the right of the defendant mortgagor to extinguish the mortgage
and retain ownership of the property by
paying the secured debt within the 90-day period after the judgment become final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.” (Limpin vs. Intermediate Appellate Court, G.R. No. 70987, September 29, 1988.)

Since the GSIS is not a bank
or banking institution, its mortgage is
covered by the general rule that there is no right of redemption after the
judicial foreclosure sale has been confirmed. 
Hence, Judge Numeriano Estenzo exceeded his
jurisdiction and acted with grave abuse of discretion in granting the
respondent, MTIDC, another one-year period to redeem the Bacaling
properties over the opposition of petitioner GSIS as mortgagee-purchaser
thereof at the public sale.  His orders
dated January 19, 1976 and February 12, 1976 are null and void.

WHEREFORE, the petition for certiorari is
granted.  The appealed orders dated January 19, 1976 and February 12, 1976 of Judge Numeriano
Estenzo in Civil Case No. 5233 are hereby annulled
and set aside.  Costs
against the private respondents.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Medialdea, JJ., concur.